Coming Ruling Seen As Way Out of ‘First-Sale’ Confusion

SAN FRANCISCO -- A coming federal appeals court ruling offers hope for clearing up a legal morass involving the “first sale doctrine,” which defines the rights that the Copyright Act gives those who lawfully acquire entertainment and other works, experts said. But there’s no telling how long the three 9th U.S. Circuit Court of Appeals judges who heard arguments last month will take to decide the cases, said lawyers, including participants in the cases, late Tuesday at a Bar Association of San Francisco seminar. The cases concern applying the first-sale doctrine to the World of Warcraft videogame and to productivity software and promotional music on CDs. In any event, buyers of purely digital works, not on physical media, can’t make use of the right as it’s written, the speakers said.

"The courts really cannot sort out who owns a copy of a copyrighted work,” said Brian Carver, an assistant professor at the University of California, Berkeley’s School of Information. Courts have taken four to six approaches, depending on how they're classified, to challenges by rights owners to actions by customers that Section 109 of the copyright statute seems to allow but that violate stated sales terms, he said. “There has been just a lot of logical confusion in these cases."

Even judges within federal court circuits, including the 9th, use conflicting analyses, said Carver, who has an article about the doctrine coming out in the Berkeley Technology Law Journal. The varying approaches are on a “continuum” bracketed by the positions that the decision turns on either a right holder’s statement that it retains ownership forever or a recognition that a customer’s right to “perpetual possession” amounts to ownership, he said. Carver said he supports the “economic realities” theory favoring customers.

The U.S. Supreme Court’s 1908 decision in Bobbs-Merrill v. Straus supports this customer-friendly position but is rarely cited in modern rulings, Carver said. Blake Lawit of the Howard Rice law firm said the decision doesn’t apply to the current cases because the publisher was trying to impose restrictions after the sale. He represents Autodesk, which is appealing a summary judgment ruling last year by District Judge Richard Jones in Seattle against the company and in favor of Timothy Vernor. He was using eBay to resell, in violation of license terms, a copy of Autodesk’s expensive AutoCAD design software that he had bought in an architecture firm’s furniture sale. The 9th Circuit consolidated the case with the other two at the company’s request.

The digital revolution has thrown first sale into an “identity crisis,” said Tony Falzone, executive director of Stanford Law School’s Fair Use Project. Section 109 is “inadequate when it comes to building a digital library,” because that requires duplicating copyrighted works, and the first-sale doctrine doesn’t go that far in limiting content owners’ rights, he said.

"I don’t think it works at all” in a world of downloads, Falzone said. “A digital equivalent to what we all know we can do in the analog world” is needed, but there’s no reason to think that Congress will add it to the Copyright Act, he said. “Maybe it’s the common law that needs to step in,” Falzone said, suggesting that judges carve out a new first-sale doctrine for digital works not in physical media. “You're going to create some real damage” if the door opens to unlimited copying, he acknowledged. Digital rights management could help, Falzone said, adding that he’s not as hostile to copy protection as other fair-use advocates. “Maybe you can create exploding digital copies.” Lawit said the “mess” is of the kind “that classically would call for a legislative solution,” but he agreed that it probably isn’t coming.

"There are really important constitutional considerations at stake” -- because information “access and dissemination are involved” -- in allowing contracts to “control important digital right,” Falzone said. The World of Warcraft case, MDY Industries v. Blizzard Entertainment, is worth an especially close look, because it involves “a copyright owner telling” a consumer “what software she can put on her computer and run,” he said. Judge David Campbell in the Arizona district ruled in 2008 that Blizzard could enforce its license agreement and terms of use against MDY’s WowGlider software, which Durie Tangri lawyer Joe Gratz characterized in the seminar as a tool for “cheating” in the game. Gratz represents Troy Augusto, whose 2008 victory in the Los Angeles court of Judge James Otero is being appealed by Universal Music Group. Augusto had been buying promotional CDs in Los Angeles and reselling them on eBay, contrary to a restriction on the labels.

"It’s really hard to claim that you're doing any harm” to copyright’s underlying policy of encouraging creativity by allowing a business like Augusto’s, Falzone said. But “Vernor gets a little harder” to decide against the rights holder, and MDY really “starts to get a little tough,” because it involves Blizzard’s effort to protect the integrity of its game, he said.