Pascale Chapdelaine is a member of IP Osgoode, Ph.D. (candidate) Osgoode Hall Law School and is Adjunct Professor at the Faculty of Law, University of Toronto.

My current research work to substantiate and better define consumers’ rights to copies of copyrighted works recurrently leads towards one of the great contemporary legal challenges: the nature of and interaction between property and contract law. What framework is most apt to pursue the goals of copyright law (as understood from the broader perspective of authors, copyright holders and users) and to what extent do we allow contract to alter property rights and vice versa? These questions are even more crucial in consumer transactions whereby the property rights at play can be altered by copyright holders (and distributors) through standardized non negotiated contracts.

Copyright is a distinct and unique form of property. Its constitutive statute, the Copyright Act (L.R.C. 1985, ch. C-42, the CCA) remedies to its non rivalrous nature, by spelling out a list of exclusive rights conferred to the copyright holder (which includes authors) of a copyrighted work and which are opposable to all. It also confers trespassory powers in the form of various remedies against copyright infringement. At the same time, the CCA gives a lot of flexibility in how copyright holders can authorize others to have access to what the law spells out as their exclusive domain.  There is a prevailing assumption that copyright holders are legitimately free to decide what, how,  to whom and when they should grant permission or assign their rights, without any duty to account to any one. As the Supreme Court of Canada noted in Robertson, “parties are, have been, and will continue to be, free to alter by contract the rights established by the Copyright Act.”¹  This is consistent with the privileges and powers conferred by property, and the self-seekingness that it entails.²  Leaving aside the appropriateness of the current scope of copyright holders’ exclusive rights, this freedom is legitimized when it is exercised within the confines of the property rights that are created in the first place. It is less certain when this contractual liberty expands the property rights beyond what Parliament has initially conferred by statute. The ongoing debate around digital locks and their effect on fair dealing and other limitations to copyright is one illustration of this tension. The uncertainty of the applicability of the first sale doctrine in the context of digital distribution is one other example, and the one I reflect upon more particularly in this blog.

A copyrighted work that is commercialized to the public traditionally involves the co-existence of at least one other property interest (in addition to the exclusive rights of the copyright holder) e.g. the personal property right in the embodiment of the copyrighted work. The co-existence of two competing property owners in a commercialized copyrighted work has given rise to the first sale doctrine in the U.S. (referred to as “exhaustion” in other jurisdictions including Canada).³  Under that doctrine, once the first sale of a chattel embodying a copyrighted work (such as a book or a music CD) has occurred, the copyright holder cannot dictate the fate of subsequent transfers of that chattel. The doctrine of first sale finds its roots in the English common law rule against restraints on alienation of property.⁴  In effect, it modulates two competing property interests in the copyrighted work, e.g. the intangible exclusive rights of the copyright holder in the copyrighted work and the property rights in the tangible embodiment of this work by the purchaser. One limits the rights of the other and vice versa (although very asymmetrically, as the exclusive rights conferred by copyright impose greater limitations on copy ownership than the reverse).  First sale is also consistent with the normative values of freedom and autonomy that underlie property including chattels, as well as the instrumental goals of copyright to encourage the creation and dissemination of copyrighted works, when viewed from a broader perspective that also encompasses users of copyrighted works. 

Traditionally, a consumer accessing a commercially available copyrighted work does it through the purchase (or rental) of the copy of the copyrighted work (a book, a CD, a DVD). At the same time, she is constrained by the exclusive property rights of the copyright holder in the copyrighted work embodied in the copy. Sometimes, a licence dictates the terms of access to the exclusive rights of the copyright holder..For some years, software distributors have licenced (not sold) the physical embodiment of the software, in addition to the licence to the intellectual property rights in the software. This practice is expanding to other types of copyrighted works including e-books. In the U.S., the law is still unsettled as to the characterization of the physical embodiment portion of such transactions as sales or as licences. In decisions where courts agree to the label of “licence” as set by copyright holders, it effectively annuls the application of the first sale doctrine and permits copyright holders to impose restrictions on subsequent transfers in the copy of the copyrighted work. A recent example is the U.S. Court of Appeals, Ninth Circuit decision in Autodesk.⁵  The split decisions around copy ownership illustrate the ambivalence that courts have with respect to legal transactions that create restrictions on what otherwise resembles a sale. In those particular cases, the purchaser/licensee is granted an indefinite licence to the copy of the copyrighted work with no obligation to return it, but is restricted on her ability to transfer the copy or assign it. These contracts do not sit well with commonly known contracts of sale, rental, or even licence, the latter being traditionally associated with the intangible exclusive rights of copyright (and other IP rights) holders, as opposed to the physical embodiment of the work.

Reframing legal transactions to known categories of property interests is referred to as the numerus clausus principle, whereby only a limited number of known property interests are recognized and enforced.⁶  The justification for the numerus clausus  principle (i.e.“closed number”) which in effect constrains freedom of contract, is attributed to a need to preserve efficiency in transactions that involve the transfer of property, by significantly reducing search and transaction costs that relate thereto. Numerus clausus is one legal mechanism that has ensured the robustness and relative coherence of property to this day, by preserving the important notification function of property -e.g. that the attributes of property and ownership are generally known to all with no need of lengthy lists of permitted uses, and searches for scope of rights, etc..

The practice to licence the copy of a copyrighted work with no right to transfer or assign the copy (as opposed to a sale or a rental of limited duration) is advantageous to copyright holders who gain control of secondary markets, one of the effects that the first sale doctrine initially intended to constrain. It allegedly supports copyright holders’ efforts to control copyright infringement. It has been argued that substituting copy sales by copy licences is beneficial to consumers who will gain access to the copyrighted work at a lesser price (as the copyright holder can expect to make more sales by controlling  secondary markets). In fact, other drivers, including the decrease in production and distribution costs of online copyrighted works, may already favor price reductions to the benefit of consumers. While consumers may end up paying less, they are also receiving less than a copy they own. Already compromised (relative to other chattels not embedding copyrighted works) one of the most fundamental powers of ownership (alienation — and the self-seekingness that comes with it)  is being eradicated by such copy licencing practices.  More fundamentally, the question is the extent to which copyright law should entitle its holders to effectively expand their rights over and above the exclusive rights that are conferred by the CCA, and the effect it generally has on other competing rights. Nothing in the CCA explicitly constrains this expansion, just as it does not currently explicitly nullify any contractual attempt to restrict exceptions to copyright infringement.⁷  External to the framework of the CCA, this question also raises the potential application of other laws and doctrines such as consumer law and the doctrine of copyright misuse. 

For consumers, freedom of contact means the choice between clicking on the “I agree” button and surfing away. The efficiency rationale behind the standardization of property interests (which allows for the reduction of transaction costs) is an even more compelling consideration for consumers than it is for other institutional users of copyrighted works. If the practice of licencing in lieu of selling copies of computer programs still encounters resistance from consumers, distributors and the courts to this day, it is likely to face even more resistance with respect to other copyrighted works for which there exists a pre-existing framework of reference of copy ownership. Property and ownership are hard wired concepts that are entangled with even deeper values of freedom, autonomy, certainty and economic efficiency. The application of the numerus clausus principle to the commercialization of copyrighted works and its implications on the viability of the first sale doctrine, merit further exploration to better understand how copyright, property and freedom of contract, co-exist with one and the other.

¹ Robertson v. Thomson Corp., [2006] 2 S.C.R. 363, 2006 SCC 43, at paragraph 58.

² J. W. Harris, Property and Justice (Oxford: Clarendon Press, 1996) at 5.

³ In the U.S., this doctrine has been codified: 17 U.S.C. § 109. 109 (a). There is no similar provision in the CCA  although there is some recognition that a similar principle applies in Canadian copyright law. Bill C-32, An Act to amend the Copyright Act, 3^rd Session, 40^th Parl., 2010 (1sr reading June 2, 2010) explicitly introduces the concept of exhaustion in cl. 4, 9 and 11.

⁴ For historical references on the doctrine of first sale see J.P.Liu,  “Owning Digital Copies: Copyright Law and the Incidents of Copy Ownership” (2001) 42 William and Mary Law Review, 1245, at 1291-1292 and notes 163 to 166.

⁵ Vernor v. Autodesk, Inc, 10 Cal. Daily Op. Serv. 11, 903 (U.S. 9^th Cir., 2010). 

⁶ The application of the  numerus clausus principle to intellectual property and virtual worlds is discussed in: J. M. Moringiello, “What Virtual Worlds Can Do For Property Law” (2010) 62 Fla. L. Rev. 159.

⁷ The proposed provisions of technological protection measures in Bill C-32 would reinforce the freedom that copyright holders presently have in that respect under the CCA.

Posted in Copyright, copyright reform, IP, Licensees, Ownership