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Second Hand Bits and Bytes

You find them everywhere. Shops with used books, comics, compact discs - but where is the second hand market for digital products?

Image: Copyright abolition flag. Public Domain.
Image: Copyright abolition flag. Public Domain.
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What do consumers do when they are tired of a purchased product? They take it to a second hand store, they sell it to another consumer, or they give it away. Neither legislation nor producers will stop them. Whoever buys a product has the legal right to resell it. That applies not only to goods like houses, cars or televisions, but also to copyrighted works.

However, this should not be taken for granted. Copyright legislation gives the author (in reality mostly the publisher) the exclusive right to distribute copies of a work, but the law contains the principle of ‘exhaustion’ of copyright. This exception stipulates that the author loses his exclusive rights on distribution after the work has been sold, and it gives the purchaser of a copyrighted work the possibility to resell, lend or give it away. Without the ‘exhaustion’ of copyright, second hand shops would not exist.

You can resell a compact disc, but if you buy the same album by download, reselling is prohibited.

This rule does not apply to digital products. If you buy a song from iTunes, you first have to ‘sign’ a licence agreement. Most people don’t bother reading that document and click ‘I agree’, but whoever does muddle through, comes to a striking conclusion: the ‘buyer’ is not the owner of what he ‘buys’. The agreement states explicitly that lending, giving away or reselling of the file is not allowed. That also applies to iTunesPlus, the service that lets you download songs without copy protection.

More important than it seems

In other words: you can resell a compact disc, but if you buy the same album by download, copy protected or not, that act is prohibited. If the copyrighted work is distributed in a digital way, the exhaustion of copyright is not a consumer right. The seller has the legal possibility to restrict the rights of the buyer by using a licence agreement. The consequences are tremendous: the exhaustion of copyright is more important than it seems.

Second hand shops give a consumer the chance of buying a work for a lower price, which means that more people can have access to it. The existence of a second hand market actually also lowers the purchase price of a work, because the consumer always has the chance to resell it afterwards. Also, new copies have to compete with cheaper second hand copies. Publishers anticipate this by lowering the price after some time, as with pocket books.

In a world where intellectual content is distributed exclusively via internet, we would only have access to a work as long as the publisher sells it.

In addition, the principle also makes sure that copyrighted works stay available through time, apart from the price. After some time, most books or music albums are no longer sold. Provided you do some searching, second hand shops make sure that a copyrighted work can still be found, even though it is not economically viable to distribute it. Some publishers, like Disney, even take copyrighted works temporarily out of stores, as a marketing strategy. In a world where intellectual content is distributed exclusively via internet, we would only have access to a work for as long as the publisher sells it. And only for the price that the publisher asks for it.

Resell ad infinitum

At first sight, it seems logical that the rights of the consumer become restricted when products are sold in a digital form. In the case of books, newspapers or compact discs, information and data carrier are inextricably linked to each other. You can only give away, lend or resell the information if you also give away, lend or resell the data carrier. The owner thus loses his own copy.

But if you resell music that was bought in digital form, the original does not disappear. The file does not move from your hard disk to an e-mail message, a CD or a USB-drive. It gets copied. In other words, you can resell, give away or lend out something and keep it at the same time. Moreover, you could do that dozens of times. This means that the consumer becomes a distributor of the copyrighted work – which is the exclusive right of the publisher.

A publisher can sell something, and keep it at the same time.

However, what applies to the consumer, also applies to the publisher. He can sell something, and keep it at the same time. A digital product needs to be manufactured only once, and can then be sold an infinite amount of times. If you buy an online song or newspaper article, you only make a copy of a file that is residing on their computers. In the online music or newspaper shop, nothing disappears.

No production surplus

An ‘offline’ store has to decide how many copies to produce and store, while nobody knows beforehand how many of them will be sold. The result is that products are sold out while there is still a demand for them, or that not all products are sold, resulting in a production surplus. In both cases, the difference between supply and demand will cost the vendor money. Therefore, and to a lesser extent because of other reasons, selling digital products is much cheaper than the distribution of newspapers, CD’s, DVD’s or books.

Some newspaper and magazine publishers share these cost savings with consumers. A subscription to a digital newspaper or magazine can be cheaper than a subscription to the paper-based version. Some publishers keep digital access reserved for the buyers or subscribers of their physical products, without asking for more money. Yet another model gives the consumer the chance to get unlimited access to the complete database or catalogue for a limited time.

The consumer loses

In all these cases, the internet makes information more accessible to the public. New possibilities have originated, that are cheaper or offer more possibilities for the same amount of money. But the audiovisual publishers use another model. A music album on iTunes is usually not cheaper than when you buy it in a record store. In fact, a digital album is more expensive than a compact disc, because you are not allowed to resell your purchase and recover a part of your investment. Also movies and television programmes are strikingly expensive when you buy them as a download. In this case, the publishers gain a clear victory on digital distribution. The consumer loses.