Supreme Court case may determine legality of re-selling apps and devices, and even alter the concept of ownership

November 1, 2012
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Do we really own the devices that we buy? Or are we just licensees who cannot re-sell our phones, tablets and computers?

Should you be able to re-sell apps, games, e-books and just about any material that you have bought? We asked this question earlier this year, raising a few points for and against the argument. The doctrine of fair use says you can legally repurpose any content or material for academic or personal use. The doctrine of first sale says you can lend or re-sell copyrighted goods without interference, for as long as you “own” the copy.

But copyright holders are always challenging these principles, saying these negatively affect their businesses. First that comes to mind are the grey-market importations of books aimed at reducing the cost of a university education. Then there’s also the re-sale of content that comes with an e-book reader or any other computing device — which may include smartphones and tablet computers. With the prevalence of digital media, the issue also becomes relevant in light of being able to re-sell apps and content that you have bought.

There is a case currently pending in the U.S. Supreme Court that may eventually determine whether we, as consumers, can legally re-sell these goods. Kirtsaeng vs John Wiley & Sons is currently the highest-stakes intellectual property dispute of the year — even bigger than Apple vs. Samsung — because it can potentially change the notion of ownership in America.

Arguing for first-sale is Thai-born Supap Kirtsaeng, who bankrolled his university education by importing books from Thailand and re-selling these online in the U.S. market, thereby undercutting the local retailers and publishers. John Wiley & Sons took notice, and sued Kirtsaeng for copyright infringement, and has so far won in the lower courts. If the Supreme Court rules for the publisher, it will mean that re-selling of goods will be illegal. No more grey-market books. No more garage sales. No more re-selling of your Kindle Fire with the e-books inside. Planning to sell your DVD collection? You might end up going to jail.

Why this may be important to you

This might also have a significant effect on the online goods marketplaces that have built their business upon downstream commerce, such as eBay, Amazon and the like.

But I think what will affect our primary audience more is the possibility that we may no longer be legally allowed to re-sell our mobile devices. Manufacturers can potentially claim their devices are protected by copyright, and therefore cannot be re-distributed in secondary markets. Omega successfully argued for this, after they claimed that a small engraved brand on their watches is copyrighted material. Omega won their case against Costco, which sold brand new Omega watches cheaper after re-importing these from overseas.

Earlier, the courts ruled that the first-sale principle only applied to products manufactured within the U.S., and therefore all goods manufactured overseas are not covered by the principle. But with many goods manufactured abroad nowadays — including electronics devices — this could mean the first sale principle will no longer apply to such goods.

Can we legally re-sell apps, phones and tablets?

The first arguments were heard by the Supreme Court last Monday, and the focus then was on two things. First is the case for offshore manufacturing. Kirtsaeng’s lawyers argued that upholding the decision for Wiley & Sons will be a strong incentive for manufacturers to offshore their operations, because they will then have better control over secondary markets. Second is the legality of resale or display of a copyrighted item. This will imply that, for instance, a Toyota car sold the U.S. cannot be legally re-sold by the first “owner” without first seeking consent from Toyota itself, or that an artwork cannot be legally displayed by a museum without the author’s or his representatives’ consent.

We expand our argument to cover mobile devices, given that manufacturers can claim their devices contain intellectual property that cannot be redistributed. Our smartphones, tablets media players and computers contain intellectual property within the apps and software, and even the proprietary chipsets and hardware design.

Right now, the first sale principle means you can re-sell these items because you have bought them, except perhaps for any apps or e-books that cannot be sold without first deleting other copies. But with the upcoming Supreme Court ruling, your “purchase” of a device might actually just mean you are only licensed to use the device, but that you don’t actually own the technologies therein, because these are protected by intellectual property rights.

The Supreme Court is trying to be fair with its decision-making process, in particular trying to find a viable middle-ground. We will be watching developments on this case.

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