Reactions

The new policy sparked an outcry, especially from librarians.  The protests are visible on the Web, from the Twitter hashtag #hcod to a small Facebook group to the website boycottharpercollins.com, whose sole mission is to promote a boycott of HarperCollins books.  The site reads, “Are we still boycotting HarperCollins?  Yes,” and it contains a page explaining the issue.  Protesters have also advertised “Librarians Against DRM” shirts (DRM stands for Digital Rights Management, which refers to technology employed to limit access to digital content).  Finally, librarians Sarah Houghton-Jan and Andy Woodworth released the eBook User’s Bill of Rights, a list of desired rights that emphasizes access to digital literary content without restrictions.  It also calls unacceptable the eBook licensing arrangements, whereby consumers do not own eBooks but rather purchase a license to access them.

The first news of the twenty-six checkout policy came from Steve Potash, CEO of OverDrive, an eBook distributer that carriers HarperCollins titles.  Potash wrote a letter to customers describing the change in HarperCollins’ policy.  He wrote, “[W]e have been required to accept and accommodate new terms for eBook lending as established by certain publishers” (emphasis in original).  OverDrive has since changed its ordering process to help address the disfavored HarperCollins policy.  OverDrive removed HarperCollins eBooks from their main catalog, instead segregating them in a separate catalog.  Libraries can thus more easily avoid purchasing the short-lived HarperCollins eBooks.

Why the sudden change, and why twenty-six checkouts?

HarperCollins released an open letter to librarians, explaining it’s new policy.  “[S]elling e-books to libraries in perpetuity, if left unchanged, would undermine the emerging e-book eco-system, hurt the growing e-book channel, place additional pressure on physical bookstores, and in the end lead to a decrease in book sales and royalties paid to authors.”  However, it seems that these arguments apply equally well to print books.  In fact, the arguments can be read as arguments against libraries themselves, not restricted to eBooks in libraries.  So what distinguishes eBooks from print books?

One major difference is the ease of copying and distributing eBooks, compared to hard copies.  This aspect of eBooks has already been addressed, as libraries have accepted the one-copy/one-user model.  That model mimics the hard copy reality that only one user can access one copy of a book at any given time.

Another difference is that eBooks are not subject to the usual wear and tear of hard copy books: rips, spine damage, and bent and marked-up pages.  Such wear eventually necessitates a paper book’s replacement.  Potash’s initial letter to customers noted many publishers’ concerns that “a single eBook license to a library may never expire, never wear out, and never need replacement.”  If the greater durability of eBooks is the only concern of publishers, one possible economic remedy is for publishers to set higher prices for eBooks.  In reality, just the opposite is done.  HarperCollins pointed out in its open letter that its eBooks generally cost 20% less than print versions.  Another solution may in fact be to renew eBook licenses periodically, the policy at the heart of the present controversy.  A more reasonable eBook lifespan might assuage the checkout limit opposition.

So is the twenty-six limit reasonable?  Given a two-week circulation period for eBooks, the twenty-six checkout limit amounts to one year of use.  A three-week circulation period leads to 1.5 years of use.  HarperCollins stated that the new policy resulted from many months of examination, but did not detail the decision process.  Librarians from Oklahoma’s Pioneer Library System undertook their own analysis, posting a YouTube video showing their physical inspection of hard copy books.  The video demonstrates that even books with 120 checkouts can still be in good enough condition to circulate.  Accordingly, the HarperCollins one-year circulation limit (based on a two-week circulation period) seems low.  A more agreeable limit might be the equivalent of two or three years of circulation.

The Unique Nature of Digital Content

Electronic media is fundamentally different from hard copies, creating novel challenges for content owners, particularly in the realm of protection.  Digital content can be replicated quickly and distributed.  A single purchased copy can thus wind up in the hands of multiple users simultaneously, flying in the face of Copyright law.  This problem is not unique to eBooks.  Digital movies, music, and computer software all face the same protection nightmares.

One major solution has been to license content rather than sell it.  Licenses enable restrictions on digital content, as was seen in Vernor v. Autodesk, Inc., a case that found that a purchaser of particular software was a licensee, not an owner (based on evaluation of the copyright owner’s explicit grant of a license and the restrictions placed on use and transfer of the software), and thus could not resell the software to another party.  Another pro-license case was ProCD, Inc. v. Zeidenberg, which recognized the validity of a shrink-wrap license, which is a license contained inside the purchased package.  Shrink-wrap licenses frequently accompany software.  Upon opening the package, a user can reject the license agreement by not installing the software and returning it.

Similar to software, eBooks have been licensed, not sold, enabling greater restrictions on eBooks.  The eBook User’s Bill of Rights, mentioned earlier, expressed dissatisfaction with the license arrangements.  Instead, it advocates ownership and application of Copyright’s First Sale doctrine, which permits a valid purchaser to transfer the copyrighted work to another.  If library purchasers were eBook owners instead of licensees, publishers would not be able to impose restrictions, such as caps on the number of circulations.  Publishers are unlikely to capitulate to such library demands, particularly as the eBook business booms among non-library consumers.

The First Sale Doctrine

The first sale doctrine was established by the Supreme Court in Bobbs-Merrill Co. v. Straus where a book publisher printed the following note on its copyright page: “The price of this book at retail is $1 net. No dealer is licensed to sell it at a less [sic] price and a sale at a less [sic] price will be treated as an infringement of the copyright.” The Supreme Court held that, under existing copyright law, copyright holders have the exclusive right of distribution over the “first sale” of their works, but further distributions are outside of their control.  The first sale doctrine was later codified in the Copyright Act.

As a legal principle, first sale strikes a balance between the rights of copyright holder and the rights of the owner of a copy of said material. The doctrine also embodies the general principle in property law that unreasonable constraints on alienation (gifting, selling, etc.) are void.

First sale also promotes the value of free access to information by making out of print copyrighted works widely available and lowering prices through the existence of secondary markets.

Many copyright owners justifiably dislike the first sale doctrine because it prevents them from maintaining a monopoly on their copyrighted works, and it enables secondary markets which tend to drive down prices.

The Vernor Decision and the Sale/License Distinction

The essential facts of Vernor are straightforward. Vernor purchased used software at a garage sale and attempted to sell it on eBay. The copyright holder, Autodesk, filed several DMCA take-down notices with eBay. After some back and forth, Vernor brought a declaratory action in Federal District Court to establish that his resale was protected by first sale doctrine.

The primary legal issue was whether the transfer of Autodesk’s software to the customer who had sold it to Vernor constituted a sale or a licensing. This is the legal hook: if all that was transferred was license, the “first sale” has not occurred and the doctrine does not apply.

The licensee/owner distinction was not clear law prior to Vernor. The District Court in Vernor, determining that there were conflicting precedents on point, applied the 9th Circuit case United States v. Wise and found that the critical factor in the sale/license distinction was whether the purchaser had a right to possess the copyrighted work perpetually or whether he was required to return it to the copyright holder. The court found the right to perpetual possession and thus held that Vernor was covered by the first-sale doctrine.

On appeal, the 9th Circuit held that the license/ownership distinction depended on only three factors: (1) whether the copyright owner specifies that a user is granted a license (2) whether the copyright owner significantly restricts the user’s ability to transfer the software (3) whether the copyright owner imposes notable use restrictions. Applying this test to Autodesk, the court found that the transfer in question was a mere transfer of license and, thus, that Vernor was not protected by the first sale doctrine.

Criticism of the Vernor Test

The problem with the Vernor test is clear: a copyright holder can completely avoid the first sale doctrine by using the term “license” coupled with the “significant” transfer and use restrictions. Thus, under Vernor the application of first sale doctrine depends solely on the discretion of the copyright holder and what “magic words” he chooses to place in the license agreement.

The Vernor test completely undermines the first sale doctrine and all of its underlying policies. First sale is meant to balance between the rights of copyright owners and the rights of owners of copies; Vernor undermines that balance by making its applicability contingent on a copyright holder’s preference. Under the Vernor test, if Bobbs-Merrill Co. had written its note slightly differently, referring to the purchaser as a licensee, and imposing more use and transfer restrictions, the case would have come out the other way—an absolutely preposterous result.

And finally, Vernor effectively negates the principle against unreasonable restrictions on alienation as they apply to copyrightable works. A copyright holder only has to write the “magic words” in a licensing agreement to prevent resale. Thus, there is little standing in the way of copyright holders from unilaterally destroying secondary markets—the used software, book, DVD, CD and videogame market—and maintaining a monopoly on its work.

Currently, the plaintiffs in Vernor are petitioning for an en banc rehearing in the 9th Circuit. If denied, they will likely take it to the Supreme Court. Vernor as it stands today has the potential to fundamentally change not only the legal relevance of the first sale doctrine, but the entire economic, social and legal landscape for copyrightable works.

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