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Legalities Surrounding Digital Licensing

Published on : 09 Dec 2017
Author(s):Rini Agrawal,Several


Lawyers in Abu DhabiWhen I opened my Microsoft Word application on my personal computer this morning to write this article, it read that – ‘Your subscription as expired; choose one of the following options to reactivate.' This confused me for two reasons: (i) I was under the perception that I had ‘purchased’ this product a year ago and (ii) one of the options in the reactivation category today was termed ‘Buy’ – the exact button that I had clicked last year. This concept of makes me wonder about my right over all my possessions – would I have to ‘Buy’ all my possessions every year to retain them? I suggest you read this theatrical article so that you do not face the same dilemma.

Before going into detail, I request your attention to a simple question to help you frame a perception about the topic before reading this article: do you reserve the right to resell a movie or a song that you purchased from an online store? Or would you be able to include them in your will so that your kids can enjoy them in case anything happened to you? Or is that an irrational idea? Well, if you think that it an irrational idea, I suggest you grab your gloves and speak it out with Bruce Willis. On a sunny morning of 2 September 2012, the Sunday Times reported that the Die-Hard hero wanted to give his digital playlist to his daughters if anything ought to happen to him.[i] The story of John McClain being said, I begin to write about this non-theatrical legal episode with the hope that you find the right answers to the above question within the next half an hour.

Did you know that an approximate seventy-nine (79%) of the customers in the United States shop (or prefer shopping) online? That is more than three times the average number of online shoppers in 2000.[ii]  Today, the internet provides consumers with the ability to shop from the comfort of their homes. But then ‘laziness’ is not the primary reason for the upsurge in the online shopping trend.

Well, then what has led to the rapid increase in the proportion of consumers using e-commerce to purchase products that are available in their locality? To understand this, I am forced to draw your attention to the evolution of the globalization and industrialization in the past century. But to keep it simple and illustrative, I have divided the different stages of global commerce into (what I call) the global tri-state. In the first phase of the global tri-state, consumers had restricted means since they did not have direct or cost-effective access to commercial markets outside their geographic and political borders. Then came, globalization (and therefore, the second stage of the global tri-state). This furthered the reach of the customers and provided them with a broader range of choices while they were purchasing a product: for instance, they now had the option of buying a product that was locally produced; or imported from another part of the world. In this stage, individuals had access to the products that a country would export to another country. However, this phase was restricted due to financial, regulatory and other forms of trade-barriers that were prevalent in different jurisdictions. Some economists considered this stage to the highest extent to which globalization could affect both, the global and domestic trade and commerce. However, the internet proved them wrong. The final stage of the worldwide tri-stage ends with (what we call today) online shopping and e-commerce. In this stage, consumers sitting on a farm in a rural part of the Indian sub-continent could order the latest gadget from a multi-national company in the other corner of the world – with the simple click of a button – that says, ‘BUY NOW.' Keeping this in mind, our Lawyers in Dubai recognized the need to educate the consumers of their rights while clicking this button.

Now, getting back to our initial question, what is the extent of which you own a subscription product that you have purchased online? The digital world has disrupted the pivotal reason for shopping – ownership, and possession for life. Typical end-user license agreements – the page that most of us do not notice due to our lack of patience – restricts users to transfer their online products to another party and to bequeath them through a will. This means that the purchaser cannot give away goods as gifts and certainly cannot resell them negating the basic idea of ownership. However, it is not the same with the physical products that are copyrighted. For instance, the physical copies of your Harry Potter movie collection or the books of Dan Brown’s fiction series do not fall under this category – all thanks to the first-sale doctrine (of copyright) that permits the owner to lend, sell or give away your fiction series to a third person. In contrast, if the same is purchased on Kindle e-book from Amazon or on iBook from Apple store, you are confined to resell or transfer any of that file to someone else since the owner falls a licensee, not an owner. This theory can be substantiated the next time you ‘purchase’ (not precisely purchase; considering my explanation above) a song online. The standard end user agreement would state that the content that you pay for is only licensed to you and not sold by the website or the owner of that particular piece.[iii]

Although this theory existed for a long time, it was established in the case of Capitol Records, LLC v. ReDigi Inc.[iv], wherein the court held that first sale doctrine does not apply to digital music files purchased online and further narrowed the scope of the doctrine by prohibiting online purchasers to resell, transfer or lend any digital file to others.

The Legalities Surrounding Licensed Products

In simple terms, an owner is a person who owns a physical good having the right under first sale doctrine to resell, lend or transfer. Whereas, licensees, who have fewer rights as compared to the owner often consider themselves as an owner because of the misleading ‘Buy Now’ option that does not specifically indicate the transaction as a license. The digital world today is completely different from what it was two decades ago, and we strongly believe that today’s technology can facilitate digital transfers while preserving the right of online copyright holders or digital owners.

Media Law Firms in DubaiThe primary differentiation between online copies of digital goods and physical copies have been mentioned under end-note (iii) of this article. Moving on, suppose you transfer a song from your song to your colleague’s mobile. This does not remove the song from your phone since the transfer merely creates a copy of the product onto another device. Whereas, when you give your copy of the Dan Brown series to another person, your copy of the products ceases to exist – because the only copy of the book is now in possession of your mate. This is the second reason for this differentiation – title. The digital copy of a product purchased online also cannot be transferred since this transfer would create another copy of the product you have paid towards. And the person to whom this product has been transferred to does not purchase this product and merely receives a copy of the same. Further, it is the human psychology to expect that the end user agreement page contains more clauses that would ultimately favor them – simply because they are paying for a product. Although, they are not aware whether they are paying to purchase the product or simply rent it. As the digital world’s growth is at pace, there is a concurrent rise in the methods allowing the user to acquire digital file specifically music and currently the most popular among them are subscription streaming and vinyl records. The adoption of any one technique highlights the choice of the consumer, some prefer economical temporary access, and others prefer permanent access irrespective of the cost. Access to digital media is more conditional as the seller reserves the right to affect the transaction post-purchase.

This leads us to our next question on whether there any restriction of using a digital file on more than one device? Most of us believe that we can use the digital media that we pay for on any and more than one device and we are even right to an extent. But what are those other cases, which restricts us to use our digital file on one specific device, let's find out. Some retailers allow a wide range of devices, for example, Amazon allows its users to choose their device which ranges from Windows to Apple to Android; on the contrary, Apple has a much stricter approach that restricts Apple iBooks readers to read only on Apple devices and similarly for music and movies. Ergo, the compatibility of devices depends upon their choice of the product rather than their legal rights.

As earlier discussed, there is no scope of bequeathing your online purchases or digital file to our next-gen since you have ultimately paid for a license to use the product and have not purchased the copyright of the product. However, few retailers or digital copyright holders appreciate the idea of lending their products in their restricted sense. For instance, Kindle or NOOK stores allow the users to lend their e-book for one time for fourteen (14) days. Similarly, Apple has its traditional way of sharing digital files that can be shared up to 6 accounts having same credit card information. The concept of lending or transferring goods to another person gives us the right to exploit our digital files or products in the way we want. However, the preference is strongly dependent on consumer’s frequency of shopping online since these rights directly influence the price of digital goods and a regular user will be willing to pay more for additional rights.

In the United States, the Federal Trade Commission is the main regulator of trade and commerce and has the duty to prevent the use of unfair trade practices in the country. And the deceptive ‘Buy Now’ issue falls under the ambit of the Policy Statement of Deception by the FTC which has laid down the following factors in a deception case:

  1. representation, omission or act to mislead a consumer;
  2. Interpretation of (i) by a reasonable consumer could mislead him or her;
  3. There should be a subject matter or ‘material’ that is misrepresented or omitted.

In the decision and order of Apple Incorporation (Number C-4444 – FTC 25 March, 2014), the FTC concluded that the BUY NOW option and its substitutes[i] fall under the term ‘representations’. Plaintiffs have to prove the following to establish a case:

  1. The unfair consumer injury should be substantial;
  2. It does not outweigh countervailing benefits to competition; and
  3. It should be reasonably unavoidable.

This test has been employed by the FTC over time to determine whether the consumer injury is unfair or not.

On the other hand, the European Union has accepted the idea of digital first sale doctrine. In the same year of the Bruce Willis episode, the Court of Justice of the European Union (ECJ) in Usedsoft Gmbh v. Oracle International Corp.[ii] stated that the applicability of first sale doctrine is not only over the physical sale of goods but on used copies of software purchased online and sold in the market. It is therefore clear that the ECJ considered that the term ‘sale’ covers a wide ambit since it confers ownership rights over copyrighted online products also. Although, the ECJ has not distinctly ruled on the applicability of the digital first sale doctrine on e-books.

Consumers should be well-aware of their rights while purchasing a copyrighted product online. Many-a-times, the use of the Buy Now button is used by online dealers to mislead the consumers to ultimately believing that they own the product. But the above studies show the contrary. Consumers are also advised to review and understand the terms and conditions while purchasing products online.

[i] Such as the ‘FREE’ option

[ii]{C}{C}{C}{C} Case C-128/11,2012 E.C.R, I-1-0000

[i] Its iHard as Willis Fights Apple, SUNDAY TIMES (Sept. 2, 2012).

[ii] TechCrunch | 2016

[iii] The first reason why the purchaser of the online product is ultimately a licensee and not an owner.

[iv] 934 F. supp. 2d640, 655


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