Impediments to the Used Consumer Software Business

Abstract

Computer software is a huge, worldwide industry, one in which the United States has become the dominant force. The maturation of the software industry has led to dramatic productivity gains, permitting businesses and individuals to accomplish more work with less effort. The industry's growth has depended, and will continue to depend, in large part on the ability of software producers to prevent broad, unauthorized use of their products. Well-developed markets exist for used copies of copyrightable subject matter such as books, musical recordings, and movies. Yet there is no organized market for used computer software, even though it can be, and often is, copyrighted. This paper explores the various legal and operational challenges that entrepreneurs would encounter in launching a used consumer software business. Part I of this paper describes various aspects of the U.S. software industry, including the history of the legal protection of software intellectual property, to provide background for the rest of the paper. Although several methods of legal protection are available for software, this paper focuses primarily on copyright. Part II examines markets for used copyrighted works in general. Part III analyzes the legal challenges a used software business would face, and Part IV examines business challenges including possible responses by software producers to a successful used software business. Substantial impediments to entering the used software market would make it a risky business venture, particularly if done in a manner that does not honor software producers' license agreements. Even if such a business were to litigate successfully the complex and unsettled legal issues, any substantial market success would likely provoke reactions from software producers that could thwart the business and hamper its growth prospects. Entrepreneurs must evaluate each of these obstacles carefully before investing in starting such a business.

Keywords: copyright, software, first sale doctrine, used markets, licensing

JEL Classification: D23,D45,K11,K12,K41,L11,L14,O33,L42,L86,O34,D12