Legal savant and comedian Stephen Colbert on 11.26.12 did a segment on a literal “Text Book Case” argued in October in front of the Supreme Court pitting textbook manufacturer Wiley & Sons against an entrepreneurial foreign student Kirtsaeng. Colbert uses his genius to deftly explain the issues and consequences of how a ruling in favor of Wiley would make many used transactions, including garage sales, illegal. Take 5 minutes to watch the segment.
The critical issue is one of copyright protection for products manufactured and overseas. Products made here in the US are covered by the “First Sale Doctrine” which limits the copyright holder to financial benefit in the first transaction. The question in front of the Court is if that protection extends to products made overseas, or not. The implications are profound. If the earlier court decision in favor of Wiley is upheld, then copyrighted materials made overseas are not subject to the First Sale Doctrine and copyright holders can control importation and secondary market transactions at will.
Colbert uses an example of hosting a garage sale and selling a vintage Elvis Costello album (made only in England) that he acquired legally, but imported. If Wiley is upheld by The Supreme Court of The United States (SCOTUS), then Stephen would have to negotiate with Elvis Costello in order to get his permission to resell the album at his garage sale. Which he attempts to do with Elvis, but after some haggling, they do not agree on a revenue-sharing agreement. The example is humorous but genuine which is why eBay, Goodwill and the American Library Association, strange bedfellows, filed Amicus briefs on behalf of Kirtsaeng. You see – not only will it become a copyright violation to resell, but, also to donate.
Colbert then goes on to wonder how he will find Marconi for permission to sell his clock-radio. This single comment exposes the key issues for the technology industry: that he had to identify the original owner of the copyright; that the copyright holder might not be available to give permission; and most importantly that copyrighted materials are embedded in nearly every modern product.
The big issue for the digital technology industry as a whole is that the vast bulk of digital products and parts are assembled in Asia from parts sourced from all over the world. All digital products by nature include some code, even when that code is literally hard-wired into the chip. The Wiley ruling could greatly expand the opportunity for manufacturers to control the resale of a wide set of products such as electronic toothbrushes, programmable coffee pots, televisions, automobiles, cell phones, and traditional computers, all of which are commonly made overseas using copyrighted materials.
There are clearly many practical problems with such a broad limitation. Many users have assumed that the SCOTUS will be aware of these unintended consequences (SCOTUS calls these the “Horribles”) and rule accordingly. While Oral Arguments before the Supreme Court on November 29th, 2012 (transcript or audio) show us they are aware of at least some of the problems, it is not their job to write laws, but to rule on the issue in the narrow legal sense. It is very likely that the Court will see the implications but be unable to rule against Wiley. The European Union equivalent of the Supreme Court recently ruled on a similar issue and reluctantly came down on the side of the Copyright holder, while expressing their opinion that the underlying law was simply "a bad one".
Current experience with worldwide IT vendors already suggests that a ruling in favor of Wiley would be gleefully adopted as another opportunity to prevent used products from being competition. The tradition among OEMS in the IT marketplace is to “Eat one’s own children”. This is the deliberate practice of OEMs putting their utmost effort into displacing their previously installed equipment with newer models at the earliest opportunity to avoid their successful older “children” from being viable competition for their newest (and youngest) products. Among the most successful of these tactics is the refusal to transfer internal hardware code (claiming copyright of IP) to secondary users. The domestic equivalent of Wiley without the blessing of the Court.
Many commentators have been dismissive about the potential impact of Wiley outside the publishing industry. They counter that most “nice” vendors would never abuse their customers in this way. The example used is often for the automobile industry where there is both a credible worldwide market and a long tradition of resale value. However, it is certifiably naïve to assume that technology manufacturers will unilaterally grant users a waiver for the un-fettered resale of their products. It is simply too close to current practice and too profitable to ignore.
As an example, there is no upside for Cisco or HP, etc. that builds their products outside the US (they do), to give away a valuable point of marketing control without compensation. Anyone wanting to sell a used Cisco router or HP workstation would need the permission of Cisco or HP to sell the used machine which Cisco or HP could easily and effectively block. All of these vendors already engage in policies intended to thwart secondary market transactions using copyright related restrictions.
Users need to be prepared for the “Parade of Horribles”. Anyone contemplating a purchase of equipment manufactured overseas (everything digital) should be requiring all vendors to guarantee the right of the owner to resell their equipment at any time and place of their choosing. Traditional reps and warranties in the standard purchase agreement will not suffice as the vendor is only obligated to defend the client in court. The goal is to avoid court and to operate legally – which means a change in the purchasing agreement itself. Do it now, because if the Supreme Court rules in favor of Wiley, your existing assets will devalue immensely overnight.
Even if Wiley is overturned, the technology industry is still in upheaval over the role of intellectual property in hardware products impacting not just secondary market transactions but also how products can be repaired. These issues go to the heart of what is means to own equipment rather than license it.