The Alienability of Digital Distribution Licenses

By: Steven Wittenberg

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.[1]

Evidently, digital distribution licenses should have also been listed with the other “unalienable Rights…”

Digital distribution describes the system in which non-tangible digital content – such as movies, music, books and video games – is delivered to consumers. To analogize, think of the internet as the river of commerce and the online delivery medium (e.g. a Kindle or a PlayStation 4) as the port where goods are unloaded; the articles of online electronic commerce include digital products (e.g. a novel or standalone video game) and their sub-products including downloadable content and other add-ons.

Depending on the demands of the consumer, the product might be streamed or downloaded. To illustrate, it might be more convenient for someone to purchase a subscription[2] to “HBO NOW” and stream all HBO shows online for $14.99 per month, while another consumer might only desire one episode of The Wire, an HBO show, and would be willing to purchase a special license to just watch that episode.[3] Another consumer, however, might prefer to own the product as if it were tangible, thereby securing her right to transfer the product at a later time. “Transfer” (a/k/a alienation) describes the giving of ownership in property to another individual. Transfer can be accomplished in several ways: through a gift, sale, will, trust, etcetera. Property is, therefore, deemed freely alienable or freely transferrable when the owner’s interest can be given to others without restraint.

Under the doctrine of first-sale, purchasers of copyrighted products may resell, rent, lend or destroy the physical copies of the good.[4] Rather than conveying title (i.e. legal ownership) for digital products to enhance alienability, companies ought to permit consumers to gain freely alienable licenses to (1) gain a competitive advantage and (2) improve sales. This article explores the limited property rights provided for in contemporary digital distribution licenses and offers a compromise between full-blown digital personal property and modern limited licenses, viz., transferrable licenses.

I. Personal Property vs. Limited Licenses

Personal property ownership confers many benefits often unavailable with digital licenses. In the context of digital products, the right to include (i.e. to share) friends and family may be the most important because it enhances the enjoyment of the product through community participation. The free alienability of property rights is also significant to ownership. For example, buying a DVD copy of Star Wars: Episode I – The Phantom Menace conveys the right to transfer (per the aforementioned doctrine of first-sale), in addition to the rights to include and exclude. It is worth noting that the right to exclude (i.e. to deny use to others) is a fundamental requirement of true ownership.[5]

For digital distribution products, personal property ownership, of course, would not be unlimited. It would still be subject to the copyright restrictions that the holder of the intellectual property enjoys. Owners would be able to freely transfer their interest in the digital product by any conveyance. Today, however, freely transferrable ownership of copies of digital products is almost unheard of for fear of copyright infringement. Moreover, another hurdle lies with the intermediary instrument that conveys the intellectual property (e.g. a video game) to the digital distributor. Under the principle of nemo dat quod non habet (“no one gives what he does not have”), this intermediary licensing instrument would need to be enlarged to account for the additional rights being conveyed to the end consumer (e.g. the video gamer). Thus, to avoid unduly excessive costs, the most reasonable compromise between the competing interests of the consumer and the producer is a marketplace of freely alienable licenses.

Indeed, some consumers may want more than a mere license to use the product.[6] Licenses restrain the alienability of property by preventing the licensee from transferring her interest to another who would value the digital product more. A fundamental goal of contract law and economics is to allocate resources from a low value user to a higher value user, thereby achieving a more efficient allocation of resources.[7] In an ideal system, as suggested through a system of transferrable licenses, people would enjoy the convenience of digital distribution and gain the benefits of personal property ownership.[8]

Nonetheless, digital distribution licenses (DDLs) are still justifiable because they fill a niche in the market in which some consumers are willing to buy fewer rights (i.e. the right to use (subject to ever more restrictions), but not transfer) in exchange for the convenience of digital access. Furthermore, the limited nature of end user digital distribution licenses may even be necessary for the continued vitality of its constituent industries. Intellectual property, by its nature, is un-excludable (i.e. the inability to prevent others from using it freely, hamstringing profitability) and tends to be under-produced because its creators must overcome threshold risks and costs. In addition to their convenience and protective mechanisms, digital distribution platforms promote smaller game companies (a/k/a indie) and stimulate sales through discount seasons,[9] which are routine and offer hefty price cuts.[10] For example, Steam, a digital distribution platform that sells downloadable DDLs for computer games, uses discount sales for indie game companies to invite more consumer participation.[11] On the discount extravaganza, a Steam Community post discussed the discount sales, noting:

Both [Autumn and Winter] sales can have great discounts. The Christmas Sale is just a much grander event. It’s longer, usually has some kind of “Mini Event” that has giveaways attached to it . . . . Although, honestly, if you can get any of the above listed [games] for 66-75+% off during this sale then I’d go for it. You’re unlikely to see a deeper discount.[12]

Note that the Steam subscription license is non-exclusive and emphasizes, “The Content and Services are licensed, not sold. Your license confers no title or ownership in the Content and Services.”[13]

II. Alienable Licenses

Although its license subscriptions do not convey title to its digital products, Steam does something quite unique: it permits the alienation of licenses for add-ons to games.[14] The so-called Steam Community Market allows subscribers to buy and sell digital add-ons at market rates.[15] While Steam’s license transfer market does not allow users to exchange actual video games, it has at least experimented with the concept of alienable digital products. Another permutation of consumer-friendly licenses includes PlayStation 4. A user can log-in with her PlayStation Network account on a friend’s PS4 and permit inclusion of the non-licensee to use the game.

Digital distribution platforms should offer consumers digital products that can be freely alienated through mechanisms like Steam’s Community Market. As it is consumer-friendly, it would likely incentivize more purchases because a transferrable license has great value. For example, people can hedge their bets with a freely alienable license that they can always sell later if they no longer want it. Moreover, selling transferrable licenses may also add a competitive advantage for one digital distribution platform. To demonstrate, if PlayStation offered a transferrable license on their video games, they would likely gain more market share from its competitors.[16]

A possible rebuttal to a freely alienable license regime for digital distributor products would be a robust second-hand market where “new” products are no longer purchased, thereby leading to fewer video games being produced, especially for indie game developers. However, it is unlikely the benefits of a transferrable license regime to the public and businesses would be outweighed by any potential decline in primary sales resulting from a secondary market. In the 1990s, for example, people were able to sell their video games and VHS cassettes on the second-hand market without debilitating developers of new media and intellectual property.

The video game industry grew at a rate of 10 percent each year from 2009 to 2012 while the rest of the U.S. economy only grew at a rate of 2.4 percent annually.[17][18] It seems unlikely the creation of transferable licensee rights would slow the growth of the industry, especially if it arose internally from digital distributor platforms as a means to gain a competitive advantage. Moreover, secondary markets for used digital products will increase affordability and accessibility.[19] Further, the addition of freely alienable licensee rights will uphold the digital distributor platform industry’s reputation as an innovative and consumer-friendly marketplace.[20] In sum, a system with freely alienable licenses for digital distributor products is better for consumers and businesses than the restrained system of digital licenses that exists today.

 

[1] The Declaration of Independence para. 2 (U.S. 1776).

[2] The preface to the terms to use HBO NOW is reproduced below:

The Service provides subscribers with access to HBO’s award-winning original programming, exclusive Hollywood hit movies and so much more, streamed over the Internet to your device. Access to and use of the Service, including its features, content, software, functionality, and access to and use of the user interface and the website(s) associated with the Service (such as hbonow.com) (collectively, the “Site”), is provided by HBO subject to the following Terms.

HBO Terms and Conditions, https://www.hbonow.com/terms (last visited Feb., 7, 2016).

[3] Note that HBO does not allow consumers to purchase single episodes online like its competitor Amazon, which allows individuals to rent or buy single products.

[4] R. Anthony Reese, The First Sale Doctrine in the Era of Digital Networks, 44 B.C. L. Rev. 577, 577 (2003).

[5] Jesse Dukeminier et al., Property 104 (Vicki Been et al. eds., 8th ed. 2014).

[6] HBO’s license provides:

HBO grants you a limited, non-exclusive, non-transferable license to access . . . . HBO may control the maximum number of simultaneous streams per account . . . . Once you have created a Registered Account, subject to availability, you may be given the option to add authorized users tied to your Registered Account . . . . You may not copy, reproduce, distribute, transfer, sell, license, publish, enter into a database, display, perform publicly, modify, create derivative works, upload, edit, post, link to, frame, transmit, rent, lease, lend or sublicense or in any way exploit any part of the Service and/or the Site . . . you may access and display material and all other Content displayed on the Service for non-commercial, personal, entertainment use for a limited time only as strictly authorized herein.

HBO, supra note 2 (emphasis added).

[7] Contract Law and Economics 32 (Gerrit De Geest eds., 2nd ed., 2011).

[8] See Joshua J. Dubbelde, A Potentially Fatal Cure: Does Digital Rights Management Ensure Balanced Protection of Property Rights?, U. Ill. J.L. Tech. & Pol’y, Fall 2010, at 409, 416 (“[Digital personal property (DPP)] attempts to prevent the unauthorized dissemination of electronically stored works by analogizing the user’s property rights in the media to those inherent in physical property.”).

[9] See generally Jamie Madigan, The Psychology Behind Steam’s Summer Sale, The Psychology of Video Games (July 15, 2013), http://www.psychologyofgames.com/2013/07/the-psychology-behind-steams-summer-sale/.

[10] See Wesley Yin-Poole, For this developer, Steam sales “screw your fans”, Eurogamer.net (Jan. 16, 2014), http://www.eurogamer.net/articles/2014-01-16-for-this-developer-steam-sales-screw-your-fans (discussing the negative events of seasonal discount sales for digital distributors).

[11] Charlie Hall, Steam data shows just how much money was made during the Summer Sale, Polygon (Jun. 25, 2015), http://www.polygon.com/2015/6/25/8847597/steam-summer-sale-data-steamspy-2015.

[12] Citrine, Steam season sales (Autumn vs Christmas) [HELP] 😛, Steam Community (Nov. 21, 2012, 6:30 PM), http://steamcommunity.com/discussions/forum/0/882966056668138055/.

[13] Steam Subscriber Agreement, http://store.steampowered.com/subscriber_agreement/ (last visited Feb. 7, 2016) (emphasis added).

[14] Id. (“Steam may include one or more features or sites that allow Subscribers to trade, sell or purchase certain types of Subscriptions (for example, license rights to virtual items) with, to or from other Subscribers (“Subscription Marketplaces”). An example of a Subscription Marketplace is the Steam Community Market.”).

[15] See Steam Community Market, https://steamcommunity.com/market/ (last visited Feb. 7, 2016).

[16] See Sebastian Lindig, Market Share for PC Digital Distribution Platforms 2011, Gamasutra (Jun. 6, 2011), http://www.gamasutra.com/blogs/SebastianLindig/20110606/89588/Market_Share_for_P C_Digital_Distribution_Platforms_2011_based_on_unique_users.php.

[17] Entertainment Software Association, Games: Improving the Economy, (Nov. 4, 2014), http://www.theesa.com/wp-content/uploads/2014/11/Games_Economy-11-4-14.pdf.

[18] See also International Federation of the Phonographic Industry, http://www.ifpi.org/facts-and-stats.php (last visited Feb. 7, 2016) (subscription services in music grew 39% in 2014).

[19] Id. at 587.

[20] See generally Daniel Starkey, Trends of this Generation: Digital distribution, Destructoid (Feb. 20, 2013), http://www.destructoid.com/trends-of-this-generation-digital-distribution-244003.phtml.

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