by Griffin Davis, Communications Intern

Congress’s ongoing review of the Copyright Act continued on June 2 at New York City’s Southern District Courthouse with a hearing on the first sale doctrine, which allows legally purchased copyrighted works to be resold. (As the hearing departed from the usual Capitol Hill location, it wasn’t webcast live, but archived video is now available.) For musicians, the central issue raised at this hearing was the permissibility and impacts of reselling digital files like MP3s, AACs and FLACs.

For a primer on the first sale doctrine and what it means for musicians, check out our earlier article.

The hearing opened with a statement from Congressman Jerrold Nadler (D-NY), who noted that the doctrine has been instrumental in the growth and maintenance of public libraries, but expressed concerns over the doctrine’s applicability to digital works. 

The majority of the hearing focused on digital first sale, in particular the licensing of software. Generally, when you buy a piece of software—whether pre-installed on a device or added later—you are licensing that software, not buying it. This means that, should you sell or give away the device, the license doesn’t transfer, meaning the new user can’t receive patches and other upgrades. Many of the witnesses, including UCLA professor John Villasenor, were in agreement that software licenses should not be covered under first sale, as this could create a secondary market full of spyware and pirate copies. Yet they also felt that software companies should be required to make it more clear to users that these are merely licenses, not goods owned outright.

Similar concerns are raised by some in the music industry. Record labels (and some artists) fear that if customers are allowed to sell “used” music files, it could collapse the market for new files. Still, consumers may not be clear on the difference between a sale and a license when they make a purchase from Amazon or iTunes. Keep in mind that the major labels want to have it both ways—they prefer downloads to be classified as sales, because that means they can pay lower royalties to older artists whose contracts did not contain provisions for downloads. Licenses typically pay higher royalties to artists, to the tune of 50 percent vs. 15 percent per-sale.

When it came to music and other media, the spotlight was on John Ossenmacher, CEO of ReDigi—a company that facilitates the resale of digital music. Ossenmacher, whose company has been hit with lawsuits from major labels, argued that because digital downloads are not for a limited term they should be afforded the same coverage as a physical sale. Going further, he claimed that a secondary market for digital copies would decrease piracy, as the pirated copies would have no resale value. His claims were met with quite a bit of skepticism from other witnesses, who pointed to the physical secondary market where products are often somewhat tarnished and therefore less valuable. Digital copies are perfect reproductions, meaning their resale would compete directly with the primary market. Further, there was doubts expressed over the ability of current software to ensure that the seller did not retain a copy after reselling a work.

Our interest in this discussion is based in the question of how musicians are compensated. Again, the idea of “licenses” vs “sales” are already hot-button issues raised by lawsuits in which artists sue labels for a bigger share of royaties. These performers support the idea of downloads as a “licenses,” which, when it comes to digital resale, puts them on the side of the companies they’re suing. Weird!

To us, it’s disconcerting to see big corporations arguing that a particular use should count as a sale when calculating artist royalties, but as a license when it comes to the first sale doctrine. But that’s the music business for ya.