There is a hidden difference between the CD purchased in a store versus the same CD downloaded through iTunes or, Amazon.com. That difference is found in the rights afforded (or not afforded) to the respective purchasers.

When media is purchased at a brick and mortar store, the transaction between the consumer and the retailer is usually said to be a “sale.” However, when media is purchased and downloaded through an online retailer, the transaction is often classified as a perpetual “license.” While this is a problem for consumers, it is a way for publishers of digital content and record producers to control profits earned on copyrighted material.

The rights afforded under a transaction classified as a “sale” or a “license” can differ dramatically. Usually, in a “sale,” buyers are afforded certain rights such as: the ability to resell the purchased copyrighted work under the first sale doctrine, and the ability to engage in fair use. The first sale doctrine allows a purchaser of a copy of a copyrighted work to later sell, give away, or otherwise dispose of the copyrighted material as the buyer sees fit. This is the right that allows people to resell used books, movies, CDs etc.

If the transaction entered into is considered a “license,” which is normally what most pay-for-download transactions amount to, then the first sale doctrine does not apply. Furthermore, whether a purchaser (that is characterized as a “licensee”) may engage in fair use gets to be tricky.

However, the ability for a buyer to engage in fair use allows that buyer to do certain things such as: reverse engineer the copyrighted work, excerpt and comment on the copyrighted work, sample the copyrighted work, as well as a host of other things. Whatever is done under the guise of fair use will be weighed according to several factors:

(a) the nature of the work;

(b) whether the use is for nonprofit/educational purposes or whether it is for commercial purposes;

(c) the amount/substantiality of the copyrighted work taken

(d) whether the use will affect the market of the copyrighted work.

Additionally, whether the individual has a right to engage in fair use depends on the terms of the license agreement (e.g., see your Apple iTunes Terms and Conditions, or your Amazon.com Kindle Agreement). The ability to contract away these rights is however outside the scope of this post.

However, readers should note that just by titling the transaction as a “sale” or a “license” will not be dispositive. Factors such as who bears the risk of loss, the intent of the purchaser and “seller”, the imposition of future restrictions of use, and whether the transaction is considered to be “tethered” will help determine ultimately how such a transaction will be categorized (or re-characterized).

Certainly, over the years, used media retailers have impacted the profits of copyright holders. This is because by selling, and reselling used copyrighted work, any gains, profits, or recoupments are hardly ever split with the author or publisher / record label- as is the case upon the first sale of the item. Theoretically this means that Amazon’s traditional business model (selling used CDs, Movies, Books, etc) is the reason why publishers adore the Kindle. However, by converting tangible media into digital media and by changing the nature of the transaction between the merchant and the consumer from a sale to a license, copyright holders are now able to better control who uses their copyrighted work not to mention the fact that they are now constantly collecting royalties.

What’s a Consumer To Do?

If these rights are important to you as a consumer, consider the cost of purchasing used books instead of licensing them. The same goes for music.

For example: If a used copy of your favorite Chumbawamba CD is selling for $4.00, and downloading it will cost, say $8.00, you are probably better off purchasing the CD used (even with the additional cost of shipping). At least you will have the ability to listen to the music and later resell it.

Have you been harmed or wronged by a business? Do you feel mislead? Deceived, perhaps? Call Friedman Legal today for a free consolation at 888-411-1677