QandA

Craig and I talk a bit about the effects of first-sale doctrine in this week’s podcast, but we don’t define it. So let’s venture over to the [law library](http://www.aallnet.org/main-menu/Advocacy/copyright/firstsale.html):

> The “first sale” doctrine says that a person who buys a legally produced copyrighted work may “sell or otherwise dispose” of the work as he sees fit, subject to some important conditions and exceptions.

> In other words, if you legally buy a book or CD, “first sale” gives you the right to loan that book or CD to your friend. Libraries heavily depend on the first sale doctrine to lend books and other items to patrons.

It’s easy to understand first-sale doctrine in relation to traditional books. *Of course* you can lend a book to your friend. You’re not making a copy of it. You’re literally handing a collection of atoms to someone else, and while she has it, you have no use of it.

Everything gets more complicated with bits.

How do you lend an e-book? Amazon has a way to [lend Kindle titles](http://www.amazon.com/gp/help/customer/display.html?nodeId=200549320), but it’s cognitively burdensome: a flag that’s enabled per book, with specific restrictions. [Authors aren’t happy](http://blog.authorsguild.org/2011/11/14/contracts-on-fire-amazon’s-lending-library-mess/), and understandably: they’d rather have buyers than borrowers.

I’d argue that first-sale doctrine has a similarly-sized impact on screenwriters, because the profitability of the film and television industry depends on home video — and without profits, we don’t get hired to write movies.

Home video started out as a rental business. Videocassettes were initially expensive, beyond what an average consumer would pay, so they sold mostly to mom-and-pop video rental stores and chains like Blockbuster. Videocassettes became cheaper to produce — and DVDs cheaper yet — which led to a market for sales rather than just rentals.

Studios love selling movies on DVD and Blu-ray. Their libraries become valuable assets, waiting to be tapped. With each new technology, and each new director’s cut, they can reissue and resell old titles.

One problem, though: rentals are still around.

Rentals have always relied on first-sale doctrine. If Blockbuster buys a legitimate copy of Charlie’s Angels, they can rent it as many times as they want. Obviously, Blockbuster would prefer to buy that copy for $5 rather than $100, but the price isn’t what makes it legal or illegal.

The studios, like the novelists, would rather have buyers than borrowers. When Warners seeks to create a [56-day window](http://www.reuters.com/article/2012/01/06/idUS87226089920120106) between when a movie becomes available for purchase on DVD and when it’s available for rental at Redbox, that’s a studio talking about their goals and policies, but not necessarily reality.

First-sale doctrine means that Redbox/Netflix/whoever can simply buy a DVD and rent it out. They may not be able to buy it directly from Warners, or at the price they’d like, but they’ll be able to get it. They’ll buy them at Wal-Mart if they have to.

Where it gets murky
—-

When talking about DVDs, we’re talking about atoms — aren’t we?

It’s easy to argue that the digital information on a DVD is essentially software, and anyone who’s installed software is accustomed to clicking on End User License Agreements that may constrain what we’re allowed to do with it. The laws regarding these clickwrap contracts are head-spinning, but most of us just click ‘Accept’ and move on.

So far (at least to my reading), none of the Hollywood studios have been able to convince the courts that a DVD is an analogous to a “license to watch” a movie. DVDs are treated like books, available to lend or rent or re-sell.

I don’t think first-sale doctrine is going anywhere, at least for physical media. Try telling Americans that the DVD they bought at Target can’t be loaned to their brother. It’s a non-starter.

Many DVDs sold in 2012 will include a bonus UltraViolet copy. Does first-sale doctrine apply here? To the degree any consumer understands UltraViolet, I doubt they’ll think of “ownership” in the same way they do with physical media. It’s a practical issue as much as a legal one; if users can barely figure out how to get the movie to play on their own devices, they’re unlikely to be able to lend it.

It’s not hard to think of other legally-murky situations regarding first-use doctrine:

* What if your company offered to [edit all that swearing and nudity](http://en.wikipedia.org/wiki/CleanFlicks) out of customers’ DVDs?

* In an effort to combat Chinese piracy, let’s say Paramount floods the Chinese market with low-cost Transformers 2 DVDs. Could an American retailer simply buy them up and bring them back to the U.S., dramatically undercutting the price? (This is a major reason for DVD region encoding.)

As screenwriters, what would we like to see?

Like I said at the outset, if the film industry can’t make money, we’re out of job. The same holds true for grips and gaffers and wardrobe PAs.

But for screenwriters, home video matters even more directly: our residuals for home video are simply a percentage of the distributors’ income. Bluntly, the more they make, the more we make.

From this observation, we can derive some principles:

* **We make more from DVD sales than DVD rentals.** If Redbox buys one copy of The Hangover 2 and rents it out 100 times, we’re only getting residuals for that one copy sold.

* **Price matters.** That expensive Blu-ray means more residuals than a normal DVD. To the degree UltraViolet helps prop up DVD prices, that benefits us.

* **Netflix streaming is worth more than disc-by-mail Netflix.** Traditional Netflix buys just enough DVDs to meet its users’ needs, then mails them around forever. On the other hand, when studios license movies to Netflix (or Amazon, or other online streaming outlets), screenwriters take home a small percentage of that money in residuals.

* **In digital, rental isn’t a bad thing.** When someone rents a movie through iTunes, that transaction generates residuals. Because the price point is fairly low, the money we’re bringing in is fairly low compared to selling a DVD — but it’s more than the $0 we would have gotten if that same person had rented the same movie at Redbox.

* **We make no money on pirated copies.**

This last point is important. My hunch is that a 56-day window will just push more users towards illegal downloads.

First-sale doctrine will seem like a luxury when you’re making zero sales.