Court Refuses to Restrict the Sale of CDs on eBay

A friend of mine sent me this clipping..which I excerpt below:

"COURT REFUSES TO RESTRICT THE RESALE OF CD�S ON EBAY

UMG Recordings v. Troy Augusto

"This case involves a suit brought by UMG, a music recording company,
for copyright infringement against Augusto for selling copies of Promo
CDs, which were initially distributed for promotional use only, and
labeled with the following:

"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.�

Augusto was not an �intended recipient��he purchased these
promotional CDs from music stores and online auctions before reselling
them on eBay. Augusto counter claimed that UMG violated the Digital
Millennium Copyright Act by knowingly misrepresenting to eBay that
Augusto�s auctions infringed on UMG�s copyrights to halt his sales.
Both parties moved for summary judgment on these claims.

Neither party disputed the facts that UMG owned valid copyright in
the Promo CDs and that Augusto sold the Promo CDs to the public in
violation of UMG�s exclusive right to=2
0do so. Augusto, however, argued that his sales were legal under the
�first sale doctrine�. [The first sale doctrine permits owns who owns a
physical object, such as a book, whose content is subject to copyright,
to sell the book without violating the author�s copyright.] To prove
that these sales were legal under this doctrine, the court required him
to prove that: (1) the CDs were lawfully manufactured with UMG�s
authorization; (2) UMG transferred title to the CDs; (3) He was the
lawful owner of the CDs; and (4) He disposed of, but did not reproduce
the CDs. It was undisputed that UMG lawfully manufactured the CDs and
that Augusto simply sold them (as opposed to reproducing them).

In examining whether UMG transferred title to the intended
recipients of the Promo CDs when sending them out, the court made it
clear that if UMG did so, then Augusto lawfully owned the CDs at the
time he sold them, permitting him to lawfully sell them under the first
sale doctrine. If UMG did not transfer title to, and retained ownership
of the CDs, then Augusto was not the lawful owner, and the first sale
doctrine could not apply.

The court noted that, while the language on the CDs purported to
create a license, UMG distributed the CDs with no intent to regain
possession, no consequence for the loss or destruction of the promo
CDs, and no instructions for the recipients to return the CDs. This
created, in their minds, strong presumption of a sale20rather than a
license. Additionally, unlike typical licenses, the licensing of these
CDs does not provide any recurring benefits to the copyright owner,
strengthening the proposition that this is actually a sale or a gift,
rather than a license. In fact, the court determined that the only
apparent benefit UMG was gaining by labeling this a license was the
ability to restrain distribution of the CDs. The court held that the
distribution of the Promo CDs should be characterized as a sale,
protecting Augusto via the first sale doctrine.

The court additionally noted that the Promo CDs could be
considered a gift under federal law. The CDs were �unordered
merchandise� which were sent without the �prior expressed request or consent of the recipient�; in such circumstances the merchandise may be
treated as a gift by the recipient, with no obligation to the sender.
By sending the Promo CDs to the music industry insiders, UMG
transferred title to those individuals, meaning that the CDs are
subject to the first sale doctrine.

Lastly, Augusto additionally argued that UMG abandoned their Promo
CDs under California Law, claiming that UMG did not possess the Promo
CDs, and that UMG intended to abandon them. While UMG no longer
possessed the Promo CDs, the court held that mere passivity on the part
of UMG was not enough to be considered abandonment.

Regardless, UMG was found to have transferred title to the
recipients of the CDs, giving Augusto protection under the first sale
doctrine, making his resale of the Promo CDs legal. The court granted
Augusto Summary Judgment on the copyright infringement claim.

[stuff deleted]

Augusto was granted summary judgment on the copyright infringement
claim, and UMG was granted summary judgment on the DMCA counterclaim.

This case calls into question [for the first time] whether the
sale of discs with other licensed content, such as RF images can be
restricted by the copyright license. While license agreements for RF
images, provides that the license is not transferable, the physical
disc is an object that is most likely owned by the purchaser of the
disc. Photo libraries, as well as music labels, do try to stop the
resale of RF discs on eBay, as it is contrary t
o the language on the license.

The question is, whether title to the
disc is transferred to the designer that purchases the disc, or is the
disc as well as the images just licensed and remains the property of
the photo library. The language on CD packages should be reexamined to
try and avoid the consequences of this decision."