September 3, 2003 5:19 PM PDT

iTunes auction treads murky legal ground

Consumers can resell CDs purchased in a record shop, but what about digital music files downloaded from an online store?

George Hotelling wants to know. In a move that could spark a novel legal test of Internet music resale rights, the Web developer in Ann Arbor, Mich., on Tuesday night put a digital song he purchased online at Apple Computer's iTunes Music Store up for auction on eBay.

Hotelling said he isn't all that concerned about getting his money back for the Devin Vasquez remake of Frankie Smith's song "Double Dutch Bus," which cost him 99 cents. Instead, he said he's using the attempted sale to probe some thorny consumer issues stemming from commercial online music services, in particular, technology known as digital rights management that's used to prevent unauthorized copying. In that spirit, he's promised to donate anything above his purchase price to the Electronic Frontier Foundation (EFF), an activist Internet legal group.

The effort has apparently resonated with online music aficionados, many of whom have expressed anger at copyright controls used by licensed Internet music services, including iTunes. With the auction set to end Sept. 9, the price on the song had gone up to $15,099 as of Wednesday evening.

"I'd just like to know that if I buy something, whether it's physical or intellectual property, that I'll have my right of 'First Sale,'" Hotelling said, referring to the legal doctrine that allows the owner of a lawful copy of a work to sell it without the permission of the copyright owner.

Apple's iTunes store launched earlier this year, setting a new benchmark for commercial online music services that seek to make inroads against free but illegal file-swapping networks. Consumers have purchased some 7 million songs through the store to date, and analysts believe that number could soar, once Apple introduces a version that's compatible with Microsoft's Windows operating system, which runs on about 90 percent of the world's PCs.

Other companies have also jumped into the market, including a reborn Napster and digital music service Musicmatch. Meanwhile, RealNetworks, America Online, Amazon.com and potentially Microsoft are planning to sell digital downloads.

While momentum is building for digital music distribution, legal experts said Hotelling's auction highlights the fact that there are still some kinks to be worked out.

"It underscores the fact that when you purchase digital music online today, you may be getting quite a bit less for your money than when you purchase a CD in a store," said Fred von Lohmann, a senior staff attorney at the EFF. "If you buy it in a store, it would be absolutely crystal clear that you could auction it on eBay."

By contrast, von Lohmann said it's unclear whether Hotelling's auction is legal or whether it's allowed under Apple's terms-of-service contract for iTunes Music Store sales.

"It's a little bit of a murky area," he said. "It would make a pretty interesting law school exam question."

Resale rules?
The terms-of-service contract, which is eight printed pages long, mentions little about the rules that guide the resale of songs. It does state, however, that the use of iTunes songs is for "personal, noncommercial use."

Customers are allowed to access the iTunes songs from up to three computers at one time. In addition, they can deny machines access and authorize others at will.

Hotelling said he believes it is possible for the file to be transferred over to the winner's control, although he said he would return the money if attempts to transfer the file fail.

He said he has not been contacted by either Apple or eBay about the auction. Apple did not return CNET News.com's repeated calls about the auction.

Informed of the auction by a CNET reporter, an eBay representative said the item would be removed, since "it does indeed violate eBay's listing guidelines on the sale of products delivered electronically through the Internet."

Hotelling said he doesn't think he's breaking any laws or agreements with Apple. "As far as I'm aware, what I'm doing is not covered by (the iTunes store) terms and conditions, so I would assume it's legal." He added that he doesn't plan to keep a copy of the song if the sale goes through.

Von Lohmann said the resale issue could point to other unresolved legal questions that relate to commercial music downloads that are only now coming into view. For example, he pointed to the rights of online music consumers to loan or donate songs they download online.

In addition, there seem to be no rules that govern the rights of an owner of a second-hand digital song, he said. "If you were to win that auction and get that song, you have no relationship with Apple," von Lohmann said. "You didn't agree to the terms of service. What governs the song after you've repurchased it?"

Von Lohmann said Hotelling never contacted or consulted with EFF about the auction, and he sees no legal reason for EFF to turn down the donation, assuming the sale goes through.

Paying hundreds of dollars for a song that can be had for pennies may make little sense, but at least one bidder reached by e-mail said he hoped his bid would help drive home an important point, as the music industry turns to digital sales.

Jeff Grant, an IT manager in Vancouver, B.C., said in an e-mail message that his bid was "real, but not for the purposes of purchasing the song, but rather for raising the exposure of issues with respect to the way that music industries are running roughshod over our rights as consumers."

Grant, who said he's worked for record labels and musicians in the past, added that "there are a number of issues at stake, and this auction raises concerns of 'do I own it or not?...Is it licensed? etc.' It seems that the music industry is trying to totally control what the consumer can do with something that they buy."

CNET News.com's Evan Hansen contributed to this report.

 

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