All your base are belong to us (or shouldn't it?) : an empirical analysis of the digital first sale doctrine for a second-hand e-good market in the U.S.

The resale of physical goods is a day-to-day practice legally protected by the first sale doctrine (U.S. 1976 Copyright Act §109(a)). However, end-user license agreements (EULAs) that "buyers"—-or rather licensees—-of intangible products accept at purchase invalidate the application of the digital first sale in the United States (Vernor v. Autodesk, Inc., 2010). In the European Union, on the other hand, the exhaustion of rights principle was extended to some digital products, hence making used software trade—-including that transmitted online—-legal (UsedSoft GmbH v. Oracle International Corp., 2012). The industry is afraid of opening the door to second-hand markets for digital goods (books, movies, TV shows, music, software, video games), which may severely damage sales of new products. Nevertheless, EULAs impose serious limitations on consumer rights with respect to the resale of intangible products and also block competition from secondary markets. In this dissertation, I first explore why such industry practices are compatible (or not) with the copyright, antitrust, and consumer protection laws of the European Union and the United States. My findings suggest that, because of the European more interventionist and consumer-oriented rationale in regulating human behavior, those EULAs are deemed illegal and unenforceable under EU law with respect to software. They are consistent with the U.S. regime, however, since the American approach to consumer matters is rather free market-driven ('laissez faire'). The digital first sale would expectedly have a positive impact on customers. Secondary markets allow to better price discriminate, covering more demand and generating more transactions. They also originate competition for firms in the first-hand market, helping to more quickly drive prices down after release. But policy considerations on general efficiencies are not enough. This dissertation also tackles the introduction of the digital first sale from an empirical perspective, specifically through a survey-based experiment to assess whether copyright owners would benefit from, or at least be indifferent to, creating secondary markets for digital goods in the U.S. in terms of economic surplus. Without producer initiative, legal reform alone will not likely be sufficient to materialize the digital first sale as copyright owners would find alternatives to continue enforcing their rights (e.g., streaming or subscription services). My experiment concludes that the digital first sale harms copyright owners by nature. As soon as secondary digital markets become attractive enough for a critical mass of consumers to start thinking of using them, instead of purchasing from the first-hand market, producers lose significant sales of new products, which cannot be offset by charging more upfront. This outcome applies to e-books and video games. Software producers, on the contrary, would not be negatively affected by secondary e-good markets because consumers are less interested in buying used software (as compared to e-book and video game users). Those second-hand markets would actually allow software companies to do a better job at price discriminating (many users would be willing to pay higher prices for first-hand, one-off software purchases), and copyright owners may even extract some additional surplus from the (small) secondary software market. Keywords: first sale doctrine, second-hand markets, digital products, e-goods, end-user license agreements, law and economics, experiment design, copyright, antitrust, consumer protection, comparative law

Keywords: Law JSD.
Advisor: Lemley Mark A.
Goldstein Paul
Polinsky A. Mitchell