BATTLES IN SEATTLE (Part 1 of 3)

In the copyright context, the determination of whether an individual or entity is a licensee rather than an owner of the copy can depend on the actions of the parties, despite contractual writings and notices. Whether an individual is an owner or a licensee can have an impact on the application of the copyright first sale doctrine.

On June 7, 2010, the Ninth Circuit panel sitting in Seattle, Washington heard oral arguments in UMG Recordings Inc. v. Augusto (a copyright first sale case about promotional sound recordings purchased at used music stores), Vernor v. Autodesk, Inc. (a copyright first sale case involving the sale of software on Ebay), and MDY Indus. v. Blizzard Entertainment (a copyright case related to software code in the computer game World of Warcraft).

With this trio of cases, the Ninth Circuit is presented with three different fact patterns. When considering these cases, the Court must determine, among other things, under what set of circumstances can a transaction be deemed a license and what constitutes a sale.

Copyright Chronicle will be covering each of these cases in a three part series over the next three days.

The parties are in their corners. Let’s get ready to RUMBLE!

Round 1 - UMG Recordings Inc. v. Augusto

As is common practice in the music industry, UMG sends out promotional CDs to radio stations, music reviewers, and other industry insiders prior to the official CD release. The promotional CDs contain labels with language substantially similar to 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”.

Some recipients do not adhere to the instructions on the promotional CDs and sell them. Troy Augusto purchased a large collection of promotional CDs, including many UMG promotional CDs, from used record stores around Los Angeles and then sold the CDs on eBay. The Recording Industry Association of America Acting (RIAA), acting on behalf of UMG, sent Augusto a cease and desist letter and takedown notices, alleging that his sale of UMG's promotional CDs violated the terms of the promotional license and constituted copyright infringement. Augusto continued to sell the promotional CDs and UMG filed a suit claiming that Augusto's unauthorized sale of the promotional CDs violated UMG's copyright in the sound recordings featured on the CDs, specifically the exclusive right to distribute its works under 17 U.S.C. § 106(3).

Augusto asserted that the first sale doctrine, claiming that UMG disposed of the promotional CDs thus the first sale had been exhausted and UMG was prohibited from controlling further downstream transactions by 17 U.S.C. § 109(a).

The District Court held that UMG transferred title in the physical CDs to the initial recipients, and did not, as it argued, merely license them for a limited purpose to a limited group. The court relied in part on an obscure postal statute, 39 U.S.C. § 3009, which characterizes un­ordered merchandise as a “gift.” The District Court then held that the first sale doctrine applies to a copyrighted work after the "first authorized disposition by which title passes” thus finding that Augusto’s actions were protected by the first sale doctrine.

The oral arguments before the Ninth Circuit focused predominantly on defining the transaction between UMG and “industry insiders”—whether the promotional CDs were licensed to the intended user or whether they were a gift because they were unsolicited. Counsel for Augusto conceded that it was the Defendant’s burden to establish a first sale defense and argued Augusto had carried his burden by pointing to the actions of UMG and its relationship with recipients of the promotional CDs.

Check back tomorrow for Round 2!