E-books, digital rights management, and the first-sale doctrine

There has been much buzz over the last couple of decades about the future of the textbook. Will print books continue to dominate? Will book rentals take a more prominent role? Will the market shift to e-books or to subscription-based access to cloud stored content or to more complex adaptive learning systems? Or will proprietary publishing fade to black as Open Education Resources improve in quality and increase in number?

Despite ample evidence that students, even millennials, prefer to consume course content in printed and bound form, the market pressures driving the cost of print books up to unsupportable levels continue to increase in number and impact. Most recently, a substantial increase in the trade in counterfeit books has forced several college publishers to sue a national chain of college bookstores for recklessly dealing in counterfeit books. So it appears inevitable that some form or combination of digital solutions will eventually rise to displace printed books. Which form or combination is still an open question. But for now, let’s examine one of them – the e-book, which presents publishers with two separate strategies for restricting re-sale and counterfeiting – one technical and one legal.

An electronic book, or “e-book”, is a data file that is used by an electronic device to display text and images in a similar manner as they would appear in a paper book. Devices designed primarily for reading e-books are generically referred to as “e-readers”. Most types of e-books can also be read using a general-purpose computing device, such as a tablet computer, running a corresponding e-reader application. E-books have a number of advantages over their print counterparts for both the publisher and the student-consumer. However, e-books also present some new challenges with respect to copyright law, and in particular, with respect to unauthorized copying and distribution of copyrighted works.

Producing and selling high quality unauthorized copies of paper books requires a significant investment in infrastructure by the infringer, namely, a printing press and fixed location from which to operate. Thus, large scale copyright infringement of printed media has historically been dealt with by tracing the unauthorized books back to the source and shutting down production, or, more recently, by intercepting pirated books in the hands of a key distributor. The situation with digital media is quite different. E-books, after all, are not subject to the practical limitations of reproducing and distributing paper copies. There is no cost of paper and ink. Press and bindery time are not required. The cost of holding an inventory is minimal, because you need only one master copy, and it requires no physical space. There is no counterpart to the packing and shipping costs of a product with some heft. The time it takes to move a copy from point A to point B, no matter the distance, is measured in microseconds. And each copy is indistinguishable from the original, with none of the wear and tear that the original physical copy experiences over time and none of the degradation that each new generation of product suffers.  Moreover, peer-to-peer file sharing networks, which enable users’ computers to share data files directly with each other, expand the scale of infringement by enabling each recipient of a data file to share it with additional users. A copyright owner attempting to enforce their rights to reproduce and distribute digital media could therefore be faced with the daunting task of identifying and shutting down thousands of individual infringers.

As for the technical strategy to prevent the unauthorized use of e-books, many publishers use what is broadly known as Digital Rights Management (DRM). DRM refers to any technological measure that limits the use of a copyrighted electronic media. The most familiar form of DRM is copy protection, which limits the user’s ability to copy, transfer, or otherwise duplicate protected data files. DRM is not limited to preventing unauthorized copying and distribution. Indeed, DRM can be used to enforce essentially any restriction the copyright owner can think of. For example, a free e-book may include DRM that allows copying, but prevents alteration of the data file so that the e-book can only be copied and distributed in its original unaltered form. DRM may permit copies of a protected e-book to reside on a limited number of devices at the same time, or it may restrict use of the e-book to one copy on one device. DRM can also block the user from printing or cutting and pasting from an e-book.

Circumvention, or hacking, of DRM is restricted by the Digital Millennium Copyright Act (DMCA), which was enacted in 1998 to bring US law into compliance with international copyright treaties and to deal with the emergence of the Internet. By prohibiting the mere circumvention of DRM features, the DMCA provides copyright owners with a legal tool to address entities that facilitate unlawful copying of DRM protected works, even if these entities are not directly violating copyright law.

Most e-books employ one of three types of DRM, namely Amazon’s Kindle Format 8 (KF8), Apple FairPlay, or Adobe Content Server (ACS). KF8 is only used with e-books sold through Amazon, and includes a proprietary DRM that is controlled by Amazon. Likewise, Apple’s proprietary FairPlay DRM is only used on e-books sold through iBookstore. E-books using FairPlay can only be read using Apple devices unless the DRM is removed. Most other retailers, including Barnes & Noble, Sony, Kobo, Google Play Books, and Smashwords, use Adobe Content Server (ACS) DRM, which supports open industry standard e-book formats, such as ePUB.

The uses allowed by DRM vary among publishers. Publishers also occasionally alter what their DRM permits, such as in response to market forces, and some textbook publishers have chosen not to use DRM at all. Other publishers configure DRM to allow users to access each e-book they purchase on a limited number of devices. Publishers also normally permit users to transfer an e-book from an old device to a new device by deregistering the old device and downloading the e-book to the new device. The use of DRM to restrict use of e-books has not been without controversy. A common objection to the use of DRM is that DRM denies purchasers from using their e-books in ways protected by the Copyright Act itself.

As for the legal strategy, Section 106 of the Copyright Act grants the copyright owner an exclusive right to distribute copies of the copyrighted work to the public. However, this right is not without limits. Section 109(a) of the Act provides that the “owner of a particular copy . . . lawfully made under this title . . . is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy”. The right of the purchaser to dispose of their copy of the work is known as the “first-sale doctrine.” Under this doctrine, the “first-sale” of the work by the copyright owner exhausts their exclusive distribution rights for that copy. This is the legal principle that prevents publishers from barring student resale of their textbooks, from reducing the adverse economic impact of used books, and from effectively reigning in the ever increasing unit-cost of publishing a textbook. However, the first-sale doctrine only applies to owners of the copy. Thus, for the first-sale doctrine to apply, a first-sale by the copyright holder must have occurred. If the copyright holder only grants the user a license to use the work, the first-sale doctrine is not applicable.

To determine whether a sale has occurred, courts look at whether the terms of the transfer: (1) specify that a user is only being granted a license, (2) significantly restrict the user’s ability to transfer the work, and (3) impose significant restrictions on use. In the case of e-books, the end user agreements typically establish that the copyrighted works are being licensed rather than sold. The end user agreements also typically impose restrictions on transferring and using the e-book, and the publishers normally employ DRM to enforce these restrictions.

Even where the terms of transfer are such that it might be argued that a sale, rather than a license has occurred, it isn’t clear that the first-sale doctrine would permit resale of a copy of an e-book (because first-sale permits re-distribution of the copy purchased but not reproduction of another copy). The lawfully made copy of the e-book is created when the e-book is initially downloaded to the purchaser’s device. Any subsequent copying of the e-book requires the copyright owner’s permission to legally reproduce the e-book. It is generally understood that transferring a digital file between devices requires making a copy on the destination device, whether the file on the source device is deleted or not. Thus, unless the original copy of the e-book is distributed by physically transferring the device on which the e-book resides to the new owner, what is being distributed is a new copy of the e-book, not the “particular copy” protected by the first-sale doctrine. Because transferring an e‑book from one device to another requires the making an unauthorized copy of the e-book, it falls outside the protection provided by the first-sale doctrine.

The ethereal nature of e-books has created new issues and opportunities for both publishers and e‑book purchasers. The ease with which data files can be copied and transmitted, on the one hand, and the technical and legal tools available to publishers, on the other hand, to control the use of e-books after they are transmitted to the purchaser, provide a landscape changed from the days of print publishing. Are e-books the solution to out-of-control cost increases for educational content? Only time will tell.


Scott Gaines is an attorney at Wood Herron & Evans, where his practice focuses on, among other things, the prosecution of patent applications for electronic devices and circuits and computer systems. He also has more than 12 years of practical engineering experience, mainly in wireless communications and radio frequency electronics. sgaines@whe-law.com

Stephen GillenSteve Gillen is a lawyer and partner in the intellectual property firm of Wood Herron & Evans and has focused his practice on publishing and media matters for 35 years. He is a member of the TAA Council, a frequent presenter at TAA conferences, and author of the book Guide to Textbook Publishing Contracts © 2016. sgillen@whe-law.com