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By Thomas Baekdal - June 2014

Owning Digital Content

The discussion whether the 'first sale doctrine' should apply to digital goods resurfaced last week, after the US House Judiciary Committee invited publishers to give their input. For those who don't know, the first sale doctrine is the law that grants people the right to do whatever they want with a product that they have legally purchased, but it currently only applies to physical goods.

This is why you are legally entitled to resell all the printed books you might have bought, while you aren't allowed to do it with your ebooks.

But should the first sale doctrine apply to all products? Well, it's complicated.

First of all, as a publisher myself, I'm obviously biased. It's the same when it comes to copyright. I very firmly believe that the creator should have the exclusive right to profit from when the products are sold.

One example. Some people (i.e. the Pirate Parties) want's to reduce copyright law to 5-10 years, but that, to me, is insane. Why should somebody else be allowed to just take something you have made and profit from it, regardless of the timeframe?

I believe in the creators. The people who create should also be the people who profit. The people who don't create (but merely take), should not.

However, the first sale doctrine also makes a lot of sense. Because, once a creator has profited from her work, the creator obviously no longer has any rights of what happens to that product.

One great example is Saleen.

Saleen is a US car company, who sells cars like the Saleen S302 pictured below:

But if you have just the slightest knowledge about cars, you will notice that this is actually a Ford Mustang. So how can Saleen sell it, without any Ford branding and using their own name? Isn't that stealing?

No, it's not. This is the wonderful world of the first sale doctrine.

Saleen is buying the stock Mustangs from Ford. They then bring them into their factory and modify them to give them that unique Saleen touch, which they can then resell as their own brand.

Everyone wins. Ford, as the first-creator, wins because they are selling a ton of Mustangs to Saleen (more than 8,000 so far). Saleen wins because they then have the freedom to use this platform to make an even better version of their own. And Saleen's customers win because they can get a unique Mustang unlike the stock models from Ford that everyone else have.

It's a win-win.

In fact, Ford is so excited about this relationship that a large part of their business is based on it. They want people to buy their cars, add their own unique touches and through that create secondary markets.

And of course, the first sale doctrine doesn't stop with Saleen. It continues with every single purchase. If you buy one of these cars, then neither Ford nor Saleen can dictate what you do with it. You can modify it as well, maybe turn it into a hot rod or a beach buggy... heck you can even strip it down and use it to build something completely different.

Once you buy something, you own it. And you can then do whatever you want with it... and also resell it.

And it's these two concepts that we have to keep in mind. The first being that you have to buy something before you can own it. But once you do, you and can do whatever you want with it.

And this fundamental principle should apply to any kind of product, regardless of it is physical or digital. We should not have special rules for digital goods. A product is a product, regardless of the format or the channel.


Not all products are 'things'

However, when discussing ownership of digital products, many people seem to forget that not all products are 'things'. Many products are something else. A product can be an experience. It can be value gained or insight achieved. It can be access granted, or it can be a service rendered.

And this is true not just for digital goods, but also for physical ones.

Here are a few examples:

A bus ticket is a physical product (a piece of paper) that grants you the right of being transported from A to B. And, as long as you haven't used your ticket, you can resell it. If you buy a bus ticket, but don't plan to use it, you can offer it to your friend.

But once you use it, it loses its value. You can't buy a bus ticket, then use it to go from A to B, and afterwards resell it to a friend so that he can take the same journey. Because if you could, you would be violating the rights of the creator. You would be giving your friend a free ride, without allowing the creator to profit from the work involved.

And thus, bus tickets cannot be resold after they have been used. It's not a 'thing', it's a service rendered.

It's the same with many other types of products. For instance, your local gym might sell you a monthly membership card. Using this card, you are granted access to all the facilities at your local gym for that month.

Again, you can sell your membership to a friend if you don't plan to use it (in fact, we often call this a gift certificate). But once you start using it, you can no longer sell it, because you would then be granting your friend free access.

You cannot resell what has been used if the product sold is not a thing. And it's this simple principle that we have to remember. Not all products are 'things'.

Think of it like a cup of coffee you buy from Starbucks. Once you buy it, you also own it. And you can do whatever want with this cup of coffee. You can drink it, mix it with something else. Use it as a basis for another product, and you can even resell it to a friend who didn't want to stand in line.

But you have to do all of these before you use it. Because, if you drink your cup of coffee, it's resale value drops to zero.

It's a simple principle that everyone understands. Not every product is like a car that can be resold over and over again.

Digital ownership

So let's talk about digital. First of all, digital products are just like physical products, and the law should apply to them in the same way. This means once you buy something, you own it. And you should have the rights to do whatever you want with it.

The notion that ownership doesn't apply because something is digital is absurd.

But you also have to keep these two things in mind.

The first thing is that there is a difference between the right to own something, and the right to resell it. The second is that, in order to sell something, you actually have to transfer the ownership to the new owner.

And this is where the problem is.

Take ownership. It's true that there are a ton of problems today with how media companies are completely violating people's rights of ownership, often with the help of interest groups who are influencing politicians.

For instance, if I buy a movie from iTunes, it's my video. And if I decide to watch it on my Android tablet, then that's should be my choice... exactly the same was as if I buy a Ford Mustang and decide to install a Chevy engine in it instead.

But publishers try to prevent this by the use of DRM. And this is plainly wrong. When something is protected with DRM, you are violating my basic rights of ownership. These publishers have sold me a product without also granting me its 'use'.

Can you imagine this happening in the real world? Can you imagine me going to Ford to buy a new car, but I wouldn't be able to decide how I would use it?

True, publishers claim they are doing this because of piracy, which is a problem. But the notion of selling a product without also transferring its use to the new owner is ridiculous. Digital products should be sold the same way as physical ones.

And speaking of selling, this transfer of use goes both ways.

Imagine that you buy a movie from iTunes, and later decide to resell it to a friend. Should you be allowed to do that?

Yes, of course you should. It's your movie.

But, in order for you to actually sell it, you would have to transfer its ownership and use to your friend. And today, there is no way to actually do that. When you sell a digital product, you do not lose it yourself, which means you never actually sold it.

All you did was to charge money for giving people a copy of the original file. Sure, you could then claim that you had deleted the original file from your hard disk, but that's is not selling.

A sale is when, during the actual transaction, the ownership and use of the product completely transfers from one person to the next. And as long as this problem hasn't been solved, there is no way for you resell the digital products that you own.

Think about it in the way we buy and sell internet domains. When you buy a domain, the transaction of that domain changes the nameservers and ownership data of that domain, granting the new owner complete control and use of the domain.

This is what constitutes a real (digital) sale. A sale is a transfer of ownership and use, which is also preventing the old owner to access it in any way.

Of course, some would then say that it's up to publishers (or Apple/Google/Amazon) to make that work... but no, it's not. The same way as Ford has no obligation to make sure Saleen can do what they want to do, publishers have no obligation to make sure you can resell their products online.

As an individual, I believe this is something we as a society needs to solve. But as a publisher, I feel no obligation to build special and expensive systems to actually make that happen. More to the point, this is not a media problem, it's a file system problem.

And this is the real dilemma we have online. Yes, you should be allowed to own what you buy. Yes, you should be allowed to use it however you like. And yes, you should be allowed to resell it.

As such, we need to get rid of the stupid DRMs and weird ways publishers and tech companies are preventing people from using their products. For instance, when I buy a movie on Google Play, I'm only allowed to play it in HD using my Android devices. I cannot play it in HD on my computer.

This is a massive violation of my rights of ownership. Google and the publishers have sold me a movie, but they forgot to transfer the rights to use it to me. Regardless of the arguments involved, this is wrong.

But reselling is a different problem, because today there is no way to actually make that work. It's not really because anyone is preventing you from doing it (at least not in theory), you just can't do it because of how digital files work.

You cannot sell a product that you do not own

Finally, the third problem online is that many people seem to have no idea what they actually own, even when it's plainly obvious.

Think of it like this. When you buy a yearly membership card for your local gym, do you then own the gym? No, of course not.

Do you own any of the equipment in the gym? The exercise machines, the lamps, mirrors, the showers, or the furniture? Also, no.

The same is true for when it comes to reselling. Can you take any of the exercise equipment with you and sell it on eBay? No, of course not. That would be an act of theft.

The only thing you own is your membership card, which also means that the only thing you can sell is your membership card.

The same is true online. Take this site.

When a person subscribes to Baekdal Plus, the product that you buy is the 'membership card' that grants you access to what I publish. And just like you don't own anything in your local gym, neither do you ever own any of my articles.

This also means, that you cannot subscribe to Baekdal Plus, download my articles and start reselling them. You cannot sell my content, because you never owned it.

But as an owner of the membership, can you use my articles however you want? Yes, of course... heck, you can even share the content (which you can't do with your local gym).

Can you sell your Baekdal Plus subscription to a friend? Sure... go right ahead. But remember, it has to be a real sale. You cannot sell your access to your subscription to another person without also completely transferring its use to that person.

If a person subscribes to Baekdal Plus and gives others access to the account, it would be theft. The same way as if someone used a copy-machine to duplicate your gym membership card so that more than one person could use it at the same time.

And it's this simple principle that people often forget online.

Yes, you should have the right to own digital products the same way as physical ones. And yes, that includes the right to use them however you want. And yes, you should be able to resell them, but only when an actual real transfer of ownership can take place.

But no, you can't sell a product that you never owned to begin with. This is true online as well as offline.


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Thomas Baekdal

Founder, media analyst, author, and publisher. Follow on Twitter

"Thomas Baekdal is one of Scandinavia's most sought-after experts in the digitization of media companies. He has made ​​himself known for his analysis of how digitization has changed the way we consume media."
Swedish business magazine, Resumé


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