French Court Declares That Steam Gamers Actually Do Own What They Bought

from the liberte! dept

Good news on the front for those of us that think we ought to own what we've actually bought. You may recall that way back in 2015, when the world made much more sense, French consumer group UFC-Que Choisir sued Valve over several different ways the company operates the Steam platform. Chief among those concerns were resale rights, with Steam arguing all along that its subscription based service does not afford customers the right to resell the games they bought, as they would physical copies of games. As we said all along, why the delivery method for a video game should alter the consumer rights for that product were anyone's guess, but that was the argument Valve made in response to the suit.

Fortunately, the French court didn't buy it. The High Court of Paris has instead ruled for UFC-Que Choisir, declaring that Steam must allow users to resell the games they buy on the platform and post messaging declaring this change to Steam directly.

According to the French gaming site Numerama, as well as UFC-Que Choisir itself, the High Court of Paris ruled in UFC-Que Choisir’s favor earlier this week. If Valve’s appeal fails, this ruling stands to have ramifications not just in France, but across the European Union. Specifically, the court didn’t find Valve’s defense that Steam is a subscription service compelling. As a result, the court declared that users should be allowed to resell Steam games.

The court ruled in favor of UFC-Que Choisir on other counts, too. In its original suit, the organization had also taken aim at the fact that, if a user leaves Steam, Valve would keep whatever currency was left in their Steam Wallet. The recent ruling states that the company will instead have to reimburse users who request it. Valve must now also accept responsibility when users say an item on Steam caused them harm, even if it’s in beta. Valve’s rights to users’ mods and community content will also be diminished, and the company will have to clarify the conditions under which users can lose access to Steam for poor behavior.

If Valve fails to comply, it can be fined up to 3,000 euros per day for six months. As Kotaku's post notes, this is much bigger than just a French problem for Steam. Because of the way the EU courts are supposed to apply rulings uniformly, there is the potential for this standard to be applied across the entire EU. That would represent a massive change to the consumer rights of Steam users throughout nearly all of Europe and you can bet that American consumer groups would immediately jump on the bandwagon this side of the pond as well.

This is all, however, pending an appeal by Valve.

Again, though, Valve, plans to appeal the ruling. “We disagree with the decision of the Paris Court of First Instance and will appeal it,” a Valve representative told Kotaku in an email. “The decision will have no effect on Steam while the case is on appeal.”

So, no changes for now, it appears. Still, there is the very real potential that at least in France, if not in the entire EU, gamers might actually own what they buy.

Filed Under: copyright, digital goods, france, ownership, resale rights, steam, video games
Companies: valve

French Consumer Group Tries To Win Back Resale Rights For Digitally Distributed Games

from the here's-hoping dept

We talk a lot about first sale rights and resale rights at Techdirt, but of particular frustration to me is the strange capitulation to companies that sell digital copies of software. This isn't a strictly American problem, though here in the States there has been a near total abandonment of the consumer's rights when it comes to electronically delivered entertainment, be it eBooks, music, movies or games. The "you're licensing the game you paid for, not buying it" line is, on its face, ridiculous, amounting to a situation where Game "X" bought on a disc can be resold, but Game "X" bought and delivered on the internet cannot. Why a delivery method would alter the right to resale a bought product because a EULA says so is a concept that simply escapes me.

Across the pond, a French consumer group appears to agree, and it is trying to specifically attack Steam and Valve on this front.

The 64-year-old UFC-Que Choisir (the "federal union of consumers") argues that Valve must provide the capability for Steam users to resell their legally purchased digital games whenever they want. While noting that many online stores have similar resale restrictions, the group argues that the difference between being able to resell a physical game disc and not being able to resell a digitally purchased game is "incomprehensible... No court decision prohibits the resale on the second-hand market games bought online, and the European Court has even explicitly stated that it’s possible to resell software which, let’s remember, is an integral part of a video game."

As that ArsTechnica piece updates further down the post, there's some question as to exactly how true that statement is. There have been European court rulings that specifically drew a distinction between software in general and software that contained a creative component. But that seems like an awfully fine line to draw as the basis for removing a consumer's right to resell what they've bought.

An aside: Imagine applying this situation to other forms of intellectual property law, for instance. Trademark chiefly revolves around real or potential customer confusion. To that end, governments employing trademark law claim to be concerned about the public's ability to understand what they're buying. Yet, when it comes to resale rights, this interest in customer confusion evaporates. Anyone wishing to claim that the average purchaser of a Steam game wouldn't be surprised to find its the seller's opinion that they haven't actually bought the game in the traditional sense at all may do so, but I reserve the right to laugh them out of the conversation.

What makes UFC-Que Choisir's claim particularly interesting is that it coupled its demand for resale rights on digital games with an attack for Valve's claim of ownership over user-created content.

In addition to the resale complaint, UFC-Que Choisir takes Valve to task for claiming the right to reuse any user-created content on Steam "at will." This clause "denies... respect for the users'/creators' rights of intellectual property," the group says.

This would seem to ask Valve and game-sellers to pick a lane: either creative content is worthy of protection or it isn't. Using a creative component of content to deny consumers their resale rights while then happily making use of those same consumers' creative works at the same time isn't consistent.

Now, to be clear, most of the people reviewing this attempt believe it will fail. We can hope, however, that some court somewhere might take the side of the consumer and their rights regarding digital purchases.

Filed Under: digital distribution, first sale, france, resale rights, steam, video games
Companies: valve

Audio Equipment Manufacturer Threatens Amazon Reseller With 'Mandatory Jail Time'

from the 'boil-in-the-torment-of-hell'-also-listed-as-possible-legal-recourse dept

Part Whatever of our ongoing series How Not To Do Business brings us the story of a high-end audio device manufacturer badly misunderstanding how the Right of First Sale works. Velodyne, a Silicon Valley-located company, recently decided to take a very aggressive stance against an Amazon reseller who purchased a pair of earphones and resold them for a profit.

The full thread at Amazon's forums uncovers a lot of useful information during the 136-message sprawl but it all begins with a threatening pseudo-C&D email, loaded with legal threats that aren't actually legal and a strident mangling of English that suggests Velodyne's bogus legal threat division is outsourced.

Reseller 20YearsUSAF posted this to kick off the thread:

Hello,
This is a notice to inform the entity “20YearsUSAF” dealer and seller on Amazon.com and other internet selling locations to be discovered, of our engagement representing Velodyne Acoustics Inc, a privately owned company located in Morgan Hill, CA.

We are forthwith enlisted our services to protect price integrity by seeking public fractures and selling contract terms and illegal selling of products by unauthorized distributors and dealers on the internet in the USA and overseas. [ed. note: wat]

This is a notice of legal prosecution for illegal selling of Velodyne Acoustics, Inc. products and goods. You will be pursued and prosecuted unless you withdraw all products for sale by Velodyne immediately as of 9/13/14. “20YearsUSAF” selling will cease and desist for 2014-2019, under this name or other alias names or entities to be discovered by our agency. Discovery of “20YearsUSAF” using other alias identity to continue selling after this notice will compound fines and may incur mandatory jail sentencing of offenders. Continued unauthorized selling under this business name or alias name, as identified through discovery and witnesses, will put this business and its owners at risk of fines and legal prosecution.

Continue selling carries the penalty and minimum of $250,000 fine.

Sock and Bruster Internet Policing Services Inc. LPC, Legal Prosecution and Collection Agency

First off, there is no such thing as "illegal selling" of Velodyne products. Anyone can resell anything they purchased from Velodyne, which is what this seller did. What seems to be the issue (uncovered later in the threat) is that 20YearsUSAF bought one deeply discounted by Velodyne at its site and flipped it to turn a profit. Nothing illegal about that. (A forum member notes that similar notices have been sent to ebay resellers.)

The legal threats following that are for remedies that don't exist. Counterfeit goods may be illegal but reselling legitimate products isn't. Velodyne can't ban anyone from selling its products for a half-decade. It can prevent unauthorized resellers from listing themselves as "authorized" but that's it. The fact that the reseller is an Amazon reseller means it's up to Amazon to delist, ban or otherwise prevent 20YearsUSAF from using its platform. Velodyne can provided evidence why it should take this action but it can't just declare this in an email and consider it done. Needless to say, there are no "compound fines" or "mandatory jail sentencings" awaiting 20YearsUSAF.

Finally, "Sock and Bruster" is completely made up. This company does not exist.

Velodyne clearly doesn't like unauthorized resellers. It has a whole page on its website discussing this as well as a list of blackballed resellers it's uncovered that aren't actually authorized. 20YearsUSAF now heads that list. It's perfectly fine to restrict warranty coverage, etc. to only authorized resellers. What's not acceptable is declaring that anyone who hasn't signed an authorized reseller contract is forbidden from reselling items they purchased from Velodyne. As long as they're not misleading customers about their authorized/unauthorized status, there's not a damn thing Velodyne can do about it.

Here's where issue #2 comes into play. 20YearsUSAF listed this item as "new," which would lead buyers to believe it was still covered by the manufacturer's warranty. According to Velodyne's terms, only sales by authorized sellers receive that coverage. It's a problem, but one that should have been taken up by reporting the listing to Amazon rather than deploying the email nuke as the opening gambit. (20YearsUSAF has pulled similar listings and other forum members have told him/her to use "like new" in the future for goods like these, even if unopened, because many companies will not honor a transferred warranty.)

The next email 20YearsUSAF received was shorter but it wasn't any better.

"Since you bought the headphones from Velodyne, then you are an authorized dealer who signed a contract on selling policy. You are using an alias to hide your identity to perform illegal activity, and will be prosecuted as such. With the new laws, we finally have the clout to clean up these sales. There are new laws in place and more laws coming soon to protect Manufacturers from unauthorized selling.

My advice is to find another way to make a living, quickly."

The tactics shift. Now Velodyne is accusing the Amazon seller of violating a contractual agreement by selling headphones under a fake name. It references "new laws" but doesn't cite anything and, again, makes claims about "unauthorized selling" that really don't have anything to do with the issue at hand -- the right of first sale. And then there's the little threatening dig at the end.

It also seems to imply that simply purchasing an item from Velodyne enters you into a resale contract, which obviously isn't true. There's nothing about it in the Terms and Conditions Velodyne says you agree to when purchasing its products.

Finally, 20YearsUSAF received another email, this one much more conciliatory.

I am trying to make a go of a company that supports the livelihood of 80 employees. If our prices are undercut on a regular basis, then we lose integrity and retail stores will not put us in their stores to sell.

Velodyne is a small company, not like Sony or Bose. We don't have millions of dollars for marketing and our costs are high. Retail stores are going out of business and what we have left is selling online from our home grown website. This is our hope to sustain the business.

I'm glad you are not an unauthorized seller making a business out of selling Velodyne online.

It sounds like you work hard and I appreciate you writing back.

Even amidst the call for sympathy, a sense of misplaced entitlement remains. "If our prices are undercut on a regular basis" makes no sense when the buyer purchased headphones Velodyne itself offered at a reduced price. If that price doesn't make Velodyne money, then that's Velodyne's problem. Someone reselling it at a profit (thanks to the discount) doesn't take money away from it. Velodyne already gave up that money when it agreed to sell X product at Y price. It can't look at someone else's good fortune and decide that because the reseller made more money than it did, the reseller must be doing something "illegal."

A response from Amazon further settles the issue:

Greetings from Amazon Seller Support, Thank you for writing to us. I understand from your correspondence that another seller named Velodyne has asked you to remove the listings of their products which you are selling on Amazon.com. I would like to inform and assure you that as long as there is any copyright/trademark notice brought to Amazon's notice by the brand owner/manufacturer, all sellers are free to list whatever products they wish to on Amazon.com.

The only condition is to ensure that the products they are selling are exactly the same products that the listings had been created for. In this case there has nothing wrong been done from your end. Therefore there is absolutely no need for you to delete the listings.

Velodyne's decision to shoot first may end up hurting it more than an authorized dealer buying at wholesale and reselling the products under aliases would. Deciding to ride out the gut instinct that it was being abused by a contractual partner only served to make it look foolish and vindictive, especially when the legal "remedies" listed had no basis in reality. We're used to seeing bogus legal threats in which the threats themselves are bogus. We don't often see bogus legal threats where the potential punishments are conjured out of thin air and the laws that don't exist are quasi-cited in support.

If this isn't the case, and Velodyne just doesn't like people reselling goods at a price higher than it sells them for, then it should probably exit the retail business -- or at least stop offering price breaks it can't afford.

If Velodyne has the suspicion that one or more of its authorized sellers are violating their contractual agreements, it needs to keep it to itself until it has enough supporting evidence. Then it needs to realize that outside of counterfeit goods, its legal remedies won't include jail time or anything outside of civil lawsuits. By rushing to judgement, it has made potential purchasers wary of dealing with it -- not just for potential interference in perfectly legal resale, but in terms of any negative reviews that might be greeted with similar threatening emails.

Filed Under: ownership, products, resale rights, resellers, threats
Companies: amazon, sock and bruster, velodyne acoustics

Publisher 'DRMs' Physical Legal Textbook About 'Property,' Undermines Property And First Sale Concepts

from the because-that's-what-publishers-do dept

We've talked in the past about just how badly certain industries would love to expand the restrictions created by DRM onto physical goods. And that's because, unlike what copyright system defenders like to claim, DRM allows companies to put restrictions on content that go way beyond what kind of restrictions can be placed on physical goods. For example: the right to resell something. In the copyright space, we've long had the first sale doctrine, which makes it possible for you to resell a physical book you own, without having to first get permission from the copyright holder. Of course, first sale has long been under attack, especially by academic publishers who absolutely hate the idea of a resale market. That's because they are monopoly providers -- professors assign the textbooks, and students need to buy them, leading to ridiculously inflated prices. Of course, what publishers still don't seem to grasp is that a healthy used market actually increases the value of the primary market, since buyers are more comfortable knowing they can at least make back some of the money at the other end.

But, the attack on first sale continues. Somewhat ironically, the next front in this battle is coming from the publisher Aspen, which publishes a very popular (in law schools) casebook on Property. It has started informing professors that with its next version, students will be required to give the book back at the end of the semester, and that the book cannot be resold. In "exchange" for this, it will grant students "lifetime" access to a digital version.

Law professor James Grimmelmann has explained what's going on here: Aspen is trying to do away with first sale rights. Basically, relying on a terrible appeals court ruling in Vernor v. Autodesk (which the Supreme Court refused to hear on appeal), Aspen is seeking to claim that you're merely licensing the textbook, rather than buying it:

The obvious goal is to dry up the used book market by draining the supply of used copies. But as Josh points out, it seems unlikely that every student will return the physical book. Rather, reading between the lines, Aspen may argue that the physical book is “licensed” rather than “sold” under the reasoning of cases like Vernor v. Autodesk. The result would be that first sale (the right of the owner of a book, or a DVD, or any other copy of a copyrighted work to resell it freely) would never attach, since the students wouldn’t be “owners” of their physical copies. If Stan Second-Year sells his copy of the new Dukeminier to Fran First-Year, he’d be a copyright infringer in the eyes of Aspen. So too might be Half.com or Barnes and Noble, if they participated in the transaction. Just to make sure that students know they’re only borrowing Aspen’s books and “agree” to those terms, it appears, students will have to purchase Connected Casebook access through Aspen’s website or a participating campus bookstore.

Grimmelmann goes on to point out that not only will this undermine the important and useful concept of first sale (and the resulting used market in these works), it will "result in the destruction of knowledge" in that it's likely that Aspen will simply destroy these books, rather than set up any sort of resale market itself. As for the claim that "well, at least they have 'lifetime' access to a digital version," Grimmelmann points out that given that such access is dependent on Aspen continuing to provide such access, the lifetime guarantee is not much of a guarantee at all.

Aspen promises “lifetime access” to the electronic versions, but we know from sad experience that gerbils have better life expectancy than DRM platforms.

He has also set up a Change.org petition, trying to get Aspen to reconsider its decision to ban the resale of textbooks, and basically "DRM" their physical books, wiping out first sale. Just the very fact that Aspen is undermining basic concepts of property on its "Property" casebook seems troubling enough -- but it shows how desperate publishers are these days to undermine basic concepts of property to prop up obsolete business models, built entirely on the basis of monopolistic pricing.

Filed Under: books, casebooks, copyright, drm, first sale, law schools, resale rights, text books

Supreme Court Gets It Right In Kirtsaeng: You Can Resell Things You Bought Abroad Without Infringing

from the phew dept

For a few years now, we've been following the Kirtsaeng case, in which a student was sued by publisher John Wiley & Sons for buying cheap (legal) textbooks abroad, and then reselling them in the US for profit. Wiley claimed this was copyright infringement, while the student, Sudap Kirtsaeng, argued that the first sale doctrine applied. First sale gives you the right to resell, say, a book that you legally bought without having to get permission from the copyright holder. Under copyright law, it says that the first sale doctrine applies to any product "legally made under this title." Wiley argued that goods made abroad were not legally made under US law since they were made abroad (even though, obviously, it wanted the rest of copyright law to apply to it once those works came to the US). We were guardedly optimistic after the oral hearings at the Supreme Court, in which the Justices explored the "parade of horribles" that might happen if Wiley won. And while what happens at oral arguments frequently doesn't seem to have any bearing on the eventual situation, in this case, the Supreme Court has ruled in favor of Kirtsaeng, saying that it is silly to interpret the first sale doctrine the way Wiley does, and that there is no evidence that such "geographical restrictions" make sense, or that Congress intended such a result.

In our view, §109(a)’s language, its context, and the common-law history of the “first sale” doctrine, taken together, favor a non-geographical interpretation. We also doubt that Congress would have intended to create the practical copyright-related harms with which a geographical interpretation would threaten ordinary scholarly, artistic, commercial, and consumer activities.... We consequently conclude that Kirtsaeng’s nongeographical reading is the better reading of the Act.

To get technical, the key issue in the dispute was that two different sections of copyright law could be read to conflict. Section 109 defines the First Sale doctrine while Section 602 defines importation of works. Kirtsaeng focused on 109, while Wiley insisted that 602 is more important. The Supreme Court -- by a six to three margin -- side strongly with Kirtsaeng. The majority was written by Justice Breyer, who is consistently good on intellectual property issues, while the dissent was led by Ginsburg, who is consistently bad on copyright issues (Scalia and Kennedy sided with Ginsburg). Thankfully the "good" side won out today.

The language of §109(a) read literally favors Kirtsaeng’s nongeographical interpretation, namely, that “lawfully made under this title” means made “in accordance with” or “in compliance with” the Copyright Act. The language of §109(a) says nothing about geography. The word “under” can mean “[i]n accordance with.” 18 Oxford English Dictionary 950 (2d ed. 1989). See also Black’s Law Dictionary 1525 (6th ed. 1990) (“according to”). And a nongeographical interpretation provides each word of the five-word phrase with a distinct purpose. The first two words of the phrase, “lawfully made,” suggest an effort to distinguish those copies that were made lawfully from those that were not, and the last three words, “under this title,” set forth the standard of “lawful[ness].” Thus, the nongeographical reading is simple, it promotes a traditional copyright objective (combatting piracy), and it makes word-by-word linguistic sense.

The geographical interpretation, however, bristles with linguistic difficulties. It gives the word “lawfully” little, if any, linguistic work to do. (How could a book be unlawfully “made under this title”?) It imports geography into a statutory provision that says nothing explicitly about it. And it is far more complex than may at first appear.

To read the clause geographically, Wiley, like the Second Circuit and the Solicitor General, must first emphasize the word “under.” Indeed, Wiley reads “under this title” to mean “in conformance with the Copyright Act where the Copyright Act is applicable.” Brief for Respondent 15. Wiley must then take a second step, arguing that the Act “is applicable” only in the United States. Ibid. And the Solicitor General must do the same. See Brief for United States 6 (“A copy is ‘lawfully made under this title’ if Title 17 governs the copy’s creation and the copy is made in compliance with Title 17’s requirements”). See also post, at 7 (GINSBURG, J., dissenting) (“under” describes something “governed or regulated by another”).

One difficulty is that neither “under” nor any other word in the phrase means “where.” See, e.g., 18 Oxford English Dictionary, supra, at 947–952 (definition of “under”). It might mean “subject to,” see post, at 6, but as this Court has repeatedly acknowledged, the word evades a uniform, consistent meaning. See Kucana v. Holder, 558 U. S. 233, 245 (2010) (“‘under’ is chameleon”); Ardestani v. INS, 502 U. S. 129, 135 (1991) (“under” has “many dictionary definitions” and “must draw its meaning from its context”).

A far more serious difficulty arises out of the uncertainty and complexity surrounding the second step’s effort to read the necessary geographical limitation into the word “applicable” (or the equivalent). Where, precisely, is the Copyright Act “applicable”? The Act does not instantly protect an American copyright holder from unauthorized piracy taking place abroad. But that fact does not mean the Act is inapplicable to copies made abroad. As a matter of ordinary English, one can say that a statute imposing, say, a tariff upon “any rhododendron grown in Nepal” applies to all Nepalese rhododendrons. And, similarly, one can say that the American Copyright Act is applicable to all pirated copies, including those printed overseas. Indeed, the Act itself makes clear that (in the Solicitor General’s language) foreign-printed pirated copies are “subject to” the Act.

The ruling goes on to lay out historical and logical reasons why first sale should apply. It's a good read. It looks like Breyer relied, in part, on the American Library Association's concern for how a ruling against First Sale would cause serious harm to libraries, which would have to somehow figure out ways to get permission on any book they had that was printed outside the US. He similarly cites concerns of used book dealers and the tech industry that this would get in the way of all sorts of reasonable transactions.

Technology companies tell us that “automobiles, microwaves, calculators, mobile phones, tablets, and personal computers” contain copyrightable software programs or packaging. Many of these items are made abroad with the American copyright holder’s permission and then sold and imported (with that permission) to the United States. A geographical interpretation would prevent the resale of, say, a car, without the permission of the holder of each copyright on each piece of copyrighted automobile software. Yet there is no reason to believe that foreign auto manufacturers regularly obtain this kind of permission from their software component suppliers, and Wiley did not indicate to the contrary when asked. Without that permission a foreign car owner could not sell his or her used car.

Breyer dismisses the idea, presented by Wiley, that because this "parade of horribles" hasn't happened yet, it won't happen in the future if the ruling had gone the other way. The ruling notes that this is still somewhat unsettled law, but that large parts of the economy clearly rely on the first sale doctrine, and upsetting that apple cart could have dramatic impact. It also rejects other spurious arguments, including a favorite of copyright maximalists, that the first sale doctrine on such works prevents copyright holders from doing differential pricing. The court rightfully questions what this has to do with copyright:

Wiley and the dissent claim that a nongeographical interpretation will make it difficult, perhaps impossible, for publishers (and other copyright holders) to divide foreign and domestic markets. We concede that is so. A publisher may find it more difficult to charge different prices for the same book in different geographic markets. But we do not see how these facts help Wiley, for we can find no basic principle of copyright law that suggests that publishers are especially entitled to such rights.

[....] the Constitution’s language nowhere suggests that its limited exclusive right should include a right to divide markets or a concomitant right to charge different purchasers different prices for the same book, say to increase or to maximize gain. Neither, to our knowledge, did any Founder make any such suggestion.We have found no precedent suggesting a legal preference for interpretations of copyright statutes that would provide for market divisions.

To the contrary, Congress enacted a copyright law that (through the “first sale” doctrine) limits copyright holders’ability to divide domestic markets. And that limitation is consistent with antitrust laws that ordinarily forbid market divisions.

The dissent obsesses over this issue of differential pricing, despite it having little to do with copyrights and simple serves to reinforce the idea -- as seen in previous copyright rulings, including Eldred -- that Justice Ginsburg seems to have a bit of a blindspot in copyright cases, such that anything that helps copyright maximalists is automatically seen as "good."

But, perhaps more importantly, Justice Ginsburg repeatedly cites various international trade agreements in arguing that her position is the correct one. With this ruling decided as is, copyright maximalists will no doubt seek to have Congress change the law in their favor -- especially now that comprehensive copyright reform is back on the table. But, as a part of that, you can absolutely expect to see this issue pop up in various international trade agreements as well. Copyright maximalists will seek to force Congress' hand in suggesting that first sale rights do not transfer over for goods made in foreign countries. This is something that we're all going to have to pay close attention to in the coming years.

Filed Under: copyright, first sale, foreign goods, international exhaustion, kirtsaeng, resale rights, sudap kirtsaeng, supreme court
Companies: john wiley

US Copyright Office Seeking Comments On Resale Royalties For Visual Artists

from the royalties:-the-taking-that-keeps-on-giving dept

Well, it looks as if all of Bruce Lehman's lobbying has possibly paid off. Lehman, the author of the DMCA and the lobbyist for the Artists Rights Society, began floating the idea of a resale royalty for visual artists, following in the footsteps of other countries who have allowed visual artists to collect royalties on any reselling of their art -- basically meaning they get paid again every time anyone resells their artwork. The US Copyright Office is now accepting comments on the proposed Resale Royalty Right.

The Copyright Office has published a Federal Register notice requesting written comments on how current copyright law affects and supports visual artists and how a federal resale royalty right for visual artists would affect current and future practices of groups or individuals involved in the creation, licensing, sale, exhibition, dissemination, and preservation of works of visual art. Specifically, the Office seeks comments on the means by which visual artists exploit their works under existing law as well as the issues and obstacles that may be encountered when considering a federal resale royalty right in the United States.

The full summary goes into further detail: 

The royalty originated in France in the 1920s and is in general practice throughout Europe, but is not part of current United States copyright law. Under the Copyright Act (the “Act”), 17 U.S.C. 101 et seq., visual artists, like other authors, are provided a bundle of exclusive rights, including rights to reproduce, distribute and create adaptations of their works. These rights, however, do not affect the disposition of the original work of authorship. Instead, the first sale doctrine, codified in 17 U.S.C. § 109, generally permits the lawful owner of a copyrighted work “to sell or otherwise dispose of the possession of that copy” and to “display that copy publicly . . .” without the authorization of the creator.

The Copyright Office recognizes the right of the first sale before pointing out the seeming disparity between other artists (musicians, authors, filmmakers) who earn money with every copy sold and visual artists, who only earn money on the first sale. 

A question is whether the system is as advantageous for certain artists of visual works. For some artwork, where the primary financial benefit may be through the sale of the original work rather than multiple copies, the creator may receive less financial benefit from the work than do subsequent collectors or other downstream entities that are able to take advantage of the increase in the value of the artwork over time.

The official summary goes so far as to refer to this difference as a "perceived inequity," which is exactly what it is: perceived. Rewarding the original artist on future sales of his or her art, once it has been sold by the artist to another individual, turns these royalties into an analog of the capital gains tax. (Of course, the capital gains tax isn't collected when someone loses money, but this royalty plan would collect on losing "bets" as well.) Those who work in the visual arts field might feel like they've been given the short end of the royalty stick, what with other artists collecting royalties on every copy sold, but their art generally comes with a higher entry fee. 

If you look at this in reverse, musicians don't receive a cut of the sales price on any rarities in their catalog or get a cut of used sales. Neither do authors or filmmakers. And it's not as if visual artists can't sell prints or commission reproductions to increase the income of each piece of art produced. Then there's the fact that as an artist's work increases in value, his or her new work should also increase in value, allowing them to make more money per piece sold.

Compare that to authors or recording artists. As they get more famous, they might be able to demand bigger advances or sell more copies of their albums, but it does nothing to increase the price of an album or book. U2 might be the biggest band in the world, but each copy still sells for $10-20. Visual artists might sell early pieces for less than $100 but should they become famous, the price per piece might edge up into the "millionaire" tax bracket. The other downside to implementing a resale royalty on visual art is that it disproportionately harms new artists. By raising the price and difficulty level of reselling a piece, investors will likely purchase fewer unknown works and concentrate instead on proven, incumbent commodities. 

The key word in this discussion is "perception." It seems unfair because no artist can expect sell a few hundred sculptures or paintings while authors and recording artists sell thousands of individual units. But attempting to level a playing field composed of apples and oranges by putting the artist between purchasers and their right of first sale isn't going to "fix" anything. This will just add another layer of IP-related bureaucracy to an already severely convoluted system. 

Then there's this: California passed a resale royalty law in 1977 affecting any artwork sold in California or sold anywhere in the world by a California owner. To say that it was anything approaching a "qualified success" would be stretching the definition of that term to the breaking point:

Enforcement of California's law has been spotty over the last 35 years, according to an opinion issued on May 17 by Judge Jacqueline Nguyen, a judge on the 9th Circuit Court of Appeals who was sitting by designation in U.S. District Court in Los Angeles. Even though artists all over the country qualify for resale royalties, only about 400 painters and sculptors have received a total of $328,000 in resale royalties since the Resale Royalties Act took effect. A 1986 survey of Bay Area artists found that dealers frequently refused to comply with the law when artists asked about the identity of new owners or resale prices. For the big auction houses, Sotheby's and Christie's, California's law wasn't a big deal.

As could be expected, dealers simply routed around this legal speedbump. When a group of artists filed a class action suit against the auction houses, the entire law was tossed out as unconstitutional.

The judge agreed with lawyers for the auction houses (Skadden, Arps, Slate, Meagher & Flom for Christie's; Morrison & Foerster and Weil, Gotshal & Manges for Sotheby's) that California's law violates the Commerce Clause of the U.S. Constitution because it's an attempt by one state to control commerce outside of its borders. "Under its clear terms, the (Resale Royalties Act) regulates transactions occurring anywhere in the United States, so long as the seller resides in California. Even the artist -- the intended beneficiary of the CRRA -- does not have to be a citizen of, or reside in, California," Nguyen wrote. "For these reasons, the court finds that the (law) has the 'practical effect' of controlling commerce 'occurring wholly outside the boundaries' of California even though it may have some 'effects within the state.' Therefore, the (law) violates the Commerce Clause."

One has to wonder whether the recent rejection of the only resale royalty law in the US has anything to do with the sudden push for a nationwide act. Certainly states won't be able to enact their own versions without running afoul of the Commerce Clause. Placing the entire nation under the same royalty legislation would remove this constitutional roadblock, and with a majority of European countries operating under a droit de suite directive, it would also trim down "venue shifting" options for those wishing to avoid paying the royalties. It also should be noted that Congress has declined to add resale royalties every time it has reconsidered the copyright statute.

A quick postscript: The Senators behind this bill (Herb Kohl [WI] and Jerrold Nadler [NY]) are trying to "fast track" the legislation, opening it up for comments for only 45 days, rather than the usual 90. As the bill is worded now, the resale royalty would only apply to auction houses and not private sales through dealers. 

Filed Under: copyright, copyright office, resale rights, visual artists

Treating Houses Like Copyright... And Then Securitizing And Selling Off The Revenue From Future Resales

from the ah,-financial-innovation dept

Earlier this year, we wrote about the attempt by some housing developers to demand a cut of every future sale of the homes they built. This was similar to various attempts around the globe to add a resale right for artists, such that they get a cut every time their artwork is resold. It makes no sense for artists (and actually does serious harm to artists), and it makes even less sense for houses. But how did the folks who came up with this plan defend it? By citing copyright law, of course, saying that it was no different than an author or a musician getting royalties from the sales of their works.

Reader Mark points us to another article about this attempt to contractually create a resale right for homes. This article has a lot more details about the plans, put together by an financial firm called Freehold Capital Partners (which the last article called a Texas company, but is now referred to as a New York company -- which is interesting, given that the last article also noted that Texas law probably prohibited this practice). However, this article notes that the whole plan is prefaced not on actually giving the builders a cut of all future sales, but (of course) to securitize and sell off the potential future revenues to investors. Forget securitizing mortgages, now we're talking about securitizing a bizarre contractual resale right that means you have to pay some random investors any time you sell certain houses. Yikes.

Thankfully, plenty of folks are realizing how sketchy this is, and various states have specifically outlawed the practice. The article quotes some developers whining about how much nicer it is to be able to get a big chunk of money from these kinds of deals, but given that the chunk of money comes from a rather questionable process, they shouldn't have relied on it too much in the first place.

Filed Under: copyright, houses, resale rights, securitization
Companies: freehold capital partners

Australia Moves Forward With (Weakened) System To Have Artists Paid Multiple Times For Same Artwork

from the down-under-confusion dept

There are a few countries out there that have "artist resale rights," which make little sense and do a lot more to harm artists than help them. Earlier this year, we wrote about plans for Australia to implement such a right and Michael Scott alerts us to the news that a watered down version of the plan is moving forward. If you're unfamiliar with it, the concept is that even after an artist has sold a piece of artwork, such as a painting, if the owners later decide to sell it, they must give back a percentage of the sale price to the original artist. The (faulty) thinking on this is that poor, starving artists sell their paintings or sculptures or whatever for next to nothing, and it's only later, when they're famous, that they're actually worth anything -- but the artist will never get a cut of that value.

Of course, that's not true. In reality, if those earlier works are so valuable, so are many newer works as well -- which the artist can create and sell for much more than ever before. Meanwhile, the problem with an artist resale right is it actually decreases the incentive for anyone to buy the original artwork, knowing that they'll have to sell it for that much more before they can actually make a profit -- since they'll have to kick back fees to the artists. It adds an unnecessary tax that acts as friction in the art market. The Australian plan tries to limit at least some of this issue by only having the resale tax kick in after the second resale. But, of course, this just moves the unnecessary friction up a level, and doesn't change the thought process that goes into the buying decision. With any other product, once you sell it, you've sold it. It makes no sense to allow the original creator to retain a cut of any later sale. Imagine if that were the case with cars or houses as well? Who would ever think that was reasonable?

Filed Under: artists, australia, copyright, resale rights

Australian Artists To Get Paid Multiple Times For Their Artwork

from the wouldn't-that-be-nice dept

We've discussed in the past how various countries have been putting in place a ridiculous resale right for artists, that allow them to collect a royalty every time their artwork is sold. In other words, this removes the important right of first sale, that says when someone buys a piece of artwork, they actually own it. Instead, these "resale rights" let various artists collect a "royalty" every time the art is resold. That would be like saying you need to pay Honda a royalty after you sold your used car. Reader madlep points out that Australia has now gone down the same road and instituted a 5% fee on any resold artwork for the artist.

The Arts Minister who supported this is apparently Peter Garrett, who some of you may recognize as the lead singer of the popular rock band Midnight Oil (who I saw in concert many, many years ago). He claims that: "It's a really, really good day for Australia's artists," but that betrays a rather troubling lack of understanding of basic economics. Adding this resale right, actually serves to significantly depress the market for these artists that he's supposedly trying to protect. Because any buyer now knows that there's an additional tax on any resale, meaning that they're less willing to purchase in the first place (or only interested in purchasing for a lower price). It also makes them a lot less willing to sell the piece, because the selling price now needs to be even higher. On top of this, it will encourage more sales to be to foreign countries, where this "right" does not apply.

Garrett is also confused in saying: "Why should artists not have had the opportunity for some copyright protection of their work, or equivalent rights that writers, for example, have?" There's a very easy answer to that. Copyright protection is designed to deal with the issues of copies, not the original works. When it comes to these artists, they're selling original works. And, when I put my old Midnight Oil tapes and CDs up for sale, I'm certainly hoping that Garrett doesn't expect to get paid again for them. That would just be silly. He already received the money when I purchased them originally -- just as these artists received their money when their artwork was purchased.

Filed Under: artists, australia, economics, first sale, midnight oil, peter garrett, resale rights