By J. DeVoy
Wouldn’t it be a pleasant surprise if you got $100 in the mail any time someone bought that bookshelf you made in 1995 and sold at a furniture show? If the porn business plays its cards right, content producers may be able to reap the financial rewards of a similar situation. But, it likely will come at the cost of an intra-industry lovers’ spat as content producers who focus on traditional media have goals that conflict with streaming-only content and leaner production companies. Nevertheless, there is an opportunity for everyone to profit if they adapt their models to incorporate new processes.
The first purchase doctrine, previously discussed on this blog here and found in 17 U.S.C. § 109, cuts off a copyright owner’s financial interest in a particular copy once it’s been purchased, allowing it to be resold by subsequent owners. The relevant statutory language is thus:
[T]he 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.
See also Bobbs-Merrill Company v. Straus, 210 U.S. 339 (1908). This has been the foundation for the secondary market of VHS tapes, video games, DVD’s, cassettes and CD’s for as long as anyone living can recall. Historically, this has been good for consumers and allowed them to absorb more material than they necessarily would be able or financially inclined to sample.
But then came computers and, more recently, video games that required software installations to be run. The clear copyright status of a NES cartridge or CD was obfuscated by copies that had to be made when software was loaded from a hard drive into RAM and accessed by the user. The nature of this changed use led many producers to switch from making purchasers copyright owners and instead giving them only a license in the software, limiting their ability to dispose of it and effectively killing the lawful secondary market.
In the past, whether a user is a licensee or owner of copyrighted material hinged on a two-step inquiry: 1) whether the agreement was labeled a license, and 2) whether the copyright owner retained title to the copy, required its return or destruction, forbade its duplication, or required the transferee to maintain possession of the copy for the agreement’s duration. United States v. Wise, 550 F.2d 1180, 1190-92 (9th Cir. 1977). The Ninth Circuit refined this position in its recent Vernor v. Autodesk, Inc. decision, finding that a software user is a licensee rather than the owner of a copy where the copyright owner 1) specifies that the user is granted a license, 2) significantly restricts the user’s ability to transfer the software, and 3) imposes notable use restrictions. No. 09-35969, 2010 U.S. App. LEXIS 18957 at *1 (9th Cir. 2010).
This won’t work for studios releasing material on DVD and read-only blu-ray format. The doctrine is also of minor consequence for video-on-demand and streaming video websites. But, with some tweaks to meet the standard set forth in Vernor, the adult film business can reap profits off its content’s sales into eternity.
Step one: Start structuring content releases as licenses, rather than sales. Don’t give the content away, sell the right to use it. Because there may be back-end income from future sales, the initial sale price could be lowered. Even if the back-end sales are illusory, it will be easier for the public to swallow this pill if the potential of lower costs is held out to them. After all, 1) it is a recession, still, and 2) the perceived high price of porn releases is a motivator for pirates’ actions.
Step two: Use technology to restrict the user’s ability to transfer the software. This has two components within one requirement, the first being to turn porn into “software,” and the second being to restrict transferability through the way the content is accessed, and not merely through harsh words in the licensing agreement.
Turning porn into software can be easily done with computers and gaming systems. Unless DVD and Blu-ray players are equipped with even nominal processors and hard drive space, more vital technology will be needed to implement this plan. Some computers now have Blu-ray drives, while almost all have DVD drives; similarly, almost all gaming systems can play DVD’s while Sony’s PlayStation 3 can run Blu-ray films. The easiest way to reach “software” status is on a computer, where some kind of program must be installed and run in order to access the content on the DVD, even if it is being written to a hard drive cache and processed by the included software for only a second. For downloaded content, bundling a program by which the video data must be accessed is an easier task. For gaming systems, this is similarly feasible. Video game producers have taken the lead in changing their products from items where copyright rights are cut off at the first sale to licensed goods. Prior discussion of this development is available here. A similar process of requiring the content to be accessed as part of a program – rather than being reproduced from a storage device like a DVD or Blu-ray disc – will be needed to be software. As porn has moved into the point-of-view and “experience” film realms, an extension into gaming systems seems like a natural progression.
Restricting the user’s ability to transfer the software is also what will make this proposition profitable. The general proposition of licensing is thus: Only a set number of people (in this case, one) can use the license at a time. The cost of the initial license is built into the initial purchase, and the software – because under this idea, the content is more than a mere DVD or Blu-ray – is automatically registered online as a prerequisite for consumer access. Once that registration is complete, any future registration on a different machine, by a different owner, or so forth, will require a separate license fee of $2 – $8 for the content to be displayed. These numbers were not reached as the result of any particular study; they just reflected a reasonable percentage of a DVD’s resale value. In today’s blasé environment regarding piracy, any money is better than no money. The licensing agreement is then drafted to reflect this crucial limitation – only the initial purchaser has a license to watch the video on the machine he or she first registers it with, and any subsequent machine, user or owner must receive an individual license.
The third requirement, that the license impose notable use restrictions, is related to the discussion immediately preceding this paragraph. What constitutes “notable” use restrictions requires further legal research and an opinion tailored to a specific inquiry. In general, though, restricting the scope of the license to a specific use and machine is a significant limitation on how the consumer can use the product. Requiring others to pay for future use can also be construed as a limitation. Any range of circumstances in which the content may be used can be curtailed by the license’s language. In short, the sky practically is the limit for “notable restrictions,” but a full legal opinion would be needed to determine how restrictive a particular studio’s restrictions would have to be to fulfill this “notable” requirement.
There are technical and administrative issues with this approach, and they are better addressed by database administrators, e-commerce experts, programmers and people better versed in this area than someone so utterly talentless that he had to go to law school. If, however, enough people do this and the price points for subsequent licenses are carefully chosen, it can be done profitably. While hackers will no doubt find a way around this with time, such an advance by studios can get ahead of the piracy wave and recover lost sales, and profit from secondary market sales that previously could not be converted into revenues. At first, it will be only the most dedicated pirates who will find a way around this technology, while everyone else waits for it to be dumbed down to the point-and-click level of torrent ease that they enjoy today. As a result, more people – even casual viewers – will be paying for porn, possibly for the first times in their lives.
To the extent this may be unpopular with consumers, I doubt people who validly purchase porn now will see any difference. Legitimate buyers will do what they’ve always done: Buy a copy for personal use and not be burdened by buying supplemental licenses. The price of future licenses will be priced into the secondary market and may reduce the upfront cost of content, allowing people to focus on the immediate cost of their purchase, driving increased secondary sales – and the inevitable purchase of studio licenses (otherwise, they’ve bought a brick).
This is a bold idea, and not one that can be adopted overnight. I hope it is a controversial one. Where some see studios holding viewers hostage for fees, I see a realistic approach to combating piracy, even if it cannot be entirely effective. The question is, as always, making it work.