eMarketer looks at some of the legal issues arising from the growing online distribution of entertainment and other content.

The legal issues related to digital content distribution over the internet have been discussed exhaustively over the last few years, so it is not necessary to rehash the basic issues. But it is worth pointing out how Digital Rights Management (DRM) fits within the broader intersection of the law, technology and current online business models.

A recent discussion paper by the Berkman Center for Internet & Society at the Harvard Law School, using Apple's iTunes music store as its case study, identifies the key issues well. The key points raised by the paper are:

• Contract-Copyright Intersection: iTunes, like other music stores, uses two legal strategies to govern the actions consumers may take with purchased digital content: limitations through contract, and copyright law. iTunes relies on license agreements with its consumers to support its business model by limiting what they can do with the content. In other words, it uses contracts to reallocate copyright entitlements.
  
  
• Digital Rights Management and Anti-Circumvention Laws: Like contracts, DRM can upset the balance struck between copyright holders and the public, including fair use and first sale. Unlike contracts, DRM restrictions are self-enforcing. iTunes takes advantage of its DRM system, FairPlay and legal provisions such as those set forth in the Digital Millennium Copyright Act (DMCA) to prevent music piracy on the one hand and to limit interoperability (thus controlling secondary markets) on the other.
  
  
• First Sale and Business Model-Intersection: The first sale doctrine is aimed at balancing between the copyright holder's rights and public access to copyrighted works. Therefore, the doctrine has an important impact both on consumers and on the public at large. The first sale exemption or the principle of exhaustion in its current interpretation, however, is rather unlikely to apply to digital works distributed over the internet. The emergence of a digital first sale doctrine, by contrast, would likely lead to secondary markets in downloaded content such as music and movies. These secondary markets, in turn, could likely have a significant impact on online business models such as iTunes as well as on users' opportunities to gain access to copyrighted digital content.
  
  
• Fair Use and Business Model-Interaction: Fair use is a privilege to use an individual's copyrighted material in a reasonable manner without his consent. The specific implementations of fair use rights or privileges can vary significantly from country to country. Fair uses traditionally include copies for private study, parody, criticism, news reporting, limited personal uses and reverse engineering for interoperability. iTunes, like other services, has to balance between broad consumer expectations of fair use on the one hand and a copyright holder's desire to control the distribution and use of copyrighted works by means of contract law and DRM schemes on the other hand.

The report highlights the fact that DRM technology, in combination with restrictive terms-of-service conditions, such as that underpinning the iTunes Music Store, can have a negative impact on a user's rights to fair use and first sale -- rights that are fundamental in the offline world. Furthermore, a lack of DRM standards and interoperability is making the market for digital content and digital equipment increasingly complicated for the consumer, which will inevitably hamper the growth of the entire sector. One important question that is cropping up more and more as DRM becomes more widespread is this: are DRM systems being employed to prevent piracy, or just to protect against competition?

Ben Macklin is a senior analyst at eMarketer. This article is drawn from his forthcoming report on Digital Rights Management.