January 5, 2011
First Sale Doctrine Covers Promotional CDs
A significant first sale doctrine case came out of the Ninth Circuit yesterday. The Court upheld the right of an individual to resell promotional compact discs even though the discs were labeled as a grant of license rather than a sale. The case is UMG Recordings, Inc. v. Troy Augusto (08-55998). This case is from the same circuit that held that software is licensed to consumers rather than sold (Vernor v. Autodesk, 621 F.3d 1102 (2010)). Licensing is a big deal as a licensed product is exempt from the first sale doctrine.
The facts of the case are pretty straight forward, so much so that the trial court granted summary judgment to Augusto. He acquired promotional copies of CDs from various used music stores and resold them on eBay. They are typically labeled with statements such as:
This 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.
Many CDs marked as promotional are usually nothing more than copies that would have been marketed as sales items. Some promotional discs, however, may contain different edits or mixes that may not be available to the general public. These are sought as collectors items. Universal argued that their statement, as well as another stamp that said "Promotional - Not For Sale" limited the original reciepient and Augusto from selling them. That does not establish a license, said the Court.
Acknowledging Vernor, the Court said the method of distributing these discs is nothing like the sale of software. In Vernor, the license was sold between parties with an extensive agreement of rights by both parties. Here, promo CDs were sent unsolicited to reviewers, radio stations, and anyone else whom UMG thought could influence the music market. The unilateral statements of ownership and license do not actually create a license as there is no statement of assent from the recipient agreeing to the statement.
The Court also invoked the Unordered Merchandise Statute, 39 U.S.C. § 3009, which gives the recipient the right to dispose of the unsolicited item without any obligation whatsoever to the sender. Augusto was not a recipient under the terms of the statute, but whoever received the discs from Universal was. As such, Augusto was a valid buyer and not liable for infringement or restrictions on his subsequent sales on eBay. Unsolicited promotional CDs (and presumably books and other similarly distributed items) are covered by the first sale doctrine.
The opinion is here. [MG]