Category Archives: First Sale Doctrine

First Sale Doctrine: Promotional CDs (UMG v. Augusto)

The 9th Circuit has ruled that when record labels send promotional copies of CDs to “Industry Insiders” they transfer ownership of those CDs such that the First Sale Doctrine (see § 109 of the Copyright Act) bars claims of infringement (i.e., unlicensed distribution).  The case arose when Troy Augusto sold promotional CDs on eBay.  The record labels claimed that such CDs were still owned by the labels because they had been merely licensed to the “Industry Insiders” to whom they had been sent.  In support of this claim, the labels pointed to language affixed to the CDs or to its packaging that read “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.” or sometimes just ““Promotional Use Only—Not for Sale.”  The labels argued that they intended to merely grant a limited use right (i.e., a license) to these “Industry Insiders” rather than transfer ownership of the promotional CDs such that the First Sale Doctrine would not apply.  The 9th Circuit disagreed and found that ownership of the promotional CDs had transferred to the “Industry Insiders” who were then free to dispose of them as they wished, including giving them to Troy Augusto, who could then sold them on eBay.

In their appeal brief, the record labels spend a lot of time arguing that they intended the provision of promotional CDs to be a license.  They didn’t spend much time discussing whether the “Industry Insiders” understood that by receiving a promotional CD they hadn’t specifically requested they were now bound to a license.  The labels spend a lot of time discussing software licenses, but it seems pretty obvious that in the context of a software license–even a so-called “click thru” license–that the prospective licensee is actively seeking the software allegedly being licensed.  Here, in contrast, the record labels are sending promotional CDs to “Industry Insiders” in hopes that such influencers will like the music and promote the music; i.e., play it on their radio station.  It’s hard for me to imagine that such “Industry Insiders” believed they were under any obligation to do anything.

The RIAA’s amicus does little more.  The RIAA trots out the public performance exception of § 110(7) to suggest that promotional uses of music are somehow intrinsically different than commercial uses.  Of course, to suggest that giving the “few thousand” promotional copies to “Industry Insiders” isn’t “commercial” is ridiculous on its face.  While the “Industry Insiders” aren’t paying for the promotional CDs, the record labels certainly believe that by giving away a “few thousand” promotional CDs they will increase the sale of that record.

The 9th Circuit opinion is here.
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Troy Augusto’s brief is here.
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UMG’s brief is here.
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The RIAA’s brief is here.
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