Should it be legal to resell e-books, software, and other digital goods?
With e-book reselling heading to the EU Court of Justice, we examine the complexities of the law.
One of the most interesting questions in the
world of modern entertainment may soon be pondered at Europe's top court: can
people resell the e-books that they buy?
This question is vital in the digital era,
and relevant not just to the world of book publishing, but also the realms of
music, film, and games. You're able to resell the CDs and DVDs that you buy, so
why can't you do the same with downloaded copies of albums and movies?
The case involves a Dutch second-hand e-book
platform called Tom Kabinet, which took a previous ruling by the European Court
of Justice, involving second-hand software, as the go-ahead for its own
business model. Since 2014, Tom Kabinet has been at war with the Dutch
Publishers Association (NUV), which sees it as a threat to the entire book
industry.
The next step in this long-running saga is
the decision of the Dutch supreme court in The Hague, which is currently
scheduled for June 1, its original due date of April having been postponed at
the last minute. Many expect the Dutch court to refer the case to the European
Court of Justice (ECJ), to clear the question up on a pan-EU basis.
How do you ensure the e-books aren't pirated?
Here's the story so far. In 2014, the
publishers tried to get Tom Kabinet shut down, but the Amsterdam district court
refused to grant them a cease-and-desist order. In an early-2015 preliminary
ruling, the Amsterdam court of appeal backed this earlier ruling, but said Tom
Kabinet had to ensure that its platform wasn't being used to sell pirated
e-books.
The company cleared its virtual bookshelves
and started over with a new twist on its model, requiring sellers to provide
the original download links and prove they had legally bought their e-books.
The platform only deals in open formats, as the digital rights management used
by the likes Kindle and iBooks make resale impossible.
Tom Kabinet also tried to get into the
business of reselling new e-books, only to find the three big Dutch publishers
were blocking the country's central book distributor from supplying it—which
prompted a swift complaint to the Dutch competition authority.
While it waits for that investigation to go
somewhere (the regulator won't comment), Tom Kabinet has since become a sort of
book club. To use it, you offer up the download link for your purchased EPUB
e-book and, in return, you get credits. Buying a book from the collection costs
€2 plus a certain number of credits (depending on how new the book is) and,
once you're finished with the book, you can return it to the pot in exchange
for credits—as much as 80 percent of what you paid, if you resell it within
four weeks.
But the main question still remains
unresolved: is it legal for consumers to resell e-books at all? German courts
have suggested the practice should be
stopped, while Dutch courts think it's kosher. But as they're
dealing with the same EU law, they can't both be right.
To find out why this is such a confusing
issue, we have to go back to the 2012 ECJ judgement that birthed Tom Kabinet in
the first place—the Oracle v UsedSoft ruling.
Like most digital law, it all started with Oracle
UsedSoft,
a German company that sells second-hand software, was buying and reselling
Oracle software licenses from Oracle's customers, either whole or in part—these
were group licenses for 25 users, so customers were sometimes left with
"spare" seats they didn't need. The German firm was then reselling
these licenses to its customers, who could use them to download Oracle's
products.
Oracle pointed out that its license terms
said use of the programs was non-transferable. It sued UsedSoft and won twice
in Germany, before the reseller appealed to the ECJ.
The crux of the ECJ's ruling was this:
once the copyright holder of the software (Oracle in this case) has sold the
product, it doesn't get to stop the buyer from selling it on as she wishes. Its
rights as the seller are "exhausted" in that first sale. In Europe,
this is known as the "principle of exhaustion"; in the US, it's
called the "first-sale doctrine."
That decision became a landmark interpretation
of the EU's 2009 Software Directive.
The directive clearly said the principle of exhaustion applied to a purchased
copy of software. However, before the ECJ's ruling, there was some debate over
whether this applied to "intangible" downloaded software as well as
more traditionally packaged products.
As is the norm these days, Oracle claimed it
sold not the software but the license to use it. The court was unimpressed by
this argument, noting that there is no point downloading something if you can’t
use it, and calling the software-license bundle "an indivisible
whole." It said the principle of exhaustion was not limited to copies of
software sold on physical media, and vindicated UsedSoft's business model—up to
a point.
Most importantly, the court said the Oracle
customers selling to UsedSoft could only do so if they made their own copies
unusable. This meant people couldn't sell off unused slots in their Oracle
bundle and keep using the ones they needed.
Oracle claimed it might be impossible to know
whether the reseller had rendered the original copy unusable. True, said the
ECJ, but the same applies to software sold on physical media such as DVDs—that's
what protective measures such as product keys are for.
In short, if you've legally bought genuine
software, or the license to use that software forever, you get to sell it on no
matter what format you bought it in, and no matter what the licensing terms
say. That's the EU-wide legal precedent.
It so happens that the InfoSoc Directive
contains almost exactly the same wording as the Software Directive when it
comes to the exhaustion of rights, but the UsedSoft ruling—the only ECJ
judgement on intangible downloaded goods and the exhaustion of
rights—specifically relates to computer programs,
not all digital goods.
So that's why the courts are still confused.
However, should
the resale of digital goods be legal?
The pros and cons of reselling digital goods
"If you're going to start reselling
digital goods, who would be the fool who buys the original
book?" asks Martijn David, the secretary general of the Dutch Publishers'
Association. "A second-hand car is not new. A second-hand book is a
second-hand book. A second-hand digital file [is] like a car which runs
forever. It's completely different from the physical world, where second-hand
means less quality."
Additionally, as David points out, digital
files can be replicated: "Authors and publishers fear that their business
model, which is already under enormous pressure, will completely vanish, and
nobody will make money, except for people like Tom Kabinet," he said.
"They don’t make any investment, they don’t do the marketing or
translation, and they simply get a share of that sale."
"I'm coming from a very different point
of view," says Marc Jellema, the CEO of Tom Kabinet. "If you buy
something, it is your right to actually resell it. With something I buy from a
consumer rather than a reseller, the term we use is 'second-hand.' It has
nothing to do with it being older or of less quality."
Joost Poort, an economist at the University
of Amsterdam's Institute for Information Law, agrees that the publishers'
argument is flawed.
"There's a second-hand market for CDs,
and you hardly have any wear on CDs," Poort said. "The thing is that
people want content shortly after it is published. The time factor will always
constitute degradation of the product, which can be exploited by the
publisher."
Poort said publishers should have less to
fear from second-hand markets than, say, film studios.
"When you buy a DVD, you watch it and
then maybe sell it on the second-hand market. It will take longer to read a
book and decide if you want to get rid of it," he said. "That's a
reason why commercial book-lending is partly possible, and that's why we have
libraries—because the time in which a book is commercially attractive is
relatively short in comparison to the time people will need to read it."
But what about the issue of replication, and
ensuring that people selling a digital product through a platform such as Tom
Kabinet aren't hanging onto a copy?
According to David, "it's impossible to
check whether your copy is actually gone," and the only way to stop
replication is through unwieldy digital rights management. "I'm sure you
can protect an e-book in such a way that it's impossible, but then you become
very customer-unfriendly," he says. "It would be like a bike with 12
locks—impossible to steal but also heavy to cycle. We say 'listen, instead of
punishing customers, let's fight the other way.'"
That argument doesn't impress Till Kreuzer, a
lawyer with the Berlin-based iRights law firm. "They do it anyway. All
Amazon books are DRM copy-protected," he says. "It's lip service to
say we can't have resales because then we have to have DRM systems and nobody
wants it—it's bullshit."
Kreuzer says digital watermarking techniques
can prove a copy is the original, without hindering what users can do with the
file, or burdening them in any way. The example he raises is that of the
watermarks used by ReDigi, the US outfit that tried to act as a second-hand MP3
store before getting shut down by a lawsuit
from the labels. The judge's argument in this instance was that the first-sale
doctrine only applies to "material items, like records," and not to
files put onto a platform's servers, because those must necessarily be
copyright-infringing copies, with only the original file covered by the
first-sale doctrine.
Tom Kabinet's Marc Jellema says several
people have suggested to him that the blockchain—the much-touted public ledger
technology that underpins Bitcoin—could be used to track the ownership of
e-books and other digital goods without hassling consumers. However, he notes,
that would mean creating a new version of the EPUB format and updating e-readers
in order to handle these new demands.
Poort, meanwhile, has another suggestion: why
not offer two versions of the e-books? "I could imagine a business model
where you have two options as a customer," he says. "One is to buy a
DRM-free copy which you cannot resell, and one with DRM that you can actually
resell."
But what about e-book streaming?
DRM was once a highly emotive topic,
particularly around the time of the Sony rootkit scandal—back in 2005, the
record label decided it was a bright idea to equip its music CDs with an
anti-piracy application that made people's PCs vulnerable to hacking.
However, in these days of Spotify, that kind
of scenario seems anachronistic and old-fashioned. E-book streaming services
haven't taken off yet, but turning to music, people are increasingly streaming
rather than buying new tracks and albums. That's a different economic model.
Jellema says he would be "more than
happy" to turn Tom Kabinet into an e-book streaming service, "but
only if the publishers give their bestsellers to a subscription-based
model." Publishers' failure to do so was a factor that contributed to the
failure of the high-profile Netflix-of-literature wannabe Oyster, he claims.
The principle of exhaustion probably does
still apply in the realm of mobile apps, which are after all software and, in
Poort's words, "in principle no different from UsedSoft." However,
even then, the economic reality has shifted to perhaps make the principle
irrelevant. UsedSoft may (still) trade in selling second-hand software, but
it's expensive tools, bought from large companies and resellers, and mostly
sold to other large companies.
"In practice, the prices [of apps] are
so low that people won't bother," says Poort. "Installing second-hand
[mobile] software from a dodgy site? I would never do that. The principle is
similar, but economically it's a non-issue."
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