Digital Exhaustion

Abstract

As digital networks emerge as the dominant means of distributing copyrighted works, the first sale doctrine is increasingly marginalized. The limitations first sale places on the exclusive right of distribution are of little importance when the alienation and use of copies entails their reproduction. This fact of the modern copyright marketplace has led to calls for statutory clarification of digital first sale rights. Acknowledging the obstacles to legislative intervention, this Article argues that courts are equipped today to limit copyright exclusivity in order to enable copy owners to make traditionally lawful uses of their copies, including resale through secondary markets. We argue that first sale is not simply an isolated limitation on the distribution right. Instead, it is a component of a broader principle of copyright exhaustion that emerges from early case law preceding the Supreme Court’s foundational decision in Bobbs-Merrill v. Strauss. This context reveals a common law of copyright exhaustion that embraces a set of user privileges that includes not only alienation, but renewal, repair, adaptation, and preservation. Despite congressional recognition of exhaustion in sections 109 and 117 of the Copyright Act, this Article concludes that courts have ample room to apply and continue to develop common law rules that preserve the many benefits of the first sale doctrine in the digital marketplace.

An Economic Model of Patent Exhaustion

“…Katz (2016), for instance, explains that exhaustion can eliminate supernormal pricing for patented goods and thereby reduce deadweight loss. Perzanowski and Schultz (2011) argue that exhaustion can reduce situations of consumer "lock in" and diminish switching costs, by allowing users to more easily switch to competing technologies. Mulligan (2016) argues that exhaustion can reduce the rent dissipation that may occur when the transaction costs of licensing are high.…”

“…This assumption is justified when the manufacturer sells directly to end-consumers, patent exhaustion is presumptive, and the patent holder opts out, because in 22 The parameter ξ is the fixed component of the marginal cost of quality and the parameter a measures the rate at which the marginal cost of quality rises as h rises. We restrict a and ξ to satisfy the conditions in (30) to ensure that maximum h E and h N E exist.…”

“…Second, the patent holder's total rent is higher in Regime (2). This is apparent from (12) and (22). When licensing to consumers is costless for the patent holder, Regime (2) and Regime (4) are equivalent because the patent holder will engage in pure consumer licensing in both regimes.…”

Copyright as Monopoly: The Italian Fire Under the Ashes

“…A good example of the consequence of such an interpretative trend is represented by neutralization of the exhaustion principle within the digital context [Perzanowski, Schultz, 2010;Spedicato, 2015]. Such neutralization implies the disappearance of secondary markets, for example, with regard to the online distribution of ebooks through user licence agreements, which are clearly distinct from traditional sale even by their appearance (when they began with "this is not a sale, but a license") [Elkin-Koren, 2011].…”

Tethered technologies, cloud strategies and the future of the first sale/exhaustion defence in copyright law

“…The only difference is that additional temporary copies were created to facilitate the transaction.' 91 The question is whether these critics are right to say that there is only one copy at the beginning and one at the end of the process. Is ReDigi's forward-and-delete technology practically capable of assuring this?…”