The Promise and Perils of Digital Libraries

The licensing model has important implications for public libraries. The practice of library lending has depended heavily on the exhaustion principle. But in the context of ebook lending, exhaustion has not given libraries the same freedom they used to enjoy over physical copies. The restrictions imposed by copyright holders allow expansive vendor control over library ebook lending. They not only infringe upon library patrons’ freedom to borrow or access library ebook collection, but also diminish the libraries’ ability to discharge their important cultural functions. The prevalence of digital copies makes it harder for libraries to preserve works that lack perceived economic value or that are subject to censorship. It also threatens the privacy of library patrons and stifles innovation.

Copies, Clouds, and Streams

This chapter outlines three major transformations in how consumers acquire copyrighted content, and the gradual erosion of ownership rights that accompanied them. Historically, copyrighted works were distributed through tangible copies. In the early 2000s, the first transformation took place through the rise of digital downloads. Second, remote cloud storage allowed consumers to access remote copies through high-speed data connections. The third major shift, to subscription streaming services, is now underway. With each step in this progression, consumers have sacrificed permanence and stability for lower prices and convenience. More importantly, copyright law has failed to keep up with the development of these new technologies. Copyright law has focused on the copy/work distinction to delineate the rights of copyright holders and consumers, but the traditional tangible copy is disappearing from the marketplace.

Introduction

This chapter observes two trends: the rise of the digital marketplace as the result of technological development and the decline of ownership due to aggressive intellectual property laws, restrictive contractual provisions and technological locks. Admittedly, the market offers consumers a choice between ownership and more conditional, impermanent access to goods, but because of the asymmetric information possessed by consumers and retailers or IP rights holders, consumers frequently cannot make informed decisions. This leads to the loss of control over the goods they purchase; more importantly, the lack of ownership rights has serious implications for cultural preservation, innovation and consumer autonomy. The rest of the book unfolds by detailing how consumers and IP rights holders contend for control over physical and digital goods in various areas.

Patents and the Ordinary Pursuits of Life

This chapter examines the battle for control between patent owners and purchasers of patented devices. By proclaiming users who violated the use restrictions as patent infringers, patent owners impose various kinds of conditions on purchasers’ use of their devices. The Supreme Court adhered to the principle of patent exhaustion and held in an 1852 case that once a patented good was sold, the patent owner could not interfere with the rights of purchasers to use it in the “ordinary pursuits of life.” While the Court stood firmly behind this principle for over 150 years, in recent years, with technological innovations like self-replicating technologies and with the development of international commerce, the common law principle of patent exhaustion is under attack. It remains to be seen how the Supreme Court will address the issue of patent exhaustion in future cases.

DRM and the Secret War inside Your Devices

This chapter address technologies that are collectively known as Digital Rights Management (DRM). DRM is a set of software-based tools implemented by copyright holders, device makers, and retailers to monitor and restrict consumer behavior. For example, after the Supreme Court took the side of consumers and affirmed the legality of the VCR, Hollywood threw its weight behind the DVD, an encrypted format that allowed studios to dictate the design and functionality of playback devices. These and other forms of technological self help are strengthened by the Digital Millennium Copyright Act (DMCA), which prohibits the bypassing, disabling, or otherwise circumventing the digital locks that DRM represents. But the DMCA has largely failed to prevent circumvention, and many copyright holders have recognized that the restrictions imposed by DRM discourage consumers from buying encumbered products. Moreover, as the Sony rootkit incident demonstrates, DRM puts consumer security and privacy at risk.

Property and the Exhaustion Principle

This chapter outlines the conceptual framework for the rest of the book by describing the basic principles of personal and intellectual property law. The default rules of ownership used to define the purchasers’ rights, allowing for resale, lending, gifting and many other forms of transaction by the consumer. Now, with the rise of the digital economy, consumer rights are defined through licenses, which impose various restrictions on consumers’ disposition of their digital goods. Among the traditional rules of ownership, the exhaustion principle is particularly important for mediating the tension between intellectual property holders and consumers. Exhaustion is the notion that an IP rights holder relinquishes some control over a product once it sells or gives that product to a new owner. IP rights holders have resisted exhaustion at nearly every turn, and the licensing model allowed them to infuse new vigor into their resistance.

Ownership’s Uncertain Future

This chapter begins by considering the emergence of the sharing economy, which brings consumers cheaper access and convenience. But it also deprives consumers of some rights that are commonly associated with property ownership. This chapter then proposes several ways to combat the erosion of ownership. Legal reform faces many hurdles, but there are still several steps legislators and courts can take: first, false claims of ownership such as “buy now” or “own” should be targeted to improve consumer information; second, the pervasive use of form contracts needs to be curbed; third, consumers need to be freed from the restrictions imposed by DRM; lastly, courts also need to reinvigorate the principle of patent exhaustion and reform copyright law. Technological developments, including using block chain technology to record ownership interests in digital assets, can also help ensure meaningful personal property rights.

The Internet of Things You Don’t Own

The smart devices that make up the Internet of Things induce consumers to cede control over the products they buy. Devices like smartphones offer real benefits, but combined with embedded software, network connectivity, microscopic sensors and large-scale data analytics, they pose serious threats to ownership and consumer welfare. From coffee makers and toys to cars and medical devices, the products we buy are defined by software. That code gives device makers an increasing degree of control over how, when, and whether those products can be used even after consumers buy them. That shift of control has profound implications for ownership.

The “Buy Now” Lie

This chapter probes the reasons for consumers’ eagerness to embrace the digital marketplace despite the sacrifice of their ownership rights. It argues that the preference for digital goods is at least partially caused by consumers’ lack of information about what rights they are acquiring in digital goods. Digital retailers frequently employ misleading languages such as “buy,” “own,” “purchase” or “sell.” The chapter reports the results of a study that reveals consumers consistently overestimate their rights in digital goods, and that they prefer to purchase goods that allow them to exercise rights commonly associated with ownership. Many consumers have misconceptions about whether they can resell, lend or gift their digital goods purchased through the “Buy Now” button. A better approach should be to use short notices that unequivocally inform consumers what they are getting.

Ownership and the Fine Print

This chapter examines the license agreements imposed by IP rights holders that redefine transactions and strip consumers of ownership even after an apparent sale. Despite their importance, consumers seldom read these license agreements because of their length and complexity. In response, IP rights holders produce highly uniform license terms that impose restrictions on the rights acquired by consumers. There are two approaches of interpreting license agreements: one treating them as contracts that require the mutual consent to be effective, while the other construing license agreements as expression of permission that does not require agreement to be effective. Many courts rely on license agreements to determine whether consumers enjoy ownership over the things they purchase. The better approach, however, should be to look at the economic reality of a transaction.