Intellectual Property

Why Blockchain Is No Panacea For The Digital First Sale Doctrine (For Now)

Blockchain cannot solve everything (yet), including the reselling of digital works.

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By now, most everyone has heard about blockchain technology.  Also referred to a decentralized ledger technology (or DLT), it provides a decentralized ledger mechanism for recording transactions in a secure and verifiable manner. Having written about this technology previously here and here, I have little doubt that it promises to be a transformational technology for many industries. When it comes to copyright law, it should come as no surprise then that many visionary entrepreneurs are attempting to apply blockchain/DLT to solve problems ranging from improper use of copyrighted images on the internet to streamlining the music royalty process. Unfortunately, blockchain/DLT cannot solve everything (yet), and when it comes to reselling digital works, the “digital first sale doctrine” is no exception.

The evolution from analog tapes and phonorecords to digital files was a quantum technological leap, but the shift the dissemination of such digital works from physical media (like CDs and DVDs) to transferring digital files to your computer or mobile device makes that leap look like child’s play. Such progress, however, has come at a price.  As I expressed in an earlier article, the digitization of copyrightable works has created a vacuum with respect to the first sale doctrine, and it’s not a problem that technology itself can fix.

There are tremendous possibilities presented by blockchain/DLT, and a number of problems this technology may actually solve.  This technology is already being used to address the use of copyrighted images online by permitting copyright owners to upload their images to services that use blockchain/DLT technology to enable tracking ownership and unlicensed uses of their works online. Further, blockchain/DLT can provide a mechanism for tracking the chain of title that can significantly reduce (or even ostensibly eliminate) orphan works (i.e., works remaining subject to copyright but were the owner is either unknown or cannot be located). When it comes to the digital first sale doctrine, however, blockchain/DLT cannot do it alone.

The first sale doctrine permits “the owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner … without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord” under 17 U.S.C. Section 109(a).  A copyright owner enjoys certain exclusive rights to copyrighted works, but the first sale doctrine permits those in lawful possession of copies of such works (e.g., as a record, CD, or DVD) to further distribute such copy to another without the copyright owner’s permission.  But what about digital files themselves and their resale/redistribution?

Under current Copyright Office policy, digital works are different than physical copies because the very physical (and fungible) nature of traditional media limits the extent of future distribution, as opposed to digital files that ostensibly do not degrade over time.  In Capitol Records, LLC v. ReDigi Inc., the court, relying in part on the USCO’s report, found that it was impossible to digitally transfer the “particular” copy purchased; any digital transfer creates a new copy of the work, even if the original file is deleted during the transfer.  So, the fact that a digital copy requires just that — a copy — has been held to impede a digital first sale because such copy violates the reproduction right of the copyright owner.

This is where blockchain simply cannot come to the rescue under current law.  Although blockchain/DLT can provide a mechanism to demonstrate verifiable chain of title and use of digital works, the very act of using the blockchain would violates the reproduction right of the copyright owner because it would require a copy of the work to be written into the blockchain.  Although one can foresee using a representation of the digital work (rather than the work itself) for implementation in the blockchain, it doesn’t overcome the problem of requiring a copy to be transferred to the subsequent purchaser.  So long as a copy is required to be made from the existing work held by the original purchaser, a digital first sale will simply not be possible.

Believe me, I am one of many that will continue to probole for a solution to this problem, but current law is impeding meaningful progress. The first sale doctrine has been a part of copyright jurisprudence for a very long time.  I also realize that current law protects copyrighted content owners by preventing a loss of additional downstream revenue from their original works. That said, the question needs to be asked — should copyright owners of digital works control all downstream use of such works for the life of the copyright?  I realize that this is a loaded question (as there are strong opinions on both sides of this equation), but it needs to be asked.  How it will be answered is anyone’s guess.

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I continue to believe that blockchain/DLT technology will prove to be a disruptive technology, and the next 10 years will be exciting to watch as it matures and implementation spreads. That said, technology and the law don’t evolve at the same rate, and the digital first sale doctrine is no exception.  As this technology matures, it will inevitably pull copyright law forward in fits and starts (or should I say, bits and bytes).  When it comes to the digital first sale doctrine, however, it is a problem that technology alone simply won’t fix.

Tom Kulik is an Intellectual Property & Information Technology Partner at the Dallas-based law firm of Scheef & Stone, LLP. In private practice for over 20 years, Tom is a sought-after technology lawyer who uses his industry experience as a former computer systems engineer to creatively counsel and help his clients navigate the complexities of law and technology in their business. News outlets reach out to Tom for his insight, and he has been quoted by national media organizations. Get in touch with Tom on Twitter (@LegalIntangibls) or Facebook (www.facebook.com/technologylawyer), or contact him directly at tom.kulik@solidcounsel.com.

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