'Exhaustion' in the Digital Age

Abstract

The “exhaustion rule” is a rather ambiguous legal construct. The question whether this rule still applies in the digital age may refer to two things: The right to distribute a purchased data carrier further, just as a book may be resold without the consent of the copyright holder (“first-sale doctrine”); or (the traditional view at least in the case of software, but also under patent law) the extent to which the protected subject matter may be used by the purchaser even without an explicit licensing agreement (“implied licence”).

The question about the redistribution right, however, is only meaningful in the first of three periods within the digital age, during which physical carriers actually were (and still are) sold. In the second period already, when recorded carriers are not sold anymore but copies are produced via download through users, the circumstances change. Whether or not the first-sale doctrine applies in this period as well is disputed even today. At the latest in the third period, however, in which downloads are replaced by mere streaming, the first-sale doctrine becomes pointless.

In this period the other aspect of the “exhaustion rule” comes into play. In fact, in the case of streaming the key question is what the user is allowed to do. This question concerns the user’s own activities, but also (and even more relevantly) whether or not the user – as contractual partner of the right holder – is allowed to assign his or her own users’ rights to a third party. This issue has been discussed broadly in relation to software, but hardly at all regarding works other than software.

This paper discusses possible doctrinal approaches to deal with such questions and particularly challenges certain traditional perceptions of copyright law by emphasising the potential of the implied licence to explain transferability of users’ rights. Beyond that it critically evaluates the necessity and desirability of extending the concept of “exhaustion” to the digital world. Finally, it suggests that the discussion is of decreasing practical relevance in view of changing business methods and that consumer protection law rather than copyright law might provide more appropriate protection of users’ interests.

Keywords: First-sale doctrine; implied licence; right to use; technological protection measures (TPM); streaming; software; UsedSoft; ReDigi