The Ninth Circuit Court of Appeals has reaffirmed the first sale doctrine and upheld the dismissal of a copyright infringement lawsuit brought by UMG Recordings, Inc. against an individual who had acquired and resold its promotional CDs on eBay.
UMG had sent free, unsolicited, promotional CDs to select music critics and radio programmers. Few of them refused delivery or returned the CDs and UMG destroyed those CDs that were returned. Most of the promotional CDs included a statement on them, which represented that the CD was for "Promotional Use Only—Not for Sale." (Others stated more specifically that the CD is the "property of the record company and is licensed to the intended recipient for personal use only. Acceptance of this CD shall constitute an agreement to comply with the terms of the license. Resale or transfer of possession is not allowed and may be punishable under federal and state laws.")
Troy Augusto was not among the group of individuals UMG selected to receive the CDs, but he acquired many and resold them at online auctions on eBay anyway. After unsuccessfully attempting to informally persuade Mr. Augusto to stop selling them, UMG sued him for copyright infringement.
The first sale doctrine essentially provides that a copyright owner who transfers title in a particular copy to a purchaser or donee cannot prevent resale of that particular copy. It is contained in the Copyright Act under 17 U.S.C. § 109(a), which provides, “the owner of a particular copy or phonorecord lawfully made under [the Copyright Act], or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.”
Augusto argued that the first sale doctrine permitted him to sell the CD. UMG countered that the statements on the discs and the circumstances of their distribution granted only a "license" to the selected recipients, rather than a transfer of ownership, or “sale” of the copy. Without a "sale," UMG argued, the first sale doctrine did not apply.
The Ninth Circuit had previously acknowledged that all transfers of possession of copies do not transfer title, such as, for example, in the context of computer software, where copyright owners are permitted to create licensing arrangements that limit what users acquire. In that context, users are not permitted to copy or sell the software to third parties without the permission of the copyright owner. See Vernor v. Autodesk, Inc., 621 F.3d 1102 (9th Cir. 2010); Wall Data Inc. v. Los Angeles Cnty. Sheriff’s Dept., 447 F.3d 769 (9th Cir. 2006); Triad Sys. Corp. v. Se. Express Co., 64 F.3d 1330 (9th Cir. 1995); MAI Sys. Corp. v. Peak Computer, Inc., 991 F.2d 511 (9th Cir. 1993).
However, the court explained at length why the unsolicited distribution was made without an agreement and how, in these circumstances, the manner of UMG's distribution effectively transferred title of the CDs to the recipients. Thus, irrespective of the language on the CDs, the distribution did not constitute a mere license, and the first sale doctrine applied. UMG therefore could no longer control the distribution of those CDs or sue Augusto for copyright infringement.
The Ninth Circuit's opinion is available here.
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