Free Trade Area of the Americas - FTAA


Trade Negotiations

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September 18, 2003

Original: English-Spanish
Translation: non FTAA Secretariat




Name(s): Sean Bersell, VSDA Vice President for Government Affairs (English)
John T. Mitchell, Interaction Law, legal counsel (English/Spanish)
Organization(s): Video Software Dealers Association
Country: USA

Free Trade Area of the Americas and Access to Movies

Comments of Video Software Dealers Association1

June 2003

The November 1, 2002, Draft Free Trade Area of the Americas (FTAA) includes proposals relating to intellectual property in general, and copyrights specifically, which, if adopted, would have a substantial negative impact upon millions of consumers. Those most harshly affected would be those who can least afford the higher consumer prices that would be certain to follow. Legal provisions in United States copyright law existing for nearly a century would have to be abandoned in order to conform to the FTAA obligations. And, despite the success of the current United States legal architecture in stimulating an explosion in the availability of low cost motion picture and video game entertainment to the vast majority of the United States population, the FTAA would obligate the United States Congress to reverse itself and confer upon the motion picture studios the very “rental right” it rejected following the United States Supreme Court’s ruling in the Betamax case.2

If adopted, the impact of these proposals upon the public would not be isolated to the United States, but would extend to all of the Americas. The United States home video market was developed over the strong objection of the motion picture industry, which preferred a sales-only model rather than rental. The United States home video model was developed by independent competitive businesses lawfully acting against the will of the copyright holders after the exhaustion of their distribution rights. When this rental model succeeded in generating huge revenues for the motion picture studios, they, in effect, “exported” the home video rental model to other countries, including the rest of the Americas.

The importance of allowing retail competition to operate free of perpetual restraint by copyright owners and retaining the unquestioned benefit to consumers of the balance of rights under the law cannot be overstated. Control over resale, lending and gifts could be taken from consumers if some of the current proposals in the November 1 2002 Draft FTAA are adopted. If the negotiators acquiesce to these proposals, the effect will be, first, to require changes in the copyright laws of the United States and other nations that will privatize rights that now belong to the public. Second, increases in the cost of obtaining access to copyrighted works must be expected. Finally, and surely, we can expect millions of people in the Americas who are now on the margins of the economy to lose the modest access they currently have to home entertainment. As explained below, their source of free or low cost access to used copies is directly threatened by FTAA proposals to change the balance of rights that have favored consumers and authors alike.

Threats to Low Cost Rentals

A number of provisions in the November 1, 2002 Draft FTAA, individually and collectively, threaten to erode the current availability of low-cost movie and video game rentals available to the public. First, the Rental Right proposed in Article 63 is directly contrary to United States law and would require the United States Congress to create a new power to control or prohibit rental of copies of audiovisual works and place it in the hands of copyright owners. Second is the proposed expansion of copyright powers by the use of private agreements. Third is the enabling of overuse of technological measures to expand the reach of copyrights. Fourth is the extension of rights in fleeting “temporary” copies such that uses, the rights to which are currently reserved to the public, such as private performances, may come under the control of the copyright owner.4

1. Direct Attack on the Rental of Audiovisual Copies

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 copy7 (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

2. Expansion of Copyrights by Licensing

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.

3. Obligations Concerning Technological Measures

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

4. Expanding Control by Leveraging “Temporary” Copies

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.


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.


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.

# # #

For further information concerning the VSDA Statement, please contact:

Sean Bersell (primary contact) (English)
 VSDA Vice President for Government Affairs
16530 Ventura Blvd., Suite 400
Encino, CA 91436, U.S.A.
John T. Mitchell (English or Spanish)
VSDA legal counsel


1Established in 1981, the Video Software Dealers Association (VSDA) is the not-for-profit international trade association for the $20 billion home entertainment industry. VSDA represents more than 1,500 companies throughout the United States, Canada, and a dozen other countries. Its members operate more than 12,500 retail outlets in the U.S. that sell and/or rent DVDs, VHS cassettes, and console video games. Membership comprises the full spectrum of video retailers (from single-store operators to large chains), video distributors, the home video divisions of major and independent motion picture studios, and other related businesses that constitute and support the home video entertainment industry.

2Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417 (1989).

3Unless otherwise indicated, all references to articles are to those under Chapter 9, Part II, Section 3 of the FTAA, “Copyright and Related Rights.”

4The second through fourth threats covered in this section not only threaten lawful rentals, but would also empower copyright owners to prevent such lawful re-distribution as reselling, lending, trading or giving.

5The “First Sale Doctrine” is the term used to describe the effect of the right to alienate personal property. It was first recognized by the United States Supreme Court as a natural limitation upon the exclusive right of distribution. See Bobbs-Merrill Co. v. Straus, 210 U.S. 339 (1908) (if copyright holders leverage their exclusive rights into control of all future sales, it would give them a right not included in the copyright, and in effect expand the operation and construction of the Copyright Act beyond its meaning). The United States Congress codified the doctrine in 1909 by wresting control over redistribution following the “first sale” of a copy. The modern counterpart is Section 109 of the United States Copyright Act, which no longer requires a sale. Rather, the right of alienation of ownership or possession applies to the owner of a lawfully made copy, which includes persons who obtain ownership by virtue of exercising a license to reproduce the work onto their own tangible medium. Accordingly, “Section 109” and the “First Sale Doctrine” will be used synonymously.

6See Article 5.1 (“to authorize or prohibit the making available to the public of the original or copies of their work through sale or other transfer of ownership, rental or any other transfer for profit”). Article 15 of the FTAA also confers a rental right upon performers. That right would survive the sale of copies by the studio, even if the sale was authorized by the performers.

7See Article 1 (Definitions), first alternate. The second alternate draft language provides: “[Distribution to the public: any act by which the copies of a work are offered directly or indirectly to the general public or to a part thereof. [Distribution to the public through sale, rental, public loan or any other transfer of the ownership or possession of the original of the work, or copies thereof that have not been subject to distribution authorized by the author. 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.]]” (emphasis added). We note that in the second bracketed section, the first sentence of general applicability appears to limit it such as to be consistent with the First Sale Doctrine (Section 109 of the United States Copyright Act) and ordinary exhaustion of the distribution right. The second sentence applies to a more narrow class of works - precisely those that most affect VSDA members and other independent competitive home video retailers throughout the Americas - and applies “regardless of the ownership of the copy.” This would place every video store in the Americas under the control of the copyright owner. Video retailers, therefore, strongly object to the second sentence of the second alternative.

8Bobbs-Merrill Co. v. Straus, 210 U.S. 339 (1908).

9There is a proviso that permits Parties to limit the scope of this right, but it falls far short of the comparable provision in the Agreement on Trade-Related Aspects of Intellectual Property Rights (“TRIPS”). The TRIPS provision states that member states “shall be excepted from this obligation in respect of cinematographic works unless such rental has led to widespread copying of such works which is materially impairing the exclusive right of reproduction.” The draft FTAA provision is much more tenuous. One alternate proposal excludes performances incorporated into audiovisual works. The proposed rental right also contains an optional country exclusion where such country has a system of equitable remuneration for rental and the commercial rental of phonograms does not materially impair the right of reproduction. That is, it does not apply to audiovisual works.

10If this language became part of the FTAA, virtually every other copyright provision of the FTAA, and any limitations upon the copyright in national laws, could be eliminated with a few strokes of the pen. See, e.g., Softman Prods. Co. v. Adobe Systems, Inc., 171 F. Supp. 2d 1075 (C.D. Cal. 2001).

11Such language would immediately make it illegal to give away certain music CDs already on the market. For example, some music CDs contain such licensing terms in a readme.txt file stating, in part: “By using and installing this disc, you agree to be bound by the terms of this agreement,” and stating that the CD owner may not “transfer” the disc to anyone else.

12WIPO Copyright Treaty, Article 11 (“which are not authorized by the authors concerned or permitted by law” (emphasis added)), and WIPO Performances and Phonograms Treaty, Article 18 (“which are not authorized by the performers or the producers of phonograms concerned or permitted by law” (emphasis added)).

13For example, the DMCA has been used offensively to prevent competition from manufacturers of garage door openers and from manufactures of printer toner cartridges. See David Streitfeld, “Media Copyright Law Put to Unexpected Uses,” Los Angeles Times (February 23, 2003, p. C1). It has also been used offensively by copyright owners to gain control over non-infringing uses, such as by controlling private performances of a work (by requiring the private performance to be rendered only through a certain playback device, only using software specified by the copyright holder, or only for a limited period of time or limited number of times).

14The United States Congress has before it legislative proposals to amend the DMCA to allow circumvention for lawful uses. The legislature’s freedom to consider such revisions affecting fundamental copyright policy should not be fettered in the course of trade negotiations of this nature.

15The right of reproduction is outlined in Article 4. The first option for Article 4.1 grants the exclusive right to reproduce the work “by any means or process,” but makes no mention of temporary copies. This is the preferred option.

The second option in Article 4.1 grants the right to authorize or prohibit “all reproductions, in any manner or form, permanent or temporary (including temporary storage in electronic form)” (emphasis added). We urge that this option be rejected.

The third option for Article 4.1 grants the right to reproduce the work “by any procedure and in any manner, including digital means,” but does not grant an exclusive right concerning temporary copies. That third option adds a clause providing: “Each Party may determine that the right of exclusivity of reproduction shall not be applicable when that reproduction is temporary and merely for the purpose of making the work perceptible on electronic media or when it is transitory or incidental, provided that it occurs during the course of use of the work duly authorized by the owner” (emphasis added). This third option would be acceptable, and even commendable, except for the last proviso - “provided that it occurs during the course of use of the work duly authorized by the owner.” That language turns the provision upside down, in effect giving copyright owners the exclusive right to authorize temporary copies. Like the second option, this language in the third option could have the effect of extending the right of reproduction to temporary RAM and buffer copies, and prevent Parties from excluding temporary RAM and buffer copies from the right of reproduction unless those copies are made in the course of a use “authorized by” the copyright owner. If the third option were selected, the better approach would be to revise the last clause to read “provided that it occurs during the course of non-infringing use.”

16Elements of this argument were presented to a court in Australia in 2001. Australian Video Retailers Association Ltd. v Warner Home Video Pty. Ltd. [2001] FCA 1719 (7 December 2001).

17Chapter 9, Part I, Article 10.1.


19Chapter 9, Part I, Article 10.2. Among the “general principles” applicable to all intellectual property rights is one supporting such antitrust limitations, contained in Article 3.2: “The abuse of intellectual property rights by right holders or practices that unjustifiably limit trade, that prejudice local industry and employment or are detrimental to the transfer of technology shall be prevented.”

20The United States has a strong history of keeping abuses in check through use of antitrust and copyright misuse actions. More than 50 years ago, the Supreme Court in United States v. Paramount Pictures, 334 U.S. 131 (1948), struck down pooling arrangements and joint ownership agreements designed to give movie studios control over the distribution of motion pictures in theaters. It also struck down the “block booking” practices in which the motion picture studios refused to license one or more copyrighted movies unless another undesired copyrighted movie was accepted. It is substantively no different to condition the availability of a copyrighted work upon the consumer’s relinquishment of rights reserved to the public by law. “The antitrust laws do not permit a compounding of the statutorily conferred monopoly.” United States v. Loew’s, Inc., 371 U.S. 38, 52 (1962). “A copyright owner may not enforce its copyright to . . . use it in any ‘manner violative of the public policy embodied in the grant of a copyright.’” Tricom, Inc. v. Electronic Data Systems Corp., 902 F. Supp. 741, 745 (E.D. Mich. 1995) (citations omitted). For a more in-depth examination of the doctrine of copyright misuse in United States law, see Retailers of Intellectual Property: The Competitive Voice of Consumers, Statement of John T. Mitchell on behalf of Video Software Dealers Association, Public Hearings on Competition and Intellectual Property Law and Policy in the Knowledge-Based Economy, before the United States Federal Trade Commission and the Antitrust Division, United States Department of Justice, July 2002, available at

21Fogerty v. Fantasy, Inc., 510 U.S. 517 (1994) (recognizing that the public interest in preventing over-extension of copyrights is equal to the public interest in preventing infringement of copyrights).

22Article 1.

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