Reconciling intellectual and personal property.

• Author: Perzanowski, Aaron
• Position: Introduction through II. The Erosion of Ownership C. Shifting Views on Property, p. 1211-1235

INTRODUCTION

Copyright law sets up an inevitable tension between the intellectual property of creators and the personal property of consumers--in other words, between copyrights and copies. On the one hand, ownership of the copyright confers the rightsholder exclusivity over an intangible creative work. On the other, ownership of the copy secures domain over the use and alienation of a concrete instantiation of the work, sometimes in ways that would otherwise violate the exclusive rights of the copyright holder. (1) The tension between these rights highlights copyright law's role in regulating consumer behavior and personal property. It tells us, after all, where we can play our records, to whom we can display our paintings, and whether we can sell our books. (2)

Because of this inherent invasiveness, copyright law necessarily weighs the competing interests in intellectual and personal property. (3) And for the better part of the last century, we witnessed a well-balanced equilibrium. (4) Copyright law successfully mediated this tension through the principle of exhaustion--the notion that once a rightsholder transfers a copy of a work to a new owner, its rights against that owner are diminished. (5) The rightsholder's power to prevent distributing, using, or sometimes even reproducing a work must yield to the personal property interests of consumers. As a result, libraries can lend their books, (6) museums can display their paintings, (7) and consumers can back up their software. (8)

Rather than an idiosyncratic carveout or exception, exhaustion is an inherent part of copyright law's balance between the rights of creators and the rights of the public. It is a fundamental component of almost every intellectual property system. (9) Just as fair use balances the competing interests of original and follow-on creators, exhaustion accounts for and accommodates the rights of both creators and consumers. And it recognizes that those rights are not at odds with the goals of the copyright system, but at its core. Meaningful consumer rights to use and transfer their personal property are essential to the ultimate goals of the copyright system, public access to, and enjoyment of, new creative works.

Exhaustion and consumer ownership facilitate those goals. They promote preservation, access, transactional clarity, privacy, platform competition, and user innovation. (10) More fundamentally, they preserve the value proposition that encourages consumer participation in lawful markets for copyrighted works. Intellectual property law's exhaustion doctrines encourage consumers to pay supracompetitive prices by guaranteeing that they get something of enduring value in return: the right to use, alienate, and under certain conditions, modify their copy. (11)

Nonetheless, many rightsholders and some courts see exhaustion as nothing more than a loophole or market inefficiency that allows consumers to make unauthorized uses of intellectual property rightly controlled by the copyright owner. (12) And in recent years, rightsholders have taken aggressive steps to circumvent exhaustion and weaken consumer property interests. (13) They have argued that exhaustion does not apply to goods imported into the United States (14) or to copies manufactured abroad; (15) they have developed technologies to prevent the resale and use of pre-owned media; (16) they have used spurious takedown notices to remove used items from secondary markets like eBay. (17) These efforts have met with mixed success.

But two other developments have proven much more effective in curtailing exhaustion and threatening consumer interests. First, content owners, particularly in the software industry, have endeavored to eliminate the personal property interests of consumers, redefining the notion of ownership by characterizing their transactions with consumers as licenses to use the works or the purchase of a license as opposed to the purchase of a copy. (18) Because ownership triggers exhaustion, this approach has allowed rightsholders to assert control over subsequent uses and transfers of those copies, unchecked by countervailing consumer property interests. And because digital media content, as both a legal and practical matter, is increasingly indistinguishable from software, the entire copyright economy could soon be governed by this same licensing regime. (19)

Second, the tangible copy is rapidly disappearing from copyright markets. Once characterized by the distribution of physical products, these markets are now defined by exchanges of networked information. (20) In the past, a copy was easy for rightsholders, consumers, and judges to identify and accommodate. Copies were physical artifacts that resided on store shelves. Today, however, digital sales of books, (21) music, (22) video games, (23) and applications (24) are outstripping traditional tangible media. Rather than picking up books and records from store shelves, we stream, download, and store content in the cloud. And rather than enjoying a single copy in multiple contexts--reading a book at home, on the bus, at a friend's house, or on vacation--we now shift between multiple copies rapidly and dynamically across various devices and platforms. This shift has profound implications for exhaustion and consumer property rights. Since transferring digital content from one consumer to another generally implicates the reproduction right, such actions have been found to fall outside the literal scope of copyright law's statutory first sale doctrine. (25) So although a consumer is entitled to sell a used paperback, transferring a used e-book presents legal uncertainty. More broadly, digital distribution changes our relationship to the copy. Many consumers no longer experience the texture of a printed page, the groove of a vinyl record, or even the smooth plastic of a DVD. Instead, our access to the copies we own is often mediated by third parties like cloud storage providers. And even when we store copies locally, our experience of them is less immediate and less tangible than their analog counterparts.

In a marketplace that undermines ownership and deemphasizes copies, the future of consumer property interests looks bleak. According to copyright holders, you do not own the digital media you purchase online. (26) According to the Ninth Circuit, you do not own the plastic disc on which your software programs are encoded. (27) And according to the Librarian of Congress, you may not own your cell phone or gaming console. (28) In short, the very notion of personal property rights in any embodiment of a work protected by copyright is under attack.

The equilibrium between personal and intellectual property that exhaustion enabled depends on doctrinal assumptions about the copyright marketplace that are quickly becoming outdated. One response to these developments is to concede that both exhaustion and consumer property rights are a thing of the past. But a copyright system governed solely by terms dictated by rightsholders tips the scales too far in their favor, risking broad damage to copyright as a body of law. Rather than abandoning the counterweight of consumer rights, we argue it must be preserved, but in a manner that recognizes the differences between digital and analog distribution.

This Article builds on our earlier work on exhaustion. We have previously emphasized the common law origins of copyright exhaustion, arguing for a judicial interpretation that is more expansive than the narrow statutory first sale rule. (29) Subsequently, we have advocated increased reliance on exhaustion to resolve a range of disputes over personal use by consumers that are typically analyzed through the lenses of fair use and implied license. (30) And, most recently, we have outlined two competing legislative frameworks for a contemporary exhaustion regime as a part of the broader copyright reform effort. (31) This Article examines both the forces undermining copy ownership and the important functions it serves within the copyright system in order to construct a workable notion of consumer property rights in digital media.

Part I begins by examining the relationship between intellectual and personal property. Sometimes courts have treated those rights as inseparable, as if transfer of a copy entails transfer of the intangible right, or retention of the copyright entails ongoing control over particular copies. But Congress and most courts have recognized personal and intellectual property as interests that can be transferred separately. Although the better view, this approach frequently overstates the independence of copyrights and rights in copies. Those interests interact; each helps to define the boundary of the other. The exhaustion principle, though historically associated with a clear distinction between copy and copyright, is in fact the primary tool in copyright law for mediating the somewhat indistinct line separating the copy and the work.

Part II begins to outline the breakdown of this once stable equilibrium, focusing on the erosion of the notion of consumer ownership. In recent decades, courts have created two distinct regimes for resolving questions of copy ownership: one that applies to software and one that applies to everything else. The software regime endorses rightsholders' efforts to "license" particular copies of their works, in contrast to the general skepticism with which courts regard such efforts. This dichotomy is driven in part by software exceptionalism--the notion that for a variety of reasons software should be treated differently. But the growing acceptance of the licensing model also reflects changing views of property. Those shifts opened the door to the substitution of statutory property rights with unilateral contract terms. As the line separating software from other media becomes increasingly blurred, the thinking reflected in the software cases suggests a creeping erosion of copy...