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The Ninth Circuit recently issued the last of three decisions concerning the “first sale doctrine” – a limitation on copyright established by the Supreme Court over one hundred years ago.

The first sale doctrine allows the purchaser of a lawfully-made copy of copyrighted material to transfer his/her copy without seeking permission from the copyright holder. This doctrine has frustrated many attempts by the publishing and music industries to limit purchasers’ use of copyrighted material after it is sold. For example, in the 1930s, records were often accompanied by labels warning “for private use only, not for broadcast.”

Vernor v. Autodesk:

In Vernor v. Autodesk, Inc., No. 09-35969 (9th Cir. Sept. 10, 2010),  Vernor purchased Autodesk software at an office sale and later tried to resell the product on eBay. Autodesk issued numerous “takedown notices” – ultimately leading to the termination of Vernor’s eBay account. Vernor  sought declaratory relief, invoking the first sale doctrine.

The circuit court ruled in favor of Autodesk – holding that a copyright owner can defeat the first-sale doctrine by specifying that the user is granted a license and providing for “notable” use restrictions. When such a specific statement is included in the original purchase, the copyright owner is then free to prohibit resale and enforce any other restrictions.

In this case, because each copy of Autodesk included detailed “licensing agreement,” the software company prevailed.

MDY Industries v. Blizzard Entertainment:

Last month, the Ninth Circuit decided another first sale doctrine case in MDY Indus., LLC v. Blizzard Entertainment, Nos. 09-15932 & 16044 (9th Cir. Dec. 14, 2010).

In this case, MDY Industries had produced a “bot” (the Glider bot) that allowed players to skip levels within World of Warcraft — a popular computer game. Blizzard Entertainment argued that this use violates WOW’s terms of service and constitutes copyright infringement. Blizzard further argued that MDY was secondarily liable for players’ infringing uses of this bot.

The circuit court reaffirmed its previous decision in Vernor, noting that WOW players are mere licensees. However, the court rejected the claim that MDY was secondarily liable for copyright infringement because the players’ use of the Glider bot did not directly infringe Blizzard’s copyright.

In sum, the Ninth Circuit held that a breach of a condition within a licensing agreement does not per se constitute a copyright violation. An infringement claim exists only if the licensee’s use “exceeds the scope of the license in a manner that implicates one of the licensor’s exclusive statutory rights.”

Because the Glider bot did not alter or copy the WOW software in any way, the court ruled in favor of MDY Industries.

UMG Recordings v. Augusto:

In the most recent case - UMG Recordings, Inc. v. Troy Augusto, No. 08-55998 (9th Cir. Jan. 4, 2011) - the court strengthened the first sale doctrine by permitting the resale of promotional CDs.

In an effort to promote their artists’ works, UMG Recordings routinely distributed unsolicited, free promotional CDs to radio programmers, critics, and the like. These promo CDs contained a disclaimer that they could not be sold or transferred.

Augusto acquired these promo CDs from various sources and posted them on eBay for resale. As in Vernor, UMG Recordings attempted to stop the resale of the CDs via eBay “take-down notices.”

The circuit court rejected UMG’s argument that the recipients of the promo CDs were licensees rather than owners. The court relied primarily on the fact that the CDs were unsolicited, meaning that the recipients never agreed to any license agreement. Further, the court noted “[t]he CDs are not numbered and no attempt [was] made to keep track of where particular copies are or what use is made of them.”

Accordingly, the Ninth Circuit held that the distribution of the promo CDs effected a sale, thereby invoking the first sale doctrine and protecting their resale by Augusto on eBay.

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Although the recent Augusto decision is favorable to champions of the first sale doctrine, its holding is limited by the fact that the CDs were unsolicited and contained only a short statement limiting resale. Accordingly, Augusto is a weak victory in light of Vernor v. Autodesk.

Today, software purchasers often expect to find a license agreement including incorporating various use restrictions when buying a new product. Vernor legitimizes this practice.  At the very least, the Blizzard decision prevents music/software companies from transforming breach of these agreements into per se copyright violations.

The Vernor decision, however, does not limit itself to software. Could this holding extend to other forms of copyrighted material – such as books and CDs?

Greg Beck, Vernor’s lawyer, argues that it is “inevitable” that book publishers will be emboldened by the Ninth Circuit’s decision to implement license agreements. This may be especially true in markets where resale is a particular concern – such as textbooks.

For budget-minded students spending hundreds of dollars on textbooks each semester, this paints a scary picture. If book publishers begin including license agreements restricting resale, students would be unable to utilize services like Half.com to recoup costs.

In sum, it is no surprise that the Vernon decision has been criticized as sounding the death knell for the first sale doctrine.

Lacey R. Logsdon

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