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A CRITICAL ANALYSIS OF DIGITAL EXHAUSTION – WITH SPECIAL REFERENCE TO REDIGI’s CASE BY: UMAMAHESWARI. U
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A
CRITICAL ANALYSIS OF DIGITAL EXHAUSTION – WITH SPECIAL REFERENCE TO REDIGI’s
CASE
AUTHORED
BY: UMAMAHESWARI.
U
DESIGNATION: Post Graduate Student
INSTITUTION: The Tamil Nadu Dr.
Ambedkar Law University
School Of Excellence
In Law, Chennai
ADDRESS: 1125/3, Susi Gardens, West
End Colony, Mugappair, Chennai - 600050
EMAIL: umakitty25@gmail.com
CONTACT DETAILS: 9789877327,
9444941142
ABSTRACT
In
general Copyright owner has an exclusive right on distribution of his/her work.
However, doctrine
of exhaustion is a limitation imposed on the right of the copyright owner, it
states that once a copy has been sold to another by the owner the right to distribute
that copy by the copyright owner gets exhausted and the right to resell that
copy is given to the purchaser of the copy. The owner of the copyrighted work
loses the control regarding the future sale and transfer of this very copy.
Herein we are talking only about this very copy, therefore it is illegal to
make a copy of the copy and distribute and sell such copies. It is well known
that Intellectual property law is extended to digital files and technological
industry with the developing society.
Rapid advancements in the digital
space and the technological industry have always had an impact on intellectual
property legislation. In recent years, digital data has also been a factor in
copyrighted works dissemination. The reason for this is simple: people obtain a
variety of data every day, including music, apps, online games, and PDF files
for publications like books and magazines. Few people now use CDs or DVDs to
listen to their favourite music or to watch movies, TV programmes, etc. because
there are already apps like YouTube, Netflix, Spotify, etc. that make these
activities much simpler and more comfortable. Thus, a question herein arises
that would it be reasonable to apply the same standard of exhaustion laws to
digital works as to physical works? Thus, this article herein focuses on the
overview of the First sale doctrine related to copyrighted works and their
reproduction in the digital sphere and finally the paper concludes with the
Doctrine of exhaustion to be extended to digital files also with special
reference to a U.S case study famously known as the ReDigi’s case.
Keywords: Digital, Exhaustion, Copyright,
File, First Sale, Intellectual Property.
INTRODUCTION
In recent years, the distribution of copyrighted works has
transitioned from the delivery of tangible goods or things to the transmission
of digital data or files. The information society and sharing community have
centred their activities around e-books, audio files, video clips, computer
programmes, and other digital items. Customers can purchase them on CDs,
download temporary or permanent copies from websites or mobile apps, or watch
them on demand. In each instance, they are asked to agree to extensive and
complicated contract clauses that restrict their ability to transfer digital
goods between devices (such as from a disc to a computer), sell, lend, or rent
them, import them from another country, bring them with them, or leave them to
their heirs.
Amazon, for instance,
currently sells more e-books than hardcovers. Apple is now the largest music
vendor in the US as CD sales are down and music downloads are rising. Boxed
items are outsold by downloads in online software sales. Additionally, internet
video game sales are now more comparable to offline ones.
With the
transition to a digital market, rights holders now have more control over both
the price and accessibility of their works as well as the applications that
customers can use their purchases for. On several levels, this regulation
limits the welfare of the consumer. It hinders customers from purchasing or
disposing of works through secondary marketplaces, invades their privacy,
reduces their prospects for innovation, and endangers market efficiency and
competition by raising transaction costs and increasing the possibility of
consumer lock-in.
Historically,
the doctrine of exhaustion has been primarily responsible for addressing these
concerns in both copyright and patent laws, which holds that when ownership of
a particular embodiment of a work covered by an intellectual property right
passes from the right holder to a consumer, the right holder's control over
that embodiment is diminished. Though most courts and commentators have
restricted copyright's exhaustion concept to a narrower norm, the first sale
doctrine - which is represented in section 109 of the US Copyright Act, which
only exhausts the exclusive right to distribute copies in contrast to patent’s
expansive common law approach.
THE
PRINCIPLE OF COPYRIGHT EXHAUSTION
The World Intellectual
Property Organisation (WIPO) defines the principle of exhaustion as follows :–
“Exhaustion means the
consumption of rights in intellectual property subject matter as a consequence
of the legitimate transfer of the title in the tangible article that
incorporates or bears the intellectual property asset in question. Exhaustion,
therefore, is a natural consequence of the intangible nature of the assets
covered by intellectual property, such as expressions, knowledge, reputation,
quality, origin. Because of their intangible nature, they do not follow the
tangible article with which they are associated.”[1]
In plainer terms, the
principle of exhaustion restricts the owners exclusive right to distribute
their creation after the initial sale. The owner of the right cannot stop
further distribution of the work after it. The overarching goal is to achieve
the ideal balance between the right of owner's interests and the free flow of
products.
CATEGORIES OF EXHAUSTION BASED ON TERRITORIAL EXTENT
1.
National Exhaustion: It is
the situation where the item's inventor loses ownership over its resale in the
nation where the underlying authorised contract of sale took place. A sale in
country A under a country A patent (or copyright or trademark) would weaken or
exhaust the IP Owner's rights only in country A, and the IP Owner could rely on
its various patents in other countries to enjoin sales, investigate damages, or
possibly even require customs officials to stop encroaching imports at the
border. Although IP rights are equal across the board in all countries, this
requirement would still apply.
2.
Regional Exhaustion: It is
that level of exhaustion where the original inventor loses control over the
resale of the product in a certain area where the original, authorised sale
took place inside that particular area. It should be noted that within the
territory, rights and privileges are reduced, and the owner of IP rights can
exercise all of his or her rights with regard to even that particular good
outside the region. The European Community is where this mechanism's operation
is most famously seen in action.
3.
International Exhaustion: It
is the point where the original author loses control over the location-independent
resale of the particular object. This interpretation of the principle states
that any sale made by or on behalf of an IP Owner somewhere revokes all of that
IP Owner's rights and privileges worldwide. This principle avoids the
justifiable concerns and trade barriers of a regional principle, although
continually appearing to be difficult to fit with the fundamental foundations
of national IP rights.
THE LAWS REGARDING THE PRINCIPLE OF EXHAUSTION OF COPYRIGHTS
The exhaustion
principle was initially developed by American courts in the context of patents
in 1873 [2]"then
in 1908 with regard to book sales and copyrights was developed[3].
Although gifts as well as sales might exhaust distribution rights, courts still
refer to this as the "first sale doctrine."[4] The theory was swiftly incorporated by
Congress into the U.S. Copyright Act in 1909 "[5] and the same was amended from time to time to
its present form[6]. Courts
and laws in Europe frequently use the term "exhaustion" and implement
unified standards outlined in EU Directives. An overview of the diverging cases
in the new and old worlds is preceded by a succinct synopsis.
According to the U.S.
Copyright Act, the owner of a copyright has the sole right to a work's
reproduction, creation of derivative works based on it, distribution of copies
of the work, and public display. However, "the owner of a particular copy
or phonorecord... is entitled... to sell or otherwise dispose of the possession
of that copy or phonorecord" within the terms of this chapter. Except for
phonograms and software, the owner of a copy is also free to lend or rent out
her copy. Subject to a few restrictions, the owner of a copy is generally not
allowed to reproduce or modify her copy, with the exception of software copies
if doing so is required "as an essential step in the utilisation of the
computer programme." [7]
Parallel importation
and the idea of exhaustion of rights are closely linked in India. The term
"parallel importation" describes the export of legally produced and
marketed commodities. Exhaustion of rights in accordance with Indian Copyright
Law, to determine whether equal import is permitted, it is essential to look at
whether there is a right to importation under the implications of the Act. The
copyright system in India is governed by the Copyright Act, 1957. According to
the Copyright Act, no person shall be granted any rights under copyright other
than those expressly guaranteed by Section 16 of the Act and Section 14[8],
which provides for the rights; there is no privilege such as the right of
importation.
In the
case of Penguin Books Limited v. India Book Distributors and others[9],
the Delhi High Court held that if any person without
the license from the copyright owner, imports into India or trades any literary
work, the copyright over the same is infringed. Therefore, importing pirated
copies is illegal unless it is done for the importer's own use.
APPLICATION
OF DIGITAL EXHAUSTION
The protection of
creative works is provided globally through international copyright treaties.
The Agreement on Trade-Related Aspects of Intellectual Property Rights was the
first-ever international treaty on intellectual property law to address the exhaustion
rule for copyright and establish necessary guidelines for these proceedings'
dispute resolution (hereinafter TRIPS). Nothing in this Agreement may be
utilised to address the problem of the exhaustion of intellectual property
rights for the purposes of resolving disputes under this Agreement, subject to
the terms of Articles 3 and 4.[10] According to the TRIPS agreement, any
case involving a domestic regulation is exempt from WTO law's dispute
resolution procedures. The TRIPS Agreement very marginally regulates this issue
and is not overly involved in the matter of exhaustion. The concept of
exhaustion was still relatively new, and if it were to be regulated globally,
major issues would arise should there be any gaps in international law. As a
result, it presumably appeared more sensible to see how various nations
approached the situation.
Positive exhaustion
standards were incorporated in WIPO treaties. In accordance with Article 9 of
the WIPO Copyright Treaty (WCT), "Nothing in this Treaty shall affect the
freedom of Contracting Parties to determine the circumstances, if any, in which
the exhaustion of the right in paragraph (1) applies after the first sale or
other transfer of ownership of the original or a copy of the work with the
author's authorization"[11].
It is important to
note the provision of the TFEU, which forbids quantitative restrictions on
imports and all measures having equivalent effects, when discussing the
exclusive rights of the copyright holder, particularly the distribution right,
which entitles the right holder with the exclusive right of permitting the use
of his works by giving licences, so that members of the public can use the
copyrighted work[12]. The
goal of this concept was also discussed in the "Deutsche Grammophon"
case, which is one of the earliest instances in Europe connected to the
exhaustion rule[13].
DIGITAL
EXHAUSTION IN US LAW
The legislature made
a clear effort to establish a doctrine of the digital first sale when it passed
the Benefit Authors without Limiting Advancement or Net Consumer Expectations
(BALANCE) Act. The proposed BALANCE Act aimed to re-establish the conventional
equilibrium between individual consumers and copyright owners in society. By
explicitly permitting an owner of a legally acquired digital work to dispose of
such work on the condition that the owner did not keep a copy, the BALANCE Act
aimed to modify the first sale doctrine[14].
The Subcommittee on Courts, the Internet, and Intellectual Property was the
only place the proposed law ever left[15].
With the BALANCE Act, Congress attempted but failed to adequately address the
problem of applying the first sale doctrine to digital media. Congress then
decided to take a "wait and see" stance.
Then, the Congress
passed the Digital Millennium Copyright Act (DMCA) in 1998, with two different
goals in mind. First, Congress wanted to put into effect the 1996 Copyright Treaty
of the World Intellectual Property Organization (WIPO), which called for
legislation to be passed outlawing the use of encryption technology. Second, in
light of evolving digital technologies, Congress sought to update copyright
law.
The Copyright Act governs
the essential aspects of copyright law in the US. The US Copyright Act allow
copyright holders the exclusive right to distribute copies of their works,
similar to EU law, and also establish the "first sale doctrine"
restrictions on this privilege. The owner of a specific copy or phonorecord
that was lawfully prepared under this title is entitled, without the consent of
the copyright owner, to sell or otherwise dispose of the possession of that
copy or phonorecord, according to the Copyright Act.
The issue at hand in MAI
Systems Corp. v. Peak Computers Inc.[16],
was whether loading computer software into temporary memory qualifies as a copy
under US copyright law. The Court’s answer was, "A copy is made when
copyrighted computer software is loaded into the CPU's memory from a storage
medium”. This decision makes it clear that US law does not take a broad
approach to copyright exhaustion, limiting this privilege to only physical
copies of the work that is protected by copyright.
The issue in Vernor
v. Autodesk[17]
relates to the transfer of computer programmes to the user under the shrink
wrap licence and the applicability of the first sale concept. The person was a
licensee, not an owner, according to the court's ruling, hence the first sale
theory cannot be used. In this instance, Autodesk's distribution rights were
violated.
There have been
instances where the US Court made a different decision, nevertheless. One of
these examples is United States v. Wise[18],
in which the US Court discovered that the distinction between the owner and a
mere licensee is incredibly hazy. If the licensee has the option to keep the
copy as a result of the licence, then he also gains ownership, and a sale takes
place; otherwise, there isn't one.
ANALYSIS ON THE CASE OF CAPITOL RECORDS,
LLC V. ReDIGI, INC.
[The website ReDigi served as a digital music
marketplace where users could both sell and acquire legally obtained digital
music. First, a user had to download a programme called "Media
Manager," which searched the user's computer for digital music that could
be purchased. o Digital music from other sharing websites or CD downloads were
not acceptable; only music purchased on iTunes or from another user was
accepted.
Once a suitable file
had been chosen by the user for sale, the application continued to run on the
user's computer and any attached devices to ensure that the user did not keep a
copy of the digital music file. The software asked the user to delete the
digital music file if a copy was found. However, the deletion was not forced;
rather, the individual chose to do so. ReDigi had a policy that if a user
refused to comply with the deletion order, their account would be suspended.
The user had to
submit any qualifying digital music to the website as the following step
"Cloud Locker," so that the user's PC no longer contained the digital
music. The digital music was again checked for eligibility during the upload
process, and after that it was kept in the Cloud Locker. The users could either
keep and stream the digital music for their own use or put it up for sale on
ReDigi's online store." "In the event that the user sold the digital
music, their access to it was revoked and given to the new owner at the moment
of the sale." The new owner might then sell the music, play it, or download
it to a computer or other device after storing it in the Cloud Locker."
Users could only purchase music using credits, which could be obtained via
ReDigi or by the sale of digital music in the ReDigi marketplace. Credits were
non-transferable and could only be used to buy music from ReDigi's marketplace.
On January 6, 2012,
Capitol filed a copyright infringement lawsuit against ReDigi under the
Copyright Act in the District Court of the Southern District of New York.
Capitol sued ReDigi, asking for both temporary and permanent injunctions, but
the District Court rejected Capitol's application for a preliminary injunction
because it could not demonstrate that irreparable injury had occurred. The
court rejected Capitol's requests for both a temporary injunction and a
permanent injunction. On July 20, 2012, Capitol submitted a petition for
partial summary judgement on the claims of primary and secondary infringement.
On the same day, ReDigi submitted a counter-motion for summary judgement and
asserted the affirmative defences of fair use and first sale.
The District Court
considered three issues in relation to Capitol's motion for partial summary
judgement on copyright infringement:
(1) if Capitol had a
legitimate copyright and one of Capitol's exclusive rights was violated by
ReDigi's website;
(2) whether ReDigi
had a fair use or first sale defence to absolve the infringement; and
(3) whether ReDigi
was liable for both direct and secondary infringement.
According to Courts
the unauthorised reproduction of digital music files over the Internet violates
the copyright owner's exclusive right to reproduce. But in this case, the
question was "whether the illicit transfer of a digital music file via the
Internet" qualified as reproduction and distribution under the Copyright
Act.
Additionally, courts
held that in peer-to-peer file-sharing, it was determined that when a user
downloaded a digital music file on a hard drive, the material was
"reproduced" in accordance with the Copyright Act. The District Court
found that "the reproduction rights are defined by the formation of a new
material item and not by the creation of extra material objects."Since it
is "impossible that the same material thing" to be carried via the
Internet, when a file is transferred there is a new physical object created on
a different computer. The District Court finally found that the sale of digital
music files on ReDigi's website infringed Capitol's exclusive distribution and
reproduction rights, but it was impossible to determine from the evidence
whether Capitol's display and performance rights were also breached.
The District Court
then considered the fair use defence of the Capitols, the court found that all
the four factors of fair use unquestionably weighed in favour of Capitol. The
first factor observed that Redigi used the work for commercial purposes with
gaining direct profits and moreover it did not add something new to have a
transformative work. The other three factors also weighed against fair use and
thus the court concluded that there was no fair use defence.
Later, the
District Court considered the First sale doctrine, the court stated that the
doctrine limited to assertions of distribution right and did not apply to the
reproduction right. The first sale doctrine did not defend ReDigi's
infringement of Capitol's distribution right because "a digital music file
sold on ReDigi is not 'lawfully made,'" the District Court found, adding
that "when the user used ReDigi to upload the digital music file, the
lawful owner produced a new unlawful reproduction on the ReDigi server."
The District Court reasoned that the first sale argument did not apply to
ReDigi's infringement since its service infringed Capitol's reproduction right
by making a new copy of the digital music file.
With respect to
the third issue, ReDigi was found guilty by the District Court of infringing
Capitol's exclusive distribution and reproduction rights directly as well as
indirectly, including contributory and vicarious culpability.
Thus, the court
in this ReDigi case held that the doctrine of exhaustion cannot be applied to
digital files and upheld that ReDigi has infringed the right of distribution
and reproduction of Capitol Records.
CONCLUSION
As practically every
organisation is shifting from traditional to digital formats, it is
critical to be adaptable in order to keep up with global technology
advancements. As technology advances year after year, situations of digital
weariness will become more and more prevalent. As discussed above, the District
Court in ReDigi case limits the first sale doctrine to digital copyrighted
files by its observation that any transfer of digital files over the internet
requires the creation of a new copy. The user in that case created a new
illegal reproduction on the ReDigi server when they uploaded digital music to
the Cloud Locker for sale or personal use. The Court
further stated that owners of a copy have first sale protection, however
lessees and bailees with mere possession of a copy do not receive the protection of first
sale." This interpretation of the doctrine aided in the first sale
doctrine's spread.
Congress and
the courts will undoubtedly debate the question of the first sale doctrine's
extension to digital content in the near future due to the increasing
prevalence of digital content and the growth of online markets for it. The
first sale defence for digital music may be further restricted by the courts in
response to this call for expansion until Congress issues advice.
The District Court
determined that because the transfer via the Internet inevitably resulted in
the formation of a new physical object, the selling of digital music through
ReDigi's website and technology violated Capitol's exclusive rights[19].
However in my view there is no infringement of Capitol's
distribution and re- production rights by the ReDigi as it provided a service to
resell the digital music when only one digital file remains after the sale,
there is no duplication of the file being retained by the seller.
Thus it is required
that, a more thorough approach is required to the problem of digital
exhaustion. Even though the facts and circumstances are similar, case-by-case
analysis might occasionally result in several conflicting outcomes. There must
be a border, and this border must be governed by law. As a result, some
fundamental legal provisions must be established in order to at the very least
regulate some significant legal issues and to provide clarification, allowing
internet users to understand their rights and what they are not allowed to do.
Moreover the doctrine
of exhaustion and right to reproduction and co related when it comes to digital
files. Thus, the doctrine of exhaustion can be extended to digital files only when
there are fundamental legal provisions to look after the application of the
doctrine.
[1] WIPO Copyright Treaty, Art. 6(2) (2002), CDIP/4/4
REV./STUDY/INF/2 ORIGINAL: ENGLISH DATE: JUNE 1, 2011
[2] Adams v. Burke, 84 U.S. 453, 456 (1873)
[8]
The Copyright Act, 1957, section 14 and 16.
[9] Penguin Books
Limited v. India Book Distributors and others, AIR 1985 Delhi 29, 26 (1984) DLT 316
[10] Agreement on Trade-Related Aspects of
Intellectual Property (hereinafter TRIPS), art. 6 (1995).
[11] WIPO Copyright Treaty, art. 6(2) (2002).
[12] Treaty on the Functioning of the European
Union (hereinafter TFEU), art. 34 (1957)
[13] Deutsche Grammophon Gesellschaft mbH v
Metro-SB-GroBmarkte GmbH & Co. KG. (1971).
[14] H.R. 1066, 108th Cong. §2(5) (2003).
[15] Eric Matthew Hinkes, Access Controls in
the Digital Era and the Fair Use /First
Sale Doctrines, 23 SANTA CLARA COMPUTER &HIGH TECH. L.J. 685, 721 (2007).
[17] Vernor v. Autodesk, Inc., 621 F.3d 1102
(9thCir. 2010).
[18] United States v. Wise, 370 U.S. 405
(1962).
[19] Capitol Records, LLC v. ReDigi, Inc., 934
F. Supp. 2d 640, 644-645 (S.D.N.Y. March 30, 2013).
Article Information
A CRITICAL ANALYSIS OF DIGITAL EXHAUSTION – WITH SPECIAL REFERENCE TO REDIGI’s CASE BY: UMAMAHESWARI. U
Authors: UMAMAHESWARI. U
- Journal IJLRA
- ISSN 2582-6433
- Published 2023/04/15
- Volume 2
- Issue 7
About Journal
International Journal for Legal Research and Analysis
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