First Sale Doctrine And Resale Of Digital Music

First sale doctrine and resale of digital music: Is it legally possible?

To: Professor Troy Dow
From: Andres Grunewaldt
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Date: May 05, 2011
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I. Introduction
The music industry has suffered several changes during the last decade,being the conversion from hard copies to digital files one of the most relevant. The digital era has revolutionized and changed the approach to the consumers over leisure goods, and the music industry has been one of the most affected.
The explosion of digital music, the popularity of MP3 files and other types of formats, and the accessibility and speed of the Internet have disrupted the existingmusic format, pricing and distribution standards.
For years, the music industry in its traditional CD format have been trying to adapt its business model to this new era, but so far, the sales of music in this format are dropping consistently every year, being the digital piracy one of the major threats. Indeed, according to the Recording Industry Association of America (hereinafter RIAA), in thelast decade, since peer-to-peer file-sharing site Napster emerged in 1999, music sales in the United States have dropped 47%, from $14.6 billion to $7.7 billion. Moreover, from 2004 through 2009 alone, approximately 30 billion songs were illegally downloaded on file-sharing networks. In his context, in 2009, only 37% of music acquired by U.S. consumers in 2009 was paid for. Digital storagelocker downloads constitute the 7% of all Internet traffic.
However, piracy is not the only cause of this situation. There are other factors that have triggered this trend, being the change in the consumers’ behavior one of the most important. Nowadays, buyers are now able to purchase custom albums, packed only with songs that they want to acquire, and digital distribution will mean that consumersmight desire individual songs rather than albums. In this new scenario, companies have had to adapt their business strategies and models, and Apple is the most graphical prove of this statement with ITunes, the most successful online music store business with a 66% of the entire market, followed by Amazon with a 13%.
This new approach implies the existence of more digital music legallyacquired by thousands of users, but what happens if a consumer has acquired legally an album in MP3 format, but he is not keen on the music purchased anymore and wants to sell it. In the context of the 1976 Copyright Act and the existing case law, what legal issues are involved, what problems will he probable face, and, at the end of the day, what are the chances of transferring these files withoutbeing involved in potential liabilities?
These are the questions that the paper at hand tries to address, focusing in the first sale doctrine at the international and national level; a brief explanation of this doctrine in the context of the digital environment; explaining some ongoing business models that rest on the resale of digital music; analyzing the legal problems that this businessmodel triggers and the potential solutions and the practical feasibility of this business model; ending with a conclusion.
II. First sale doctrine and international law
In general terms, under the first sale or exhaustion doctrine, the distribution right is “exhausted” after the copyright holder has sold a copy of the work, being the purchaser able to resell the product without the consentof the copyright owner.
As to the international level, this principle is applied in different manners depending on the decision taken by the importing country.
The first system is the national exhaustion, in which the exclusive right to distribute subsists until the first sale of a particular copy within a specific nation, thus, the copyright owner cannot control the commercial exploitation...