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UMG v. Augusto

By Barry Werbin

In another case testing the bounds of the first sale doctrine, on Jan. 4, 2011, the Ninth Circuit upheld a district court's decision that a record label's printing of a restrictive stamp on promotional CDs that the CDs could not be re-distributed did not create a license agreement, such that promotional CDs can be resold under the first sale doctrine without further permission from the record label. The decision in the case, UMG vs. Augusto, can be accessed here: http://www.ca9.uscourts.gov/datastore/opinions/2011/01/04/08-55998pdf.

The case was filed in 2007, when Universal Music Group (UMG) sued a California resident, Troy Augusto, who sold promotional CDs on eBay. Promotional CDs are given away by record labels to "music industry insiders" to provide publicity and exposure for upcoming commercial releases of new CDs. In 2008, a district court ruled against UMG on the ground that the promo CDs were gifts under federal law and that the terms under which the CDs were furnished were consistent with ownership, not a license. Augusto, who was not a music industry "insider," acquired promo CDs from music shops and online auctions, then resold them on eBay, advertising them as "rare collectibles not available in stores."

The Ninth Circuit held in pertinent part: "Because the record here is devoid of any indication that the recipients agreed to a license, there is no evidence to support a conclusion that licenses were established under the terms of the promotional statement. Accordingly, we conclude that UMG's transfer of possession to the recipients, without meaningful control or even knowledge of the status of the CDs after shipment, accomplished a transfer of title." The court noted that "nothing on the packaging of the Promo CDs or in the licensing label requires that the recipient return the Promo CDs to UMG" and "UMG receives no recurring benefit from the recipients' continued possession."

Further supporting the concept of a "gift" is The Postal Reorganization Act, which prohibits "the mailing of unordered merchandise" without "the prior expressed request or consent of the recipient." The court found that under this statute, such unsolicited materials "may be treated as a gift by the recipient, who shall have the right to retain, use, discard, or dispose of it in any manner he sees fit without obligation whatsoever to the sender." UMG, however, argued that The Postal Reorganization Act applied only to "consumers", and record industry insiders were not "consumers." Nevertheless, in what appears to be a novel interpretation, the court deemed such insiders as the equivalent of "consumers", because "music industry insiders consume the Promo CD just as any other purchaser would, by listening to it. The reason these insiders are selected to receive the Promo CD is because they are not just consumers, they are consumers with influence."

Significantly, just a few months earlier, the Ninth Circuit went in the opposite direction when it decided the long awaited Vernor v . Autodesk case, in which it held that various "license" terms accompanying software - in that case the popular AutoCAD program - which restricted its transfer or lease, did not convey "ownership" of the particular copy of the software purchased by an end user. As only the "owner" of a particular "copy" of a copyrighted work may resell it under the first sale doctrine, one who only possesses but does not own a particular copy of software cannot resell or further distribute it without violating the rights of the copyright owner.
Without mentioning the Vernor case, the UMG Court contrasted cases involving computer software: "Unlike the use of software, which necessitates a license because software must be copied onto a computer to function, music CDs are not normally subject to licensing. Therefore, the benefits of a license for software do not exist under these facts."

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This page contains a single entry from the blog posted on January 10, 2011 10:03 PM.

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