Thursday, September 02, 2010

The Right Of First Sale

Before we wade into the swamp that is the used games issue in general, I received an excellent e-mail from attorney Nhut Tan Tran concerning the Right Of First Sale doctrine.

Lost in all the emotion about used games vs. new games and purchase rights for consumers under the first sale doctrine is that you have, for software, you can override the doctrine of first sale by the copyright owner's right to restrict via a contractual relationship.
The "sale" of a piece of software is a complicated transaction and those that use upon the affirmative defense of the first sale doctrine leaves themselves vulnerable to the fact the "sale relationship" opens them up to the privity of contract between the two parties.
This is what Nimmer, the pre-eminent scholar on Copyrights says (please note that I am paraphrasing his position, and that this is a quote from a much larger article from Nimmer on Copyrights):

"License agreements focus on information and informational rights. Many licenses do not involve transfer of any tangible property. In other transactions, however, the licensed information is delivered on tangible media (goods) or the intellectual property rights cover the tangible property (e.g., patented machine). In these cases, issues can arise about whether delivery of the goods pursuant to a license constitutes a first sale of the copy under copyright law, is a first sale of genuine trademarked goods under trademark law or creates a case of patent exhaustion under patent law.
In general, a transfer of ownership of goods that constitute a copy of the informational property, that are sold under a trademark or that embody the invention, does not in itself transfer ownership of intellectual property or other information-related interests.1 This theme is present in all bodies of intellectual property law. It creates an environment in which possession (even ownership) of a tangible thing does not in itself communicate much or anything about the right of the possessor to use or claim ownership of the intellectual property rights involved. The basic principle is expressed in section 202 of the Copyright Act in the following terms:
Ownership of a copyright, or of any of the exclusive rights under a copyright, is distinct from ownership of any material object in which the work is embodied. Transfer of ownership of any material object, including the copy or phonorecord in which the work is first fixed, does not of itself convey any rights in the copyrighted work embodied in the object; nor, in the absence of an agreement, does transfer of ownership of a copyright or of any exclusive rights under a copyright convey property rights in any material object.
The separation of tangible and intangible property highlighted by this language is a central feature of licensing law and practice. It is also one basis for the rejection of ideas of bona fide purchaser status stemming from mere possession and control of a copy...The first-sale doctrines do not involve transfers of rights ownership. Nor do the doctrines deal with or limit the enforceability of contractual terms. Indeed, the reverse relationship exists: the terms of the contract determine when or whether a first sale or sale establishing exhaustion of the patent occurs. The first-sale rules merely set out limited defense to claims of property rights infringement, but those exemptions can be important in determining the remedies available to a licensor or property rights owner, especially with respect to claims against remote third parties."

Also, my understanding is that Congress explicitly recognized that a copyright holder can sue his direct customer for breach even if, for the very same act, he cannot sue for copyright infringement. The legislative history indicates that Congress designed the first sale doctrine as a default rule that copyright owners could override by contract. See Aymes v. Bonelli, 47 F.3d 23, 26-27, 33 U.S.P.Q.2d (BNA) 1768, 1771 (2d Cir. 1995) (noting that the CONTU Report to Congress proposing Section 117 conceded that "should proprietors feel strongly that they do not want rightful possessors of copies of their programs to [adapt software], they could, of course, make such desires a contractual matter").

lthough I'm partial to  gamers, as I'm one myself, I'm going to go with Nimmer's interpretation of copyright rights considering Supreme Court Justices quote him sometimes.

Now, if I'm understanding this correctly, many of the issues that Nimmer raises will be resolved with a final ruling in the Vernor v. Autodesk case, which is currently on appeal. The ruling handed down by the United States District Court for the Western District of Washington, though, was in favor of the consumer's rights:
The court held that when the transfer of software to the purchaser materially resembled a sale (non-recurring price, right to perpetual possession of copy) it was, in fact, a "sale with restrictions on use"[1] giving rise to a right to resell the copy under the first-sale doctrine.

Given how downright hostile the present Supreme Court has been to consumer's rights, it wouldn't surprise me at all if this is overruled, should it reach them (right now, it's in the hands of the United States Court of Appeals for the Ninth Circuit).

The interesting question is what would happen to the gaming market if it were illegal to sell used games? Given how money from the sale of used games flows through, in many cases, to the purchase of new games, does anyone think this would be positive for the gaming market?

Here's a bizarre scenario. Let's fast forward to the future, where the Vernorcase actually has reached the Supreme Court, and the gaming industry figures out,with advanced mathematical reasoning from the future, that making the sale of used games illegal will cut their industry by a third.

That could lead to my favorite irony of all time: the ESA submitting an amicus curiae brief to the Supreme Court, urging them to keep the sale of used games legal.

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