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UMG vs. Augusto: first sale wins

From: Alexander Terekhov
Subject: UMG vs. Augusto: first sale wins
Date: Sat, 08 Jan 2011 17:32:23 +0100

Court Rules That It’s Legal To Sell Promotional CDs

Last year, we had noted that the 9th Circuit appeals court was set to
hear three separate cases, all revolving around the first sale doctrine,
which allows you to resell copyrighted works that you possess. The first
ruling of the three, back in September, was bad news: overruling a good
district court ruling, in Vernor v. Autodesk, saying that anyone could
effectively wipe out your first sale rights by simply putting a
“license” on it. The second ruling, in MDY vs. Blizzard, was more of a
mixed bag. It accepted the basics of Vernor but said that just because
you violate a “license,” it doesn’t automatically mean you violate the

Now, the ruling in the third case, UMG vs. Augusto, has come out and it
looks pretty good. It upholds the first sale rights of people who get
“promotional” CDs (pdf of the ruling, which is also embedded below).
Basically, the court seems to agree with the lower court’s ruling, which
suggested that being able to overrule first sale rights with a couple of
sentences stamped on a CD, which the labels clearly never intended to
get back, would undermine the entire principle of the first sale
doctrine (though, it did so for different reasons).

So, how did the court square this ruling with its own decision in
Vernor, which essentially said something different? It basically comes
down to the fact that Universal Music gave out these CDs without
expecting them back or without getting the original recipient to agree
to anything specific. That is, the text stamped on the CD doesn’t count
as a true license agreement. But all the crap included with Autodesk
software does count as a license agreement (rather than a true transfer
of ownership):

It is one thing to say, as the statement does, that “acceptance”
of the CD constitutes an agreement to a license and its 
restrictions, but it is quite another to maintain that 
“acceptance” may be assumed when the recipient makes no response 
at all. This record reflects no responses. Even when the evidence 
is viewed in the light most favorable to UMG, it does not show
that any recipients agreed to enter into a license agreement
with UMG when they received the CDs.

Because the record here is devoid of any indication that
the recipients agreed to a license, there is no evidence to 
support a conclusion that licenses were established under the
terms of the promotional statement. Accordingly, we conclude
that 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.

The main difference between the lower court ruling and this new ruling
is that the appeals court focused on the lack of any actual “agreement”
in the license, while the lower court focused on the lack of expected
return of the promotional CD. 

Not surprisingly, I think the court got this right but since I also
believe that the earlier Vernor ruling was very, very wrong, it’s not
surprising that I think this ruling does a nifty little tap dance to
pretend that this ruling and the Vernor ruling are consistent. It
basically says that it all depends on “the means of distribution,” in
that recipients of promo CDs did not ask for them, while purchasers of
software did. But that seems to be besides the point and somewhat
unrelated. The same issue that seems to drive this ruling for Augusto
should apply to Vernor as well. The court notes that there’s “no
acceptance” of a license and you can’t assume acceptance via no
response. And yet, that’s how most such software licenses work as well.

While I’m happy about this particular ruling, it still seems to conflict
with itself and I would imagine we haven’t heard the last of these three
first sale cases...

eBay Seller Wins First-Doctrine Appeal, Allowed to Sell Promo CDs

By Ina Steiner 

January 06, 2011 

Reading AuctionBytes: eBay Seller Wins First-Doctrine Appeal, Allowed to
Sell Promo CDs 


An appeals court ruled that an online seller who obtained UMG promo CDs
could sell them on eBay, but said the ruling does not change its recent
decision in the Vernor v Autodesk case in which it ruled Timothy Vernor
could not sell Autodesk software on eBay. 

Both cases tested the First Sale doctrine, which holds that the owner of
a particular copy of a copyrighted work has the right to resell that
work without permission of the copyright owner. 

This week's ruling stemmed from a copyright infringement lawsuit filed
by UMG Recordings against Troy Augusto. The defendant, Augusto, obtained
promotional CDs that UMG used for marketing purposes and later sold them
on eBay, an act that UMG contended infringed its exclusive right to
distribute the discs. 

Augusto asserted that UMG's initial distribution of the discs effected a
transfer of ownership of the discs to the recipients, rendering the
discs subject to the First Sale doctrine.

UMG, who used the CDs solely for marketing purposes, sent the promo CDs
unsolicited to individuals such as music critics and radio disc jockeys.
UMG argued that the statements on the discs and the circumstances of
their distribution granted only a license to each recipient, not a
transfer of ownership (or "sale") of the copy. 

However, the U.S. Appeals Court for the Ninth Circuit concluded that UMG
did not succeed in creating a license, and that the mailing indeed did
effect a sale of the discs to the recipients for purposes of the First
Sale doctrine. It affirmed the order of the district court in favor of
the defendant.
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(GNG is a derecursive recursive derecursion which pwns GNU since it can 
be infinitely looped as GNGNGNGNG...NGNGNG... and can be said backwards 
too, whereas GNU cannot.)

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