Ninth Circuit extends reach of the first sale doctrine by protecting sales of free and unsolicited compact discs: UMG Recordings, Inc. v. Augusto (Jan. 4, 2011)

The Ninth Circuit recently applied the first sale doctrine in a case involving free and unsolicited promotional compact discs (CDs). The court held that because of the distribution method, title to the promotional CDs was transferred to the recipients, and an infringement action could not be based upon the CDs' sale thereafter.

In the Ninth Circuit case, UMG Recordings had shipped specially-produced promotional CDs to a large group of individuals, such as music critics and radio programmers. Most of the promotional CDs bore the following statement:

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.

Some of the CDs also bore a more succinct statement, such as "Promotional Use Only-Not for Sale."

Troy Augusto, who was not among the individuals receiving the CDs, acquired numerous such CDs. He then sold the CDs through online auctions despite the promotional statement. UMG filed a complaint against Augusto, alleging that Augusto had infringed UMG's copyrights in CDs for which it retained the "exclusive right to distribute."

In UMG Recordings, Inc. v. Augusto, 2011 U.S. App. LEXIS 52 (9th Cir. Cal. Jan. 4, 2011) [enhanced version available to subscribers / unenhanced version available from lexisONE Free Case Law], the Ninth Circuit applied 17 USCS § 109's first sale doctrine, holding that under the circumstances, the recipients had acquired ownership and were entitled to use or dispose of the CDs in any manner they saw fit. The conclusion was based largely on the nature of the distribution, with the Ninth Circuit noting that: (1) the CDs were dispatched without any prior arrangement as to those particular copies; (2) the CDs were not numbered, and no attempt was made to track their location and use; and (3) no license agreement existed.

The Ninth Circuit also refused to find a "bullying for payment" requirement in the Unordered Merchandise Statute, 39 USCS § 3009, and rejected UMG's contention that the promotional statements had given rise to a license.