Amazon Ebook Resell Plan May Kill Author Royalties

Amazon Technologies, a division of the marketing giant, has just received a patent to resell used ebooks and other digital products, according to Publishers Weekly. This move will again revolutionize the marketing of ebooks, though it is likely to have a devastating impact on authors. Amazon.com has not yet announced plans to implement the technology.

U.S. Copyright law enables an author to control who has the right to publish their book. The author can do it himself or grant the right to a third-party publisher. However, once a copy of a book is sold, the first-sale doctrine takes precedence.

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Plan Capitalizes on Existing “First-Sale” Doctrine

The first-sale doctrine says that the copyright owner has no further rights in that particular copy, and it can be resold without a royalty payment to the author. The copyright still belongs to the author, but the object (the book) can be resold many times. The author loses all control over distribution of copies that were lawfully sold.

The first-sale doctrine enables used book stores and libraries to exist. It allows them to sell or distribute books without paying a royalty to the author. The first sale doctrine was upheld in a Supreme Court decision in 1908 (Bobbs-Merrill v Straus), integrated into the U.S. Copyright Act of 1976, and reaffirmed by the Supreme Court on March 22, 2013 in the Kirtsaeng v. John Wiley & Sons case.

However, the reselling of digital files is a completely different matter. Anyone can copy and distribute them, so piracy has been the only issue in the distribution channel until recent times. Many companies have gone to great lengths to include Digital Rights Management (DRM) in ebooks and music to keep them from being pirated, but such controls are unpopular with consumers and are easily circumvented.

While the first-sale doctrine is reasonable for a physical product like a printed book, it is less reasonable for digital products which anyone can duplicate once they have a copy. Amazon seems intent on exploiting old laws with their ebook resell scheme, and that is tragic considering they have been so innovative in many other ways. The digital age requires that the first-sale doctrine be revisited by the courts because of changing technology, but Amazon will make as much money as it can while legislators and courts catch up.

Copyright Office Does Not Favor Amazon’s Action

The U.S. Copyright Office has taken a stand against applying the first-sale doctrine to digital products. In an Executive Summary about Section 104 of the Digital Millennium Copyright Act, the Copyright Office said:

The underlying policy of the first sale doctrine as adopted by the courts was to give effect to the common law rule against restraints on the alienation of tangible property. The tangible nature of a copy is a defining element of the first sale doctrine and critical to its rationale. The digital transmission of a work does not implicate the alienability of a physical artifact. When a work is transmitted, the sender is exercising control over the intangible work through its reproduction rather than common law dominion over an item of tangible personal property. Unlike the physical distribution of digital works on a tangible medium, such as a floppy disk, the transmission of works interferes with the copyright owner’s control over the intangible work and the exclusive right of reproduction. The benefits to further expansion simply do not outweigh the likelihood of increased harm.

Amazon will undoubtedly attempt to rationalize or dispute this position since it will impact their profits. They have the financial clout to fight lawsuits for years, as they did when various states sought to get them to pay sales tax. They never did pay, but only agreed to start paying in some states. This tactic led to the Senate passing an Internet Sales Tax in March, 2013. The House must ratify this vote before it becomes law. Nevertheless, Amazon is at the forefront of companies using pre-Internet laws to garner massive profits, and the first-use doctrine seems to be another example of that.

With its technology, Amazon revolutionized the way books are distributed in the 21st century. Yet, they seem intent on using a 19th and 20th century business model in their used digital reselling plan. They will profit, but authors and publishers will not benefit financially. In fact, authors and publishers are likely to be hurt since Amazon will be unlikely to guarantee they are reselling a purchased digital “original” and not a copy of it. And that’s nothing more than a type of legalized piracy.

Even if they are able to overcome the issue of identifying a purchased “original,” and were able to solve the problem of downstream copying, there is still the matter of taking financial advantage of authors. Amazon has already driven ebook down prices by offering a 70% royalty if authors and publishers keep their ebook price under $9.99, when the market value of the book might be much higher. They have built-in a 40% royalty penalty for anyone selling their ebook for more than that.

Amazon Plan May Weaken Author Royalties

Once Amazon starts selling “used” ebooks, they will have no incentive to offer 70% royalties to any content creator, and royalties are likely to slide to 30% or lower. The $9.99 price point will no longer be an issue to Amazon since “used” digital books will be available for far less, and Amazon will still profit on every sale.

Some authors may become philosophical about Amazon’s digital reselling plan. They will say it won’t matter because they received royalties from copies sold. That is not necessarily true. Amazon instituted KDP Select several years ago, and it allows authors to give away free promotional copies of their ebooks. According to U.S. law (UMG v. Augusto), the free copies that were distributed can be resold for profit. Thus, Amazon has the potential to tap millions of people who have free copies of ebooks and use their resell rights. Authors will receive no royalties from those books.

Also, under existing law, owners will likely be able to legally keep a copy of your ebook on their computer and resell the “original.” It would be a lot like someone buying a music CD, ripping the songs for their MP3 player, and then reselling the CD. The right to copy for personal use already exists under the U.S. Copyright Fair Use statutes, and under Section 10 of the 1992 the Audio Home Recording Act. If a buyer keeps their copy off the Amazon Cloud, the company cannot access that copy for deletion after the “original” has been resold. The original buyer will still have a copy of the ebook to read or share, and Amazon will profit from reselling the “original,” but exploited authors will be left with empty pockets.

Amazon is opening a Pandora’s Box. If they can resell digital products, anyone can. Amazon may use  patented technology to lessen their liability, but other resellers are unlikely to do so. Due to the nature of digital products, the gate will be opened to pirates who will be selling “copies of copies” as if they were the originals.

Amazon is doing a disservice to the creative community by reselling ebooks, but it will probably take a series of lawsuits to prove that. Printed books are different because they are a tangible product. It appears Amazon is exploiting antiquated laws, and exploiting authors and publishers, by wanting to resell intangible products that are easily copied.

Editorial by Donald L. Hughes

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