The ability of copyright owners to experiment with different marketing strategies is fundamental to copyright law. Indeed, the U.S. Copyright Act promotes the public good by granting exclusive rights to copyright owners that incentivize the creation and dissemination of new works on their own terms. These exclusive rights are the reason why copyright owners invest time, energy, and money into creating new works, and why they have a chance to recoup expenses and perhaps make a profit. The Copyright Act has always celebrated the right and ability of copyright owners to choose whether, how, when, and where their works are distributed to the public. And under our dual system of government, where federal law reigns supreme, it is well-settled that the states are powerless to interfere in ways that conflict with the nationwide scheme established by Congress.
Nevertheless, there is an alarming new trend of states pursuing laws that would force publishers, many of whom are also authors, to grant licenses to public libraries for access to their digital works, such as eBooks and audiobooks. Public libraries, of course, have their own claim to advancing the public interest, but they have never fulfilled their mission of providing free access to copyrighted works based on the supposed authority of states to mandate compulsory licensing. These libraries instead have relied on the first sale doctrine when lending physical copies or obtained the necessary licenses to offer digital access. Proponents of state compulsory licensing complain that libraries are being unfairly discriminated against, but this gets it wrong on both law and policy. More fundamentally, these proponents ignore the other side of the equation—the rights of publishers that undergird the creative ecosystem and ensure that libraries have works worth lending.
State Attempts to Create Compulsory Licensing
One of the core objectives of public libraries is to provide equal and equitable access to informational resources to the people in the communities that they serve. Public libraries operate with limited budgets, and they must make difficult choices about which titles to obtain and make available. Part of this calculus includes choosing between physical copies and digital access, where the copyright interests are distinct. Libraries can lend out physical copies without permission because, under the first sale doctrine, the initial authorized sale of a copy exhausts the copyright owner’s distribution right as to that particular copy. But things work very differently in the digital realm, where copyright owners typically license access to works rather than sell copies. Combined with the fact that digital transmissions of eBooks and audiobooks necessarily implicate other exclusive rights, like the reproduction, performance, and display rights, this means that the first sale doctrine does not apply to digital access.
The differences between sales and licenses account for the routine ways that we consume copyrighted works today. Amazon sells physical copies of Marvel Studios’ Avengers: Endgame on Blu-ray and DVD, and anyone—including a public library —that buys a copy can then lend or sell it to someone else because of the first sale doctrine. Amazon also provides digital access to Endgame via a limited license to stream or download the movie, but only “for personal, non-commercial, private use.” It works the same way with books and audiobooks. Amazon sells physical copies of The Judge’s List by John Grisham as a hardcover or paperback book and as an audiobook on CD. It also offers digital access to read the eBook with Kindle or listen to the audiobook with Audible. Purchasers own the physical book or CD, and thus first sale applies, but digital access through Kindle or Audible is merely licensed with no right to transfer the content to someone else.
As public libraries strive to provide digital access to their patrons, they can no longer rely on the first sale doctrine. They must instead obtain licenses from copyright owners to provide that access. Amazon itself needs licenses to offer digital access licenses to members of the public for Endgame or The Judge’s List in the first place. This simple fact has created tension with public libraries in obtaining digital licenses, particularly for eBooks and audiobooks, because publishers have exercised their right to set prices, impose restrictions, and even refuse to license altogether. Some states view this behavior as unfair and discriminatory, and there are efforts to force publishers to license their works to public libraries against their will. Maryland passed such a compulsory licensing law that went into effect on January 1, 2022, though its legality is currently under challenge by the Association of American Publishers. Meanwhile, a similar bill was defeated in New York when the governor vetoed it last December, and other states, including Missouri, Massachusetts, and Rhode Island, are considering analogous bills of their own.
State Compulsory Licensing Gets It Wrong on the Law
The Copyright Clause grants Congress the power to enact copyright laws because the Founders recognized that national uniformity is better than piecemeal treatment by the states. That principle is reflected in the Copyright Act of 1976, which grants nationwide protection for original works of authorship that are fixed in a tangible medium of expression. Section 301 explicitly preempts all state law claims that assert rights equivalent to those granted under federal copyright law with respect to works that come within the scope of the Copyright Act. Furthermore, the courts recognize that conflicting state law claims can be implicitly preempted when they frustrate or interfere with the national regime established by Congress. The main problem for proponents of state compulsory licensing is that such laws are both expressly and impliedly preempted by the Copyright Act. Indeed, the governor of New York vetoed the compulsory licensing bill in that state precisely because it is preempted.
The compulsory licensing law in Maryland provides that “a publisher who offers to license an electronic literary product to the public also shall offer to license the electronic literary product to public libraries in the State on reasonable terms.” The law allows limitations on the number of simultaneous users and the length of access for each license, but it does not permit any limit on the number of licenses that may be obtained by a public library. Thus, once a “publisher,” which is defined broadly, offers to license digital access to an eBook or audiobook to members of the public in Maryland, it must then offer an unlimited number of licenses of that work to every public library in the state. This, of course, flies in the face of federal copyright law, under which the Supreme Court has held that “a copyright owner has the capacity arbitrarily to refuse to license one who seeks to exploit the work.”
There is little case law on state compulsory licensing, perhaps because states generally know better than to try it, but the en banc decision of the Third Circuit in Orson v. Miramax is very instructive. The court analyzed a Pennsylvania law that limited the length of an exclusive license from a motion picture distributor to an exhibitor to 42 days, after which the distributor was required to offer a license to another exhibitor in the same geographical area. The Third Circuit held that the law, which addressed allegedly unfair licensing trade practices, was impliedly preempted because it conflicted with Congress’s objective of nationwide uniformity by directly regulating an exclusive right protected by the Copyright Act, i.e., “the right to refuse to license.” The court reasoned that the law would subject a distributor to state liability for exercising its federal right to refuse to grant licenses to other exhibitors, and it rejected the argument that the initial voluntary license to one exhibitor in the state meant that the state could then compel further licensing.
That same analysis applies to Maryland’s compulsory licensing law. Publishers have the exclusive right under federal law to refuse to license their eBooks and audiobooks, and Maryland cannot create liability for exercising that right because it is implicitly preempted by the Copyright Act. It does not matter that the law’s purpose is to address allegedly unfair trade practices or that a license has been offered previously in the state. And while the Third Circuit found it unnecessary to also analyze express preemption, it is easy to see why such laws are preempted under Section 301 as well. A state law is expressly preempted if it regulates a right in a work of authorship that is equivalent to an exclusive right protected by the Copyright Act. The test for equivalence turns on whether there is an extra element that makes the claim qualitatively different. Sometimes that test is difficult to apply, but here it could not be simpler. Maryland is regulating a right that is not only equivalent, but the same, and there is no extra element because a mere refusal to license triggers liability.
State Compulsory Licensing Gets It Wrong on the Policy
In testimony supporting the Maryland compulsory licensing law, the president of the Maryland Library Association objected that “publishers subject public libraries to pricing as much as three times the cost to consumers, delay or limit the availability of certain titles, and block access to some titles altogether.” Similarly, a member of the Maryland House of Delegates submitted testimony lamenting that “libraries pay much higher prices for this content than consumers pay.” These sentiments are not unique to Maryland. The American Library Association recently complained to the House Judiciary Committee generally that “unfair behavior by digital market actors—and the outdated public policies that have enabled them—is doing concrete harm to libraries as consumers in digital markets.” The gist of these complaints is that public libraries are being unfairly discriminated against when publishers treat them differently than consumers in licensing digital access to their eBooks and audiobooks.
Of course, this comparison makes little sense given that libraries and consumers are not similarly situated. As noted above, consumers obtain digital access licenses that are strictly for personal use, while libraries get licenses to further disseminate works to members of the public. Public libraries do not want to be like the customers of Amazon—they want to be Amazon, but without the inconvenience of having to pay more for the extra privileges. It is not surprising that publishers charge libraries more for the ability to provide digital access to others because they are getting more than regular consumers. Moreover, these complaints treat the rights of publishers to control the dissemination of their works as a bug of the copyright system when they are really its primary feature. Copyright law empowers publishers to make their works available to members of the public, including public libraries, on their own terms, and they can window releases, charge different prices, offer various formats, or refuse to license as they see fit.
The Maryland compulsory licensing law provides that the refusal to license digital eBook and audiobook access to a public library “on reasonable terms” constitutes an “unfair, abusive, or deceptive trade practice” as that term is used in a separate provision of the state’s commercial law. That provision lists numerous trade practices that are defined to be “unfair, abusive, or deceptive,” and every single one involves dishonest behavior such as deception, fraud, or misrepresentation. But there is absolutely nothing dishonest about publishers refusing to license their works to public libraries, nor is there any dishonesty in offering libraries terms that differ from those offered to consumers because the two situations are distinct. Indeed, these choices by publishers represent the fundamental mechanism of advancing the public good under the Copyright Act. Frankly, it is worrisome that public libraries, of all places, would be so willing to write off the other side of the copyright equation—the creators who invest significant effort and resources to make the very works that libraries provide to their patrons for free.
Read in IPWatchdog