Copyhype

Below are brief remarks I gave at a panel during the Center for Intellectual Property x Innovation Policy at George Mason University’s 2022 Annual Fall Conference. The panel was titled, “Copyright Under Pressure – What Phase Are We In?” I’ve edited the remarks for style to improve readability and added references in footnotes where helpful.

I want to start with what I think is an unremarkable proposition, but which in some circles might sound a bit shocking. Simply put, the goal of business is to maximize profits.¹In his 1838 work, Researches into the Mathematical Principles of the Theory of Wealth, Augustin Cournot invoked a single theorem for the foundations of economics: “that each one seeks to derive the greatest possible value from his goods or his labor.” This view has remained relatively stable through the development of modern economics.

As businesses, copyright industries are no different. In fact, their ability to do so is directly tied to the ultimate goal of “promot[ing] the progress of Science and the useful Arts.”²Accord Eldred v. Ashcroft, 537 U.S. 186, 212 n.18 (2003). Toward that end, the ability to differentiate markets, products, and consumers is critical.

So it’s important for copyright owners to have the exclusive right to determine a number of things during the term of copyright: for example, the formats that they make works available in, whether to license or to sell their works, marketing and distribution strategies, pricing, and any other terms and conditions that they might place on access or copies of their works.

The good news is that, for the most part, the legal framework both in the United States and internationally recognizes these principles. Copyright owners have a suite of exclusive rights, every one of them is divisible, these rights apply to converting or making available works in different formats, and they apply just as much to digital works in the online environment.

Importantly, to that last point, the legal framework includes a properly calibrated exhaustion principle, or first sale doctrine. Since the rise of the digital economy, the U.S government—both Congress and the Copyright Office and other agencies—has repeatedly looked at the question of whether it should expand the first sale doctrine to cover digital transmissions, notwithstanding the fact that digital transmissions result in the creation of new copies. And each time they’ve looked at this question, they’ve concluded that expansion would not serve the goals of copyright.³In the mid-1990s, Congress rejected a bill that would create a “digital first sale” exception, H.R. 3048, 105^th Cong. (1997), and in its more recent years-long, comprehensive review of the Copyright Act, declined to advance any similar proposals, see Copyright, House Judiciary Committee. In 2001, the Register of Copyrights and the Assistant Secretary for Communication and Information of the Department of Commerce prepared a report in compliance with § 104 of the Digital Millennium Copyright Act of 1998, which recommended against expanding the first sale doctrine to digital transmissions. In 2016, the Department of Commerce’s Internet Policy Task Force prepared a “White Paper on Remixes, First Sale, and Statutory Damages,” which likewise recommended against expansion of the first sale doctrine to digital transmissions. Quite simply, digital commerce would not work with a digital first sale doctrine. Digital copies are completely indistinguishable from the originals and so would compete directly with the copyright owner’s primary markets. Add to that the fact that you have an ability to effortlessly and instantly make perfect copies from digital works that could be distributed immediately around the world, which exponentially amplifies these potential harms.

That’s the good news. The bad news is we’re seeing increasing threats to this framework. To be clear, threats to the ability of copyright owners to pursue rational choices about how they market and distribute their works can be just as harmful as straight up piracy. I’m going to talk today about two examples within the library ebook market that I think constitute these threats.

By way of background, for over a decade now, ebooks have been very popular. They’ve been widely available, and publishers typically work with third-party aggregators such as Overdrive to enable public libraries to digitally lend ebooks to their patrons. If you have a library card, chances are you’re able to go online, see your library’s ebook offerings, and check them out much like you would check out a physical book. You’re then able to read it on any device you want, and after two or three weeks, whatever the checkout term is, the book is “returned” to the library.

To accomplish this, publishers employ a variety of licensing models that have evolved over the decades and that continue to evolve to meet both the needs of publishers and libraries. Today, all the Big Five publishers make their entire ebook catalogs available for digital library lending, and the evidence shows that this is a well-functioning market. Library patrons have access to more ebook titles than at any other point in history. Readership is flourishing—Overdrive, which is the largest ebook aggregator, reported that in 2021 there was over half a billion checkouts of library ebooks worldwide. And the pricing is fair and sustainable—Overdrive also reported in 2021 that the average cost per title for libraries declined in 2021.⁴Overdrive, Over 120 library systems reach 1 million digital checkouts in 2021, January 12, 2022. Libraries have been able to significantly grow their ebook collections over the decades with collection budgets that, when adjusted for inflation, have essentially been flat.⁵According to statistics collected by the Institute of Museum and Library Services through its annual Public Libraries Survey, public libraries in the US spent $1.39 billion on total collection materials (physical and digital) in 2020 (the most recent year statistics were available). In 2000, when adjusted for inflation, that number was $1.68 billion. Between 2011-2020, the total number of ebooks in library holdings skyrocketed by over 2,100%. They’ve been able to get more for their buck.

That said, I want to talk about the specific threats in this market. The first is what’s been called “controlled digital lending”, or “CDL.” CDL is a theory that was created by academics—it doesn’t appear in the Copyright Act, and it doesn’t arise from case law. Advocates argue that this theory allows them to make and distribute digital scans of physical books online without the permission of the copyright owner needed. The “controlled” part of this theory refers to a set of requirements that these academics have also come up with (again, not derived from case law or statute) that they argue makes the digital lending of these unauthorized scans of physical books replicate physical lending of books. They believe that is sufficient to make the process lawful.

Under the guise of CDL, one entity in particular, Internet Archive, has been systematically digitizing and providing public access to complete copies of millions of copyrighted books through its Open Library program. In response, in June 2020, a group of publishers sued Internet Archive for copyright infringement claiming direct harm to both their print and ebook markets in all market segments because Internet Archive is providing competing substitutes.⁶Elizabeth A. Harris, “Publishers Sue Internet Archive Over Free E-Books,” NYTimes, June 1, 2020.

That case is ongoing; parties recently completed briefing on cross motions for summary judgment—and, somewhat unusually at the District Court stage, there’s been a number of amicus briefs that have been filed. One in particular from an organization called the Copyright Alliance, which represents a broad spectrum of both individual creators and industries within the creative industries, noted that while Internet Archive’s infringing activity is already harming existing markets for books, if the practice expands to other copyrighted works (which it very much could) such as music, film, television, video games, and the visual arts, it would cause widespread harm to all creative professionals and undermine the very purpose of copyright.⁷Amicus Brief of Copyright Alliance, Hachette Book Group v. Internet Archive (Aug. 12, 2022). Indeed, I think CDL is just a few steps away from a full-blown digital first sale doctrine—and all the harms that would bring to the creative economy.

The second threat is in the states. Beginning in 2021, states across the United States introduced or enacted legislation that would essentially create a compulsory license for the library lending of ebooks and, in some cases, audio books.⁸Terrica Carrington, “Preempted Copyright Legislation on the Move in Several States“, Copyright Alliance (June 1, 2021). In addition to mandating that book publishers license ebooks to libraries, these laws, which are largely similar across states, would have done a number of additional things, including outlawing windowing (which is a common practice in many copyright industries) outlawing any limitations on the number of licenses offered to libraries, and requiring that licenses be made on otherwise undefined reasonable terms, which would effectively authorize any given state to dictate the terms and pricing of ebook licenses.

The advocates of these state ebook bills essentially define “reasonable terms” as meaning that ebooks should have what they see as “print equivalent” pricing and terms.⁹See, e.g., Maryland Library Association Statement on Maryland’s Digital Content Law (July 27, 2021). This view is flawed because ultimately what they’re saying is that it’s unreasonable for copyright owners to differentiate formats and markets—in this case, the very different formats of physical books and ebooks in the very distinct markets of physical books and ebook lending. In other words, the mere exercise of a copyright owner’s exclusive rights is unfair.

These state laws would have been harmful to authors and publishers if they were passed. Fortunately, none of them have survived—one passed in New York was vetoed¹⁰Senate Bill S2890B Status Page, New York State Senate. and one passed in Maryland was struck down by a federal court this past summer.¹¹Memorandum Opinion, Association of American Publishers v. Frosh, 1:21-CV-03133-DLB, D.Md (June 13, 2022). But I think it also creates a harmful precedent for other ill-advised encroachments into the framework that copyright owners rely on that encourages vibrant and sustainable creative industries which promote the progress of science and useful arts.