24 March 2013

Licentiousness (and Kirtsaeng)

The Kirtsaeng decision is going to have some interesting effects on the transmittal of copies of copyrighted material in the next few years. Unfortunately, this time I really do mean "interesting" in the sense often used in graduate seminars when commenting upon a paper that seems more clever than thoughtful, more rhetorically elegant than analytically sound. It all revolves around the distinction between a license and a sale.

At the user level, this will have an obvious and immediate impact on e-book "sales"... or licenses. This has already been a problem, as when Amazon snatched back copies of 1984 that were paid for by its customers; it is only going to get worse. Then, too, there's the vendor-lock-in problem unique to media and electronic products: Vendors' assertion that transfer of a copy of noninteractive content is only a license, and that therefore it may not be moved to a different device (let alone a different type of device). These are both hard questions that I think — I'm willing to be convinced otherwise, but my research and reflection leads me here — narrowly reject treatment of noninteractive, nonalterable copies of content transmitted to the end-user as a mere license. The obvious problem with this position is that it does not present a bright-line rule that lawyers can't argue about... but then, neither did the Choose Your Own Adventure books, or indeed any user-directed work (such as certain "reinforce-the-concept" test manuals from the 1970s).

And now things get really interesting and technical, and split in multiple directions.

The first question that one must ask is a seemingly simple one: At what point in the copyright chain may (and, further, must) an IP transaction be treated as a license, and at what point a sale? Keep in mind that the Copyright Act of 1976 — without ever using the word — treats the creator-distributor (I'd say "author-publisher," but that's too narrow) transaction as a license by default with a sale possible through certain formalities (either treatment as work for hire or a formal transfer of the copyright itself and not just certain rights provided by copyright). This is bad writing and bad thinking, but that's only to be expected for the Copyright Act. One can hardly claim, though, that this is a unique-to-US-law problem, as it is also a problem in the national laws of the European nations, the Commonwealth, the former Soviet states, and Japan — and the Berne Convention, for that matter. This problem has been perpetuated by the less-than-sophisticated treatment and rhetoric of the literary-agent community, aided and abetted by publishers and what passes for a publishing press, in referring to author-publisher transactions as "sales" without regard to the particular transaction. The increasing imposition of book packagers into this process — and that's the best way, both legally and artistically, to characterize James Patterson et al. — further confuses the nature of the transaction.

What this means is that at some point in the chain between author and reader, a licensing transaction1 must be converted to a sales transaction for the first sale doctrine (17 U.S.C. § 109) to apply. There's already pretty substantial case law in the Courts of Appeals indicating that copies of software, transferred under license, do not trigger a first sale,2 and that the licensor can continue to control downstream transactions in those copies. The critical fact in these cases, though, is that they all relate not to static content, but to tool systems; the purported "license" found on VHS tapes and DVDs has already been found unenforceable in most circumstances. Chapter 12 of the Copyright Act — the undoubtedly bad part prohibiting removal of DRM — just confuses things further; it's arguable that the peculiar format of the AZW3 (Amazon e-book) file itself constitutes nonremovable DRM, therefore prohibiting transfer to a device or using a software reader that is not Amazon-approved. In any event, for the first-sale doctrine to apply, at some point the copyright license must be converted to a sale. The flip side of that transfer — what if an intermediary doesn't want it to be a sale? — casts some flickering, unreliable light on the problem.

A couple of examples might help illuminate (or, perhaps, merely confuse) the matter.

  • First, consider used bookstores for old-fashioned (snort!) ink-on-dead-tree books. If one applies the license-is-not-a-sale meme, then all that should be necessary to entirely destroy used bookstores as a market is an enforceable declaration by the publisher that copies are transferred to readers only as licenses, not as sales. The hard part is making that declaration enforceable; I think there are a few hundred too many years of tradition in treating these as sales for this to be enforceable short of a statutory change, and that runs into First Amendment problems... especially for derivative works, and works commenting on other works as fair use.
  • Second, consider a slightly narrower used bookstore problem: That for textbooks, which almost uniformly do not start off as licenses, but as actual sales (due to the formalities of industry custom). On the one hand, it seems abstractly "fairer" for the party that really does own, and always has owned, the entire bundle of rights in a textbook to be able to specify that it is transferring only a license with a copy rather than ownership of a copy. On the other hand, that "fairness" inquiry just brings us back to the question of who has the power to define a transaction's nature.
  • Third, consider the terms of a license. Is a shrinkwrap license on noninteractive content enforceable in the first place?3 In particular, is such a license that alters the social assumptions and norms of what is being transferred, and how, enforceable? This is not an easy question, because I do not think there is an abstract rule that applies; at best, there are norms and standards, and that's precisely what we're trying to judge in the first place. Then, too, since the law of sales and the law of licensing are, in the US, almost exclusively matters of state law, one very well might get a different answer in Connecticut than in Pennsylvania, let alone California.
  • Fourth, consider the implicit interplay between fair use and the first sale doctrine. With footnotes and at length (when I tried to outline a satisfactory introductory piece in the wake of Vernor on this, I couldn't get below 10-12,000 words). The key point is this: If one takes the wording of section 107 seriously, the nature of access to the source work should be a significant factor in any fair-use analysis; that is, it should matter a great deal whether the source work became available to the reuser (who is seeking fair use status for her purported derivative work) via a sale or via a license, because that should have significant implications under the first and fourth fair-use factors... and probably even more implications under the nonstatutory fifth fair-use factor (administrative convenience).

The second question that one must ask is seemingly far from copyright law, and instead arises from consumer protection law: How much notice must a consumer end-user have that he/she is receiving only a license, and not title to the copy in his/her hands? And does that matter when the transfer is a business-to-business transaction outside the scope of a particular state's consumer-protection laws, such as when a law office buys a copy of a treatise on copyright?4 Most particularly, how much notice must that consumer/end-user have when the vendor's status assertion is inconsistent with ordinary consumer/end-user expectations... and when? Kirtsaeng does not, and cannot, answer these questions, for a very simple reason: Mr Kirtsaeng, while he may have been offering goods for sale to the general public, is a second-order vendor; we can't figure out what his rights were without knowing the rights of the first-order vendor — in Bangkok.

Thus, however much we try to simplify the purported "principles" of Kirtsaeng, we're left with more questions than we started with regarding future transactions. That is, perhaps, as it should be — it points out rather emphatically that sometimes stare decesis presumes stagnation in the face of rapid change in context. For individual-access transactions, the rapidity of change is built in... and that's particularly ironic given Kirtsaeng's origin in the world of textbooks with commercially driven, artificially rapid edition changes intended largely to repress the market in used texts.

  1. One of the subtle complications here is that some of these transactions — specifically including most or all of the textbooks actually at issue in Kirtsaeng — were arguably never licensed, due to the work-for-hire doctrine as it relates to textbooks. One can thus argue — with more than a little validity, if also more than a little hairsplitting — that trade books, and multimedia works, are factually distinguishable from Kirtsaeng's facts and therefore not entirely decided. Yet.
  2. See, e.g., Vernor v. Autodesk, Inc., 555 F. Supp. 2d 1164 (W.D. Wash. 2008), rev'd, 621 F.3d 1102 (9th Cir. 2010), and the cases cited in those decisions. Of note, Vernor was a declaratory judgment case... meaning that the factual record was far less developed than that in Kirtsaeng. I'm not certain this would have made a difference; but then, "not certain" is the inherent nature of declaratory judgment fact patterns!
  3. With all due respect to Judge Easterbrook — no, without a whole helluva lot of respect — ProCD, Inc. v. Zeidenburg, 86 F.3d 1447 (7th Cir. 1996) was wrong when it was first decided and it is even more wrong now. At its core, ProCD presumes that the owner of rights, whether by sale or by license, has an unfettered right to declare the nature of what it is transferring... without regard to any other legal restriction. Judge Easterbrook grievously micharacterizes the fact-expression dichotomy of Feist Pubs., Inc. v. Rural Tel. Servs. Co., 499 U.S. 340 (1991), which is wrongly dismissed as a restriction in and on ProCD with the blithe assertion that trade secret law allows protection of mere lists "licensed" outward (ProCD, 86 F.3d at 1454)... without any record that the other requirements of trade secret law, such as adequate safeguards, are also being followed.
  4. Compare Md. Comm. Code § 13-101 et seq. (businesses excluded from protections afforded by consumer protection law) with Conn. Gen. Stat. § 42-110a et seq. (business included in protections afforded by consumer protection law). As an aside, the limitations of the Maryland law are part of what has kept notorious scam publisher P___A___ in business, because the author-publisher transaction is a business-to-business transaction... meaning that only common-law fraud, with its substantially higher burdens of proof, litigation expenses, and so on, applies.