THE $500 EBOOK: HOW COPYRIGHT AND ANTITRUST LAW FAILED AMERICA'S LIBRARIES: EXTENDING FIRST SALE DOCTRINE PROTECTIONS TO LIBRARIES' EBOOK PURCHASES OR IMPLEMENTING PRICE CAPS AS ALTERNATIVE SOLUTIONS TO LOWER EBOOK COSTS.

• Author: Petot, Ali

INTRODUCTION

Libraries are a fixture in American communities that people sometimes take for granted. People expect to find books on the shelves, computers for public use, children gathered for story times, and, increasingly, ebooks available to be checked out and read on personal devices. However, libraries face distinct financial disadvantages in purchasing and lending ebooks to readers, with both libraries and the public suffering from a lack of ebook availability as a result. Libraries are in a difficult position, forced to purchase ebooks from a small number of major American publishers at high prices and disadvantageous terms. (1)

Libraries pay inflated prices for ebooks, often many times the prices average consumers pay. (2) An ebook that costs consumers $12 to $15 can cost libraries $50 to $60. (3) One might think that libraries get added benefits from this higher price, like the ability to lend the book out to multiple people at the same time. However, this is not the case. Even though prices are higher than consumer prices, libraries can generally only lend an ebook copy to one patron at a time. (4) Libraries pay more because they must purchase special lending licenses directly from publishers. (5) These special licenses, like consumer ebook licenses, do not allow the purchaser to sell or permanently transfer the ebook to anyone else (including as a gift). (6)

Libraries' restricted ebook lending is due to the treatment of digital media ownership under copyright law. When libraries purchase physical books they do not have to pay extra to be able to lend them out because physical books are protected under a feature of copyright law known as the First Sale Doctrine. (7) As codified, the First Sale Doctrine states, "The owner of a particular copy or phono record lawfully made under ... [Title 17 of the United States Code], or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phono record." (8) Thus, the First Sale Doctrine allows the purchaser of an item containing copyrighted material (like a book) to sell, lend, transfer, or gift the object to another person. (9) In other words, the buyer of a book retains all the rights over the future use of that physical object. Ebooks do not fall under the First Sale Doctrine because Congress has not extended the First Sale Doctrine to cover digital media. (10)

Furthermore, the vast majority of ebook purchases involve the purchase of a license rather than the outright purchase of a file to own. When consumers and libraries purchase ebooks, they are generally not obtaining ownership of the ebook, but rather a license to use the ebook for a specified period of time. (11) For consumers, the license is normally indefinite, but for libraries it is usually limited in duration and often for only two years. (12) Purchasing a license is not a sale that qualifies for First Sale protections. (13)

Ebooks are also generally priced higher than physical library books, even though the library only receives a license, not ownership, and ebooks do not require the same manufacturing, shipping, or storage costs as physical books. Ebooks do not get lost or damaged like physical books, so publishers would likely factor in some amount of avoided replacement cost so that they earn similar profits on ebooks compared to physical books. While libraries pay higher-than-consumer prices to buy "library-bound" physical books, these books are often made with sturdier binding and larger covers to endure years of wear. (14) Library ebook license purchases do not come with extra enhancing features.

Because libraries are purchasing limited licenses that allow them to lend the book only for a certain amount of time (usually two years) or for a specified number of loans (usually twenty-six loans), (15) libraries must repurchase ebooks after this limited period if they want to keep them in their collection. The cost of purchasing two-year licenses can become exorbitantly high, with a single ebook costing hundreds of dollars over the span of a few years. (16) For example, as the American Library Association explained to Congress, "All the Light We Cannot See: A Novel by Anthony Doerr, is priced as an eBook for $12.99 to consumers. The library price is $51.99--for two years or $519.90 for 20 years--for one copy." (17) The American Library Association, in its statement to the U.S. House of Representatives about digital markets, calls ebook pricing practices "[a]busive." (18)

The combination of a lack of First Sale protections and the reliance on a licensing framework for ebook sales increases operating costs for libraries. (19) Libraries must continually repurchase titles at inflated costs or purchase extended licenses to keep titles in their collection. (20) Libraries also cannot resell old ebooks, as they often do with used physical books. (21)

Books also have nonfungible characteristics that restrict libraries' purchase choices. (22) For example, a tenth grader who needs to read 1984 for English class cannot very well substitute Fahrenheit 451 instead. A library would receive many complaints if it did not carry Harry Potter or To Kill a Mockingbird in its collection. Libraries get locked into purchasing ebooks from the one seller who is legally allowed to sell them any particular book, with the nonfungibility of books creating an upward price pressure. (23)

On top of high prices and limited licenses, libraries cannot purchase some ebooks because publishers refuse to sell to them. Amazon, the fifth-largest ebook publisher in the United States, and the largest ebook seller, (24) refused to sell Amazon Publisher ebooks to libraries until May 2021. (25) Macmillan Publishers has tested out different restrictions on selling ebooks to libraries twice in the past few years. (26) During one "embargo", which started on November 1, 2019, Macmillan barred libraries from purchasing more than one copy of any ebook within eight weeks of its initial publication. (27) Macmillan terminated this practice in March 2020. (28)

Allowing publishers to exploit the lack of First Sale protections and concentrated publishing market undermines one of our great public institutions. (29) Libraries support communities of all kinds across the country, providing educational resources, access to computers and the internet, community meeting spaces, lifestyle enrichment programs, literacy programs, and traditional book and media checkouts. (30) Libraries are funded overwhelmingly by local communities that dedicate their tax dollars to improving the lives of their residents and supporting public access to information and resources. (31)

Libraries lack the capacity to address the challenge that high ebook prices presents. (32) Congress should address this weakening of a public institution by securing libraries' right to purchase ebooks at fair prices. This would involve extending First Sale Doctrine protections to libraries' ebook purchases or implementing price caps on the sales of ebooks to libraries.

Part I of this Note introduces the First Sale Doctrine, the Sherman Act, and more information about how libraries and patrons are affected by the current situation. Part II argues for the extension of First Sale Doctrine protections to libraries' ebook purchases. Part III argues for an alternative solution implementing price caps on library ebook licenses. Part IV concludes.

1. BACKGROUND

   1. The First Sale Doctrine

      The First Sale Doctrine determines how purchasers of physical books may legally use those books. "The first sale doctrine in copyright law, also known as the exhaustion rule of intellectual property (IP) rights, limits the power of IP owners to control the downstream distribution and use of their products or copies of their products that bear their trademark or embody their invention or work." (33) This means that after a book is sold to the first buyer, the owner of the copyrighted material within the book has no say over how the owner of the book treats, transfers, or disposes of the physical book in the future. (34)

      The First Sale Doctrine was established in Bobbs-Merrill Co. v. Strauss. (35) The Bobbs-Merrill Company published a book in which it printed instructions that the book was not to be sold for less than one dollar and that it would be copyright infringement to sell it below this price. (36) A seller purchased the book from the Bobbs-Merrill Company at wholesale, sold the book to customers for less than a dollar, and was sued. (37) The Court held that this kind of price restriction on future sales was not valid under copyright law. (38)

      This decision clarified a distinction between the physical book and the copyrighted material within it. The Court explained that "(t]he purchaser of a book, once sold by authority of the owner of the copyright, may sell it again, although he could not publish a new edition of it." (39) A copyright holder's "sole right to vend" lets the copyright holder control the initial publication sales of a book but does not allow it to impose price restrictions on resale with a party not in privity to it. (40) The Court did not address issues of "contract limitation" or "license agreements" which are relevant to the ebook discussion. (41)

      The First Sale Doctrine was codified at section 27 of the Copyright Act of 1909, and later at section 109(a) of the Copyright Act of 1976. (42) According to Matthew Chiarizio, "[t]he legislative history of the 1976 Act provides evidence that library lending was one factor Congress considered in deciding to retain the first sale doctrine." (43) Initially, libraries celebrated the First Sale Doctrine, regarding it "as a long-awaited confirmation that copyright owners could not 'stay the free flow of the world's thought' to satiate their private greed." (44) It confirmed libraries' ability to lend purchased books as they saw fit. (45)

      ...