The New York Times has an article today in the Technology section entitled, “Imagining a Swap Meet for E-Books and Music.”
The article describes some recent legal developments regarding the resale of digital items – e.g., “used” e-books, MP3s, and potentially video games and movies/television shows. Both Amazon and Apple are attempting to patent various methods of enabling the resale of digital items. But it turns out that copyright holders don’t like this idea one bit.
The article quotes Scott Turow, president of the Authors Guild, predicting that resale of digital items will eventually result in the downfall of creativity: there will be “no more authors anymore.”
Setting aside the issue of the patents at play, let’s consider what Mr. Turow and others like him are saying: that if people are allowed to resell digital items, the price of those items will decrease, authors won’t receive royalties from their sale, and the entire incentive structure of copyright will vanish overnight. (Okay, maybe he’s not saying exactly that, but it’s close.)
But wait a minute: how is this any different from the resale of physical items? People can already buy a book, read it, and resell it at a lower price. The author gets no cut of the second sale. And if digital sales are replacing some portion of physical sales, then won’t being able to resell digital items simply return us to the status quo? I.e., currently people can’t effectively resell their digital items… which has the effect of inflating the price of digital content, since there is no market for used items. (Alternatively you could argue that publishers already account for lack of resale in digital items by offering them at a lower price, but I doubt you could get any publisher to admit that. To do so would be to admit that the restrictions being imposed by publishers make digital items less valuable than physical ones.)
Imagine if there were no Amazon, or no used car dealerships – we’d all have to pay much more for books and cars. That is precisely the situation with digital items today. There is no real market for “used” digital items. Amazon and Apple have seen this opportunity, and are looking for a way to seize it. Consumers will benefit through lower prices, and copyright holders will no longer reap a windfall by preventing the resale of their products.
The real “problem” here is that the resale of digital items will significantly reduce transaction costs, thereby facilitating the sale of used goods. Amazon already does this with used books, but the transaction costs are still significant. The Times article notes that The price on the Internet for many used books these days is a penny,” but omits the fact that sellers on Amazon typically charge $3.99 for shipping. With digital items, there will be no shipping costs, and delivery will be instantaneous. Lower transaction costs, greater availability, and more convenience will encourage consumers to purchase the cheaper “used” items rather than new items.
Why the scare quotes around “used”? Well, the other issue is that unlike physical items, “used” digital items will be identical to new ones. Unlike a used car, or even a used book, a used e-book or used MP3 will not wear out. This is a fundamental fact of digital goods, and one that prompted HarperCollins to attempt to artificially limit the number of times libraries could lend its e-books back in 2011.
Let’s keep in mind that the issue here is not about infinite duplication of digital items. Amazon and Apple aren’t arguing that if I buy an e-book, I should be able to sell copies of it to others. Their patents are designed to enforce copyright law by ensuring that when I sell an e-book, I no longer have access to it. In the language of intellectual property theory, their systems are designed to enforce rivalry, i.e., to ensure that only one person can use a copy of a given digital item at the same time.
Fundamentally, the problem is that copyright holders don’t like resale. They never have. The Times article mentions the 1908 Supreme Court case of Bobbs-Merrill Co. v. Straus, in which a publisher attempted to limit resale of its books by claiming that selling copies below a certain price constituted copyright infringement. Over a century later, copyright holders still don’t like resale. It’s why textbook publishers include single-use access codes for online content inside expensive textbooks, or why video game publishers want to charge buyers of used copies extra to play online. All of these are attempts to reduce the value of used digital items, and combat the establishment of an efficient market in used items.
Copyright holders would probably prefer to see something akin to droit de suite, also known as the resale royalty right. Currently, droit de suite allows artists to get a cut of the proceeds from, second, third, and subsequent resales of their works. Droit de suite is primarily a continental European phenomenon. In fact, when I was conducting research in Belgium last year, I met a Christie’s auctioneer in Bruges who pointed out to me that it was no coincidence that Christie’s and Sotheby’s, the world’s two largest auction houses, are located in England: for years, they did not have to deal with droit de suite when reselling famous artwork. (Technically Sotheby’s is now headquartered in New York, but for about 250 years it had been based in London. Also, artwork sales in England have changed since harmonization of droit de suite in the European Union, which my auctioneer friend deemed a major headache. For economic evidence that droit de suite has in fact affected the location of auctions, see Victor Ginsburgh, “The Economic Consequences of Droit de Suite in the European Union,” Economic Analysis & Policy, Vol. 35, No. 1, pp. 61-71 (2006)).
The United States had its own version of droit de suite in California, known as the California Resale Royalty Act, which was recently struck down as an unconstitutional violation of the Commerce Clause. The case is currently on appeal. Late last year, the Copyright Office issued a request for comments about a potential uniform resale royalty act at the federal level, although there is as far as I know no pending legislation – though the lobbyists are at work.
I see a few ways this could play out:
- We might simply see markets for used digital items spring up, prices for new digital items drop in response, and some kind of equilibrium emerge that does not fundamentally upset anything.
- Copyright holders could increase the price of new digital items to account for the fact that consumers can resell the items. This could drive some purchasers back to physical goods.
- Copyright holders could be more firm about their “licensed, not sold” tactic, in which they claim you aren’t actually buying an e-book, you’re simply buying a license to read the book, and that license does not include the right to resell it. This has been the approach of software publishers for a long time, and in 2010 was upheld in the 9th Circuit in Vernor v. Autodesk, Inc. End users weren’t too happy with the result of that case, and consumers would probably be pretty unhappy if every digital item they purchase comes with its own shrink-wrap license or EULA. (In some sense, this is already true, but publishers may have to get more “in your face” with the EULAs if resale becomes a plausible option). Consumers are also more likely to run up against media EULAs, since people are used to consuming media, then reselling it. This is less the case with software, which people typically use over a longer period of time, then don’t bother to resell since it is obsolete.
- Sue, sue, sue.
- Some combination of the above, where different publishers try different tactics.
There are some interesting related developments going on in the European Union surrounding this issue, which could prove relevant in the U.S. if this EU-U.S. free trade agreement we keep hearing about ever becomes a reality. The intellectual property chapter of that FTA is going to be something.Follow @gabrieljmichael