Dollars, Cents and Downloads
September 4, 2003
The question raised, however, is very interesting. Does the doctrine of first sale apply to digital files? In a Duke Law & Technology Review iBrief, The First Sale Doctrine and Digital Phonoreecords (2001 Duke L. & Tech. Rev. 0018), Bob Hyde argues that the doctrine of first sale should not apply to digital media files. Unlike with traditional analog and digital recording media (records, tapes, CDs), the downloaded digital file is ephemeral. The mere action of electronically transferring the file from one owner to another creates a copy. Unlike with a record or CD, no physical media is attached to ownership of a digital file. The iTunes license recognizes this and allows a single user to keep as many copies of the file as the user wants, but restricts playing the file on 3 authorized computers and any number of iPods.
A user can not copy iTunes files to an unlimited number of computers and still expect those files to play. The key purchase with iTunes is not the file itself, but a license to use the file.
The iTunes Terms of Service and Terms of Sale are essentially mute on the topic of first sale. The most relevant clause in the Terms of sale may be: "The delivery of a Product does not transfer to you any commercial or promotional use rights in the Product." Is selling my own copy of something that I own a commercial use? Assuming that a personal sale is a commercial use, then resale is obviously prohibited. However, when contemplated in terms of "commercial or promotional," it sounds more like the warning which opens most DVDs and video tapes: "for personal, non-commercial use." While I can not charge admission to a public showing of The Simpsons Season 3, I can sell the DVD to another individual.
The first clause in the Terms of Service reads:
1. Definition of the iTunes Music Store Service. Apple is the provider of the iTunes Music Store (the “Service”) that permits you to purchase downloads of digital content—such as sound recordings—under certain terms and conditions as set forth in this Agreement.Under one reading of this clause, users are purchasing the right to one download from Apple, not purchasing one file. This is like buying a NY subway token (or a single-ride Metrocard now), which grants the right to enter the subway system once. After entering the subway system, I can choose to exit without getting on a train and am not entitled to a refund. But, when unveiling the iTunes music store, Steve Jobs said when you download a song from iTunes, "you own it." Music files are treated like products in a store, and it certainly feels to the users like we have purchased something. That song is occupying space on an iTunes user's computer. The subway token analogy is closer to eMusic's approach, where $9.99 a month grants access to as much or as little unrestricted music as the user wants.
The m4p files from iTunes act more like scarce objects than the unrestricted mp3 files from eMusic. Only one person (and the other people that person would trust with his credit card) can access the protected AAC files. I could distribute an unlimited number of copies of The Bad Plus's "What Love is This" as I want after I've downloaded it. But only up to three of those copies are in any way useful and only to someone with access to the license to use the song. If I decided that I didn't want the Soulive CD I bought, I could sell it and no longer have access to it. If I transfered my license to listen to the Soulive AAC files to someone else, I would no longer have access to it. In this way, protected AAC albums resemble scarce CDs more than they resemble unlimitedly re-distributable MP3 files.
Although a seller could theoretically sell his entire iTunes account to a buyer, that would require the seller not want to keep any previously purchased music. That also assumes that the iTunes account can be severed from the other related services that a customer might use from Apple, such as .mac email or stored information at the Apple store. It also assumes that the purchaser not have his own iTunes account, since it would require the purchaser to have change identity within the iTunes application to play certain songs. It seems much easier to allow users to transfer licenses.
If it is not possible to transfer ownership of a license to an iTunes m4p album from one person to another, buying a $9.99 download from Apple makes far less economic sense than buying a $12.99 album from Tower. Once downloaded, the iTunes album retains absolutely no monetary value, while the CD can still be sold or traded. Furthermore, one could never use iTunes to buy a gift. If I wanted to buy an album to give to someone, I would have to have access to their account. I might as well just buy some gift wrap for that CD.
If licenses to access DRM'ed files are not transferable, then buying protected downloads makes no sense for consumers if unprotected CD's are still available. Even at a 50% price premium, the CD is a much better value. Someone who would buy hundreds of dollars of music through iTunes would have no assets, while someone who bought the same music on CD would still have some value. If Apple wants its digital distribution service to be viable, the licenses to use DRM-protected digital downloads should be transferrable. If not, consumers have no economic reason to prefer downloads.
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News.com: eBay mutes iTunes song auctionPosted by Andrew Raff at September 4, 2003 11:33 AM
Excerpt: Apple finally reveals that a sale of iTunes Music Service songs from one user to another is legal, though impractical. "Apple's position is that it is impractical, though perhaps within someone's rights, to sell music purchased online," Peter Lowe, App...
Weblog: Andrew Raff: Shameless Self Promotion
Tracked: September 9, 2003 06:48 PM