Many people believe that video rental stores are allowed to rent videos only because the movie studios have given them express permission to do so; and this is precisely what the entertainment industry would like consumers to believe. It is far easier to assert complete and perpetual control of media, extending from the manufacturing plant to inside a consumer’s home, if everyone believes that the industry already possesses such control. The real reason the video rental industry is able to rent videos, however, is the legal principle known as the “first-sale doctrine.”

To understand the legal issues surrounding the renting and selling of media it is important to understand the first-sale doctrine. The first-sale doctrine draws a distinction between the ownership of copyrights and the ownership of copies and “extinguishes” the copyright holder’s distribution right upon first sale. This means that the sale of a copy does not amount to the transfer of the copyright to the new owner of the copy. It also means that the copyright holder’s right to control the distribution of a particular copy—where that copy goes and under what circumstances—ends with the first sale of that copy and this is why it is legal to rent videos. Unfortunately, a brief history of the first-sale doctrine will show that it has been weakened in recent decades and is currently under attack by powerful interests.

The first-sale doctrine is believed to have begun with an English common law rule prohibiting restraints on the transfer (or alienation) of property but the first appearance of the doctrine in U.S. law occurred in 1908 and took the form of a Supreme Court case: Bobbs-Merrill Co. v. Straus. Bobbs-Merrill Co. owned the copyright for a book (The Castaway by Hallie Erminie Rives) and printed a notice inside the book, just after the title page, stating, “The price of this book at retail is one dollar net. No dealer is licensed to sell it at a less price, and a sale at a less price will be treated as an infringement of the copyright.” The defendant, Straus et al., subsequently sold the book for 89 cents and was sued by Bobb-Merrill Co. for copyright infringement. The court, however, ruled against the plaintiff on the grounds that, in the absence of an actual contract with the vendor, the “multiplication of copies” was the copyright holder’s only exclusive right under the law, not control of those copies once sold: “where the ownership of a particular copy is parted with the transferee cannot by restrictive notices be deprived of the ordinary incidents of alienation attached to the particular copy.”

The first-sale doctrine was first codified into law in Section 27 of the 1909 Copyright Act which states, “The copyright is distinct from the property in the material object copyrighted, and the sale or conveyance, by gift or otherwise, of the material object shall not of itself constitute a transfer of the copyright, nor shall the assignment of the copyright constitute a transfer of the title to the material object; but nothing in this title shall be deemed to forbid, prevent, or restrict the transfer of any copy of a copyrighted work the possession of which has been lawfully obtained .” Decades later, the first-sale doctrine was codified in more detail in Section 109 of Title 17, as part of the 1976 Copyright Act, which states, “the owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord .”

In 1983, using a variety of tactics, the entertainment industry began an assault on the burgeoning video rental industry. One such tactic was the posting of notices, physically pasted on the cassettes as well as recorded on the videos themselves, stating that the videos were for “SALE ONLY” and asserting that renting was “NOT ALLOWED.” The movie studios also tried pricing schemes by increasing the prices on new releases based on the fact that most new releases were purchased primarily by the rental industry and upper class consumers at that time. The industry tried legislation as well, in the form of the Consumer Video Sales/Rental Amendment Act which, had it passed, would have required those who sought to rent videotapes to first receive permission from the copyright holder. Fortunately for the entertainment industry, all of these efforts failed and sales to the video rental industry became a huge source of income for the movie studios.

The very next year, consumer rights under the first-sale doctrine were restricted for the first, but not the last, time when the Record Rental Amendment Act of 1984 was passed into law. It amended Section 109 of Title 17 in order to prohibit the renting, loaning, and lending of “phonorecords”—essentially any medium that contains a sound recording from vinyl to tape to compact disc—“for the purposes of direct or indirect commercial advantage” (although selling is still allowed) on the grounds that such rentals would facilitate illegal copying of the media. Several years later, consumer rights under the first-sale doctrine were further restricted when the Computer Software Rental Amendments Act of 1990 was passed. This time it was the consumer’s rights to rent, loan, and lend computer software (excluding console video games) for “direct or indirect commercial advantage” that were restricted on the grounds that such rentals would facilitate illegal copying of the programs.

The most recent tactic of the entertainment industry has come in the form of licensing schemes for computer software. Licenses are a complex issue and, not surprisingly, there are different types of licenses involved: shrinkwrap licenses, click wrap licenses, and browse-wrap licenses. Shrinkwrap licenses involve a notice either on or inside the packaging of the software; click-wrap licenses involve a button on a computer screen that must be clicked to indicate agreement to the terms of the license in order obtain or use the software; and browse wrap licenses involve a notice posted on a website, much like an internet version of shrinkwrap licensing.

One of the issues involved in licensing is the definition of what constitutes assent, agreement to the terms of the license, on the part of the consumer. In light of such cases as Specht v. Netscape Communications, Inc. and Ticketmaster v. Tickets.com, for instance, it seems the courts generally regard browse-wrap licenses as invalid because they involve no actual affirmative action on the part of the consumer and, thus, no proof that the consumer actually read the terms of the license and agreed to them whereas cases such as Pro CD v. Zeidenberg, which involved a shrinkwrap license, indicate that assent may somehow be implied by a lack of action.

The other major issue involved is the definition of what conditions must be met in order for a transaction to be considered a licensing of the product as opposed to a sale. The courts seem torn on this issue as well. In some decisions, such as Pro CD v. Zeidenberg, courts have implied that any transaction may be considered a license regardless of its terms, provided they are not unconscionable or unenforceable and that the parties agree to the those terms in some way, while in other decisions, such as Softman v. Adobe, courts instead have looked at the “economic realities” of the transaction to determine whether or not the transaction is a license: In the words of Professor Raymond Nimmer, “Ownership of a copy should be determined based on the actual character, rather than the label, of the transaction by which the user obtained possession. Merely labeling a transaction as a lease or license does not control. If a transaction involves a single payment giving the buyer an unlimited period in which it has a right to possession, the transaction is a sale.”

Finally, technology introduces some rather dark possibilities for consumer rights under the first-sale doctrine. Videos, and console video games, are the only forms of electronic media to which consumer rights under the first-sale doctrine still fully apply but this may change as a result of the growth of multimedia content on DVDs and CD-ROMs. Multimedia content can serve as a gateway to the restricted areas of consumer rights, namely the restrictions on the rental of sound recordings and computer programs. Some DVDs, such as Romeo + Juliet, as well as some CD-ROM video games, contain sound recordings in the form of selectable soundtracks—it is not inconceivable that such media may be seen as “phonorecords” and their rental prohibited without express permission of the copyright holder. Such media may also contain code that qualifies as a computer program. Further, if e-books ever end up replacing printed media, the rental rights that were once part of the first-sale doctrine may be lost completely...

Unless we resist.