The "first sale" doctrine expresses one of the most important limitations on the reach of copyright law. The idea, set out in Section 109 of the Copyright Act, is simple: once you've acquired a lawfully-made CD or book or DVD, you can lend, sell, or give it away without having to get permission from the copyright owner. In simpler terms, "you bought it, you own it" (and because first sale also applies to gifts, "they gave it to you, you own it," is also true).
But the copyright industries have never liked first sale, since it creates competition for their titles (you could borrow it from a friend, pick it up at a library, or buy it from a used book seller on Amazon). It also reduces their ability to impose restrictions on how you use the work after it is sold. For example, at the turn of the 20th century, book publishers tried to impose a minimum resale price on books by putting a notice in every copy. In the 1930s, record labels put "private use only, not for broadcast" notices on records in an attempt to block radio stations from playing their records without additional payment. In the 1980s, movie studios tried the same thing with video cassettes, trying to control the video rental business. Congress, the courts, and free markets have consistently rejected these efforts to undermine the first sale principle.
But that hasn't stopped Universal Music Group (UMG). In May 2007, UMG sued Roast Beast Music for auctioning "promo CDs" on eBay, CDs which Roast Beast Music had itself purchased from used record stores around Los Angeles. Apparently, UMG had been harassing a number of eBay sellers, sending bogus DMCA takedown notices to eBay, getting auctions suspended and accounts terminated.
EFF, assisted by the San Francisco law firm of Keker & Van Nest LLP, took up the case on behalf of Roast Beast Music, answering UMG's allegations and counter-suing for the bogus DMCA takedowns. The critical question is whether UMG can trump the first sale doctrine by printing "promotional use only, not for resale" notices on the CDs that they routinely give away to radio stations, journalists, and tastemakers of all kinds. Many of these CDs then find their way into the bins of used record stores.
If UMG is right, then copyright owners of all kinds can strip away our first sale rights by putting these kinds of "label licenses" on their wares. Next thing you know, CDs, books, DVDs, and video games could be festooned with "notices" that erode a customer's first sale, fair use, and other rights. Imagine, for example, books "for personal use only, not for library lending" or DVDs that say "not for rental for less than $1 per day."
Fortunately, UMG lost. In June 2008, the district court dismissed UMG's copyright claims, finding that the initial recipients of "promo CDs" own them, notwithstanding "not for resale" labels. The court rejected the notion that these labels create a "license" or that "promo CDs" are "loaned" by the record labels, and instead concluded that the CDs are gifts. According to the opinion, "UMG gives the Promo CDs to music industry insiders, never to be returned. ... Nor does the licensing label require the recipient to provide UMG with any benefit to retain possession."
UMG appealed the decision to the Ninth Circuit....
UPDATE: EFF Wins Landmark Ruling Freeing Promo CDs for Resale
Big Victory for Consumers' First Sale Rights
San Francisco - The U.S. Court of Appeals for the 9th Circuit has shot down bogus copyright infringement allegations from Universal Music Group (UMG), affirming an eBay seller's right to resell promotional CDs that he buys from secondhand stores and rejecting UMG's attempt to claim that a sticker on a CD created a license agreement forbidding resale.
Troy Augusto, represented by the Electronic Frontier Foundation (EFF) and the law firm Durie Tangri LLP, was sued by UMG for offering promo CDs for auction on eBay. At issue was whether the labels on the CDs, some of which stated that they were "promotional use only, not for sale," trumped Augusto's right to resell the CDs that he bought. Copyright's "first sale" doctrine prevents a copyright owner from restricting further sales or uses of a work once title has passed.
In an opinion issued Tuesday, the appeals court held: "UMG transferred title to the particular copies of its promotional CDs and cannot maintain an infringement action against Augusto for his subsequent sale of those copies." The court noted that UMG did not maintain control of the CDs once it mailed them out, did not require the recipients to agree to the "conditions" it sought to impose with the not-for-sale label, and did not require return of the CDs if the recipient did not consent.
"This ruling frees promotional CDs from the shadow of copyright infringement claims, which is good news for music lovers," said EFF Intellectual Property Director Corynne McSherry. "But it also has broader ramifications..."
Please see full opinion below.