Would you sell your Kindle to sell a used book?

December 23, 2010: 12:18 PM ET

A recent Supreme Court decision, confusing Copyright Office rules and Amazon's Kindle policies all indicate that the only way consumers will ever get to resell "used" ebooks may be to sell their hard drives, too.

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By Seth Greenstein, contributor

The holiday season is upon us, and with it thoughts of peace on earth, goodwill... and the latest electronic media.  Visions of Kindles and Kinects dance in children's heads (and no doubt yours as well), and iTunes store cards invitingly peek from stocking tops.  But as consumers embrace digital media, businesses and courts grapple with a question that has proved as elusive as it is essential:  when you "buy" an e-book, an MP3, or a downloaded TV show or movie, what do you really "own"?

With paper books and plastic discs, the answer was obvious, courtesy of a legal principle known as the "first sale" doctrine.  Put simply, under the first sale doctrine, a copyright owner can't control what consumers do with a lawfully made copy of a copyrighted work after it's been sold.  This idea has had a pervasive impact on individuals, commerce, and society. It enables libraries to lend books, museums to display art works, and Blockbuster (BBI) and Netflix (NFLX) to rent DVDs.  Online aftermarket sellers, such as on eBay (EBAY) and Amazon.com (AMZN), rely on the first sale doctrine to offer new and used copyrighted goods.  Retailers can sell CDs, DVDs, books, and video games below suggested prices because the first sale doctrine prevents manufacturers from controlling prices.  And every time you give a book to a relative, purchase a used textbook, or buy classic vinyl at a yard sale, you benefit from the first sale doctrine.

The economic implications of the first sale doctrine are enormous.  According to Commerce Department figures, video rental in the United States is a $9.5 billion industry.  Video game retailer GameStop (GME) reported nearly $2.4 billion in 2009 revenue from used game sales. Considering that, in just a few years, Apple (AAPL) has sold more than 10 billion music downloads, 3 billion apps, and 375 million television episodes, the future impact of the first sale doctrine could be huge.

But "first sale" is under fire in the digital world.  Created in an era of physical copies, the doctrine historically applied only to tangible copies of copyrighted material.  In the context of a downloaded book or music file, the Copyright Office suggests that first sale rights could be limited to the medium used to make the copy.  In other words, to resell your digital downloads, you must also sell your hard drive, ebook reader, or iPod.

Even those rights may be trumped by the seller's terms of service, which you "click" to agree when you make a purchase.  The iTunes music store limits use of purchased music to five computers.  Barnes and Noble's (BKS) "Nook" ereader allows ebook lending only through its own authorized service.  Another music site, eMusic.com, would override first sale rights and disallow providing any downloaded music files "to any other party or through any other means."  One early music service even prohibited passing a downloaded music collection to your creditors in bankruptcy or your heirs upon death.  With such a diverse array of restrictions, not surprisingly eBay's policies generally disallow listing digitally-delivered content.

On December 13th, the Supreme Court missed an opportunity to provide much-needed clarity.  The Court split evenly, 4-4, in Costco Wholesale Corp. v. Omega, S.A., which left standing a lower court case that the first sale doctrine applies only to copies manufactured in the United States.  While this does not finally decide the issue, it allows the lower court decision to stand, which means any copyright owner can defeat first sale rights merely by moving disc or book replication offshore.

Recently, a California appeals court grappled with an equally vexing question for the digital marketplace:  what is a "sale"?  In a case brought by software developer Autodesk against an individual seller on eBay, the court determined that copies of software are licensed, not sold, and therefore exempt from the first sale doctrine.  The same court is now considering whether CDs marked "promotional use only" sent to record reviewers are owned by the scribes or licensed by the record label.  Why is this relevant?  Read the Kindle terms of service, which inform that you only bought a "license" to an ebook which you may not lend or sell.

Perhaps it is ironic that the very flexibility that makes digital technology so compelling – the ease of copying and transmission – in the end may deprive consumers of basic economic rights they have enjoyed for centuries.  Perhaps the greater control digital technology affords content owners will convert all digital purchases into temporary licenses to use.  Regardless, at some point the holidays will be over, and today's 20-somethings will look at thousands of dollars spent on downloaded music, videos, games, and ebooks, and wonder what it means to "own" in a digital world.

Seth Greenstein is a partner in the law firm Constantine Cannon LLP.

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