The Federal Trade Commission’s recent amendments to its Children’s Online Privacy Protection Act Rule will take effect on July 1, 2013, but the changes might ultimately exacerbate a fundamental problem that has persisted since the Rule’s debut: people, parents and children alike, lie. The new amendments will expand the definition of “personal information,” the collection of which triggers a series of special mandates by which child-directed, commercial websites must abide. Expanding this definition and increasing the number of triggers places a greater burden on these websites, which, in response, just ban children from using their services. This response, however, does not deter children, who lie about their age to gain access, often with the help of their parents. Additional regulations might very well lead to more lying and an increase in the unprotected presence of children online.

In 1998 Congress enacted the Children’s Online Privacy Protection Act (COPPA) to protect a child’s personal information while the child is online. COPPA, codified at 15 U.S.C. §§ 6501-06 (2013), requires the FTC draft and enforce a rule that implements several policies aimed at deterring the collection of data from children under the age of 13 without parental consent. The various versions of the FTC’s Rule have required commercial websites and Internet services that are directed at children under the age of 13, as well as any site that actually knows that they are receiving the personal information of children under the age of 13, to provide parents direct notice of their intent to collect and disseminate their child’s personal information. After providing notice and receiving consent, the site must also allow parents access to the information and the opportunity to have it deleted whenever the parent so desires.

Come July, the Rule’s amendments will expand the definition of personal information to include geo-location information; photos, videos, and audio files containing the child’s likeness; screen names and usernames, even if they do not directly reveal the child’s email address; and persistent identifiers, even those that just recognize a child over time and across different sites.

Websites like Facebook, MySpace, Gmail, and Skype already avoid the Rule’s requirements, and the costs associated with them, by not allowing children under the age of 13 to create accounts. After July, a data-collecting website attempting to comply with the Rule and remain open to children will face even greater costs because more information collection will require parental consent and control. Sites that cannot or do not want to bear these costs might follow the example set by Facebook and others and just restrict access to children entirely.

However, if more websites ban children, the consequence could actually be less protection for children’s online data privacy. In their article Why Parents Help Their Children Lie to Facebook About Age: Unintended Consequences of the “Children’s Online Privacy Protection Act,” Danah Boyd, Eszter Hargittai, Jason Schultz, and John Palfrey discuss how children readily and frequently overcome Internet restrictions by lying about their age. Moreover, parents are helping them do it or, at least, are not stopping them. By helping their kids lie, parents are giving up the rights that COPPA was designed to grant them, the right to have control over their son or daughter’s personal information. Given the dangers that abound on the Internet, it seems unlikely that a parent would so nonchalantly give-up any of the protections afforded them. It seems more likely that parents are unaware of the protections or the bans’ purpose when they are helping their child lie. Either way, parents are willingly giving up protections and allowing their son or daughter’s personal information to roam freely in the technological ether.

With more restricted websites will come more opportunities for children, and their parents, to lie in order to gain access to popular websites. The result, regardless of whether parents desire it, is more children operating online outside of the protections of COPPA. In the end, websites may save on costs, and children will have their online accounts, but the FTC will not actually be furthering the goal of protecting children’s personal data online.

Old Capitol Building in Iowa City

By Megan Fensterman

In an unprecedented move to protect citizen privacy, Iowa City residents presented the city council with a bill last week which, if passed, would ban the use of all red-light cameras, license plate readers, and traffic enforcement drones within the city. The bill was introduced after several groups, including StopBigBrother.org, Young Americans for Liberty, College Republicans, and the American Civil Liberties Union of Iowa, held a forum in March to address citizens’ concerns related to such enforcement technologies. Notably, many parts of the bill are intended as proactive measures; while the bill would require removal of red-light cameras already in place, Iowa City officials have announced no plans to use drones or license plate readers as part of their traffic enforcement strategies.

Though banning drones is not a novel concept (41 states have already introduced bills to limit or ban such technology), the move to ban other enforcement technology is. In fact, many cities have expanded the use of both red-light cameras and license plate readers in recent months. Just one day before Iowa City announced their bill, the city council of Piedmont, CA approved a measure to spend $678,613 to install 39 license plate readers at its city borders. Last month, media investigations revealed that in 2011, the Florida Department of Transportation changed its rules to allow shorter yellow light lengths. In 2013, this change is projected to generate $120 million in fines from red-light camera tickets.

In light of such expansions, the Iowa City ban would be a huge win for privacy advocates. License plate readers in particular have caused outcries from such advocates. One major concern is that the readers, which are generally mounted on either sign posts or directly on police patrol cars, are used to track and monitor the GPS locations of every car within the camera’s sight. Then, whether the vehicle is associated with criminal activity or not, those plate numbers are recorded and stored in a database, along with the GPS coordinates, date and time. Without proper safeguards in place, such technology can be used to track the movements of all citizens, whether or not they are suspected of a crime. The lack of protective legislation has caused groups like the ACLU to take action against invasive uses of the technology.

The Iowa City bill must pass two further rounds of voting, but last week’s initial vote was unanimous, with council members voting 7-0 in favor. If the bill ultimately passes, the ban will be in place for two years. Though other states have attempted to ban red-light cameras, the Iowa City bill would be the most expansive bill of this type in the country.

This week, the Texas legislature passed the “Texas Privacy Act,” a bill that would prohibit private drone usage within the state.

Passing the state Senate 26-5 and House of Representatives 140-4, House Bill 912 would classify drone usage “with the intent to conduct surveillance” as a Class C misdemeanor. The proposal specifically targets private individuals using drones to document “an individual or privately owned real property.”

If Republican Gov. Rick Perry authorizes the proposed law, Texas would be the third state to ban private drone usage: Virginia Gov. Bob McDonnell agreed to a two year moratorium on drones in February, and Idaho Gov. C.L. “Butch” Otter signed a privacy-oriented drone restriction into law last month.

Unlike Virginia and Idaho, though, Texas is geographically and politically oriented towards far more than individual privacy rights.

Texas House Bill 912 contains more than 40 exemptions. Many of these exemptions, including photographs obtained with permission by the owner or lawful occupant of real private property images obtained pursuant to a valid search or arrest warrant, ensure that “innocent” drone usage remains, well, innocent. Even intentional violators may avail themselves of an exemption that foregoes a $500 fine if, upon receiving a violation notice, the violator destroys the prohibited images.

Far less common exemptions include images produced by members of the media in the course of breaking news coverage and images acquired “by the owner or operator of an oil, gas, water, or other pipeline.”

Perhaps the most politically contentious exemption is one that renders the drone ban inapplicable to residents and real property located within 25 miles of the United States-Mexico border. Describing the exemption’s purpose, Sen. Craig Estes (R-Wichita Falls) told the Houston Chronicle, “Our legislative intent was to have law enforcement be able to use drones. . . . We don’t want private citizens to be able to use drones at the border, either.”

The border exemption, coupled with an “aerial surveillance” exemption, may fuel already ignited passions regarding the current immigration reform stalemate preoccupying the U.S. Congress.

Lawmakers in 36 states have recently introduced legislation intended to restrict or prohibit domestic drone use by both private and public entities. Moreover, 31 states are currently considering drone-specific privacy laws.

The “Texas take” on drone prohibitions says as much about privacy concerns as it does about the widespread and multi-purpose utility provided by unmanned aerial vehicles. House Bill 912 may bolster a sense of personal security and privacy for Texans statewide. However, exempting natural resource businesses, media agents, first responders, and the entire Texas-Mexico border reveals the more likely consequences of future drone bans: the individual right to privacy exists, up until the point where privacy becomes political.

Photo Credit: H Armstrong Roberts/Corbis

By Peter Dang

When we think of the term “detective,” the image of Sherlock Holmes quickly comes to mind—the quirky hat; the deductive reasoning skills; and, of course, the memorable phrase “Elementary, my dear Watson.” The famous detective first appeared in 1887 in the novel A Study in Scarlet by Sir Arthur Conan Doyle. Other novels and short stories about Holmes quickly followed and continued to be written and published as late as 1927. Most of those written works have since entered into the public domain, but copyright law still protects ten stories in the United States.

What happens to a character’s copyright protection when the original stories they starred in have entered into the public domain, but those published later have not? This is currently the subject of a lawsuit between Sherlock Holmes scholar Leslie S. Klinger and the Doyle estate. Klinger is an attorney as well as an established editor of several Sherlock Holmes stories. In 2011, Klinger tried to publish a collection of original short Sherlock Holmes stories titled A Study in Sherlock, but was threatened with a lawsuit by the Doyle estate if he did not pay a licensing fee. Pressured by Random House, Klinger’s publishing company at the time, Klinger reluctantly paid a $5,000 fee to publish his works. This time around, Klinger’s new publisher, Pegasus Books, believes that there is no need to pay such a fee for publishing Klinger’s second collection, In the Company of Sherlock Holmes. Klinger decided to bring a lawsuit to seek declaratory judgment to settle the copyright issue once and for all, claiming that the estate is making a wrongful demand for licensing of public domain novels and stories.

The crux of Klinger’s argument is this: his publications draw from those of Doyle’s works that were published before 1923, and whose copyrights have therefore expired in the United States. The elements upon which his works are based first appeared in works that have already passed into the public domain. To this day, all but ten of Doyle’s Sherlock Holmes stories are in the public domain in the United States; the copyrights of these ten remaining works are set to expire at various times leading up to 2023, 95 years after the last was published.

On the other side of the case, the Doyle estate argues that it retain the rights to the Holmes character until all of the works have passed into the public domain. Peter Hirtle of Cornell University, however, told The Economist that there is “no basis for the Conan Doyle estate to claim general ownership over aspects of Holmes from stories that are in the public domain.” He explained that if an element of the Sherlock Holmes character first appears in one of the ten copyrighted stories, then it is still protected by U.S. copyright law. If, however, the element was introduced in one of the works in public domain, “then the estate has no ground to stand on.”

What could this lawsuit mean to Sherlock Holmes enthusiasts across the states? Well, if the judge rules in favor of the plaintiffs, we could see a surge of newly created works about our favorite detective and his trusty sidekick. Producers of shows such as BBC’s Sherlock and CBS’s Elementary, who had paid a licensing fee for their work, won’t need to worry about future licenses. Producers could freely hire Robert Downey Jr. to portray Sherlock on the big screen as long as they don’t draw on elements from the remaining protected works. And Klinger could author new stories without worrying about future lawsuits. With the Sherlock Holmes character in the public domain, writers and filmmakers will be able to create derivative works, without any restrictions from the Doyle estate.

Richard Prince’s “Graduation”

By Chris Young

You know you have made it as a photographer when your work is appropriated by an artist well known for relying on other artists’ copyrighted material. Last month, the Court of Appeals for the Second Circuit reversed a lower court ruling that would have compelled American appropriation artist Richard Prince to turn 30 works of art over to the plaintiff, photographer Patrick Cariou. The works in question, paintings and collages exhibited in 2007 and 2008, used some of Cariou’s photographs of Rastafari from his 2000 book, Yes Rasta.

Prince began appropriating photographs in 1975 and is considered one of the foremost artists in the field. Appropriation art, which arguably reached its zenith of popularity in the 1970s, consists of images pulled from other artists: “‘the more or less direct taking over into a work of art a real object or even an existing work of art.’” Prince’s appropriation of photographs has been labeled “rephotography.” In 2005, his “rephotograph” image, Untitled (Cowboy), sold at auction for more than $1 million.

In finding that Prince’s works infringed upon Cariou’s copyrighted material, the district court for the Southern District of New York reasoned that Prince’s works were not fair use because they failed to comment or refer critically to Cariou’s photographs. After all, Prince had simply ripped the pages out of a copy of Yes Rasta and fixed them to plywood.  Nevertheless, amicus briefs, from interested parties such as Google, argued that the lower court’s decision departed “dangerous-[ly]” from the standard analysis.

Under the standard analysis, an author’s fixed, tangible expression may be copyrightable, but subject nonetheless to a fair use exception. This exception may be understood as a carve-out designed to promote free expression and the intellectual enrichment of the public. The ultimate test of fair use is whether the purpose of copyright law— to “promote the progress of Science and useful Arts,” would be better served by allowing the use or not. Unsurprisingly, the doctrine’s contours have been recognized as “the most troublesome in the whole law of copyright.”

On April 25, 2013, the appellate court reversed, concluding that 25 of Prince’s paintings were transformative insofar as they “manifest an entirely different aesthetic from Cariou’s photographs.” The Court dispatched the lower court’s requirement that fair use must make a secondary use comment on the original artist or work. Instead, it held that to qualify as fair use, a new work must alter the original work with new expression, meaning, or message.

Prince’s work had done just that.  Notwithstanding the limited physical alteration of the original work, Prince contested that he “completely tr[ies] to change [another artist's work] into something that’s completely different.” Since transformative works “lie at the heart of the fair use doctrine’s guarantee of breathing space,” Prince’s works fall within the contours of the fair use exception:

            Where Cariou’s serene and deliberately composed portraits and landscape photographs depict the natural beauty of Rastafari[] and their surrounding environs, Prince’s crude and jarring works, on the other hand, are hectic and provocative. Cariou’s black-and-white photographs were printed in a 9 1/2″ x 12″ book. Prince has created collages on canvas that incorporate color, feature distorted human and other forms and settings, and measure between ten and nearly a hundred times the size of the photographs. Prince’s composition, presentation, scale, color palette, and media are fundamentally different and new compared to the photographs, as is the expressive nature of Prince’s work.

Some pieces, however, failed to sufficiently alter Cariou’s originals:  the five least transformative works were remanded back to the district court for further review. For example, Graduation, in which Prince only added lozenges over the eyes and mouth of a Rastafari and an electric guitar to his grip, could not elicit the court’s stamp of approval.

This blogger could not determine whether the Cariou opinion has mollified Google, but the impact seems clear: from a narrow view, a “rephotographer’s” fair use turns on the transformative nature of the appropriation; from a broader perspective, the court seems to have implied that companies may rely on copyrighted material in making, branding, or selling new products–so long as such use is transformative. This begs the question, doesn’t the first fair use factor, purpose of use, weigh against commercial fair use? Well no, the Cariou court stated, “Congress ‘could not have intended’ a rule that commercial uses are presumptively unfair,” rather, “‘[t]he more transformative the new work, the less will be the significance of other factors, like commercialism, that may weigh against a finding of fair use.’” Thus, businesses who rely upon copyrighted works should fret less about the commercial nature of their use as a bar to fair use and more about sufficient transformation.

Photo Credit Keith Allison

By Pedro Celis

In Blackhorse v. Pro Football, Inc., a group of Native American plaintiffs is challenging several of the Washington Redskins’ trademarks before the Trademark Trial and Appeal Board (TTAB). They claim that the Redskins trademarks “disparage” Native Americans and “bring them into contempt, or disrepute” in violation of Section 2(a) of the Lanham Act. Public pressure on the Redskins to change their name has increased, and most recently, Washington D.C.’s mayor and congressional delegate urged the Redskins to adopt a less offensive name. Despite the public pressure, Redskins’ owner Dan Snyder has stated that he has no plans to change the team’s name, but this trademark litigation could give him a financial incentive to change his mind. The TTAB heard the case in March, and will likely issue a ruling in a few months.

This is the second time Native American plaintiffs have tried to invalidate the Redskins’ trademark. In Harjo v. Pro-Football, Inc., the TTAB ruled in favor of the plaintiffs, holding that the Redskins’ trademarks violated 2(a) of the Lanham Act, which prohibits trademarks that “disparage… persons, living or dead… or bring them into contempt, or disrepute.” However, the case was reversed without reaching the merits, as the District Court ruled that the doctrine of laches barred the claim because the plaintiffs had waited too long to challenge the trademarks, which were registered in 1967. The case reached the D.C. Circuit, which remanded after holding that the time used to determine whether a claim is barred by laches does not begin until plaintiffs are 18 years old and legally able to bring a suit.  On remand, the District Court again barred the claim, holding that the delay between the filing of the suit and the youngest plaintiff reaching the age of majority was too prejudicial. The D.C. Circuit affirmed, and the Supreme Court denied cert. without comment.

Unlike Harjo v. Pro-Football, Inc., the current case will likely survive the laches doctrine and be decided on the merits. Because of the Court of Appeals decision in Harjo, the court will measure the plaintiffs’ delay in in challenging the trademark from time they turned 18. The plaintiffs here in Blackhorse were between the ages of 18 and 24 when they filed, meaning the youngest plaintiff  delayed only a few months. Unless the court rules that this delay unreasonably prejudiced the Redskins, the doctrine of laches will not apply and the court will likely decide on the merits of the case. The plaintiffs are optimistic they will prevail on the merits because the TTAB previously ruled in their favor on this issue.

If the plaintiffs prevail, the Redskins would not necessarily have to change their name, but they would have a large financial incentive to do so. The Redskins could continue to use their name without a valid trademark, but they would no longer be able to enforce their trademark against third parties. Third parties would be free to sell Redskins merchandise, which would potentially cause the franchise to lose millions of dollars in revenue.  In the Harjo litigation, the Redskins’ counsel stated that losing exclusive rights to the name would result in “every imaginable loss you can think of” so it’s hard to see the Redskins continuing to use the name without a valid trademark if they lose this case.

Music sampling has become a mainstay in nearly all genres of popular music. Sampling involves selecting portions of pre-existing sound recordings to use as components of new musical compositions. The amount of work “sampled” ranges from entire “hooks” to a mere a note or two. Nearly as common as this method of music creation are the lawsuits that accompany it—most claiming copyright infringement. As a word of advice to those planning on dabbling in music sampling, it’s best to obtain a license or avoid the Sixth Circuit. The Ninth Circuit, on the other hand, might be a pretty good place to dabble.

To establish copyright infringement under the Copyright Act, a plaintiff must, among other things, prove copying by either 1) producing evidence of the defendant’s copying or 2) proving copying indirectly by showing that the defendant had access to the plaintiff’s work and that there is a substantial similarity between the two works. The circuits are split on the standard for “substantial similarity,” as used in this context. Specifically, the split concerns exactly how much sampling is needed to constitute substantial similarity and therefore infringement.

The Ninth Circuit takes a de minimis approach. In Newton v. Diamond, the court affirmed a non-infringement verdict because the use was not likely to be recognized by the listener. The infringement at issue had to do with the Beastie Boys’ use of a three-note, six-second sequence from the song “Choir” by jazz flutist and composer James W. Newton. The court affirmed that the use of these three notes did not constitute infringement because the use was de minimis, reasoning de minimis non curatlex (translated “the law does not concern itself with trifles”).

In contrast, the Sixth Circuit draws a harsher line. In Bridgeport Music, Inc. v. UMG Recordings, Inc, the court was faced with the question of whether the hip hop group Public Announcement had infringed the copyright in the George Clinton song “Atomic Dog” by sampling “dog” as a musical punctuation, rhythmic panting, and the well-loved refrain “bow wow wow, yippie yo, yippie yea.”  The court decided that Clinton’s work had indeed been infringed.

The question the Sixth Circuit faced was whether the two works were substantially similar. For the Sixth Circuit, the inquiry ended when it was determined that another’s work was used. That fact was determinative of infringement, regardless of how small the use may have been. Where specific elements were copied literally, the overall concept or tone of the work was not relevant to the determination of infringement.

It doesn’t look like this split between the Sixth and Ninth Circuits is likely to be resolved anytime soon, as the Supreme Court declined to review Bridgeport Music. As a word to the wise, copyright law has, on the whole, been rather hostile to those who fail to obtain licenses before using portions of existing works in their musical compilations. That said, if you’re going to sample, you would probably fare better on the West Coast.

Attorney General Eric Holder

By Alexandra Krakow

At a press conference on February 20, U.S. Attorney General Eric Holder announced the Obama administration’s aim to make the investigation and prosecution of trade secret theft and economic espionage a top priority of the Department of Justice (DOJ). Taking such measures to protect against trade secret theft is a worthy priority. According to Dutch Ruppersberger, the top Democrat on the House Intelligence Committee, U.S. companies suffered estimated losses in 2012 of more than $300 billion due to theft of trade secrets, a large share due to Chinese cyber-espionage. Holder elaborated on the problem: “In some industries, a single trade secret can be worth millions—or even billions—of dollars. Trade secret theft can require companies to lay off employees, close factories, to lose sales and profits, to experience a decline in competitive position and advantage, or even to go out of business. And this type of crime can have significant impacts not only on our country’s economic well-being, but on our national security as well.”

At the press conference the DOJ unveiled a report entitled “Administration Strategy on Mitigating the Theft of U.S. Trade Secrets.” A trade secret is, broadly speaking, any business information which provides a competitive edge and which its holders have taken reasonable precautions to keep secret. The report presents five main strategy action items which the DOJ will pursue to mitigate the theft of U.S. trade secrets:  (1) focus diplomatic efforts to protect trade secrets overseas, (2) promote voluntary best practices by private industry to protect trade secrets, (3) enhance domestic law enforcement operations, (4) improve domestic legislation, and (5) increase public awareness and stakeholder outreach.

The report also highlights the importance of protecting U.S. trade secrets against theft by foreign governments, corporations, and individuals. Most trade secret theft is committed by foreign nationals, especially Chinese nationals. As Holder noted, “a hacker in China can acquire source code from a software company in Virginia without leaving his or her desk.” Notably, the DOJ press conference came two days after cybersecurity firm, Mandiant released its own report linking a multi-year, enterprise-scale computer espionage campaign to China’s military.

The National Security Division’s Counterespionage Section has taken the lead on the investigation of these crimes, since the impacts on national security can be significant.  For example, hostile states could obtain dangerous data that could expose energy, finance, and other sensitive sectors to massive losses-and leave infrastructure vulnerable.

However, successful prosecution of foreign trade secret theft remains an uphill battle.  Just two days after the Feb. 20 press conference, a federal judge in the Eastern District of Virginia found that despite eight separate attempts, the DOJ had still not properly served a South Korean company, Kolon Industries, accused of stealing trade secrets from DuPont. Because of the difficulty of prosecution, some of the most useful strategies will involve companies being more vigilant in the protection of their trade secrets.  While the Obama administration has raised its public commitment to protecting U.S. companies from trade secret theft, the best protective measures a company can take include staying informed of best practices to protect their trade secrets and exercising exhaustive vigilance in protecting valuable information.

Earlier this week, the United States Supreme Court heard oral arguments in Association for Molecular Pathology v. Myriad Genetics, Inc. The case involves challenges to the practice of gene patenting and specifically Myriad Genetics’ seven patents on isolated gene sequences. The American Medical Association (AMA), “concerned about the effect that the decision will have on the practice of medicine and on medical research,” contributed an amicus brief to the court.

Myriad’s patents are particularly susceptible to challenges by organizations like the AMA because of their healthcare implications. The genes in question are the BRCA1 and BRCA2 genes, which account for most inherited forms of breast and ovarian cancer. As holder of the patent, Myriad has complete control over the use of the BRCA1 and BRCA2 gene sequences. Without other competing forces in the market, Myriad is able to charge $3,500 for BRCA diagnostics tests. But the consequences of Myriad’s exclusive use of the gene sequences extend beyond mere cost. Due to Myriad’s monopoly, “no woman can get an independent second opinion about her condition before deciding to have her healthy breasts or ovaries removed in order to avoid cancer.” Without a second opinion, women who receive a false positive test may unnecessarily elect to have their breasts or ovaries removed, a result that could have been avoided had the women had access to an independent second test. Further, since only Myriad can perform these tests, it can keep any data it gleans from the test results. This is especially problematic where the test reveals geographic and demographic patterns or new genetic variants that would be valuable to researchers seeking to understand the dynamics of breast and ovarian cancer genetics.

The AMA brief also discussed the Court’s analysis of similar issues in prior cases. In Diamond v. Chakrabarty, the Court held that products of nature are not patentable. In American Wood-Paper Co v. Fibre, the Court went further, clarifying that isolated or purified products of nature, while requiring human intervention to isolate or purify, were still not patentable. Further expanding on these holdings, the Court in Cochrane v. Badische Anilin & Soda Fabrik held that even synthetic products are not patentable if the product is not markedly different from what is found in nature.

Applying the precedent to the facts present in Myriad’s case, the AMA noted that “Myriad’s isolated genetic sequence claims … are not ‘markedly different’ from the genetic sequence as it occurs in nature.” Moreover, “[t]he term ‘isolated’ adds nothing of significance to the genetic sequence claims because isolation of genetic sequences is a well-understood conventional activity engaged in by geneticists.” Myriad, then, faces an uphill battle in arguing that the isolated sequence is worthy of patent protection, because the beneficial use to which it can be put—diagnostic testing—depends on its natural occurrence in the human body.

The Court heard arguments in the case just this past week, so it will be a while before the Court issues its decision. However, if the Court holds that isolated gene sequences are not patentable, it would be a game-changing ruling. While the AMA and other opponents of gene patenting may initially be pleased with such a ruling, it is unclear whether the AMA has really considered the healthcare implications of that decision. Here, Myriad was able to attract investors only after developing a business model to exclusively offer diagnostic testing services for the BRCA genes and charge a premium price for that exclusivity during the life of the patents. The majority of biotechnology companies will similarly be less likely to engage in gene sequencing efforts without the exclusivity and profitability awarded by patent. That effect could potentially impede future research and therefore impact the availability of new healthcare options.

On March 30, Judge Richard J. Sullivan of the United States District Court for the Southern District of New York issued a groundbreaking ruling denying first sale protection to resellers of digital music. Along with the Kirtsaeng case, on which the Supreme Court ruled in March, the ReDigi case was watched by many in the arts and technology spheres as a case in which the courts would determine the applicability of the first sale doctrine in the 21st-century economy. Yet, while the Supreme Court in Kirtsaeng viewed the doctrine expansively, holding that copyrighted materials purchased in foreign countries could be legally resold in the United States, the ReDigi court held that the nature of digital file transfers renders the files unfit for resale.

ReDigi burst on the scene in October 2011 with a pioneering business model based on the resale of digital music files. However, digital files are fundamentally different from physical media in that they can only be transferred through creation of a copy, leaving the original intact after the copying/transfer process. This makes it effectively impossible to resell a digital music file in the manner that one can resell a physical copy of a CD, record, or tape. ReDigi addressed this problem by requiring the use of software that would make sure that the reseller deleted the original music file from her system after putting the file up for sale. The ReDigi software scans and monitors the reseller’s computer, and if a resold file is found in the system the user is warned to delete it. Failure to heed that warning results in a ban from the ReDigi system. While not a perfect solution—for example, users could create copies of the files and store them on external memory media like hard drives or flash drives, and then delete the original while keeping the copy so long as it was not used on the same computer—this was at least an attempt to make digital files effectively resalable.

This business model relies on the first sale doctrine to avoid infringement. The doctrine, codified in §109 of the Copyright Act, allows for the resale of media containing a copyrighted work without granting any rights to the work itself. In the case of physical music media, the doctrine allows for resale by any purchaser following the first sale. This is why you can buy used CDs and records at stores, on eBay, or at garage sales. This created the fundamental problem at issue in the ReDigi case. Consumers have grown accustomed to reselling their music, and many have a sense that unwanted music should be resalable. However, before the ReDigi case, it was not at all clear whether the first sale doctrine should apply to digital files, because the language of §109 applies specifically to “a particular copy or phonorecord.”

In an order that at times appears somewhat out of touch with contemporary developments—for example, Capitol Records is described as a “recording label” known for producing “vinyls”—Judge Sullivan granted Capitol’s motion for summary judgment on its claims of copyright infringement. The judge concluded that a transfer of a digital music file produced a new phonorecord within the definition provided in §101 of the Copyright Act. This is because the phonorecord must be a “material object,” which can include a hard drive containing the digital file (which is but a series of instructions to software programs) but cannot include the digital file itself. Therefore, when the instructions are sent to a new hard drive, a new phonorecord is produced. This constitutes a breach of the copyright owner’s reproduction right. But this also means that regardless of what a reseller does with the original file—whether she keeps it or deletes it—a digital transfer is ineligible for first sale protection, as a new and distinct “phonorecord” is created by the “transfer” and the originally-purchased phonorecord is not transferred at all.

The implications of this reading of the Copyright Act may be far-reaching when it comes to a user’s legal rights to digital files. But the most immediate effect of the ruling is to cast doubt on the viability of any digital music resale business. Companies like Apple and Amazon are working on technologies that avoid creating a new copy in a digital transfer, but these technologies are untested. It also seems likely that the ReDigi ruling will be appealed, but until then, it will likely carry great weight for the affected companies. Yet the ruling, based as it is on the particular wording of Copyright Act provisions that predate the development of file-based digital music distribution, seems to be at odds with widespread consumer sentiment that music should be resalable. Until Congress, higher courts, or new technologies make digital resale viable, this opposition between law and consumer expectations will remain.