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August 15, 2007

First Sale Doctrine at Issue in Promo CD Sale Suit

Used CDs are the bane of the music industry.  Once consumers buy a CD they can do whatever they want with it, give it away, resell it, all without the producer's permission.  It's called the first sale doctrine, and it's been around for a long time.  Without it, used book and CD stores wouldn't exist.  In theory, at least, no one could have burned Beatle records over John Lennon's "bigger than Jesus" comment if not for the doctrine. 

Used CD stores are a way of life, especially in college towns.  In Chicago we have stores such as Reckless Records and Disc Replay selling used CDs and DVDs at a fraction of their original cost.  The catalog at Reckless tends to be fairly eclectic which makes them more interesting than, say, mega sellers such as Best Buy or Wal-Mart.  Some consumers like the pricing and selection.  The labels don't because they don't get a cut of the resale.

One of the items often found in resale shops is a promotional copy of a disc.  They usually have a deliberately damaged bar code to prevent commercial sale and a legend that says something like "Promotion copy, not for resale.  This disc is licensed from the content owner and may not be sold, given away, or redistributed in any way without permission of the content owner."  Or words to that effect.  It's not exactly a secret that no one pays attention to these licenses.  Reviewers frequently dump promo product to make quick cash.  There's hardly been any reports (read none) of companies asking for copies back once a title has hit its peak.  The net effect is that this "license" is generally not enforced.  Until now.

Universal Music Group has decided to challenge the first sale doctrine in a case where an individual put up promo product for resale on eBay.  That will get you noticed.  UMG has decided to put the promotional license to the legal test by suing one Troy Augustino, the alleged violator of the license.  Interesting that he's the defendant given that he is likely not the one who got the product directly from Universal.  Still, anything that UMG can do to limit the first sale doctrine is in their interest and not that of the consumer.  On the other hand, it's a lot more comfortable to pay $4.99 for a used Elvis Costello CD than $18.99.  (Sorry Elvis, but that's your going rate these days on the low end.)  Imagine if UMG won this case that they would attempt to license content through the sale rather than an outright sale of the music.  Would the first sale doctrine apply in that situation?

The implications go beyond what Universal sells.  The promo product license is a lot like shrink wrap licenses.  Lose a case over music and the free flow of used software might show up in resale shops.  Not a pretty concept for the software industry.  Note that people offer unregistered software licenses on eBay.  Some of these sales likely violate the no transfer provision of some manufacturers.

The transition to a non-physical format may be the best attempt to stifle the practice of selling used music.  Who, after all, ever heard of a used mp3 store.  Wait, some enterprising start-up will probably try to set up an online store.

See the story in Ars Technica for more details on the Augustino case.

August 15, 2007 | Permalink

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