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THE FUTURE OF RESELLING DIGITAL VIDEO GAMES
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THE FUTURE OF RESELLING DIGITAL VIDEO GAMES
by Dan Rogers on 08/06/13 04:40:00 pm   Expert Blogs   Featured Blogs

The following blog post, unless otherwise noted, was written by a member of Gamasutra’s community.
The thoughts and opinions expressed are those of the writer and not Gamasutra or its parent company.

 

The decision in ReDigi v. Capitol Records probably means that can't resell your digitally downloaded video games—but for reasons that may surprise you. 


CAPITOL v. REDIGI

Marketing itself as the world’s first and only online marketplace for digital used music, ReDigi, Inc. launched an on-line business in October 2011 that allowed users to resell legally acquired iTunes music. To facilitate the transaction, users downloaded a software utility that verified the music files on their local computer, and then transferred them to ReDigi’s centralized cloud locker, where others could purchase the songs for less than the original sale price. ReDigi asserted the digital music only resided in one location at any time, so there was no copyright infringement.

Capitol Records didn’t agree, and they filed a lawsuit in July 2012, complaining that the owner of a work retains the exclusive right of reproduction and distribution under U.S. copyright law. [2] ReDigi’s act of transferring iTunes music to their cloud locker created an unauthorized  “copy” in violation of Capitol’s rights.

The New York Southern District Court agreed with Capitol, even though the original music file was deleted from a user’s computer. The court reasoned that reproduction of a copyrighted work occurs when it is fixed in a new material object, stating 

It is beside the point that the original phonorecord no longer exists.  It matters only that a new phonorecord has been created.” [3] 

REDIGI'S FAILED DEFENSE

ReDigi argued that its service was protected under the First Sale Doctrine, a 105 year old law that allows purchasers of books, audio records, and other copyrighted material to resell them. [4]

The ReDigi court didn't agree. They held that the First Sale Doctrine wasn’t applicable, and differentiated between reselling physical and digital goods, saying that ReDigi’s process was similar to the illegal copying of music via P2P services such as Napster and Grokster, despite the fact that only a single copy of a digital good was accessible. 

The court reasoned that “…it is the creation of a new material object and not an additional material object that defines the reproduction right [of the rights holder].”

In other words, the First Sale Doctrine didn’t apply because ReDigi’s service created an unauthorized second copy, whereas in reselling a physical good—such as a vinyl record or book—the physical good is transferred between owners without a second copy ever being made. 

AS APPLIED TO VIDEO GAMES

The ReDigi decision has implications for all digital media, including video games. In 2012, 40% of all video games sold in the United States were done so digitally, totaling over $5.9 billion dollars, according to the NPD Group.  Reselling used video games generated 27% of Gamestop's 2012 business, or approximately $1.8 billion dollars in revenue. Consumers have become accustomed to reselling their games as a means to buy new ones.  So while the defendant in ReDigi was reselling digital music, the similarities in content and law are enough that those in the video game industry should take notice.

In 1908, in the First Sale Doctrine case discussed above, Bobbs-Merrill Co. v. Straus, the Supreme Court was asked whether the purchaser of a book, in this case one entitled The Castaway, had the right to resell it. The question at bar was this:

"Does the sole right to vend... secure to the owner of the copyright the right, after a sale of the book to a purchaser, to restrict future sales of the book at retail, to the right to sell it at a certain price per copy, because of a notice in the book that a sale at a different price will be treated as an infringement, which notice has been brought home to one undertaking to sell for less than the named sum?"

The Supreme Court answered that while a copyright owner has the right to multiply and sell his production, this does "not create the right to impose, by notice, such as is disclosed in this case, a limitation at which the book shall be sold at retail by future purchasers, with whom there is no privity of contract."

In other words, the re-selling of books was and still is a lawful activity. 

Assuming you have the right to re-sell a digital good you've purchased, if you make a copy of it in the process of facilitating an exchange, under ReDigi  you've infringed the owner's copyright. Practically speaking, this prevents re-selling all digital goods--unless you sell the computer or iPhone holding the work along with it.

But chances are good that you don't own the digital good anyway.

DIGITAL LICENSES OFTEN PREVENT THE TRANSFER OF OWNERSHIP

The ReDigi decision was based on the physical act of copying bits from one device to another, which is a right reserved to copyright owners. But few realize that publishers rarely sell you a digital good. They license it to you.  And under the terms of use that you have agreed, you probably don’t have the right to resell it. 

From a legal perspective, licensing terms are terms of contract, and as applied to Bobbs-Merrill Co. v. Straus, there is privity of contract. So licensing, at least for the time being, allows digital goods copyright owners a way to avoid the First Sale Doctrine entirely.

Consider Apple’s iTunes End User Licensing agreement term:

“The Products transacted through the Service are licensed, not sold, to You for use only under the terms of this license….” [5]

Apple then lets you know that you are not allowed to transfer your license to someone else:

This license granted to you… is limited to a nontransferable license to use…” [6]

Activision’s End User License Agreement provides similar language:

“LIMITED USE LICENSE.  Activision grants you the non-exclusive, non-transferable, limited right and license to use one copy of this Program solely and exclusively for your personal use.” [7]

And they too do control your ability to transfer the license to someone else.”

“You Shall Not: … Sell, rent, lease, license, distribute or otherwise transfer this Program, or any copies of this Program, without the express prior written consent of Activision.” [8]

So what’s the difference between licensing and owning a game? 

LICENSE VERSUS OWNERSHIP EXPLAINED

Consider the difference between purchasing a home and leasing one.  A home owner can resell their property, but a lessee can’t. A lessee agrees in a signed contract to follow rules, which can be more restrictive than what the owner themselves must ascribe to. 

In the same way, a digital license agreement is limited to the terms you agree to by clicking yes at the end of a multi-page, complex on-line agreement. [9] In that agreement, you almost always agree that you do not have the right to transfer your rights to someone else. 

BUT IS IT FAIR?

Digital goods are different than physical goods, in that physical goods are subject to wear and use, whereas a digital good can be reproduced identically and in perpetuity. Those who favor limiting the rights of digital goods owners view Capitol v. ReDigi as a significant win. But with the rapid shift of copyrighted works from physical form to stored digital media, whether in the form of Amazon purchased movies and television shows to iTunes music to digitally downloaded video games, there seems to be something fundamentally unfair in a license-only transaction, especially considering a widespread perception that consumers actually own the the digital goods they purchase.

Follow dan on Twitter @rogersdanlee


[1] Capitol Records, LLC. v. ReDigi, Inc., Dist. Court, SD New York , N. 12 Civ. 95 (RJS), March 30, 2013.

[2] 17 U.S.C. §§ 106(1), (3)-(5).

[3] Capitol Records, LLC. v. ReDigi, Inc.

[4] Articulated in Bobbs-Merrill Co. v. Straus, 210 U.S. 339, 350 (1908) and now codified at Section 109(a) of the Copyright Act, the owner of a particular copy or phonorecord lawfully is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that work.

[5] Emphasis added. Apple iTunes End User Licensing Terms and Conditions: https://www.apple.com/legal/internet-services/itunes/us/terms.html

[6] Emphasis added. Id. 

[7] Emphasis added. Activision Black Ops licensing agreement: http://store.activision.com/store/atvi/en_US/Content/pbPage.eula_black_ops?resid=UgE9agoBAlUAACOICZEAAAAa&rests=1375812969748

[8] Emphasis added. Id.

[9] Click wrap licensing agreements have generally been held enforceable. See  Burcham v. Expedia, Inc., WL 586513 (E.D. Mo. Mar. 6, 2009;  Hotmail Corporation v. Van Money Pie Inc., et al., C98-20064 (N.D. Ca., April 20, 1998)); ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996)); and  Specht v. Netscape Communications Corp., 150 F.Supp.2d 585 (S.D.N.Y. 2001).

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Comments


Michael McNeff
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In the EU preventing the resale of used software has been banned thanks to the UsedSoft v Oracle ruling. The EU courts ruled that if a company sells a user a lifetime license of software in exchange for a one-time fee, they aren't licensing the software, they have sold it and the software can then be resold by the consumer. I started a site devoted to helping EU users legally resell their software. www [dot] halfpricedigital [dot] com

Luke Shorts
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The ruling in UsedSoft v Oracle was specifically restricted to software, because it concerned the interpretation of Art. 4(2) of the EU Software Directive; sales of other kinds of digital content, such as music files or e-book, as in the ReDigi case reported above, are in principle not covered by that law, but rather by the InfoSoc Directive.

Whether the ruling can be extended to these cases is questionable, and there are decisions at national level that say that this is not the case (see e.g. Landgericht Bielefield, "Verbraucherzentralen" in Germany). The issue is therefore far from settled, unless a new referral to the CJEU is made about the interpretation of the InfoSoc Directive regarding the second-hand sale of digital goods in general.

Mael Brunet
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Good points but technically a video game is BOTH a digital content AND a piece of software so couldn't it be argued that it falls under the remit of the Software Directive? Is there any legal precedent on this?

Josh Bycer
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As someone who has not heard of this case before now, when Redigi uploads the music from the customer's computer to their cloud service, did they delete the original copy or left it on the computer? If it was the former and that there was only one copy of the digital version per sale floating around I would think that it would be fair use.

Has there been any major news regarding the EU's ruling that digital game sales were considered fair use from last year? I was expecting to hear more about the fallout from that ruling but it seems like nothing happened following it.

Daniel Boy
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There will be a trial concerning used games in autumn/winter in germany. Just search for Valve and vzbv.

Luke Shorts
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See above: "The New York Southern District Court agreed, even though the original music file was deleted from a user’s computer." Fair use does not hold much water here imho (nor ReDigi relies on it according to the article), since the factors to be considered are: 1. the purpose and character of the use, including whether such use is of a commercial nature or is for non-profit educational purposes (here it is clearly a commercial use); 2. the nature and 3. the amount and substantiality of the portion used in relation to the copyrighted work as a whole (here we are speaking about a 100% copy); and 4. the effect of the use upon the potential market for or value of the copyrighted work (I know this is arguable, but a prima facie case can easily be made that second hand sales restrict the market for the "new" copies).

As for the EU case, the ruling was also not about fair use (i.e., an exception to the rule of copyright infringement) but rather exhaustion of right (which would be the First Sale Doctrine in US terms). As mentioned in the article above, copyright is actually a bundle of a reproduction right and a distribution right; the latter right is exhausted once a first legal sale of a particular copy is made under Art. 4(2) of the EU Software Directive. Hence in the UsedSoft case the issue was not whether a normally infringing act could be allowed under the EU fair use equivalent, but rather that Oracle had lost a part of its copyright, namely the distribution right, in respect of those copies. The CJEU was simply called to answer the question of whether exhaustion applied to digital copies, to which it replied yes.

Martin Zimmerman
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It seems to me that the court's theory would bar people from moving their digital music from one hard drive to another.

Dan Rogers
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Martin, your comment regarding moving or storing music in other locations was argued by ReDigi, but the court was not convinced. Here's that portion of the Court's discussion:

"ReDigi also argues that the Court's conclusion would lead to "irrational" outcomes, as it would render illegal any movement of copyrighted filed between directories and defragmenting...However, this argument is nothing more than a red herring. As Capitol has conceded, such reproduction is almost certainly protected under other doctrines or defenses, and is not relevant to the instant motion."

Thomas Schenck
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I think the key difference is that the transfer of the file from one directory to another does not make a different copy of the data. Transferring the data from one storage medium to another is a different matter, but is explicitly allowed in most of the usage agreements I've seen, including the iTunes terms:

(under USAGE RULES)

" (vi) iTunes Plus Products do not contain security technology that limits your usage of such products, and Usage Rules (ii) – (v) do not apply to iTunes Plus Products. You may copy, store, and burn iTunes Plus Products as reasonably necessary for personal, noncommercial use."

The key terms are "personal" and "non-commercial" here, so you've agreed to a reasonable set of conditions and the court seems to have agreed these are reasonable conditions.

Luke Shorts
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I will try and read the decision as soon as I have time, but it seems an incredibly sloppy legal reasoning to me... they avoid the logical consequences of the principles they are applying in a decision by saying that "almost certainly" such consequences are prevented by other, unspecified doctrines. I hope that either by way of appeal or through another legal proceedings this issue gets looked at and clarified by a higher instance...

As an aside, it is interesting to note that on the other side of the Atlantic the temporary copy issue would likely have been solved in ReDigi's favour, irrespective of whether the licensing terms of the content provider allowed it or not...

Diego R Pons
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So, following the reasoning, all it would take is for a company to come up with a system that "transfers" the files instead of "copying then deleting" them.
Then the First Sale Doctrine protection could kick in.

By taking an easy route to block the resale, they're not addressing the real problem.

Curtiss Murphy
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Thanks Dan. Another worthwhile exploration.

Maria Jayne
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I see two issues with digital resales that make me believe it shouldn't happen.

1) Nothing stopping you making a copy of your digital software before attempting to sell the original and keeping the copy. Even if you keep that "back up copy" purely for your own use, you are still removing a second potential sale for whoever buys your original resale.

2) Digital software does not degrade with use, it doesn't require careful storage or willpower to leave it unopened and unused. It is the same quality upon second hand sale as it was the day you purchased it.

This makes it very hard to keep the original sellers product attractive or of perceived value. In all other second hand sales the value of the second hand item is predominantly diminished, hence why being second hand makes the brand new item still appealing.

Ian Uniacke
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I see a third and possibly catastrophic result of allowing digital resale:

The creation of an automated server for the instant resale of a digital good such that a single item can be resold ad infinitum to allow for a number of simultaneous users of a single product approaching the limit of infinity. That is to say, time slicing use of the file (especially as internet speeds improve), or to put another way selling the product for micro time slices such as selling and reselling in less than one second, means that a single purchase would be a legal way to allow hundreds or even thousands of users to use that product without a single cent going to the original vendor.

Jess Groennebech
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1. That's exactly like it is today, you don't even have to make the copy yourself, you just get it off the local torrentsite even saving space on your HDD. So it dosen't matter, it's the same as today.

2. What if wear & tear has nothing to do with the increased total market from secondhand sales in other industries? What if it's solely the idea that the consumer can resell a product if it's really bad and thereby limiting his risk by buying a product?

Alan Rimkeit
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None of this will help the game industries fight again piracy. The more they try and lock it all down the more the people will want out by torrenting games. This is a fact that the industry will have to either live with or try and combat by giving consumers the most freedom that they can with the products that the consumers pay for.

Alan Rimkeit
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double post....

Ian Welsh
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Really chopping First Sale down to bits, aren't they.

Luke Mildenhall-Ward
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I don't think this is going to really be an issue in the near future. Games will eventually be sold wholly digitally as per the App Store or Steam models. Prices will be considerably cheaper than physical game copies, making second hand sales less attractive to any party (Who wants to bother selling or buying a second hand iOS app?)

As such, the perceptions of 'owning' things as we did with physical goods will change to the more appropriate perception of 'paying to experience'. Like how you would buy a movie ticket to experience the movie, you will buy a game to experience that game, not to have any ownership of the game.

Paul Nisenbaum
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Dan,
As I am not in the legal professions, I found your article interesting.

Titi Naburu
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A digital file can't become "used".

Titi Naburu
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If I have a file in my computer but I can't copy it to another drive or email it to a friend, then I'm not free.


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