VSDA Praises Copyright Office Recognition of First Sale Rights in Digital Downloads, But Association Criticizes Failure to Account for Needs of Consumers.

Business/Entertainment Editors

LOS ANGELES--(ENTERTAINMENT WIRE)--Aug. 30, 2001

The Video Software Dealers Association (VSDA), the international trade association representing the home video industry, today praised the U.S. Copyright Office for affirming that the first sale doctrine of copyright law, which allows retailers to rent and sell videos, video games, and other copyrighted material without interference by copyright owners, applies to videos and other entertainment lawfully downloaded from the Internet.

However, the VSDA criticized the Copyright Office for failing to address the efforts of copyright owners to defeat first sale rights and limit consumer use of digital downloads through overly restrictive technological controls and unilateral contract terms.

VSDA President Bo Andersen said, "This report from the Copyright Office should resolve whatever ambiguity may have existed regarding whether the first sale doctrine applies to digital downloads. It is time to move beyond arguments whether an individual or retailer who purchases and legally downloads a movie from the Internet onto a disk or their hard drive owns that movie, can use it, sell or rent the disk, or give it away like they do with traditional packaged products. According to the Copyright Office, clearly they can."

Andersen commended the Copyright Office for recognizing that access control technologies that tether digital downloads to a single computer and non-negotiable "click-thru" contracts that attempt to override copyright law may negatively impact consumer choice and retail competition. However, he went on to criticize the Copyright Office for not recognizing that the problems created by tethering and unilateral contracts need to be addressed now, not at some vague time in the future. The report makes no mention of new business models being promoted by copyright owner joint ventures, under which consumers would be locked out of their own property unless they keep paying the copyright owner for access.

Andersen said, "The restrictions on consumers' abilities to fully use products they lawfully purchase and download are not speculative. They are part of business models that are currently being rolled out. Overly restrictive access control technologies and non-negotiable `click-thru licenses' are being used today by copyright owners to create a `right' to restrict consumers' use of digital downloads, a right they do not have under the Copyright Act."

In light of the Copyright Office's failure to adequately address the harm to consumers from overly restrictive access control technologies and unilateral contracts, Andersen called for the entertainment industry to adopt VSDA's principles regarding digital delivery of movies, which are designed to ensure consumer choice, prevent piracy, and promote retail competition. "We call on copyright owners to sit down now with retailers, on behalf of consumers, and develop business models to ensure that consumers continue to have the price competition, product selection, variety of terms, and customer service that are the hallmark of video retailing."

VSDA's "Principles to Facilitate Digital Delivery of Movies" emphasize anti-piracy protections, endorsement of the first sale doctrine for digital products, rejection of exclusive dealing, promotion of consumer choice, protection of consumer privacy, and limitation of digital rights management systems to copyright protection and management.

"Consumers have legitimate concerns over their ability to use products obtained via digital distribution, copyright owners have legitimate concerns about unlawful reproduction and distribution of their movies, and retailers have legitimate concerns about business models that would suppress or eliminate retail competition," Andersen declared. "VSDA believes that the consumers, retailers, and copyright owners of motion pictures would benefit from adoption of our principles and the clarification they would provide of the copyright issues surrounding digitally delivered motion pictures."

The report of the Copyright Office, which was issued late yesterday, states that the first sale doctrine clearly applies to digital downloads that are fixed in some tangible medium, such as a writable CD or DVD, a computer diskette, or a hard drive. It rejects the notion that the first sale doctrine applies to digital transmissions that are not fixed in a tangible medium. The Copyright Office notes that tethering of downloads to a single computer and unilateral contract terms that attempt to override copyright law may be problematic, but concludes that the problems raised by them are either speculative or premature or beyond the scope of the report.

The Copyright Office report, which was authorized by Section 104 of the Digital Millennium Copyright Act of 1998 (DMCA), examines the impact of Title 1 of the DMCA and the development of electronic commerce on the operation of the first sale doctrine and Section 117 of the Copyright Act, and the relationship between existing and emerging technology and the operation of the first sale doctrine and Section 117.

Title I of the DMCA includes prohibitions on: circumvention of technological measures that control access to copyrighted works; trafficking in any technology primarily designed or produced, or marketed, to circumvent such technological measures or any other technological measure that protects a right of a copyright owner in a copyrighted work; and intentional alteration of copyright management information for the purpose of copyright infringement.

The first sale doctrine, codified at Section 109 of the Copyright Act, permits the owner of a lawfully made copy or phonorecord of a copyrighted work to sell or otherwise dispose of possession of that copy or phonorecord without the authority of the copyright owner, notwithstanding the copyright owner's exclusive right of distribution under the Copyright Act. It thus permits the sale and rental of videos and videogames without the copyright owner's permission.

Section 117 of the Copyright Act permits the owner of a copy of a computer program to make a copy or adaptation of the program for archival purposes or as an essential step in the utilization of the program in conjunction with a machine. It also permits the owner or lessee of a machine to make a temporary copy of a computer program if such copy is made solely by virtue of the activation of a machine that lawfully contains an authorized copy of the computer program, for purposes of maintenance or repair of that machine.

Established in 1981, the Video Software Dealers Association (VSDA) is a not-for-profit international trade association for the $19 billion home entertainment industry. VSDA represents over 2,000 companies throughout the United States, Canada, and 22 other countries. Membership comprises the full spectrum of video retailers (both independents and large chains), as well as the home video divisions of all major and independent motion picture studios, video game and multimedia producers, and other related businesses that constitute and support the home video entertainment industry.