LaFrance on the First Sale Rule and Ownership versus Licensing of Music CDs

LaFrance on the First Sale Rule and Ownership versus Licensing of Music CDs

In the third of a rapid-fire trio of opinions distinguishing between sales and licenses, the Ninth Circuit in UMG Recordings, Inc. v. Augusto, 2011 U.S. App. LEXIS 52 (9th Cir. Cal. Jan. 4, 2011) [enhanced version available to lexis.com subscribers / unenhanced version available from lexisONE Free Case Law] rebuffed a copyright owner's attempt to impose a licensing agreement unilaterally on the recipients of phonorecords that were shipped to them, unsolicited, as part of a promotional distribution. In this Analysis, Mary LaFrance examines the implications of this opinion. She writes:

     Plaintiff UMG Recordings sent free promotional music CDs, unsolicited, to music critics and radio disc jockeys. However, UMG made no prior arrangements with these recipients prior to shipping. The CDs were not numbered, and UMG made no attempt to keep track of them after sending them out.

     . . . .

     Although UMG did not send any of these promotional CDs to defendant Augusto, he acquired a number of them from various third parties. When he sold them on eBay, UMG filed suit for copyright infringement, alleging that Augusto had violated UMG's exclusive right of public distribution, 17 U.S.C. § 106(3). Augusto argued that his sale of the CDs was not infringing, because, as the owner, he was permitted to resell them under the "first sale" rule, 17 U.S.C. § 109(a). The district court agreed, granting summary judgment to Augusto, and the Ninth Circuit affirmed.

     . . . .

     In the court's view, the language on the CD labels did not give rise to a license. The short phrase "Promotional Use Only - Not for Sale," which appeared on some of the CDs, "does not even purport to create a license." Even the more detailed statement that appeared on some of the other CDs failed to create a license; the assertion that acceptance of the CD "shall constitute an agreement to comply with the terms of the license" was ineffective because "acceptance" cannot be assumed "where the recipient makes no response at all." . . . Because no license existed, "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."

(citations omitted)

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