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Slumlords of the Internet

On September 3, George Hotelling, a Michigan man who describes himself as a computer “geek”, launched an auction on eBay to try to sell his recently purchased iTunes download of Devin Vasquez’ version of “Double Dutch Bus.” Not that selling the file (if that’s what he was actually doing more on that later) was his primary goal. As Hotelling puts it, he wanted to find out, “Does the right of first sale still exist?” It’s a very interesting question.

The basic concept of the first sale doctrine is that when you buy something that’s new (first sale) it becomes yours to sell for whatever price you please without interference from the original manufacturer. Copyright prohibits you from copying it (only the copyright holder can make the “first sale”), but you can sell the actual item you purchased. Specifically with regards to music, this is addressed in the U.S. Code under Title 17, Chapter 1, Section 109. This law is the primary reason why the RIAA has never been successful in its attempts to get legislation requiring secondary payment on used CDs (the so-called “used CD tax”). The subject of digital programs is addressed in this law with some rather ambiguous language that would take an experienced attorney to decipher. As if even an experienced attorney could do it that’s why they have appeals courts. I’m not even an inexperienced lawyer, so I won’t attempt it.

One of the realities of the digital age is that there has been new language placed in laws that puts restrictions on the right of first sale with regards to computer programs. Whether these laws are valid will be keeping attorneys busy for years to come. The question really is, “what was Hotelling actually selling?”

If he was like most people, he probably believed he bought a song file from iTunes. After all, this is how both the major music industry and iTunes have promoted their product. In his eBay ad, Hotelling stressed that he was not selling a copy of the song file. He was actually selling the song file itself and would transfer his iTunes account (which contains only this one song) over to the winning bidder if that is what it took to make the file playable. In essence, he was reassigning his license to play the song for a fee. Whether or not this is allowed under his agreement with iTunes is debatable. There seems to be some wiggle room in the iTunes agreement that could allow this. Also, if this was indeed a purchase rather than a lease, Hotelling would not be bound by any unlawful restrictions of his contract with iTunes.

Hotelling’s little experiment came to an abrupt end when eBay cancelled his auction. eBay states that Hotelling’s auction violated their clause prohibiting the selling of electronically transferred items. Of course, this was somewhat disingenuous on eBay’s part because Hotelling had made it clear with an amendment to the auction that the transfer would not take place through the Internet and electronically transferred items are sold all the time on eBay without incident. eBay does not take a proactive approach to policing violations. They only end an auction if a complaint has been filed. And they are known to cancel completely legitimate auctions at the whim of any member of their intellectual property group (read: record labels), so long as the member files an affidavit stating that the item in question is a violation of their copyright (even if it’s not). iTunes has been mute on the subject so far, even though Hotelling’s auction received widespread interest on nearly every tech blog in cyberspace. Hotelling’s question might not be answered until some attorney decides to sue iTunes or iTunes decides to sue some customer.

I won’t even get into “is a limited license to the public a rental?” If it is, the whole download-for-dollars scheme would be illegal. ‘Cause the RIAA made sure of that when the greedy bastards lobbied to outlaw music rentals with the 1985 Record Rental Act.

But there are plenty of other more pertinent questions raised. Is the public being deceived into thinking they are “buying” something when in reality they are doing no such thing? When you “purchase” a tune from iTunes, you are actually “licensing” the song for play within a limited scope. This makes the dollar-a-pop charge far less attractive than the purchase of a CD for an equal amount (or less, as Universal has just announced price reductions on a grand scale), which is a good reason for iTunes to avoid using the term “license” in their publicity. The record labels may have an even more sinister motive to call this a “sale”. Does Hotelling have the right to resell the license? After all, this is precisely what iTunes is doing when they sold him the license, as they had to purchase a license from the record labels in the first place. And most of all, do the majors have the right to issue blanket licenses to iTunes at all?

Nashville music attorney and artists’ advocate Fred Wilhelm offers the following: “Interestingly, one of the excuses long given by the majors for foot dragging on licensing catalog to legitimate online services was the necessity of renegotiating with all the artists. In light of this excuse, I always found it odd that they never really seemed interested in actually negotiating, and haven’t with hundreds of artists, but have licensed their catalogs to iTunes anyway.”

Wilhelm believes that some artists may have a possible negotiating tool in the “non-coupling” language that appears in many major label contracts. “‘Non-coupling’ prohibits the label from issuing the artist’s recordings in conjunction with recordings from any other artist without the artist’s prior permission. Ostensibly put in the contract to prevent the ‘split single,’ the language is usually broad enough to cover compilation CDs and blanket licenses. The almost daily violation of this clause has never been challenged to the best of my knowledge.”

Wilhelm also addresses the issue of “is it a sale or is it a license?” with some rather pointed commentary. In the process he points out why the RIAA and the major labels that fund them would rather view these downloads in terms of “sales” rather than “licenses”.

“iTunes is a prop for the majors, and a bad deal for artists signed to those majors. There is substantial legal grounds to treat downloads like licenses, rather than sales (especially in the iTunes model where the user’s right to make copies is limited). Licenses are supposed to be split 50-50 with the artists. I don’t know one major that does this, but I also fully expect the big names to start demanding it, and getting it. I also fully expect this not to trickle down to anyone else on the roster, and especially not to the catalog artists, who if the contract royalty rate is going to be applied, are going to get far less than 11 cents (the projected income from each download that is supposed to go to the artist). The ironic thing about the catalog artists, however, is that their contracts never contemplated digital distribution, and it wasn’t until the late 70s that “all media” clauses started showing up in standard contracts. I have my doubts that ‘all media’ legally includes ‘NO media,’ so that, if some of them are willing to make a fight of it, for all of them, it could mean a substantial change in the share they get.”

So there you have it. What George Hotelling’s little experiment inadvertently points out, as if it hasn’t been pointed out often enough, is that the major music industry always wants it both ways. When it comes to paying artists, iTunes are selling songs. When it comes to fleecing the public, they’re licensing them. They will skirt the law when it’s to their benefit. They will use it when it’s to their benefit. They will try to sell you a substandard product for an inflated price. And their customers always get left out in the cold. Something like the way a slumlord operates.

BILL GLAHN writes the RIAA Watch column for CounterPunch. His Husgow Record Guide appears at www.mondogordo.com Feature articles appear in BigO magazine Alt.Culture.Guide–The Journal of (Un)Popular Culture (Rev. Keith A. Gordon with BILL GLAHN, Anthem Pop/Kult Publishing) may be purchased online from Sound Products.

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