What Old Cases Don’t Teach us About New Tricks

In my last post, we started to look at the legal claims made by the RIAA in the demand letter it sent to ReDigi. We focused on the plain language and legislative history of the first-sale statute–banged our heads against it, really. I concluded that the statute is simply not equipped to resolve a situation in which a digital download is sold by its owner (under Vernor) by sending it to the buyer over the internet while simultaneously removing the song file from the seller’s storage.

The RIAA will argue that the statute’s failure means victory for it: if the first-sale statute does not specifically provide for digital transfers, then they must fall outside the statute’s scope. ReDigi will argue that the statute shouldn’t be so rigidly and technically applied. Its purpose is to facilitate re-sale (and re-transfer) of copies that had previously been sold. The only reason the statute seems so limited is that it was only codifying old case law, and the case law, by its very nature, couldn’t predict how the technology for re-transferring digital content would evolve.

In its demand letter, the RIAA also cited three legal opinions, for the proposition that the first-sale doctrine “does not permit the owner to make another copy, [then] sell the second copy and destroy the original.” As it turns out, none of these decisions stand for anything like that. They each stand for the unremarkable (and inarguable) proposition that the first-sale doctrine doesn’t give you the right to make and re-sell multiple copies of the purchased copy. Nobody would argue with that. If the first-sale doctrine gave you that right, it would undermine much of copyright law!

At the same time, it’s not as though these decisions help ReDigi, and they each contain dicta–non-binding but occasionally persuasive statements–that help the RIAA’s cause. Since ReDigi isn’t revealing its legal strategy at this time, we don’t know whether it will be able to find its own stable of legal opinions that help its cause.

Mirage Editions: Remember When Patrick Nagel Was All the Rage?

The first decision cited by the RIAA is Mirage Editions, Inc. v. Albuquerque ART Co., 856 F.2d 1341 (9th Cir. 1988). In this case, the defendant was purchasing books of Patrick Nagel’s* artwork, cutting out the pages and incorporating those pages into ceramic tiles. The result was a ceramic tile with Nagel’s artwork on it. That right there is a copyright infringement because the defendant was using Nagel’s copyrighted work to make a wholly separate creative work. The defendant then compounded the infringement by selling the Nagel-themed tiles.

* This guy was huge in the 1980’s, but he seems to have dropped out of the public consciousness. If you’re a music fan, his best-known work is the cover of Duran Duran’s Rio.

The defendant–clearly pretty desperate–made the novel argument that its derivative works were permitted under the first-sale doctrine. The court sensibly rejected this argument, on grounds that the right to make exclusive works still belongs to the copyright owner.

Mirage Editions doesn’t really have much to say about ReDigi’s case because the defendant in Mirage Editions wasn’t forced to make the derivative works in order to re-sell the books it had bought. Indeed, the defendant wasn’t even trying to re-sell those books. It was turning them into something else entirely, and re-selling those for profit. By contrast, ReDigi’s customers are trying to re-sell that which they purchased, and the question there is whether they can exercise the reproduction right to do so. Mirage Editions doesn’t really help us answer that question.

The RIAA is, I think, attracted to the court’s pronouncement that “the right to transfer applies only to the particular copy of the book … and nothing else.” That pronouncement might prove too much, though. What the defendant was trying to get away with was even more fundamental–it wasn’t even trying to re-sell or otherwise dispose of its purchase. The court didn’t need to make this broad pronouncement to reach the correct result.

Sachs: Yup, Mass Piracy Is Illegal

The RIAA’s second decision is United States v. Sachs, 801 F.2d 839 (6th Cir. 1986), a criminal case against a manufacturer of pirated videotapes. The question before the court was what the government had to prove with respect to the first-sale doctrine. Normally, the first-sale doctrine is an affirmative defense*. However, court held that, in criminal cases, the government had to prove the copies in question were not subject to the first-sale doctrine. The question was: what did the government need to do to carry that burden of proof?

* I.e., the defendant has the burden of proving.

The defendant, naturally, wanted to force the government to trace every single copy to its origin and prove that tracing to a jury beyond a reasonable doubt. If the government couldn’t do that as to a particular copy, that copy would be assumed to have been lawfully purchased by the defendant.

You can appreciate a couple of logistical problems with the defendant’s approach. First, it would entail a lot of busywork by the government, and a lot of additional proof at trial. Imagine if you were on the jury and had to listen to some agent drone on about every transfer and change in ownership of every copy. In the Sachs case, that wouldn’t have been so bad–there were only a few dozen copies at issue, I think–but imagine if where were hundreds of copies. The defendant’s approach would also lead to the perverse result that the more you pirate, the harder the government has to work to prove you guilty.

The court spared the government from this burden. It held that the government could meet this burden by proving “that the copy in question was made without authorization from another recording.” More important, the government could prove this through circumstantial evidence. Thus, it was sufficient for the government to prove only that the defendant operated business in question; that he possessed master recordings of the copies in question; that he possessed blank tapes; that he possessed duplicating equipment; and that he told an FBI agent, who had pretended to order a number of tapes, that he was going to make copies in order to fill the order.* What more do you need?

* There was also evidence that the particular version of the movies being copied had not been made available for sale to the public.

Sachs would seem to be irrelevant to the ReDigi, since the main issue was the government’s burden of proof, a situation that simply wouldn’t arise in a lawsuit against ReDigi. However, in explaining its rationale for the reduced burden, the court wrote, “As a logical result, the first sale doctrine only permits the ‘sale of a particular lawfully made copy, not its reproduction’.”

Not only is this statement dicta, I doubt the court would have meant it be read out of context. In the context of Sachs, all this statement would appear to mean nothing more than that the first-sale doctrine extends only to authorized copies. It doesn’t help us determine whether reproductions made in the course of selling a digital copy are authorized or not. Sachs wasn’t accused of making a copy of a legitimately-obtained videotape, destroying the videotape then selling the copy he made. He was accused of making dozens of copies from the same videotape and selling those.

Gener-Villar: Yup, Accidental Piracy Is Illegal, Too

The RIAA’s final decision is Gener-Villar v. Adcom Group, Inc., 530 F. Supp. 2d 392 (D.P.R. 2007), an opinion that is not binding on any court, from a case so procedurally and factually complex that the opinion’s value as persuasive authority is seriously diminished.

The defendant advertising agency retained the plaintiff freelance photographer to take and process (e.g., through Adobe Photoshop) digital photographs of items to be used in advertisements for the agency’s customers. The photographer was paid a flat fee every month, regardless of how much he worked. He kept the digital files on his own computer, but he provided the agency with tangible copies that it could use in the advertisements. There never was an explicit, written license.

The agency eventually fired the photographer. It then sued the photographer in Puerto Rico Commonwealth court to recover possession of the original digital files, which were stored on the photographer’s own computer. The commonwealth court ordered the photographer to place those files on a single CD and deposit that CD with the court. The commonwealth court then held that the CD and any tangible productions of the photographs belonged to the agency, since it had paid a blanket monthly fee for at least this much. The commonwealth court was careful not to rule on any copyright issues, knowing that it lacked the jurisdiction to do so.*

* Only federal courts may do so.

The photographer then sued the agency and its customers in federal court on grounds that they had violated the photographer’s copyright in those photographs. Foolishly, the advertisement agency had not bothered to acquire the copyright in the photographs from the photographer–all it did was purchase copies of the photographs.* Thus, the agency and its customers were liable for copyright infringement–and on a fairly substantial scale.

* Presumably, the agency had some sort of implied license to reproduce these copies, but the court appears to have ultimately ruled that the license terminated when the agency fired the photographer.

In the decision cited by the RIAA, the agency filed for summary judgment that its post-termination use of the photographs was protected by the first-sale doctrine. The agency was simply under the (mistaken) impression that, having bought and obtained possession of the photographs, it had also acquired the right to reproduce the photographs at will.*

* Eventually, this case would go to trial, and the photographer would win a very large judgment–$885,600. You can read the much clearer findings of fact and conclusions of law here. The agency appealed, but before the appellate court rendered its decision, the parties settled.

I hardly need to tell you at this point that the first-sale doctrine doesn’t extend so far. If that were so, you’d have the right to pirate anything you purchased. As you would expect, the court rejects this argument and denies the motion for summary judgment. In doing so, the court makes some of the same broad pronouncements about the first-sale doctrine being limited to the specific, tangible copy that had been purchased.

What really reduces this decision’s applicability to ReDigi is that, during the court’s discussion of the first-sale doctrine, the court appeared to assume that the agency had in its possession only a number of tangible photographs. It makes only one confusing mention of the digital files from which such photographs would have to be made (though the CD is prominently mentioned elsewhere in the opinion):

In other words, there is no legal impediment for [the agency] to sell the photographs in the computer disk to another person. However, what [the agency] cannot do is reproduce said photographs without paying [the photographer] for his rights to such reproduction.

What does the court mean by “sell the photographs in the computer disk”? Does it mean to print out a single copy and sell, to sell the underlying digital files, or what? The RIAA would like it to mean, “Sell the entire CD” (putting aside the fact that the agency didn’t buy the CD; it bought digital files that a court ordered to be transferred to a CD). But that seems to be the one thing the court doesn’t intend; otherwise it wouldn’t have resorted to the awkward “in the computer disk” structure.

A bit later in the same section, the court explains:

Absent that agreement, [the agency] can only sell each of the more than 400 individual tangible photographs which it owns to whomever it wants, without violating the copyright which [the photographer] may hold in that photograph. What [neither the agency] nor anyone else ca do, in the absence of an agreement, under [the fair-use statute] and its exceptions, is make or distribute copies of those photographs, much less make unlimited reproductions or alterations of them in [the advertisements].

Were these “more than 400 individual tangible photographs” part of what the photographer was made to turn over in the commonwealth decision? Were at least some of them turned over in purely digital form (i.e., on the CD)? If the former, this opinion is wholly unremarkable and inapplicable to ReDigi. If the latter, is the court saying that the agency can print off a single tangible photograph of each digital file, and if so, is that right found in copyright or (more likely) in an implied contractual provision (because that’s what the agency had basically paid for)?

Again, the RIAA is attracted to a broader-than-it-needs-to-be statements by the court, to the effect that the first-sale doctrine is limited to the actual physical copy that was purchased, citing three relatively old decisions. In the pre-digital world, this was always the case. Although Gener-Villar dealt with digital content (photographs in this case), for one reason or another, it didn’t address the issue of whether it’s possible to re-sell digital content that you keep on your general-purpose computer.

* In one of these cited decisions, Design Options Inc. v. BellePointe, Inc., 940 F. Supp. 86 (S.D.N.Y. 1996), the defendant had purchased sweaters that had copyrighted patterns on them. The defendant then made its own sweaters with the same patterns, in obvious violation of copyright. As a defense, it argued that it had the right to reproduce the patterns in this way because it had purchased the sweaters that it was now copying. The court rejected this argument, rightly explaining that, if the first-sale doctrine conferred such an open-ended license, all of copyright law would be undermined. Some people will argue anything. In another, Columbia Pictures Indus. v. Redd Horne, Inc., 749 F.2d 154 (3d Cir. 1984), the court merely held that sale of a videotape does not confer, under the first-sale doctrine, a right to publicly perform the videotape. The cited decisions cited by Gener-Villar for these statements are from criminal cases that deal with the same issues as Sachs above.

In its demand letter to ReDigi, the RIAA contends that Gener-Villar stands for the proposition that the agency could “sell computer disc containing digital copies of photographs but cannot reproduce the copyright holder.” It seems to me that Gener-Villar doesn’t stand for that at all–only for the unremarkable proposition that the first-sale doctrine doesn’t allow you to make and sell multiple copies of someone else’s copyrighted work.

Final Thoughts About Mirage Editions, Sachs and Gener-Villar

What the three opinions cited by the RIAA have in common is that, in each case, the defendant was caught engaging in substantial copyright infringement based on items that they happened to have purchased. In deep trouble, each defendant grasped for the straw of the first-amendment doctrine, in the mistaken belief that the right to re-sell could be stretched into a right to exploit.

The problem is that ReDigi’s business falls somewhere between the right to sell and the right to exploit. ReDigi wants a right to sell coupled with a limited right to make non-exploitative reproductions as necessary to effect the sale. As we discussed last time, this turns out to be an existential question that the first-use doctrine is ill-equipped to deal with.

The Copyright Office Report

The RIAA finally cites to a 2001 report made by the U.S. Copyright Office that “expressly rejected the suggestion that [the first sale doctrine] be amended to permit ‘transmission of a work that was subsequently deleted from the sender’s computer’.” Although it sure sounds authoritative, the Report has almost no legal force.

Among the many issues Congress was considering when debating the Digital Millennium Copyright Act (“DMCA”), Congress considered whether to explicitly make sales of digital content part of the first-sale doctrine. Then, as now, it was unclear whether the law already provided for this. The then-chairman of the relevant House committee was opposed to the very idea. As part of the DMCA, the Copyright Office was asked to consider whether such a “digital first sale doctrine” should be enacted.

The Copyright Office advised against the idea. The report assumed without much analysis that it was impossible to legally re-sell a digital download (which is precisely the RIAA’s position), which makes sense. Its mandate was not to say what the law is but what the law ought to be.* For that reason alone, the report is without legal force. In construing statues, you must focus on what Congress intended when it passed the statute, not what a later Congress or agency later thinks. If the report had been issued in 1976, when the first-sale doctrine was passed, then it might count for something. But it was issued in 2001.

* I would certainly take issue with its belief that the first-sale statute “is quite specific about the rights that are covered.” As we discussed last time, it isn’t.

In addition, I think a ReDigi supporter would find plenty of fodder to argue that Report is outdated:

  • Reading through it, you can tell it was written in the shadow of Napster, whose market-destroying horrors were still fresh in the minds of content-owners and those who loved copyright.
  • It also assumes that software like ReDigi’s is simply impossible, which was true the time. Well, apparently, it isn’t anymore.
  • Finally, it simply privileges the physical object over the computer file*: “[t]he first sale doctrine is an outgrowth of the distinction between ownership of intangible intellectual property (the copyright) and ownership of the tangible personal property (the copy).” But computer files–digital content–doesn’t fall neatly into either category. And let’s be honest, today, consumers are a lot more comfortable with the neither-fish-nor-fowl nature of digital content.

* Indeed, the report can be a little defensive about this: “The tangible nature of the copy is not a mere relic of a bygone technology.” Then again, it was written 10 years ago. 

Final Thoughts

I’m not trying to give the RIAA grief about citing to authorities that don’t quite support its position. It’s something that lawyers do, myself included. My purpose is to make sure that those who hear about the RIAA’s letter, or, better yet, have read it, don’t just assume that the RIAA is completely right or completely wrong about ReDigi. My own sense is that the RIAA’s position isn’t as strong is it apparently thinks it is, but ReDigi’s position is hardly any stronger.

One thing the RIAA’s letter doesn’t address is whether the RIAA has studied the potential market effects of a secondary digital market. As I mentioned here, secondary markets have an upward as well as a downward effect on the primary market. For all I know, the downward effects completely overwhelm the upward effects–I just don’t know whether the RIAA (or anyone) has studied this.

Thanks for reading!

Rick Sanders

Rick is an intellectual-property litigator. He handles lawsuits, arbitrations, emergency injunctions and temporary restraining orders, opposition and cancellation proceedings, uniform dispute resolution proceedings (UDRPs), pre-litigation counseling, litigation avoidance, and other disputes, relating to copyrights, trademarks, trade secrets, domain names, technology and intellectual-property licenses, and various privacy rights. He has taught Copyright Law at Vanderbilt University Law School. He co-founded Aaron | Sanders with Tara Aaron-Stelluto in 2011.