Is it possible to transfer digital goods, during one’s lifetime, or after one’s death?

By Marie-Andrée Weiss

The issue of the transfer of digital goods, whether during or after one’s lifetime, has been debated lately in the U.S. While the European Union (EU) has addressed the issue of resale of software programs, it has not yet addressed the issue of post mortem transmission of digital goods. Alternatively, the U.S. still does not recognize the right to resell digital goods, but some U.S. States may recognize the right to bequeath digital goods to one’s heirs.

Is it possible to resell digital goods?

Under the first sale doctrine, the copyright holder owns the exclusive right of the first public distribution, but it does not own its subsequent distributions, such as a resale, as the first sale exhausts the right to distribute the work.

In the U.S., the first sale doctrine is codified in 17 U.S.C. § 109(a), but the issue of whether the digital sale doctrine applies to digital goods is still debated. In Vernon v. Autodesk, the 9th Circuit held in 2010 that a software manufacturer had only licensed a particular software to the first buyer, and thus sales of those copies on eBay by plaintiff, who had purchased them from the first buyer, were not protected by the first sale doctrine and therefore infringed software manufacturer’s exclusive distribution right.

The Vernon decision was about licensed software and thus does not apply to licensed music or licensed books, and reselling digital music is not legal in the U.S., even though ReDigi, a company aiming at creating a virtual marketplace for pre-owned digital music, tried to change that. But it was sued for copyright infringement by Capitol Records, a recording label. In Capitol Records LLC v. ReDigi Inc., the Southern District of New York granted Plaintiff summary judgment in March 2013, thus putting an end to ReDigi’s project and discouraging entrepreneurs who may want to start similar companies.

This may change with the recent introduction by U.S. Representative Blake Farenthold (R-TX) of H.R. 5586, the You Own Devices Act (YODA). YODA would amend the Copyright Act “to provide that the first sale doctrine applies to any computer program that enables a machine or other product to operate.”

YODA states that:

Notwithstanding section 106 or section 117, if a computer program enables any part of a machine or other product to operate, the owner of the machine or other product is entitled to transfer an authorized copy of the computer program, or the right to obtain such copy, when the owner sells, leases, or otherwise transfers the machine or other product to another person. The right to transfer provided under this subsection may not be waived by any agreement.”

Rep. Farenthold explained on his website that the purpose of YODA is to make sure that the first sale doctrine will not impinge the development of the Internet of Things, as the goods which will be connected to the internet will all be software-enabled. Indeed, the law would only apply when a consumer wants to resell a particular “machine.”

Therefore, if enacted, YODA would not overrule Vernon or Capitol Records. But such a bill may lead the way to other bills further amending the first sale doctrine.

Is it possible to bequeath digital goods to one’s heir?

The issue of the legality of ownership transfer of digital music does not only interest start-ups and copyright attorneys, but also estate and wills attorneys, since many people now own large digital libraries and wish to make sure that their heirs will be able to enjoy them.

However, Apple’s iTunes’ rules forbid users to reveal account information to a third party, and so it is not possible for a testator to reveal even his account information to his heirs in his will. iTunes first opened its store in 2003 and so the size of digital music libraries may still be relatively small, but as years pass, thousands and thousands of digital music files, bought over decades, may have to be relinquished upon death if the law does not change.

However, U.S. states may pass digital estate laws soon, as the National Conference of Commissioners (UCL) introduced the Uniform Fiduciary Access to Digital Assets Act (FADA) in the summer of 2014. FADA is a model draft law which may be used as a guide by states wishing to enact a digital asset act. It gives executors of estates the ability to access the decedent’s electronic communications and also “any other digital asset in which the decedent at death had a right or interest.“ The definition is broad enough to include a license. It is not clear, however, if the Terms of Services (ToS) would have to yield to the law. As of now, only Delaware has adopted such a law.

But Yahoo! does not seem to find such estate laws pertinent. A blog post penned by Bill Ashworth, Senior Legal Director for Public Policy for the company argues that FADA “does not ensure the privacy of sensitive or confidential information shared by the decedent or third parties [and that] the ULC’s proposal is based on the faulty presumption that the decedent would have wanted the trustee to have access to his or her communications.” The blog post argues further that Yahoo!honor[s] the initial agreement that a user made with us” in order to protects the user’s privacy, and that its ToS forbids the transfer of a deceased Yahoo! user’s account and personal communication upon death.

Mr. Ashworth’s concludes that “account holders and individuals—not legislators—should determine what happens to a person’s digital archives at the time of their death.” But executors act upon the ultimate expression of one’s personal will, the testament. Also, Yahoo! is not merely an email provider, but also owns the popular photo-sharing site Flickr. If the deceased uploaded all kind of family pictures on the site over the years, shouldn’t the heirs have a way to access the account?

However, one can also understand the position taken by Yahoo!, as laws following the FADA model would direct intermediaries to comply with the executor of the estate, and this may be a source of both additional work and liabilities. Just imagine if a bookstore would have to confirm that books bought there by the deceased are indeed in his estate.

The EU has not addressed the issue of digital goods and estate law yet, but as more goods are now digital and even connected with one another, this issue and the issue of the legality of exhaustion of their first sale will need to be settled on both sides of the Atlantic.