Recently, I participated in a seminar on the first-sale doctrine. The seminar was held under the Chatham House Rule, so I won’t be attributing any of the particulars of the discussion, but in any event my real interest is elsewhere: How does the first-sale doctrine influence editorial strategy?

That’s editorial strategy, not business or market strategy.

And if the first-sale doctrine were to be extended to digital works, what kind of products would publishers create?

My underlying thesis is that the economics of how a work is created and consumed are as much a part of a work as, say, dividing a play into multiple acts or insisting that a sonnet have 14 lines. Change the application of the first-sale doctrine, and you potentially change the economics of publishing, and that change in turn will trickle into how books, articles, and everything else are conceived.

We take first-sale for granted in the print world. I walk into a bookstore and buy a paperback book. After I read it I may throw it away or put it on a shelf, but there is nothing to stop me from giving or lending it to a friend; nor is there anything to stop me from selling the book on eBay. Once I’ve purchased the copy (the first sale), I can do whatever I please with it. There are some nuances and controversies here — for example, can I scan the book for my personal use? Can I scan it and then resell it from a Web site? I am not going to engage those questions. What is clear is that as long as the copy remains in printed form, first-sale applies.

With digital materials things get more complicated — or they don’t, depending on your point of view. When I lend or give a copy of a digital work — say, an e-book–to a friend — I have to make a new digital copy. This is how content moves around the Internet — copies of copies of copies — which raises the question of whether each and every instance of making copies must be authorized by the copyright holder. If first-sale applies to digital works, then once you purchase a copy of an ebook or any other kind of digital work, you can proceed to pass it around without authorization despite the fact that each “passing” requires the creation of a new copy.

Most publishers insist that first-sale does not apply in these instances. Instead each copy is licensed to the purchaser — that is, the purchaser buys a restricted license to use the work, not the underlying work itself. Most digital publishing businesses are built on this assumption. If first-sale were to be applied to digital works, then most publishing business models would have to be changed.

How those models would be changed is an interesting question, in part because no one really knows what unlimited copying would lead to. It seems self-evident that unlimited copies would undermine the sale of authorized copies from the publisher, but in fact the information on this topic is not altogether clear. Some copying has promotional value, just as free library lending of print books has promotional value (or is widely believed to have promotional value — there is no clear evidence for this point either). The fact is that unless and until large-scale experiments are conducted in this area, we won’t have solid evidence one way or the other. It’s hard to imagine who would conduct such experiments, as the parties would have to risk their programs to get definitive information. Instead, we have policies and programs built on hunches and speculation. There is no alternative to this, so we should not be overly harsh in our judgment. You can only have evidence of things in the past, but publishing is an investment in future outcomes.

The broad trends in publishing all support the view that first-sale does not apply to digital works. Note that when I say “support” I don’t mean from a legal point of view; I mean that publishers rely on this assumption about first-sale. Those trends are:

  • The shift from print manifestations of a work to digital manifestations
  • The shift from the firm sale of an object to an ongoing sale, otherwise known as a subscription
  • The shift from a first-sale right to a license, wherein future use of a work is restricted in some way by the originating publisher

Journal publishers will review these three items and simply say, What else is new? Publishers in other areas are struggling to catch up with many of the practices of journal publishing.

But let’s imagine a different set of assumptions:

  • First-sale applies to digital works
  • Once a library purchases a copy of a work, the library has unlimited lending rights
  • Once an individual purchases a copy of a work, that work can be passed along or resold
  • Publishers can sell products; they cannot sell licenses

Publishers are not likely to be happy with this alternative scenario, as they will contemplate the possibility that after selling one copy, the entire marketplace will be flooded with copies of the original copy. In other words, when the first-sale right is combined with the friction-free copying of digital works, the marketplace as we understand it today would be diminished and potentially destroyed. We should not be surprised, then, to find publishers fighting the extension of first-sale rights to digital works any more than we should be surprised that people on the consumption end of the spectrum — libraries, individual readers — would want to see a more liberal rights regime, which would include the right of first-sale.

In my view, publishers are making a very, very big mistake in not addressing the interests of librarians about lending rights. Libraries are in the business of lending books and other materials; when publishers hesitate in making e-books available to libraries, librarians naturally act to preserve their interests. Telling a librarian that “this is the future; deal with it” is not a wise strategy — because all established institutions seek to persist. Librarians have gathered formidable intellectual talent to further their aims and the first-sale doctrine is being prepared to go on stage in the digital age. The prudent action for publishers is to establish library-lending programs for e-books so that first-sale does not become a rallying cry against all form of copyright.

It would be a bad idea for publishers to restrict their response to advocates of first-sale simply to fighting. They also have to think beyond the conflict — even as they engage in the conflict, mostly likely delegating the actual battle to their trade associations.  To think beyond the conflict means to imagine what the world would look like if first-sale becomes the standard for digital media. How to make money in that environment? Is the conflict over first-sale an existential battle or is it simply a short-term tactical response (in part a delaying action) while longer-term plans are being thought through and tested?

It’s instructive to look at the precedent in television, where Tivo and the DVR have altered forever the kind of programming we see and how we watch. DVRs allow programs to be recorded. When someone decides to view a recorded program, it’s possible to fast-forward through the advertisements. Obviously, advertisers don’t like this, which undermines the revenue model for broadcast TV. This in turn has put a new emphasis on programming where much of the pleasure is to watch things in real-time (e.g., sports), where “Tivo-ing” is less desirable. It also has given rise to product placement strategies, where the advertisement is embedded in the program itself. You can’t fast-forward to avoid an advertisement where the advertisement has become part of the event. Thus the change in the business model has altered the nature of the content itself. (Entertainment alert:  make sure you see the spoof on product placement in David Mamet’s film, “State and Main.” Pay close attention to the closing minutes.)

So let’s jump into the time machine, the GSS Walter Wriston, and see where this ends up. (The convention for naming time machines is to use the abbreviated prefix for “Galactic States Ship” and the name of a cynical economist.) After some struggles in the courts and Congress, first-sale is declared to be applicable to digital works. One copy of each work is purchased by a library and loaned infinitely.  One individual purchases a copy and distributes it to “friends” on Facebook and these “friends” distribute it to their “friends.” The market for content has disappeared and all the publishing companies come crashing down.

Or do they? We note that the Walter Wriston’s onboard computer is set to the default mantra mode: Capital goes where it wants to and stays where it is welcome; capital goes where it wants to and stays where it is welcome; capital goes where it wants to and stays where it is welcome. Perhaps the publishers play two games at one time. On one hand (and in full public view) they fight furiously to reverse the legal rulings and experiment with new models — a greater push for advertising, perhaps, or wrapping the content into new (as-yet unconceived) services. On the other hand they work toward content types that are harder to copy and distribute, content that is dynamic and highly interactive in nature.  This new form of content (we really need a name for it; I nominate “The Processed Book” to reflect the centrality of content that is surrounded by a network of activities and relationships) cannot easily be passed along, as to do so would require passing along the entire network of related, interacting material along with it. A new editorial strategy offsets the implications of the application of the first-sale doctrine.

This is not like Whack-a-Mole; it is not as though the content keeps popping up. It is more like trying to hold onto a slippery fish. What makes it slippery is the publishing imagination, which will continue to find ways to make new things and new kinds of things in order to provide a return for its investors. Librarians are asking for greater freedom to loan material, but that very freedom will alter the nature of that material. There is no rule in the galaxy that says we will always have fixed texts–books, articles–that can easily be shared with others.  The only rule is that the creation of texts, fixed or otherwise, must comply with the Walter Wristons mantra.

Joseph Esposito

Joseph Esposito

Joe Esposito is a management consultant for the publishing and digital services industries. Joe focuses on organizational strategy and new business development. He is active in both the for-profit and not-for-profit areas.


14 Thoughts on "The Time Machine Investigates the First-sale Doctrine"

It would seem to me the two obvious reactions to your theoretical situation would be:

1) renewed interest in more and more onerous DRM, along with increases support for DMCA type legislation making it more and more illegal to circumvent DRM.

2) more use of a “kickstarter” method for books, where the actual book isn’t released until a threshold level of pre-sales are reached. This allows the publisher to earn what it needs to earn from the book before it’s released into the wild for unfettered redistribution. This does, however, mean a likely much slower publication schedule as a book could be finished for years while it sits around waiting for enough pre-sales to reach the required minimum (if it ever does).

I’m curious as to why the drm has to be onerous… iTunes drm isn’t onerous and I have to say, I’m quite impressed with the discrete drm found in the STEAM platform for games. We’ve just started to get movies available via ultraviolet over here – seems not too bad. I do realise that they aren’t designed to allow resale, but it’s not massive step to see that they could enable a secondary market. I note with interest that Microsoft is proposing to enable a managed resale process on the forthcoming xBox1 or whatever it’s called. I’m not a fan of drm by any means, but perhaps there is a possibility for a better debate about how to guarantee user rights as part of any management process that enables 1st sale rights. There’s a much bigger issue here and I don’t think it’s really being talked about because drm debates always end up in “big corporates are evil so im gonna stick it to the man” territory.

Kickstarter for books… I recall a presentation at TOC a few year back, where exactly that model was being used. It also strikes me as being strikingly similar to what is doing. Eric Hellman has put his money where his mouth is there and I hope it’s successful.

It doesn’t have to be onerous, but given how hamfisted many publishers are, one would assume they’d do this in a clumsy manner, at least at first. But as you note, we’re talking about a system deliberately built to limit, if not outright stop, the re-distribution of content, whether by re-sale or just wholesale giving it away. That creates an inherent conflict between the two efforts, and if history is any guide, it will turn ugly due to extremists on either end.

My worry about Kickstarter for books though is that it would prevent publishers from taking chances in some ways. Very often you publish multiple books, and the ones that hit pay off the ones that only reach a small audience (though they might be incredibly important to that small audience). With a Kickstarter model, you don’t get that same leeway. The big hit book would hit its minimum, get published and not earn much more. The smaller audiences would never see their books get published.

So take a look at this: There was a white paper as well, but I can’t find it right now. this model works (in theory) for all classes of book. I see below that Sandy has some links to interesting approaches as well. Absent some way of generating buzz, the breakout hit seems to be more unlikely to earn big, but an authors (or an areas) follow-on books can benefit from the quality (aka buzz) of the previous output…

re DRM – will have to go back and read Patry on copyright ( wish there was more discourse in the vein of his book.

Good analysis. I like your comparison to TV evolution. Baseball owners originally hesitated to televise games, fearing it would cut attendance. But, they repackaged their product and money flowed in. We’re also seeing some textbook publishers abandoning the hard-copy tome and offering an online textbook service, including interactive testing.

The cherished PDF may be part of our problem: Everything on one easy to copy file. HTML not only offers more flexibility, but, by linking to components and using dynamic generation, is much harder to copy from the original site.

Publishers took lessons from the pop music industry, where file-sharing mania overcame any respect for copyrights and forced unexpected, unwelcome changes.

If you separate scholarly publishing from popular fiction, the approach can perhaps be a bit easier. Academic libraries are the primary client for scholarly publications. For many years they have run their loaning of journal articles by CONTU guidelines, and their loaning of books was simply a term of loan for the whole physical book. I see no reason why article loaning cannot continue according to CONTU, and eBook loaning be adapted to loans of individual chapters along the same CONTU guidelines. For example, loan of 5 chapters per year within the first 5 years of publication, with the receiving end keeping track and making its own purchase of the eBook if borrowing exceeds this amount. Since scholarly eBooks are often used by the chapter, or even smaller units of text, this should take care of the library need, and has the advantage of being based on an established guideline accepted by most scholarly publishers. When it comes to popular fiction none of this works, and I expect strong DRM to be the rule where eBook sales through libraries are concerned. A public library system with a strong tradition of loaning whole books might continue to purchase print, or purchase eBooks system-wide with as many concurrent users as required.

It will be news to many libraries and the publishers that serve them that libraries are the largest market for academic titles. For university presses library sales are under 25% of total sales. Browse through WorldCat and look at the number of books from Random House and HarperCollins to be found in the libraries of Harvard and the University of Chicago. Of course, we haven’t even touched the public library sector yet, which mostly collects trade titles. Among the many problems of CONTU is that it cannot address the actual market complexity that exists today once you move beyond publishers (like Springer) who target academic libraries as their principal audience.

Perhaps Joe is not aware that Redigi is already working on a first-sale digital solution for ebooks: That is a solution that publishers likely can fully support as it takes care of the superdistribution problem that Joe frets about.

As for Kickstarter, that is only one of a number of ways to do OA book publishing, which I surveyed in my article “Back to the Future”: And there are new initiatives since I wrote that piece, including UnglueIt, Knowledge Unlatched, the OAPEN consortium, University of Athabasca Press, the World Bank, and the soon to be launched Amherst College Press.

The response to the prospect of the first sale doctrine being applied to digital works (books, music, movies, etc.) by Apple and Amazon (see recent patent applications for the transfer of digital works) does not assume unlimited copying or any copying that adds to what is i circulation at all. There is also the ReDigi model currently in the courts.
These companies seem to believe that it is or will be possible to transfer (by will, sale, gift, etc.) digital works not fixed in media in a way that is analogous to physical books, movies on DVD and BlueRay and music on CDs.
Using the principles enunciated here, one would predict that very little would change if Apple, Amazon and ReDigi are successful.

Yes, we are seeing the stillbirth of digital textbooks as publishers transition to “learning materials” that require systems that publishers can control in perpetuity if they care to. We’re also seeing the K-12 textbook model being promoted in higher education. Institutions are less numerous and more ductile than students.
I certainly agree with RBOISSY that we should separate scholarly publishing from the rest. For one thing, it’s a more incestuous relationship. Institutions of Higher Education (IHEs) employ scholarly communicators telling them that a good publishing record is the way to advancement. Then, the IHEs purchase that output (journal subscriptions) or create the demand for such purchases (adoption of scholarly books and textbooks). This doesn’t describe the trade press.
The question of whether publishers are needed at all in scholarly communication rises quite dramatically from this. IHEs control almost all the means of production (in the Marxist sense) and could easily arrange the affordances of editing, curating, marketing etc. that publishers would have us believe are available only from them.
We no longer need paper, ink, warehousing and transport.
Does scholarly communication really need publishers anymore?

Perhaps you haven’t heard that some 90 universities in the U.S. already run their own publishing operations through their presses? Self-publishing is NOT a threat to this sector of publishing as it is to trade publishing because it is the validation that the imprint of a university press provides that is crucial to scholars’ career advancement. Self-publishing authors, by contrast, can easily obtain all the services that trade publishers offer on the open market. The one key advantage traditional trade publishers used to have is control of access to brick-and-mortar bookstores. But that, as we all know, is becoming a thing of the past and is totally irrelevant to ebook publishing.

I don’t think that university presses count that much anymore. They could make a positive difference but haven’t so far. Mimicking commercial publishers isn’t helpful. It simply validates the commercial model which, IMO, is the source of the problems with scholarly communications today. I would blame the institutions whose name but not whose budget these presses share. By declaring them as self-sustaining or some other euphemism for fiscal abandonment, these presses have few other choices but to remain the commercial model.

I guess you haven’t heard either about the many and varied experiments university presses have been carrying out with different business models, including open access publishing (as done by the press I headed at Penn state, for example). They have done far more in this regard than presses in the trade sector have.

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