Note: this article was first published on Shoryuken.com in April 2011. Unfortunately, Shoryuken has since undergone a complete overhaul that wiped this article out. I'm reposting it here without edits!
Recently we all heard a rumor about Warner Bros' Mortal Kombat 9, one of the most eagerly anticipated MK titles in memory. According to Shacknews.com, MK9 will utilize a so-called "1st purchaser reward program" in which online play will only be available through a one-time use code that comes with initial purchases of the game but cannot be transferred to subsequent owners. Instead, subsequent owners who want to play online will need to purchase a new one-time use code from Warner Bros for $10. Again, this is just a rumor, but it's made a little more credible by similar reports from Joystiq and by gamers who peered into the MK9 demo code.
Obviously this has some big implications for the resale, or secondary, market. Either secondary market players will have to spend more money to buy MK9 and online play or, more likely, secondary market sellers will have to lower their prices. The major beneficiary will be Warner Bros, since they'll be able to capture more of the total value of their games by getting money each time a secondary buyer wants to play MK9 online.
Now, say you buy or sell games in the secondary market and you're so upset about this one-time use online code that you want to sue Warner Bros to get rid of it. How would you craft your case? What legal theory, aka the part of the law you allege Warner Bros is breaking, would you claim in order to force Warner Bros to automatically give online play to anyone who buys MK9? And would you be successful?
One potentially useful legal theory is the first sale doctrine. The first sale doctrine is an extremely important part of copyright law that allows someone who buys a copy of a copyrighted work to sell it, rent it (depending on the type of work), or otherwise dispose of it however he wants without approval from the copyright holder.
So if Barnabus writes a book, he owns the copyright in it. But if Barnabus prints up a copy of his book and sells that copy to Helga, well, Helga has control over her physical copy. Barnabus does not lose any of the rights granted to him by copyright; he can still prevent Helga from copying, modifying, or displaying the book's copyrighted text. But Helga can do whatever she wants with her copy, like sell it to someone else, rip it up, whatever.
Same thing goes for video games. Real life game development and publishing can get pretty complicated, but let's just say that Warner Bros owns all the copyrights in MK9. When it sells a copy of MK9 to Franzibald, it continues to control the aspects of the copy that are Warner Bros' copyrighted works, including the audiovisual game that shows up on screen and the computer code underlying it. But Franzibald can sell or otherwise dispose of the physical disc.
The first sale doctrine is why we have a resale market for video games. If Franzibald decides he no longer wants to own his copy of MK9, he can sell it to someone else and Warner Bros can't do anything about it. This has led to the creation of a secondary games market that, according to some estimates, accounts for about $2 billion worth of sales per year in the US.
The first sale doctrine is also nice because it lets you control the things you buy. Without it, a copyright owner could prevent you from selling, renting, giving, or lending everything you own that involves a copyrighted work, from games to DVDs and personal computer software to a car that has computer software in it. There's an uneasy ownership balance in a purchased copy of a video game in which the copyright owner owns some rights, like the right to copy, and the user owns some others, like the right to resell. The first sale doctrine is what maintains the user's side of that balance.
One of the reasons I love copyright law is that it's never very far from thoughts of policy and economics, and the first sale doctrine is no different. The doctrine represents an intentional policy choice to limit how much control a copyright holder can have over its work and to support the existence of secondary markets. It's good, the policy suggests, to allow for some user control over goods that incorporate copyrighted works. I think we can all agree that we'd rather not have to take orders over whether we can resell our DVDs.
The first sale doctrine also makes economic sense. It allows for copyright owners to make money on their initial sales, which is good. At the same time, it also allows for the construction of secondary markets that can support billions of dollars worth of sales, jobs, and revenue while also allowing buyers who don't care about the timeliness of their games or who can't afford brand new games to play on their own time or budget. Studies have even shown that the existence of a secondary market can strengthen the market for new goods. Again, I think we can all agree that it's desirable for game companies to make money, secondary market jobs to exist, and more players to be able to play.
In short, the first sale doctrine is crafted to provide balanced benefits and limitations for everyone involved. The copyright holder gets to make most of the money and gets to control lots of things but doesn't get control over everything. The first buyer gets a product he likes and can sell or give away, but he can't infringe its copyrighted work. The secondary market buyer can get cheaper access to products he likes as long as he's willing to wait for resale, and the secondary market seller can survive. As far as the rules of copyright law go, this is really well balanced.
But of course, video game companies don't like it. They don't want to just make some of the money, they want to make all of it. Why should Gamestop, RedBox, or Franzibald get money for a game developed by NetherRealm and published by Warner Bros? Game companies understandably want to get as much money out of their products as possible, even in the secondary market.
As a result, they're constantly looking for ways to make money in the face of the first sale doctrine. For example, Blizzard doesn't care whether World of Warcraft discs are resold because the monthly subscription fee model means they'll get money regardless of who owns the physical copy. Other companies have made resales difficult or impossible by using digital distribution methods like Steam and Xbox Live Arcade in which games are linked to personal accounts.
Warner Bros' new one-use online code is a little different. There's a physical, resalable game disc, but one of the most important parts of the game, the online play, is off limits to the secondary market unless the new buyer gives Warner Bros more money. Warner Bros is now much happier with resales because almost everyone who buys a used MK9 game is going to give Warner Bros some dollars to play online.
Ok, let's move a little more into the practical legal side of this now. Does Warner Bros' demand that the secondary market pay extra for online play violate the first sale doctrine?
Well, here's how you could craft an argument that it does. You could say that Warner Bros retains control of a significant part of the user's ability to sell or dispose of his physical copy in the sense that the user can't sell all the things on his physical disc. He can sell most of his game, but even though he paid for online play in his original purchase, he can't sell it to someone else without Warner Bros' approval. The one-time use online code also limits a buyer's ability to resell or dispose of his copy by making his expected resale price considerably lower. Online play is one of the most important modes on the game, and without access to it, no secondary market buyer would pay as much as they otherwise would.
On the other hand, the first sale doctrine doesn't prevent copyright owners from offering certain things to first buyers only and doesn't require copyright owners to ensure that buyers' copies will be worth anything in resale. All the letter of the law requires is that someone who buys a copy of a copyrighted work be able to sell or otherwise dispose of it without approval from the copyright holder. In other words, it's more about what the buyer can do than about what the copyright owner cannot. And a first buyer of MK9 can still resell his disc.
Okay, so a user will be able to resell his copy without Warner Bros' approval, even if he won't get as much money. But there's a portion of his game, the online play, that he can't resell. Warner Bros keeps control over that even though the first sale doctrine says the buyer doesn't need the copyright owner's permission to resell his entire copy. What about that?
I think this could be why Warner Bros pairs online play with a code and calls the first buyer's access to online play the "1st purchaser reward program." This way, Warner Bros can say that they didn't actually sell the buyer online play on the MK9 disc. Instead, online play was a charitable add-on that Warner Bros simply gave to first buyers in code form as a reward for buying it new. So when a first buyer goes to resell his game, he can't claim to be reselling online play, since that was from the code and not on the disc. As a result, Warner Bros gets to retain control over online play without technically contradicting the first sale doctrine requirement that the buyer be able to resell his full copy without permission. Oh yes, he can resell his full copy... it's just that his full copy doesn't include online play. And in any case, the part of the game that he can't resell is that part that requires additional server support from Warner Bros or Microsoft or Sony; if the buyer couldn't resell some part of the game that was entirely on the disc, like training mode, then this plan might not work so well. I swear, creative lawyers can do anything.
After hearing that, you might want to claim that the one-time use code contradicts the spirit of the first sale doctrine even if it doesn't go against its exact letter. And I think that's true, I think it does do that, I just think you'd have a real hard time getting a court to care. Decision makers tend to stick to the letter of the law most of the time unless something is super egregious or it's a higher court or the legislature. Good luck getting through to one of those!
So long story short, I don't think there's realistically much to be done about the one-time use online code. I think the first sale doctrine is your best bet to beat it, but while it goes against the doctrine's spirit, I think it satisfies the doctrine's technical requirements well enough to be legal.
But it also represents a new step in efforts to overcome the first sale doctrine. At some point, even if this trend never explicitly goes against the letter of the law, it may effectively weaken the buyer's right to dispose of his copy so much that the doctrine becomes completely ineffective. If in the end a buyer can technically resell a copy that is completely inaccessible or worthless to anyone who buys it, then the first sale doctrine is essentially dead. And I think that would be a blow to the economy and a tremendous shame for user's rights.
David Philip Graham is an attorney with specialties in intellectual property, contracts, and internet law. His entertainment and video game practice is based in Los Angeles but regularly works with clients all over the country. He can be contacted on his site at www.DPGatLaw.com, by email at David@DPGatLaw.com, or by pm at UltraDavid on Shoryuken.com.