The used-music market's sales are estimated at more than $250 million a year, says the National Association of Recording Merchandisers. The used-digital-music market is worth a mere 50 cents. That's how much George Hotelling, a Web developer in Ann Arbor, Michigan, charged a friend for a Devin Vasquez remake of Frankie Smith's song "Double Dutch Bus" in September 2003, raising the issue, Can digital music be resold?
The transaction made headlines and raised legal concerns regarding the applicability and interpretation of the "first sale" doctrine to digital goods. (The "first sale" doctrine allows the owner of a lawful copy of work to sell it without the permission of the copyright owner.) Currently, no precedent has been set.
Seth Greenstein, partner with law firm McDermott, Will & Emery in Washington, DC, says these legal issues must be addressed, since "there's an entrepreneurial opportunity to develop the 'forward and delete' technology." One issue involves changing ownership of digital products. Digital works are copied then deleted after transmission, resulting in an illegal copy being made, even if only for a few seconds. That's how Hotelling executed his transaction. But the "forward and delete" technology means that as a digital work is transferred, it's simultaneously deleted by the sender.
Another legal issue Greenstein foresees: If the contract that consumers agree to when buying digital music doesn't allow the resale of a digital work, it trumps the "first sale" doctrine. Apple Computer, the world's leading digital music e-tailer, doesn't directly address reselling music in its contract, but Peter Lowe, Apple's director of marketing for applications and services, has stated it's "impractical, though perhaps within someone's rights, to sell music purchased online."
Which begs the question, Where are the pioneering entrepreneurs? Apple's iTunes Music Store is seeing accelerated sales, and other big names, including AOL and Microsoft, are jumping in. Yet no one is tackling the used-digital-music market. "At some point, a commercial solution will have to be found," says Greenstein. It's likely then that the future question won't be "Can you resell it?" but "Where?"
This story appears in the April 2004 issue of Entrepreneur. Subscribe »
