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The First Sale Doctrine and Evolving Technologies
By: Mitchell D. Kamarck
Periodical: The Multimedia Law Report
Date: May 1996 / Volume 2, Number 7
UP
FRONT
First
Sale Doctrine:
Mitchell Kamarck discusses some alternatives that we must
assess before entering the twenty-first century world of unparalleled
rights and abilities. How
should the copyright law be reconfigured to properly address the new
possibilities presented by emerging technologies?
*
* *
As
we stretch past the horizon into the post-linear media age, copyright
law will, necessarily, reconfigure to meet the contours of the
multimedia landscape. Simultaneous
with our trek into the post-linear media age is our ascent into the
world copyright community - a world fraught with divergent cultural
values. This brave, new
world will result, on the one hand, in an unparalleled ability to
copy, alter and manipulate a work while, on the other hand, the
artists will have unparalleled rights in controlling how their works
are displayed and used.' In
the short while before we enter this twenty-first century world of
unparalleled rights and abilities, we must assess how best to
reconfigure copyright law to properly address the new possibilities.
One
copyright doctrine that requires close examination is the rental right
component of the First Sale Doctrine, a doctrine that has been
reconfigured on various occasions to meet demands of changing
technology. The question
is not whether the rental right will be reconfigured yet again to meet
the demands of new technology, but whether it should be retained at
all in the post-linear media age.
First
Sale Doctrine
The
First Sale Doctrine entitles the owner of a particular copy of a work
to dispose of that copy in any manner the owner chooses without
violating the copyright owner's exclusive right to distribute one's
work.2
Thus, the purchaser of a work may sell,
lease, loan, or give away the copyrighted work as he or she could do
with any other piece of personal property.3
The rental component of the First Sale
Doctrine gave birth to various rental industries, the most prominent
being the rental market for motion pictures on videocassettes.
The underlying presumption to the First Sale Doctrine is that a
copyright owner is able to realize the full value of a copy of the
work upon the first sale of that copy.4
As
technology changed, the basic presumption that a copyright owner will
realize the full value of a copy of the work upon the first sale
became inapplicable in various situations. For instance, in 1984,
Congress began to tackle the problems created by the rental and
copying of phonorecords. By
1984, there were approximately 200 commercial record rental
establishments that rented phonorecords for 24 to 72 hours for fees of
$.99 to $250 per phonorecord, which resulted in widespread copying of
phonorecords.5
In order to preserve the copyright owner's
reproduction and distribution rights, Congress enacted the Record
Rental Amendment of 1984:
The direct link between the
commercial rental of a phonorecord and the making of a copy of a
record without the permission of or compensation to the copyright
owner is the economic and policy concern behind this legislation.
The Subcommittee has found that the nexus of commercial record
rental and duplication may directly and adversely affect the ability
of copyright holders to exercise their reproduction and distribution
rights under the Copyright Act.6
The
Record Rental Amendment of 1984 provided that any "act or
practice in the nature of rental, lease or lending" of a
phonorecord, subject to certain limitations, constituted an act of
copyright infringement.7
Computer
Programs.
Six years later, Congress realized that the copyright owners of
computer programs were not realizing the full value of their programs
in the first sale of such programs because such programs could be
readily copied. In 1990,
Congress enacted the "Computer Software Rental Amendments
Act,"8 which
created a rental prohibition for "computer programs"9
to counter the ability of users to make perfect
copies of computer programs.10
Congress recognized that software
manufacturers had been unable to develop adequate safeguards to
prevent illegal copying.11
Thus, the copyright owners in computer
programs were allowed to retain the "rental" right their
programs even after the programs were sold to the public.12
Acknowledging
the necessity to curtail the First Sale Doctrine as it was applied to
computer programs, Congress also recognized that such programs have
become an integral part of nearly every electronic device such as
"automobiles, personal computers, telefaxes, charter airplanes,
apartment houses and condominiums."13
Thus, Congress did not extend the Computer Software Rental
Amendments Act's rental right exception to computer programs embodied
in machines or products "and which cannot be copied during the
ordinary operations or use of the machine or product."14
Likewise, the rental right exception does
not extend to computer programs that are used or embodied "in
connection with a limited purpose computer that is designed for
playing video games and may be designed for other purposes."15
First
Sale Doctrine: Evolving
Issues
Although
Congress labored over the language employed in the Computer Software
Rental Amendments Act to address the growing use of computer programs
in everyday life, application of the Act to current technology, let
alone emerging technology, remains unclear. For instance, whether an
owner of a CD-ROM16 may
rent the CD-ROM to the public is open to debate. Certain video rental
stores have taken the position that CD-ROM rental is permissible;17
others view it as impermissible.18
In the Acting Register of Copyrights
Report ("The Computer Software Rental Amendments Act of 1990: The
Nonprofit Library Lending Exemption to the Rental Right"), the
Acting Register suggests that the Computer Software Rental Amendments
Act applies to CD-ROMs if the search and retrieval software on the
CD-ROM "is essential to gain access to the material stored on a
CD-ROM."19
Currently
the question whether a CD-ROM is "rentable" is financially
insignificant;20 however,
within a year, motion pictures will be available on DVD or digital
video discs.21 The
recently issued Commerce Department "White Paper" failed to
recommend that digital programming, including DVD, be exempted from
the First Sale Doctrine.22
It is equally unclear whether such
digital programming will fall under the two existing exceptions.
The
bright line distinction between works that are subject to the First
Sale Doctrine and those that are not becomes blurred as we develop
hybrid products that are capable of serving multiple functions such as
CD-ROM and DVD. For
instance, in the case of CD-ROMs, the application of the First Sale
Doctrine may depend upon how vital the accompanying computer program
is to the proper use of the CD-ROM.23
Likewise, the application of the First
Sale Doctrine to DVD titles may depend on the extent computer programs
are utilized for the retrieval of information on the DVD.24
For instance, it will be possible to program a
DVD to permit the consumer to view the motion picture in either a
regular format or box-letter format, with or without sub-titles, or
with or without the musical score.25 By making a computer program essential
component to a DVD title, the copyright owner can argue, pursuant to
the Computer Software Rental Amendments Act, that the DVD title is
exempt from The First Sale Doctrine. Additionally, if the DVD can also
serve as a music CD, the seller can argue that the DVD is exempt from
the First Sale Doctrine by the Rental Record Amendment of 1984. In the
age of multimedia, the creator of a DVD has many tools with which to
evade the rental right of the First Sale Doctrine.
Additionally,
the distinction between works subject to and exempt from the First
Sale Doctrine will become more difficult to distinguish by the fact
that, in the future, the same platform will be used to play and record
the different type of works. In the very near future, the same
platform will play DVD, CD-ROM, and music CD, and manufacturers will
offer complete systems allowing in-home recording of both motion
pictures and music on disks.26
Thus, although the technology will be
available to copy both music CDs and motion picture DVDs, the law may
only protect the artists' right to control The disposition of his or
her work in a music CD and not in a motion picture DVD.
Finally,
in evaluating the continued viability of the rental right contemplated
in The First Sale Doctrine, we must examine the global ramifications.
Although the United States has chosen to carve out exceptions to the
First Sale Doctrine, most Western European countries have reverted to
a system in which the artist owns the rental rights in his or her
work.27 Furthermore,
under GATT, the United States must abolish the First Sale Doctrine for
"cinematographic works" if there is evidence of widespread
consumer copying.28
Although the Working Group on Intellectual
Property Rights did not recommend the abolishment of the First Sale
Doctrine, the chair of the Working Group recognized that there was an
advantage in abolishing the doctrine because of the pressure from
European trading partners whose suppliers collect royalties, and want
the United States to adopt a similar system.29 By clinging to the First Sale Doctrine,
the United States falls increasingly out of step with the world
copyright community.
Emerging
Technologies
With
the advent of the post-linear media age, the rental right contained in
First Sale Doctrine becomes increasingly archaic and unusable. Because
of the potential of technology, the rigid application of the First
Sale Doctrine can be easily evaded by the copyright owner. For
instance, a copyright owner could sell a motion picture on DVD in two
formats, one rentable and one non-rentable. The first format would be
simply the motion picture in regular television screen format, without
any potential for change of format. This format would be sold to the
rental market. A second format, designed for the sell-through market,
would include the ability to choose between: letterbox and television screen proportions, subtitles
various languages, and watching the motion picture or listening to the
soundtrack. Ironically,
the sell-through version of the DVD motion picture would offer the
most options but cost less because the copyright owner would not need
to capture the loss in rental income in the purchase price.
Thus,
even though the video rental industry has fought tirelessly for the
continued application of the First Sale Doctrine to DVD titles, that
victory may result in rental versions of DVD titles with a higher
price and less options than the sell-through versions of the same
titles. Therefore, the continued reliance on the First Sale Doctrine
and its mechanical application may, in fact, ring the death knell for
the rental market. Moreover, as the world community has largely
abandoned the First Sale Doctrine, its continued viability for the
sake of a single industry must be questioned.30
As
we move into the post-linear media age, it is time to restore the
rental right to the copyright owner instead of continuing to apply the
First Sale Doctrine in a piecemeal and reactive manner.
The rental right contained in First Sale Doctrine is a dinosaur
that is entitled to a quick and dignified death rather than the slow
amputation of its useless extremities.
Mitchell
D. Kamarck, of counsel to Rosenfeld, Meyer & Susman, LLP,
in Beverly Hills, California, specializing in intellectual property
and entertainment-related litigation. Mitchell also teaches a course
entitled Television Law & Practice and Policy at California State
University - Los Angeles. He can be reached by email at mkamarck@rmslaw.
com.
Our Litigation
Department specializes in civil litigation at all levels of the
judiciary, and has wide-ranging experience in litigating business,
commercial and entertainment-industry related matters. We have
extensive experience in accounting and partnership, antitrust, and
securities and corporate litigation. Additional areas of emphasis
include copyright and intellectual property, real estate and products
liability litigation as well as in the appellate practice.
Rosenfeld, Meyer & Susman was founded in 1957.
The Firm’s areas of expertise include: Labor and Employment
Law, Litigation, Corporate, Entertainment, Trusts and Estates,
Taxation, Family Law, Insurance Coverage and Defense, Real Estate and
Employee Benefits.
______________________________________________________________________________
1
See,
Symposium, “Electronic Communications and Legal Change: Intellectual
Property Rights for Digital Library and Hypertext Publishing
Systems,” 6 Harv. J.L. & Tech. 237, 237-40 (1993). (Return
to article)
2
See,
17 U.S.C. §1O9(a) (1992) which reads in pertinent part: “the owner
of a particular copy or phonorecord lawfully made under this title ...
is entitled, without authority of the copyright owner, to sell or
otherwise dispose of possession of that copy or phonorecord.”
(Return to article)
3
See,
H R Rep. No. 735, 101st Cong, 2d Sess. 4 (1990)
(Return to article)
4
See,
Paul Goldstein, Copyright, Second Edition (1996) section 5.6.l(c).
(Return to article)
5
See,
H R Rep. No. 987. 98th Cong., 2d Sess. 2 (1984).
(Return to article)
6
Id.
(Return to article)
7
17 U.S.C. §. Because section 109(b) covers only
“phonorecords,” it does not apply to the music on the soundtrack
for a motion picture. Despite
the language of the Copyright Act, certain games manufacturers have
taken the position in the past that employing copyrighted music in
their games prevents the legal rental of computer games.
See, “CD Videos Could Revive First Sale Doctrine
Fight, Video Week, October 11, 1993.
(Return to article)
8
One significant difference between phonorecords and
computer program exceptions to the First Sale Doctrine is the
phonorecords exception applies only to “the owner of a particular
phonorecords” while the computer program exception applies to “any
person in possession of a particular copy of a computer program.”
17 U.S.C. § 109(b). However,
in the Information Infrastructure Task Force noted in Intellectual
Property and the National Information Infrastructure:
The Report of the Working Group on Intellectual Property Rights
(hereafter “The White Papers”); “files containing works can
include instructions used solely to govern or control distribution of
the Work.” Id.
at 190.
(Return to article)
9
The Copyright Act defines a computer program as
“a set of statement or instructions to be used directly or
indirectly in a computer in order to bring about a certain result.”
17 U.S.C. § 101.
(Return to article)
10
See,
Jeff Borden, “Software Cops Take A Byte Out Of Crime,” Crain’s
Chicago Business, (Jan. 28, 1991)(software industry is the “only
industry that empowers every customer to become a manufacturing
subsidiary”). However,
in the Information Infrastructure Task Force noted in Intellectual
Property and the National Information Infrastructure:
The Report of the Working Group on Intellectual Property Rights
(hereafter “the White Papers”): “files containing works can
include instructions used solely to govern or control distribution of
the Work. Id. at 190.
(Return to article)
11
See,
Acting Register of Copyrights, “The Computer Software Rental
Amendments Act of 1990: The
Nonprofit Library Lending Exemption to the ‘Rental Right,’” 41
J. Copyright Soc’y 231, 236-37 (1994)(hereinafter
“Register’s Report”).
(Return to article)
12
Congress did extend the rights of the owner of a
copy of computer program to make a copy or adaptation of the program
as an “essential step” in using the computer program in a computer
or for archival purposes. 17
U.S.C. §117.
(Return to article)
13
Computer Software Rental Amendment Act (H.R. 2740,
H.R. 5297 and S. 198); Hearing Before the Subcomm. on Courts,
Intellectual Property, and the Administration of Justice of the House
Comm. on the Judiciary, 101st Cong. 2d Sess. (1990) (statement of Rep.
Kastermeier).
(Return to article)
14
17 U.S.C. §109(b)(1)(B)(i)
(Return to article)
15
17 U.S.C. §109(b)(1)(B)(ii). “[M]ay be designed for other purposes” is “intended to
refer to other limited uses and would not apply to a computer program
embodied or used in conjunction with a general purposes computer that
is also capable of being used to play video games.”
H.R. Rep. No. 735,
101st Cong. 2d Sess. 9 n.12 (1990).
(Return to article)
16
CD-ROM (Compact Disc-Read-Only-Memory) is a genesis
format for storing digitally encoded data.
(Return to article)
17
Drew Stevens “To CD or Not to CD,” May 1995 VSM
at 48. In that article,
the president of Minneapolis-based Video Buyers Group estimated that
10 to 15 percent of the group’s 1,200 stores were stocking CD-ROM
for rental.
(Return to article)
18
See
15 Video Business at 1 (April 14, 1995)(“The First Sale
Doctrine does not apply to computer software, which includes CD-ROM or
to music CDs”).
(Return to article)
19
Register’s Report at 290.
Thus, whether someone may rent a CD-ROM may depend on the
importance of the software on the CD-ROM - a determination that the
owner may not be in a position to make.
(Return to article)
20
Drew Stevens “To CD Or Not To CD” at 48.
(Return to article)
21
DVD is a single high-density CD used to store
movie-length video with picture quality characterized as better than
laserdisc and digital audio surround sound.
Two groups of software and hardware manufacturers plan to begin
selling DVD and players next year.
(Return to article)
22
In the preliminary “Green Paper” report,
“Intellectual Property and the National Information
Infrastructure,” the Commerce Department raised the possibility that
DVD would be exempted from the First Sale Doctrine.
Even after the issuance of the final “White Paper” report,
there is confusion whether digital formats would be exempted from the
First Sale Doctrine. Even after the issuance of the final “White Paper”
report, there is confusion whether digital formats would be excluded
from the First Sale Doctrine. The
Los Angeles Daily Journal, for instance, reported that the White
Paper recommended the “eliminat[ion] [of] the ‘first sale
Doctrine’.” See, Los Angeles Daily Journal, September 20, 1995 at
p. 1. However, Bruce
Lehman, the chairman of the Commerce Department Working Group on
Intellectual Property Rights (which prepared the White Paper), stated
after the issuance of the report that “[w]e have no intention,
either domestically or internationally,” to propose changes to the
First Sale Doctrine. See
Video Business, September 15, 1995 at p. 16.
(Return to article)
23
As early as 1993, there were questions whether CD
games that included previously recorded music was exempt from the
First Sale Doctrine. See
“This Weeks News,” Video Week, Vol. 14 No. 39, October 11,
1993 (“SEGA has some CD games that include music from Sony artists
and believes music copyrights prevent their rental”).
(Return to article)
24
According to USA Today, a DVD could hold
“[a[n entire film in both letterbox- and TV-screen proportions,
sound-tracks in up to eight languages, stereo and digital surround
sound, plus additional footage.”
USA Today, January 3, 1996, p.2A.
(Return to article)
25
Additionally, the manufacturer could also provide
software that would permit the DVD be used as
music CD of the music soundtrack.
With this approach, the manufacturer could seek protection
under both the Recorded Rental Amendment of 1984 and the Computer
Software Rental Amendments Act.
(Return to article)
26
See,
Lawrence B. Johnson, “The Digital Disk is (Almost) Here,” New
York Times, September 10, 1995.
(Return to article)
27
See,
Directive 92/100/EEC, OJ No. L 346/61 (27 Nov. 1992). See also, Paul Sweeting, “Wake Up Call,” January
1995 VSM at 16 (“A First Sale Doctrine permitting the rental
of movies on video in the U.S. is rapidly becoming a worldwide
anomaly”).
(Return to article)
28
See,
Paul Sweeting, “Wake Up Call” January 1995 VSM at 16.
(Return to article)
29
See,
Peter Nichols, “Home Video” March 24, 1995 New York Times
at 17.
(Return to article)
30
By abolishing it, the developing grey areas
disappear and the marketplace solves the problems relating to the
rental of works. As the
European countries have already ventured down this path, the United
State’s distributors and retailers can simply adopt the royalty
collection system employed in Europe.
Alternatively, the retailers could use a modified
“shrink-wrap license” approach: selling a low-priced DVD or
videocassettes of a motion picture in the sell-through market with a
license permitting the rental of the DVD and selling a higher priced
version for the rental market. The
difference between the sell-through and rental market versions would
be signified by the color of the DVD as the rental market version
would always be a black disc while the sell-through version would
always be a color.
(Return to article)
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