First Sale and the Software Industry

by on September 2, 2007 · 10 comments

I’m going to have to respectfully disagree with Braden Cox’s take on post-sale restrictions of the first sale doctrine. Braden did a good job of explaining why limiting the first sale doctrine would be good for software companies. But he did not, as far as I can see, provide any explanation for how limiting the first sale doctrine would benefit society as a whole, which is what copyright is supposed to accomplish.

I have no doubt, for example, that software companies desire to enforce “legitimate price and market segmentation” schemes. But the fact that software companies would like to enforce such schemes is in no way an argument for interpreting copyright in such a way as to make it easier to do so.

Indeed, it’s important to remember where the First Sale Doctrine came from. The Bobbs-Merril case was about precisely the sort of thing Braden is discussing in his post:a publisher using copyright law as an alternative method of enforcing its pricing policies. The Supreme Court, rightly in my view, held that that’s not what copyright was for. And the next year Congress agreed, codifying the First Sale Doctrine into the 1909 Copyright Act.

One can imagine the an advocate for the publishing industry in 1909 making precisely the same argument Braden makes here: that “If we rely more on contract instead of copyright rules, would there be a contract to sign every time a customer purchased a book?” But that begs the question. Obviously, this would be a big pain in the butt, both for the publishing industry and for consumers. And that is precisely why most publishers don’t require you to sign a contract before you sign a book. It is only when they have the option to use the copyright law as a means of shifting the costs of enforcing their contracts onto other people that publishers are interested in promulgating such contracts. When publishers are required to bear the full costs of enforcing those contracts themselves, as they were in Bobbs-Merrill, they discover that they can get along just fine without post-sale restrictions on the use of their products.

I think the same is true of the software industry. If the courts refused, as I think they should, to characterize retail sales of software as “licenses” based solely on the existence of an EULA inside the box, I do not believe that software firms would respond by making you sign a paper contract before you could leave the store with your Best Buy purchase. Rather, they would simply adjust their business models to accommodate the new legal environment. To be sure, this might have some negative effects—academic discounts might become less frequent, for example—but I think it would have some positive effects as well. Most obviously, fewer legal resources would be wasted in litigation over precisely which terms in a EULA are and aren’t enforceable against whom. It might also end the farcical situation in which we all “agree” to dozens of “license agreements” we never read, and which are almost never enforced in court.

But the fundamental issue here is that the convenience of the software industry is not a sufficient argument for any given change to copyright law. The copyright system is supposed to promote “the progress of science and the useful arts,” not to make Steve Ballmer’s life easier. The two aren’t always in conflict, of course, but they’re also rarely in perfect alignment.

  • http://www.codemonkeyramblings.com MikeT

    Under the current model, retailers (aside from college bookstores) have no incentive to card people buying academic licenses. The software is generally shipped at cost to them, so a retailer can easily make a $195 profit off the sale of an academic license of Microsoft Office as just one example. If they want to control the loss of revenue, they have to focus on enforcing contractual relationships with the retailers instead.

  • http://enigmafoundry.wordpress.com/ e_f

    Great post.

    I see so much concentration on what is necessary because it will support business plans, business plans which are supposedly required to support ‘innovation.’

    One item I’d like to see is inclusion of how some recent decisions might affect this. In particular, the Blizzard v. BNetD decison would seem to bear on this issue.

  • http://enigmafoundry.wordpress.com/ e_f

    Mike:

    The easing of restrictions on academic sales is a way that Microsoft has stealthily lowered the sales prices of their software, this is part of their effort to head off growth in FOSS.

    Like a crack dealer, MS would be happy to give the first ‘hit’ away for free, especially to school children.

  • http://www.codemonkeyramblings.com MikeT

    Under the current model, retailers (aside from college bookstores) have no incentive to card people buying academic licenses. The software is generally shipped at cost to them, so a retailer can easily make a $195 profit off the sale of an academic license of Microsoft Office as just one example. If they want to control the loss of revenue, they have to focus on enforcing contractual relationships with the retailers instead.

  • http://enigmafoundry.wordpress.com/ e_f

    Great post.

    I see so much concentration on what is necessary because it will support business plans, business plans which are supposedly required to support ‘innovation.’

    One item I’d like to see is inclusion of how some recent decisions might affect this. In particular, the Blizzard v. BNetD decison would seem to bear on this issue.

  • http://enigmafoundry.wordpress.com/ e_f

    Mike:

    The easing of restrictions on academic sales is a way that Microsoft has stealthily lowered the sales prices of their software, this is part of their effort to head off growth in FOSS.

    Like a crack dealer, MS would be happy to give the first ‘hit’ away for free, especially to school children.

  • eric

    enigma_foundry, if you believe that, then you should be glad if MikeT’s suggestions for very strict enforcement at the retail level is realized, since it will limit the use of Microsoft OS by our impressionable youth (addling their minds and setting them on the road to commercial software addication). We all know that Windows is a “gateway” to worse things. :)

  • eric

    enigma_foundry, if you believe that, then you should be glad if MikeT’s suggestions for very strict enforcement at the retail level is realized, since it will limit the use of Microsoft OS by our impressionable youth (addling their minds and setting them on the road to commercial software addication). We all know that Windows is a “gateway” to worse things. :)

  • http://blog.actonline.org Mark Blafkin

    Tim is also glossing over the most important point. Free software depends on “license agreements” as much if not more than Ballmer and Co. By my reading, if the courts were to fully subscribe to the ideas of Fred VL and Tim, the entire Copy Left movement would be crippled. They would not be able to impose any of the limitations on use/redistribution that are contained in the various versions of the GPL. The proprietary software industry can probably survive without shrinkwrap licensing as Tim suggests, but I don’t see how the Open Source/Free Software communities can survive under the legal framework that Tim is espousing.

  • http://blog.actonline.org Mark Blafkin

    Tim is also glossing over the most important point. Free software depends on “license agreements” as much if not more than Ballmer and Co. By my reading, if the courts were to fully subscribe to the ideas of Fred VL and Tim, the entire Copy Left movement would be crippled. They would not be able to impose any of the limitations on use/redistribution that are contained in the various versions of the GPL. The proprietary software industry can probably survive without shrinkwrap licensing as Tim suggests, but I don’t see how the Open Source/Free Software communities can survive under the legal framework that Tim is espousing.

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