ARCHIVED: Copyright Office Report - October 2001

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Law Offices
Lutzker & Lutzker LLP
Suite 450
1000 Vermont Avenue, N.W.
Washington, D.C. 20005

Telephone (202) 408-7600
Fax (202) 408-7677

Arnold P. Lutzker
Susan J. Lutzker
Carl H. Settlemyer, III


Copyright Office Report on the First Sale Doctrine and
Archival Copying of Computer Programs


  1. Introduction: Scope and Background of the Report

    As required by the Digital Millennium Copyright Act of 1998 (DMCA), the Copyright Office has presented to Congress a study on the impact of digital technology and policy on two very important provisions of the Copyright Act. The Report evaluates the operation of the Section 109 (the First Sale Doctrine), and the Section 117 (the exemption for archival and incidental reproduction of computer programs). The Report focuses specifically on three issues, each with a number of ramifications for the library community:


    • The First Sale Doctrine in a Digital World. Does, or should, the first sale doctrine apply to digital transmissions?


    • Archival and Incidental Reproductions of Digital Content. Should the section 117 computer program exemptions be expanded to privilege archival and temporary incidental copies of digital content?


    • Permissible Use of Archival Reproductions. Should archival copies that are made under the section 117 privilege be subject to transfer under the first sale doctrine?

    To appreciate what the Copyright Office's report means for libraries, it is helpful to revisit the context in which that report was mandated.

    Throughout DMCA deliberations and negotiations, the library community and other segments of the public expressed concern that anti-circumvention provisions, combined with shifting business models, might inhibit the public's ability to use copyrighted works in ways that have traditionally been privileged under statutory limitations on the exclusive rights of copyright. Particular areas of concern included the future viability of fair use and the first sale doctrine and the prospect of liability for temporary incidental copies.

    One response to these concerns was H.R. 3048, a legislative alternative to the DMCA sponsored by Representative Rich Boucher and Representative Tom Campbell (the Boucher-Campbell bill). The Boucher-Campbell bill was crafted to ensure that the broad new protections granted to copyright owners would be contained by means of corresponding limitations in the public interest. To that end, the bill would have modified section 109 of the Copyright Act expressly to extend the first sale doctrine to copyrighted digital content. The bill would also have amended Section 117 to provide that reproduction of a digital work is not an infringement where the reproduction does not affect the normal exploitation of the work and is incidental to the ordinary use of that work in conjunction with a device. The library associations strongly supported the Boucher-Campbell legislation.

    Congress did not adopt the Boucher-Campbell bill, but it did acknowledge the need for further study of the issues raised by the bill. Thus, Section 104 of the DMCA directed the Register of Copyrights and the Assistant Secretary for Communications and Information and head of the National Telecommunications Information Administration (NTIA) to conduct a joint evaluation of:


    1. the effects of the amendments made [by the DMCA] and the development of electronic commerce and associated technology on the operation of sections 109 and 117 of title 17, United States Code; and


    2. the relationship between existing and emergent technology and the operation of sections 109 and 117 of title 17, United States Code.

        From that mandate, the Copyright Office and NTIA issued a joint request for public comments on June 5, 2000. A public hearing was held in November of that year.

        NTIA released its own report independently of the Copyright Office in March 2001. NTIA reviewed the same record as the Copyright Office, particularly noting the absence of any consensus on legal rights or policy recommendations. NTIA concluded that it would be premature to make any legislative proposals with respect either to Section 109 or Section 117. However, it did encourage further Congressional consideration of the matters and noted that digital rights management systems and other developments hold the promise of offering a technological solution.

      • Key Issues for the Library Community

        The library community took an active role in the Section 104 proceeding, presenting witnesses and written testimony. The statutory sections under review bear directly on many current and prospective library practices, including:


        • interlibrary lending
        • lending works for offsite use
        • lending via the Internet
        • utilizing donated works
        • copying works for archival purposes
        • acquiring digital works (cost and complexity)

        To understand how these practices are implicated, it is helpful to review the relevant statutory provisions and issues.


        1. Section 109: The First Sale Doctrine


          1. The Statutory Provision

            Section 109 of the Copyright Act is the statutory provision that permits libraries to lend copyrighted materials in their collections without paying royalties and without obtaining permission from copyright owners. This provision, derived from the common law first sale doctrine, limits a copyright owner's exclusive right of public distribution by extinguishing his right to control the disposition of a specific copy once an initial lawful sale of that copy has been made. Thus, the purchaser of a book may freely loan, sell or give away his or her copy.

          2. The First Sale Issue

            The most controversial issue in this proceeding is the proper application of the first sale doctrine to copyrighted content in digital form. The resolution of this issue is likely to have a significant impact on the cost and complexity of facilitating library access to digital works.

            The heart of the issue is this: As codified in Section 109 of the Copyright Act, the first sale doctrine limits only the copyright owner's exclusive right of public distribution. From a practical standpoint, this allows a library to distribute a copy of a work it has purchased or otherwise owns. However, the doctrine does not allow the owner of a copy of a work to exercise of any of the other exclusive copyright rights. Aside from the right to control public distribution, these rights include the right to make copies of the work, the right to prepare a derivative work, the right to publicly perform and the right to public display.

            This codification works effectively with regard to print and analog works, because no reproduction is involved when the owner of the copy sells, lends, or otherwise distributes that copy. However, lending a digital copy through a network implicates several exclusive rights, including making a digital copy and publicly distributing that copy via an electronic transmission. The original may be retained or destroyed. From the perspective of copyright owners, this creates a significant risk of piracy, particularly because there is no guarantee that the original copy will not also be kept and used. In other words, there is no technological "forward and delete fix" currently available.

          3. The Library Community's Position

            The library community's position in this proceeding is that the first sale doctrine should clearly and unambiguously extend to all copyrighted content without regard to technology or business model. This position stems from the conviction that once a copyright owner has been compensated for use of a particular work - in the case of digital works, compensation for "right of access" to his work - the policies that underlie the first sale doctrine should permit the holder of access to that work, i.e. a library, to make that work accessible to its patrons. To the extent the doctrine is ambiguous on the matter, it is the codification of that doctrine that should be updated to accommodate digital commerce.

            Consistent with that position, the library community continues to support the digital first sale proposal that was originally advanced in H.R. 3048, the Boucher-Campbell bill. The Boucher-Campbell bill would have amended section 109 of the Copyright Act expressly to extend the first sale doctrine to copyrighted digital works, but with the requirement of a forward-and-disable policy to ensure that no more than the authorized number consumers have use of a particular "right of access" at any given time. As a corollary to that amendment, the proposal would also have privileged the incidental reproduction of digital content that occurs in the course of secondary transmission of a digital work.





        2. Section 117: Incidental Reproduction of Computer Programs


          1. The Statutory Provision

            As enacted, section 117 accomplishes two things:

            First, the section permits the owner of a copy of a "computer program" to make an archival copy of that program to guard against the risks of corruption and failure that are inherent in the digital medium.

            Second, due to the nature of digital technology, a copy of a computer program is automatically made in the RAM of a computer each time that program is utilized. Section 117 of the Copyright Act provides that these copies do not infringe a copyright owner's exclusive right of reproduction. As amended by the DMCA, the section also privileges the copy of computer operating software that results when a computer is activated for purposes of maintenance or repair.

          2. The Digital Reproduction Issues

            Two section 117 issues in this proceeding are of particular importance to libraries:

            First, as explained above, transmitting a digital work involves reproduction as well as distribution. Therefore, the future of the first sale doctrine with regard to digital works is in large part dependent on permitting necessary reproduction. Although there is a reasonable argument that this reproduction would be permissible under the fair use doctrine, the Boucher-Campbell bill would have created an explicit privilege under section 117. This privilege would eliminate the uncertainty that currently inhibits the operation of the first sale doctrine in the minds of many persons.

            Second, the concern about corruption of digital content that originally motivated the section 117 exemption for archival reproduction of computer programs applies with equal force to literary, musical, and other copyrighted works in digital format. However, because these works are not technically "computer programs" under copyright law, archival copying is not authorized under section 117. Although archiving practices may be privileged under fair use or license terms, the resulting copies are not yet expressly permitted under the Copyright Act. Amending section 117 to privilege these copies would eliminate the legal uncertainty that currently surrounds such common archival practices as routine system backups.



        3. Specific Library Concerns in this Proceeding

          In addition to supporting the general amendments that were originally proposed in the Boucher-Campbell bill, the library community raised a number of specific concerns in this proceeding. Many of these concerns relate to library lending practices that were traditionally facilitated by the first sale doctrine. These practices have been increasingly curbed by restrictive license terms and unregulated enforcement of these terms by means of technological protection measures:


          1. Interlibrary Lending

            Interlibrary lending has traditionally been facilitated by the first sale doctrine. As more works are distributed in digital format under license, copyright owners are increasingly restricting the practice. Public libraries in lower-income communities often rely heavily on interlibrary loan, which suggests that this practice may play a key role in federal efforts to bridge the "digital divide." The library community argued that Congress should expressly affirm the validity of this practice with regard to digital works.

          2. "Chained" Works

            License terms often restrict the use of digital works to specific computer terminals in an institution. For this reason, licensed digital works have been likened to "chained books" that can only be read at a specific table in a library. The library community maintained that all works in an institutional collection should be available for use in the classroom, regardless of the location of the computer from which the work was originally accessed, and for use by enrolled students and faculty, also without regard to location.

          3. Library Preservation

            The library community argued that trends since the enactment of the DMCA require additional initiatives to reaffirm the vital role of libraries as custodians of our nation's recorded history. Routine library preservation practices are increasingly being curtailed by restrictive licensing terms under which digital works are acquired. As a result, libraries have become concerned that they will lose access to digital works as publishers merge, cease operations, or decide not to convert existing works to evolving digital formats. The library community maintained that Congress should combat this risk by establishing a national system of digital library repositories, wherein specific libraries or institutions would be assisted in their efforts to preserve America's digital history.

          4. Donated Works

            The first sale doctrine has traditionally permitted libraries to accept donated works, but the content community's practice of distributing works under personal license has raised questions about the proper treatment of donated works. The library community urged that federal copyright policy should facilitate library use of donated works irrespective of format.

          5. Preemption of non-negotiated license terms that conflict with public interest limitations in the Copyright Act

            Many of the library community's concerns about digital technology involve the tension between federal copyright policy, state laws and contracts. Although preemption - the legal notion that federal policy controls all relevant rights and limitations regarding copyrighted works - was not an issue formally posed to the Copyright Office in the DMCA, libraries see this issue as intertwined with the practical operation of the first sale doctrine.

            The heart of the preemption issue is this: the Copyright Act is altogether silent on the validity of non-negotiated license terms that conflict with federal policy limitations on the exclusive rights of copyright, including the first sale doctrine. Taking full advantage of this silence, copyright owners are increasingly attempting to "contract out" of federal copyright law by distributing copyrighted works under licenses that purport to restrict uses and transfers that would be non-infringing under the Copyright Act. The library community sought to demonstrate in this proceeding that definitive Congressional action is required to restore balance in the copyright marketplace between private ordering and regulation in the public interest.















      • Summary of the First Sale Doctrine Report

        The Copyright Office's Report was highly disappointing to the library community. In a nutshell, the Copyright Office views most of the library concerns as beyond the scope of the Report and maintains that any loss of library lending rights is more a function of shifting business models that are "subject to market forces" than copyright law. This determination reflects a narrow and restrictive view of its DMCA mandate and an analysis of Sections 109 and 117 that exhibited little effort to reconcile the policies that inform those sections to issues presented by the digital era. As a result, the final recommendations of the Copyright Office's Report address very narrow and highly focused concerns.


        1. Key Copyright Office Conclusions Concerning the First Sale Doctrine


          1. First Sale Doctrine Does Not Apply to Digital Transmissions

            The Report concludes that application of the first sale doctrine is conditioned on two factors: (1) ownership of a copy, as opposed to possession under license, and (2) the physical or material nature of the copy. Consistent with that strict interpretation of section 109, the Report sets forth two examples of situations in which the owner of a copy in digital form would be permitted to transfer that copy under the first sale doctrine: First, a physical copy of a work in digital format, such as a CD or DVD, may be transferred in the same manner as a physical copy of a work in analog form. Second, a tangible copy that results from an authorized digital downloaded, such as an image file downloaded directly onto a floppy disk, may also be transferred. In reality, of course, the fact that many such copies are distributed under license is likely to preclude application of the doctrine even in the situations identified by the Copyright Office.

            The Report concludes that the first sale doctrine does not apply to digital transmissions because, unlike transfer of a physical copy of a work like a book or magazine, a digital transmission does not involve transfer of a tangible object. According to the Copyright Office, tangibility is a defining element of the first sale doctrine.

            In addition, the Report concludes that the benefits to further expansion of the doctrine do not outweigh the likelihood of increased harm to copyright owners. In support of that decision, the Report points out that digital transmissions interfere with the copyright owner's control over the intangible work and can adversely affect the market for the original copyrighted work to a much greater degree than secondary transfer of physical copies. The Report also notes that "forward-and-delete" technology, if it were to become available, would not be a "silver bullet" because such technology would be "less than 100% reliable" and would be likely to make the copyrighted work more expensive and less desirable in the marketplace. The Report cites the Napster phenomenon as evidence that consumers do not desire products that will function under the forward-and-delete model.

          2. Copyright Office Recommends No Change in Law

            The Copyright Office recommends no change to section 109 for the purpose of extending the first sale doctrine to digital works. According to the Report, the anti-competitive price-fixing behavior that prompted the Supreme Court to establish the first sale doctrine does not appear to be taking place in current markets, and evidence of "present-day problems" is not sufficiently convincing to warrant expanding section 109 to cover digital transmissions.



        2. Conclusions and Recommendations Concerning Section 117


          1. Temporary Incidental Copies

            The Copyright Office does not recommend an amendment to privilege all temporary incidental copies of digital works. According the Report, consumers have not been harmed by the lack of such an exemption under current law, and no compelling case was made that the need for a blanket exception outweighs the associated risks to copyright owners.

            The Report does recommend a narrow privilege to cover the temporary "buffer copies" that are made in the course of audio streaming. Two factors are cited in support of that decision: a) the Report notes that two fair use factors weigh in favor of privileging the copies, but that reliance on the fair use doctrine is not sufficiently certain to facilitate business planning in the web streaming industry; and b) the Report notes that buffer copies are made solely to permit an activity that is licensed by the copyright owner and for which the copyright owner receives a performance royalty.

            The Copyright Office also commented on the "mirror issue" of liability for the technical "public performance" of a digital work that takes place in the course of an authorized download. The Report recommends that no liability under U.S. copyright law result from such a performance.

          2. Archival Copies

            The Report cites three reasons for recommending against expansion of the section 117 archival copy privileges. First, the Report notes that consumers have not refrained from archival practices that fall outside the current scope of section 117, and no consumer appears to have faced litigation as a result. Second, the Report concludes that the need for archival reproduction of computer programs has diminished as CD-ROMs have replaced floppy disks as the dominant distribution format. Third, the Report states that the Copyright Office was informed during the section 104 proceeding that the section 117 defense is often used in bad faith by content pirates, and in error by members of the public who misunderstand the purpose of the section. However, the Report does conclude that most common archival activities by computer users, such as routine system backups, would qualify as fair use. More significantly, the Report notes that the language of the Copyright Act could lead a court to conclude that copies lawfully made under the fair use doctrine are transferable under the first sale doctrine. This, the Copyright Office believes, would be wrong and would abuse the fair use privilege. To address this risk, the Copyright Office recommends that Congress either (1) amend section 109 to ensure that fair use copies are not subject to the first sale doctrine, or (2) create a new archival exemption that provides expressly that backup copies may not be distributed.



        3. Specific Responses to Concerns of the Library Community

          In response to specific concerns of the library community, the Report maintains that the curtailment of library lending practices that was detailed in this proceeding is attributable to evolving business models. In essence, the Report concludes that the cited restrictions on library practices do not interfere with the operation of the first sale doctrine, because that doctrine does not guarantee the existence of a secondary market for copies of copyrighted works. In addition, the Report affirms the promise of digital communication technology to promote the development of new business models with a more flexible array of products. According to the Copyright Office, business models should be determined by the market, not by legislative fiat.

          The Report comments specifically on certain library community concerns:


          1. Interlibrary lending

            The Report attributes restrictions on interlibrary lending to licensing practices, which the Copyright Office explains, is a topic outside the DMCA study. Further, the Report concludes that many digital interlibrary lending practices are simply beyond the scope of section 109. According to the Copyright Office, many interlibrary loans do not involve lending a particular copy of a work, but rather, involve creating and delivering additional copies. The practice involves the "lending" institution reproducing the copyrighted work and sending that copy to the "borrowing" library, which in turn gives that copy to its patron. The Copyright Office concludes that, to the extent that this copy is authorized under the section 108 library copying privileges, the copy is lawfully made under the Copyright Act and the recipient becomes an owner of a copy that is subject to the first sale doctrine. However, the initial copying and subsequent transmission are not sanctioned by Section 109. .

          2. Offsite lending

            As with other library concerns, the Copyright Office dismisses the restrictions on lending for offsite that are imposed by means of restrictive license terms as a contractual issue that is beyond the scope of the study. The Report points out that less restrictive license terms are often available at higher prices, and concludes that libraries have always had to make difficult trade-offs in building their collections. The Report also points out that facilitating offsite access to online subscription services does not present a first sale issue, because such services do not result in a physical copy that can be transferred under section 109.

            Significantly, the Report does acknowledge that a first sale issue may be presented by the practice of using technological measures to restrict the use of a work to a particular computer terminal. This practice, known as tethering, is accomplished by encrypting a copy of a work with a "key" that uses a unique feature of a particular device, such as a CPU identification number, to ensure that the copy cannot be used on any other device. The Report notes that this technique may be employed with electronic books using digital rights management (DRM) technology, and concludes that if the practice were to become widespread, it could have serious consequences for the operation of the first sale doctrine. .

            Quite unfortunately, the Copyright Office ignored or simply missed an important development in the immediate horizon that could set the standard for tethering works to specific devices. As Microsoft rolls out its new operating system, Windows XP, Microsoft has made clear its intention to enforce a licensing limitation already included in its basic agreements, but not systematically implemented. The Windows XP license will prohibit an individual user from taking a copy of Windows XP it has acquired and installing it on more than one home computer. Utilizing encryption technology, Windows XP's activation process will restrict use of the licensed software to one machine by keying the copy to a specific device. In short, Microsoft's most important advance in operating system software in recent years will result in Windows XP being tethered to a specific computer. .

            If Microsoft insists that its digital licenses limit consumer access to one machine, it is reasonable to anticipate other software publishers will follow suit, thus triggering the widespread development that the Copyright Office acknowledged could have adverse implications for the first sale doctrine. With the launch of Windows XP scheduled imminently, the Copyright Office should have stated its policy with regard to tethering, rather than suggesting this is a remote concern. By offering Congress no guidance on how to deal with this problem, the Copyright Office's analysis is behind the curve as soon as it is released. .

          3. Preservation and Archiving

            The Report concludes that the library community's argument in favor of a national digital repository is beyond the scope of this study. However, the validity of preservation concerns is acknowledged, and the Report points out that the Librarian of Congress has appointed a national advisory committee to assist the Library of Congress in the development of a National Digital Information Infrastructure and Preservation Program to ensure the long-term availability of digital materials. That committee held its first meeting on May 1, 2001.

          4. Donated works

            The Report concludes that concerns regarding the use of donated works implicate contractual issues that are beyond the scope of this study.

          5. Conclusions and Recommendation Concerning Contract Preemption

            The Report notes that preemption is an increasingly important issue for two reasons: (1) the trend at the state level toward enforcing non-negotiated contracts, and (2) the implementation of legally-protected technological measures that give rights holder the technological capacity to impose contractual provisions unilaterally. Although the Copyright Office acknowledges that these factors may give copyright owners an unprecedented ability to "determine the landscape of consumer privileges," the Report concludes that the issue is beyond the scope of this study, and further, that legislative action would be premature at this time.













      • What the Copyright Office's Report Means to the Library Community

        Two days of hearings on the Report were scheduled by the House Judiciary Subcommittee on Intellectual Property, but in the wake of the terrorist attacks of September 11, the first hearing was postponed. While it is possible that a hearing could occur in October, it is also possible that the matter will simply be moved onto the calendar for next February. Whenever hearings are held on the Report, we expect they will be narrowly tailored to the specific legislative amendments proposed by the Copyright Office. In light of the recommendations, no library witness will testify.

        For libraries, the Copyright Office's strict interpretation of its first sale doctrine mandate stands in stark contrast to the way it handled a comparable concern respecting digital distance education. In a landmark report issued in May 1999 - also on directive from the DMCA - the Copyright Office analyzed the law and the policy behind the distance education exemption covering performance and display of works (Section 110(2) of the Copyright Act), and concluded that legislative reform was needed. The TEACH Act, passed by the Senate and pending in the House, represents key legal reform urged by the Copyright Office.

        By contrast, the instant Report takes a narrow view not only of the Copyright Office's mandate under the DMCA, but also of the application of the first sale doctrine in the context of digital works. Since this Report is advisory, it has no direct legal effect. Nevertheless, any document issued by an expert agency on a matter of relevance in a legal proceeding could be cited to support one side or another. Also, if the Congress were to incorporate the Report into legislative history regarding Section 117 reform, for example, it would be accorded more weight.

        Given the clear but narrow approach of the Copyright Office, the key effort for libraries with respect to the Report is "damage control." The specific legislative reforms of the Report do not materially advance the copyright debate from the library perspective. However, if these reforms result in Congress' giving the Report its legislative imprimatur, the Library interests might be adversely affected.

        Looking for a silver lining, it may be noted that the Report expressly states that the Copyright Office's refusal to address concerns raised by the library community does not reflect a judgment on the merit of those concerns. The Copyright Office does commit to "work(ing) with the library and publishing communities on ways to ensure the continuation of library functions that are critical to our national interest." These comments suggest a modest receptivity to specific library concerns that should be encouraged.

        Librarians need to be alert to the ways in which the digital content business models interfere with the traditional library functions cherished in our society. A clear and focused record needs to be developed, not only with respect to the adverse impact on enjoyment of the first sale doctrine, but also with regard to harm occasioned by Section 1201 prohibitions on accessing works protected by technological measures and licensing practices that diminish fair use and library preservation and reproduction privileges. The more libraries are able to document the diminution - if not destruction - of reasonable public access to and use of copyrighted works, the greater the likelihood of capturing support from policymakers.







      October 2001