First the copyright part of the case. Under copyright law, the legitimate owner of a “copy or a phonorecord” can “sell or otherwise dispose of them” without the consent of the copyright owner. 17 U.S.C. § 109(a). There’s an exception, however, in § 109(b)(1)(A). It says that:
Notwithstanding the provisions of subsection (a), unless authorized by the owners of copyright in the sound recording . . . and in the case of a sound recording in the musical works embodied therein, . . . the owner of a particular phonorecord . . . may [not], for the purposes of direct or indirect commercial advantage, dispose of, or authorize the disposal of, the possession of that phonorecord . . . by rental, lease, or lending . . . .”
This exception came about in the early 1980s because record companies were concerned that they were losing too much business through record and tape rentals (to people would simply copy the rented music). In Brilliance Audio, Inc. v. Haights Cross Communications, Inc., No. 05-1209 (Jan. 26, 2007), the question was whether this exception applied to rentals of audio recordings of books. The Sixth Circuit though that the statutory language could go either way. (I had to read this part of the opinion three times to see how it could be read NOT to include recordings of books, but I digress.) Because it considered the language capable of going either way, the court jumped into the dreaded legislative history and discussed evanescent notions of “policy.” To make a long story short, the court decided that, in 1984, Congress was concerned only with music recordings. Nobody mentioned books on tape at all. And as to policy, the court decided that exceptions to the first sale doctrine should be construed narrowly, since such exceptions would “upset the bargain” in copyright law between copyright owners (who want to protect their creative works) and the rights of owners of stuff (to do what they want with their stuff). So it concluded that first sale doctrine exonerated the defendant on the copyright count.
The trademark claim was that the defendant was repackaging and re-selling the audio books in violation of the Lanham Act. The plaintiff sold two different versions of the audio books: one for consumers and one for libraries. It claimed that the defendant was taking the consumer versions and labeling them as library versions. The court (correctly in my view) upheld the trademark claim in the face of a first sale defense because (a) the plaintiff alleged that the defendant’s labeling didn’t make clear that the product was repackaged, plus (b) the goods weren’t “genuine” because there were differences between the two versions.