Under United States law, an exclusive right of rental is part of the distribution right, but the distribution right does not apply to lawful copies owned by others. (The effect is the same regardless whether this is viewed as exhaustion of the rental right after the first sale or as a superior independent right belonging to the owner of lawfully made copies.) The Draft FTAA proposes several changes that, if adopted, might require the United States Congress to modify the First Sale Doctrine.⁵

Proposed Article 6 would create a specific rental right - the exclusive right to authorize “the commercial rental to the public of the originals or copies of their works.” In the United States, the rental right is a part of the distribution right (Section 106(3)), which is itself subject to the superior right of the owner of a lawfully made copy to rent it without the consent of the copyright owner (Section 109(a)). But precisely because Section 109(a) of the Copyright Act only limits the right of distribution, United States home video retailers object to any effort to establish a rental right apart from the current scheme in United States copyright law. If the United States Congress were to adopt this new rental right, it might not be limited by Section 109(a) unless it were made specifically subject to Section 109(a). However, those who seek to control the home video market would argue to the United States Congress that if the right to control rental were also subject to Section 109, then such new rental right would be useless and, moreover, it must be interpreted in a manner consistent with the next provision discussed here, the right of “first public distribution.”

The draft would strengthen copyright owner control over rental in other ways, as the draft right of first public distribution also includes a rental right.⁶ In itself, that is not so alarming, since the United States Copyright Act’s right of distribution includes a reference to rental. The problem derives from one of the proposed definitions of the term “distribution to the public,” which would add a special provision applicable to movies and video games: “The rental of a copy of an audiovisual work, of a work contained in a soundtrack, of a computer program, regardless of the ownership of the copy”⁷ (emphasis added). This language is in direct conflict with Section 109 of the United States Copyright Act, and would require the United States Congress to amend Section 109 to take away from consumers in the United States a right they have enjoyed for nearly a century. Section 109 codified a Supreme Court ruling of 1909,⁸ which expressed the strong United States public policy against restraints upon alienation of private property. Accordingly, the text highlighted above should be eliminated from the FTAA.⁹

The draft adds an ambiguous clause inserted in Article 5 (right of distribution) granting the additional right to distribute “by means of a user’s license.” This reference appears designed to authorize and empower the unfettered use of controversial end-user license agreements (EULAs) in various forms including “click-through” and “shrink-wrap” license agreements. The draft includes no other reference to “user’s license,” and, since no one needs a license to receive a copy by normal distribution, and since most uses - privately reading a work, displaying a picture, performing a sound recording, playing a video game or watching a movie, for example - are beyond the lawful control of the copyright owners, this language would serve no purpose in relation to existing rights of copyright holders. It would serve no function other than to empower copyright owners to circumvent any restriction or limitation placed upon their copyrights by any country’s domestic laws. Merely by including a EULA that imposes its own restrictions on the work, copyright owners would create their own “private law” and make it superior to public law.¹⁰ First sale rights and fair use rights (Sections 109 and 107, respectively, of the Unites States Copyright Act) could be nullified unilaterally. Rights which are now reserved to the public (such as the exclusive right to perform a work privately) could be acquired with a few strokes of the licensor’s pen.¹¹ Negotiators should vigorously oppose that clause.

Article 21 sets forth in two alternatives the obligations concerning technological measures. The first alternative Article 21.1 proposal follows the WIPO treaty language¹² requiring protection against circumvention of technological measures used “in connection with the exercise of their rights . . . and that restrict acts . . . which are not authorized by the performers . . . concerned or permitted by law” (emphasis added). This language is consistent with the global norm. The United States Congress departed from this norm in the Digital Millennium Copyright Act (“DMCA”) and has discovered that the DMCA’s anticircumvention prohibition is being used in unintended ways.¹³ Although circumvention would be an offense distinct from copyright infringement, neither the WIPO treaties nor the first alternative in Article 21.1 would require signatory countries to offer protection against circumvention of a technological measure that restricts acts “authorized by law.” Non-infringing uses (such as the exercise of the rights of owners under Section 109 of the United States Copyright Act to sell, lend, give or rent an audiovisual work, or, under the laws of all countries, to perform the work privately) would fall outside the power of copyright owners to control by technological means.

However, the language proposed as the second alternative Article 21.1(a) would require imposition of legal remedies against those who merely circumvent such measures “without authority.” Conduct may be engaged in without authority of the copyright holder yet nevertheless be authorized by law. The use of the term here is ambiguous, but since the United States Digital Millennium Copyright Act (“DMCA”) is also ambiguous, and has been interpreted to allow use of technological measures to extend copyright owners’ control beyond the limits of their copyrights, it is imperative to make it clear that only circumvention for infringing purpose (purposes not authorized by law) requires protection. Article 21.1(a) should be amended to read “knowingly, or having reasonable grounds to know, circumvents without legal authority any effective technological measure that restricts acts not authorized by the copyright owner concerned or permitted by law, or”.¹⁴

The “right of reproduction” would be expanded to include “temporary” reproductions, thereby lending legitimacy to certain suspect business methods that would expand copyright holder control over copies and phonorecords they no longer own.¹⁵ Under United States copyright law, “copies and phonorecords” made subject to the copyright holder’s exclusive right of reproduction must be “fixed” in a tangible medium of expression. Section 101 of the United States Copyright Act provides: “A work is ‘fixed’ in a tangible medium of expression when its embodiment in a copy or phonorecord, by or under the authority of the author, is sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated for a period of more than transitory duration.” We believe it is crucial that the exclusive right of reproduction be limited to those copies which are, in fact, the ones that are the subject of commerce. A printer licensed to reproduce 50 copies of a book is not guilty of infringement for making proofs. Neither should non-infringing performances become infringing merely because the device used to lawfully perform it happens to create a temporary buffer or random access memory (RAM) copy in the process of rendering sounds or images.

The threat to lawful home video rental is clear. If copyright owners were given the exclusive right to authorize temporary copies that have no independent life, it would mean, for example, that those who hold copyrights in motion pictures reproduced on DVD would be granted the power to control whether any particular copy could be played in a DVD player, because DVD players reproduce the bits of copyrighted works into a buffer or RAM before rendering the audiovisual work in a perceptible form.¹⁶

Threat to Lawful Redistribution

In addition to rental, consumers currently have a number of low-cost options for gaining access to copyrighted works without regard to the copyright holder’s wishes. Millions have enjoyed access to legal copies obtained at low cost through (1) used copy markets, (2) informal bartering, (3) borrowing from private parties or public libraries, and (4) gifts. Moreover, it has been perfectly legal to gain access to copies by retrieval from garbage collection facilities. Copyright owners have never had the right to control such redistribution of their works in the United States, and with good reason: The economic incentive for copyright holders to preserve dissemination to those who can least afford to pay is virtually non-existent. Those on the fringes of economic comfort often depend upon those who, like the merchant selling used products, may fill an economic void left by the major conglomerates or, like the altruist, prefer to contribute used copies to public charities or disadvantaged individuals.

Misuses of Intellectual Property Rights

The draft contains a positive effort to deal with misuse of rights. Although alternate clauses are included, one option is very positive: “No Party shall allow the abusive use or abusive non-use of a right.”¹⁷ This paragraph also allows each Party to apply appropriate measures to “prevent the abusive exercise of intellectual property rights . . . that unreasonably limit trade.”¹⁸ This provision is a breath of fresh air for industries stagnating in restrictive technological and licensing restrictions which subvert the balance of copyright law and serve to extend copyrights beyond their legal limits.

The selection of alternate clauses, however, would limit this paragraph to mere non-recognition of such abuses. Presumably this would mean that a copyright holder could not enforce abusive terms, but would not be faulted for trying. Restricting the purpose and effect of the provision to the protection of “public health and nutrition, and socioeconomic and technological development of sectors of vital importance,” as proposed in one bracketed clause, would render it largely useless. Such purposes, if cited, must not be exclusive. But more, we believe there is no sound public policy reason for allowing some copyright abuses, and ask that such limitations be rejected.

The second paragraph requires consideration of “the social purposes of intellectual property, which may not be used to . . . cause the abuse of a dominant position.”¹⁹ Such language is consistent with other international norms pertaining to competition law, and recognizes the dangers presented when major copyright holding companies consolidate massive collections of works and offer them only under anti-competitive terms. Copyrights, by their very nature, confer a dominant position upon the copyright holder. A hit movie, for example, cannot be obtained from a more competitive source if the copyright owner chooses to employ untenable terms. Because copyrights grant exclusive rights, the “free market” is not capable of self-correcting, and the only true remedy for anti-competitive conduct can be found in strong competition policies and laws - both traditional antitrust laws and prohibitions against abuse of a dominant position - that enforce the limits of the copyright monopoly.²⁰

Technology is neutral. It is the uses made of technology, not technology itself, which merit scrutiny. Just as national laws and international treaties rightly focus attention on whether legal systems need to be updated in response to the use of technology as a tool for reducing the effective reach of copyrights, in the same manner they must focus attention on whether legal systems need to be updated in reaction to the use of technology as a tool for enlarging the effective reach of copyrights.

The use of technology to infringe copyrights and the use of technology to circumvent the limits of the lawful copyright monopoly should be condemned equally.²¹ Both types of abuses threaten to upset the careful balance of rights in copyright that is intended for the public benefit.

Definitions

Definition of “Public”: There are three alternate definitions of the term “public.”²² One would be so broad as to apply to a family, such that renting a home video for viewing by one’s own family would require a license. It would be better to adopt one of the other proposed definitions, which apply to groups “larger than a family and its immediate circle of acquaintances.” The proposed definition of “public performance” tends to moderate the effect of the proposed definitions of “public”, as it specifically excludes private domiciles. Provision should also be made to exclude persons in temporary or group home arrangements from having to obtain a license, because, in substance, their arrangements (nursing homes, group retirement living, child care centers) are substitutes for private domiciles.

Conclusion

It is in the public interest that any exclusive rights conferred under copyright law be maintained for the sole purpose of encouraging the creation and wide dissemination of new works. In like manner, it is against the public interest for copyrights to be used to profit by limiting access to only those consumers capable of paying a premium for new copies. Since the inception of copyright laws, the freedom to re-sell, lend, give away or (in some cases) rent legally made copies, without the consent of the copyright owner has served to ensure that all consumers have access to these works, regardless whether the copyright owner has any financial incentive to make them available to those who are on the margins of the economy. Millions in the Americas depend upon the markets for used copies, the benevolence of those who will give away used copies, barter systems where used copies will be loaned or traded in exchange for others, and public library systems where many people can share access to a single copy. Some of the proposals in the November 1, 2002 Draft FTAA place all of this access at risk. We urge the negotiators of the FTAA to keep these public interests in mind, and to resist private efforts to enlarge the control that the major copyright holding companies may exercise over lawful uses that benefit the public.

Just as in the rest of the Americas, millions of United States citizens depend upon the market for used cars, used shoes, used clothing, and other secondary or tertiary transactions which offer no new remuneration for the manufacturer. Books, CDs, DVDs, and copies made legally by digital reproduction should be no different. If the citizens of the Americas are to have maximum access to the expressive works our collective creative abilities can offer, private interests must remain legally, technologically and contractually incapable of preventing lawful access to these works by those least able to pay the full price of an original copy.

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