There’s talk out there about being able to use HTML5 to get around Apple’s App Store ban on charging for in-app purchases.  In other words (I think), somehow HTML5 allows content producers to get around this problem by making apps (and other things) downloadable directly through web browsers.  So … how is it that HTML5 allows getting around this issue?

Some background: Apple announced a policy change earlier this year, specifically in Section 11.14 of its App Store guidelines, prohibiting charging fees for in-app sales of content:

Apps can read or play approved content (specifically magazines, newspapers, books, audio, music, and video) that is subscribed to or purchased outside of the app, as long as there is no button or external link in the app to purchase the approved content. Apple will not receive any portion of the revenues for approved content that is subscribed to or purchased outside of the app.

(See Wired’s discussion of these changes here).  “In-app sales” means just that: Sales or subscriptions for content or services from within an app, typically via use of external links taking a user to a purchase screen on the publisher’s website.  Apple takes a cut of revenues from subscription sales, but only for in-app sales.  Publishers had been directing traffic for premium services via links – within their apps – to the publisher’s transactional pages outside of the apps.  Apple now takes the position that any such transactional sales traffic originating from within the app remains an “in-app” sale.

My question to Steininger involved understanding the growing use of HTML5 as a method – intended or not – to circumvent this restriction.  But first I wanted to understand what exactly was “restricted” by this restriction.

Used to be – and perhaps often still is – that Apple could enforce this ban through its control of the apps themselves: In-app purchases of premium services and content simply couldn’t be made other than through additional access through the App Store.  Further, mobile platforms didn’t support any ability to download, install, and run a fully loaded application that was self-contained.  That was the state of technology until somewhat recently.

So first question … why (or how) was that so?  Or in other words, what capability does Apple’s App Store make possible that – previously – browsers by themselves could not do?

Further background: Through Apple’s open source Webkit project, the mobile browsers Safari and later Chromium were developed to offer application cache.  Or as Steininger put it, “when you load the app once, all the files necessary are going to be in a special place on your computer” – device-based local storage, permitting interactive and engaging user interface without needing any page loads.

“Rather than buying an app in the app store, you just go to a URL [READ: not Apple’s App Store] and you’ve got an app ready to go.  For example, once you load [a book] on the iPad, you’re good to go if you lose connection – even if you close the browser, reboot the iPad and go to the same URL without a connection.”

And so that is what the Financial Times recently did.  As MacWorld reported in June,

In recent months, [the FT has] been directing its subscribers to an iOS-specific, HTML5-based Web app that it’s developed. The Web app provides an iOS-like interface, with the ability to tap on articles to view them, adjust text sizes, and even share content via email, Twitter, and Facebook. The publication is also making video content available in its app, and it even prompts users to place a shortcut on their Home screen; that allows the app to run full-screen without Safari’s interface. And, of course, content can be locked down to just subscribers and registered users.

What changed recently?  HTML5, with its (now) robust ability to “build interactive engaging UI without needing any page load” – as Steininger described it – using JavaScript in its now revitalized (or vitalize) application-building fullest form.  As Steininger explained, “Now … the browser in effect replaces the platform.  Or the browser IS the platform.”

Second question, what does it mean to say – and what significance – that the browser supplants the platform, or that a browser now facilitates local storage on the device?  “No longer iOS, Android, etc.  The [WebKit-based] browser is the platform:

• Storing all necessary files needed to run the application in “application cache”
• Storing arbitrary data off-line – there is no “local storage”, “webSQL” and other less widely implemented storage mechanism like indexdb.

What does this do for the FT or for Amazon?  Users technically don’t need to go to Apple’s App Store to download an app, buy subscriptions, buy premium content and so forth.  And publishers aren’t therefore limited in any way by Apple’s subscription rules, or revenue sharing.  And if that much is true, as MacWorld noted, Apple cannot claim any interest in subscriber data, the big plumb for many publishers.

This raises obvious questions, not the least of which is how has Apple reacted to the move by Amazon and others away from the App Store?  How have other major publishers reacted, and what should we expect to see?  Answers to these questions may be more nuanced than might seem warranted at first glance.  More on that separately.

Copyright’s “first sale” doctrine

The “first sale” doctrine involves this concept: If you buy a copyrighted work (say, a painting, or a book, or – as in this case – software – you have an unqualified right to transfer your copy of that work to anybody as you please.  That doesn’t mean you can make additional copies and sell those too, but generally it does mean that you are free to resell something that you purchase.  (As will be discussed below, the operative term is “purchased”.)

The doctrine was first recognized by the Supreme Court in a 1908 case, and later codified by Congress into the Copyright Act in the 1976 amendments to the Act.

One commentator has illustrated the purpose of the doctrine with this absurdity:

If you purchase a Ford car, you may not drive it near a Chevy dealer, or trade it for a Chevy, because it was Ford’s car.

Whether or not that might make business sense, clearly this is not a correct statement of reality.  Which gives us the first sale doctrine.

The recent software dispute involving first sale was Vernor v. Autodesk, Inc., decided September 10, 2010.

The case involved a software vendor (Autodesk) and an end-user (Vernor) who sought to resell (on eBay) the 4 copies of Autodesk’s software that he had previously purchased.  Of course, the operable term is “purchased”, because technically, Vernor licensed rather than purchased the Autodesk software.  That distinction decided the case.

The ruling was on an appeal from a lower court which held that, notwithstanding the fact of a “license” rather than “sale”, the first sale doctrine still applied because the end-user was permitted to retain the physical copies of the software in perpetuity.  In other words, the court disregarded the distinction between a license and a sale of software, except where the physical copy was required to be returned similar to a rental or lease.

The appeals court reversed, basing its ruling largely on the clear terms and affirmative acceptance of a standard software license agreement.  And as Jeffrey Neuberger wrote this week about the case,

In brief summary, the court held that “a software user is a licensee rather than an owner of a copy where the copyright owner (1) specifies that the user is granted a license; (2) significantly restricts the user’s ability to transfer the software; and (3) imposes notable use restrictions.

Some commentators (see, particularly, Wired’s analysis of the case) worry that the ruling guts the first sale doctrine, in that other copyright owners could simply insert license terms into their products to the same effect.   So, for example, a book publisher could insert a license into the dust cover.

That concern may or may not be justified, although it is already true that e-book and e-music downloads are appended with their own versions of click-wraps similar to typical software license terms.

In any event, it may be premature to read anything into this other than an affirmation of the standard practice in the software industry of licenses (even licenses in perpetuity) rather than sale.

Commentary on the episode leaned heavily to the view of “what gall!” of Apple to presume rights to regulate content.  So, for example, Rob Pegoraro wrote in the Washington Post last week:

If this conduct seems arbitrary, that’s because Apple gives itself that liberty.  The Cupertino, Calif., company’s iPhone developer agreement, as published by the Electronic Frontier Foundation, says Apple can reject an application “at any time” if it thinks rejection would be “prudent or necessary.”

Pegoraro commented that Apple had subsequently “relent”-ed, and presumably characterizing Apple’s conduct as “arbitrary” was appropriate.

And indeed, “arbitrary” may be appropriate, although usually typically the word is thrown around in characterizations of government action like “arbitrary and capricious”.  The stuff of epochal Supreme Court 4th Amendment cases challenging the Bush Administration, for example.

Two thoughtful takes on a broader related point were published in the last week, first by Michael Kinsley in the Atlantic and by William McGurn in the Wall Street Journal.  Both are worth reading if only to appreciate contrarian views when society of a collective pile-on of “The Man” (aka Apple).  Michael Kinsley, in particular, is as usual vibrant, his arguments are entertaining and his conclusions read as if seemingly inevitable.

Kinsley and McGurn both suggest that journalists from traditional media (daily newspapers, presumably) usurp the 1st Amendment as their own unique sword AND shield, most recently illustrated with an explosion of “shocking, just shocking!” at the Supreme Court’s Citizens United case recognizing strong 1st Amendment rights for corporations, and similarly the collective “huh?” in response to the more recent Gizmodo/Apple smackdown in California.  In Citizens United, the simple idea (as the Court did write) that the 1st Amendment really does prevent the government from playing favorites with speech OR with speakers – in and of itself, a full-throated empowering of the 1st Amendment – was lost in the din of criticism focusing instead on the seemingly pro-corporation and pro-money line-up of the Justices.

In the Gizmodo/Apple “situation”, much frothing was done over Apple’s “Gestapo-like” tactics, actions that would have made the Chicago Police blush.  Yet here too, a 1st Amendment angle was missed.  No, not the argument about bloggers being journalists: McGurn strongly supports Gizmodo’s argument that bloggers are in fact journalists and thus eligible for the same protections as more traditional media organizations.

Media types will argue – with some credibility – that for both historical and for good public policy reasons, the press MUST have a special place under the 1st Amendment.  And a problem – a serious one – for those opposing this view is a quick reading of the 1st Amendment itself, namely something about “Congress shall make no law … abridging the freedom of speech, or of the press”. This space today is not intended to be the place to debate the issue, suffice for now to say pretty clearly that the Amendment applies specifically to the press – not just freedom of speech.

But again, that issue is for another day.  Citizens United seemed to get under skins not for any challenge to the press, but to a seeming elevation of the 1st Amendment protections for speakers who were NOT the press.  To many observers, that in turn, seemed to challenge the “special” place of the press in American society simply by even hinting that others might share similar rights.  William McGurn in the Wall Street Journal put it this way:

These days, alas, too many journalists and politicians assume that a free press should mean special privileges for a designated class. The further we travel in this direction, the more the government will end up deciding which Americans qualify and which do not.

I think this is an apologist’s perversion of Citizens United.  As a lawyer working with and for new media individuals and companies, I am sympathetic to the arguments for a robust 1st Amendment and, in particular, special protections (including “shield” laws) for the press.  Kinsley and McGurn both offer excellent perspectives on the harm done to the press by the press itself with arguments and assumptions, to the effect, that (a) by virtue of these protections, “the press” must be given unquestioned and great deference and assumptions of infallibility – and immunity from laws such as libel, and (b) the idea, blossoming with blogs and microblogs and reduced barriers to entry into media through online publishing, that anyone who “publishes” is a journalist – and therefore is automatically eligible for these great protections.

Nonetheless, sensitivity to these problems must still recognize the realities of “new media”, a field which potentially includes a publisher group a LOT broader than news media and bloggers.

Here’s an interesting dilemma for a potentially dominant technology or communications platform: Early Twentieth Century Supreme Court cases found a “public” (and therefore “government” and therefore subject to regulation) role of company towns and their attempts to enforce “private” laws through company-supported police powers.

What happens if Apple’s shiny new iPad gizmo becomes the de facto town square?  Or put more succinctly: What happens when newspapers, magazines and speech generally – presumably limitless and unfettered in the age of the internet – become practically available only on a receiving device available only (or largely) through Apple?

I suspect that antitrust law would be invoked and could sort this out, but that usually happens way down the pike and well after the market – and its implications and winners and losers – has fairly settled out.

But if the case involving Apple’s rejection of cartoonist Mark Fiore’s iPhone app – at least, its rejection before he won the Pulitzer Prize last week – demonstrates anything, it may be nothing new at all.  After all, Apple never pretended to be anything but discriminatory in its editorial control of its “App Store”.  Apple’s same license language quoted by Chittum in the CJR (“Applications may be rejected if they contain content or materials of any kind … that in Apple’s reasonable judgement may be found objectionable, for example, materials that may be considered obscene, pornographic, or defamatory”) is no more or less restrictive or arbitrarily discriminatory than similar language found in Terms of Service found on the most established websites.  Here, then, from the Terms of Service for the New York Times website:

You acknowledge that any submissions you make to the Service …. may be edited, removed, modified, published, transmitted, and displayed by The New York Times Company and you waive any rights you may have in having the material altered or changed in a manner not agreeable to you” (emphasis added).

And these restrictions don’t even bother qualifying themselves with the gratuitous “reasonable judgement” conceded by Apple.

Could this really be more about control of distribution on the Internet?  Or about … control of the Internet?  Apple’s success in transforming music distribution with its ubiquitous iPod (yes, iPod with an “o”) seemingly resulted from simply building a better design than.  While Apple’s limitations in transforming music distribution seemingly resulted solely from Apple’s inability to cut deals with all music labels.

Why should textual content distribution really be any different?  Last fall, Rupert Murdoch’s News Corporation threatened to limit the availability of its content through Google and other search.

Presumably, the New York Times or CJR could do the same through the iPad, Kindle, Sony Reader or Barnes & Noble Nook.

(Although the telling takeaway from the News Corp. experience may be Google’s proverbial shrug in response.)

In a New York Times story last week about the Pulitzer cartoon incident, cartoonist Fiore waxes philosophic: “Sure, mine [iPad app] might get approved, but what about someone who hasn’t won a Pulitzer and who is maybe making a better political app than mine?  Do you need some media frenzy to get an app approved that has political material?”  Well, not necessarily, and it does seem kind of silly that Steve Jobs would now personally reach out to Fiore.  But then again, why would Apple not want to grant a popular political cartoonist a presence on its popular reading tablet?  And why shouldn’t Apple be able to simply make a business decision that some sort of threshold public interest in the application need be attained to merits Apple’s attention?  The alternative presumably would require that Apple embrace all political speech and all potential demands for its desktop space.

We’ve seen this before in other areas of the law.  An example is the perpetually swinging pendulum of 1st Amendment Establishment Clause governance, where on the one hand government must permit and not inhibit all religious comers, or then affirmatively not allow anybody to do anything.

But back to the original question (or back to our question of original intent?): Why should Apple – a private company with a private commercial product – be required to conform with either view of an “open” forum of speech?

From this perspective, a more alarming (from the publishing industry’s perspective) competitive threat on the market today is the low-cost pricing of hardcover books (including current bestsellers) at places like Target, Costco and Walmart.  The fact that Amazon agrees to raise the basic Kindle book price helps alleviate publishers’ pain only so long as the electronic book market seriously impacts the book purchase market and – which is nowhere near the case – and only so long as Amazon (and a very few smaller competitors) dominate electronic retail – which they do.

And this is precisely the point book industry veteran Jason Epstein makes in his March 11th essay in The New York Review of Books, “Publishing: The Revolutionary Future.”  For the book publishing industry has been reeling since well before the appearance of the Kindle or Sony Reader or, for that matter, since well before the digital migration.  Admits Epstein, “This historic shift” of digitalization “will radically transform worldwide book publishing, the cultures it affects and on which it depends.”  However, why the shift remains so difficult for traditional book publishers has much to do with decades-old trends:

“Meanwhile, for quite different reasons, the genteel book business that I joined more than a half-century ago is already on edge, suffering from a gambler’s unbreakable addiction to risky, seasonal best sellers, many of which don’t recoup their costs, and the simultaneous deterioration of backlist, the vital annuity on which book publishers had in better days relied for year-to-year stability through bad times and good.  … The resistance today by publishers to the onrushing digital future [arises] from the understandable fear of their own obsolescence and the complexity of the digital transformation that awaits them, one in which much of their traditional infrastructure and perhaps they too will be redundant.”

Epstein thoughtfully weighs consumer misperceptions about e-books with the publishers’ dilemma.  Consumers, not surprisingly nor unreasonably, might think that electronic book pricing should benefit from the avoidance of the physical costs of publishing, most obviously inventory, manufacturing, paper and distribution.  Of course the industry wants to maintain or even increase profits, which includes covering losses from poor sellers in both print and electronic.  Whether true or not, it is not the whole story.  The reality of publishing still very much involves the huge majority of bookselling in print, via physical retail stores or online sellers.  Put another way, one great obstacle to the evolution of publishing is the lack of evolution in the buying market.

As Epstein later told NPR for its story, “One thing that publishers do have to consider in thinking of pricing is that they don’t want to liquidate their existing retail structure by making it so inexpensive to get an e-book that people won’t go to bookstores at all and then publishers will have no place to sell the 90 percent of the books they do create in the physical form.”

On the other hand, Epstein’s own writing on the subject – a much broader futurism on the limitless possibilities of a digital publishing landscape – seems quite a bit more sanguine about publishing’s future than might be gleaned from the quotes in his subsequent interview for NPR’s story.

Nonetheless, his sympathies obviously lie with a stodgy but (in his view) celebrated industry generally apoplectic about both present and future.  He doesn’t seem to lack any confidence that the industry can survive and thrive (“The more adaptable of today’s general publishers will survive the redundancy of their traditional infrastructure but digitization has already begun to spawn specialized publishers occupying a variety of niches staffed by small groups of like-minded editors ….”).  But he offers compelling economic and cultural arguments for why the market publishers currently resist basement-rate pricing for e-books as well as why, inevitably (if not immediately) the market will absorb and reflect the business reality “with or without the cooperation of [publishing’s] current executives”.