Tuesday, January 04, 2011

9th Cir. decision on re-sale of "promotional only" copies of music CDs

Promotional music CDs that were sent, unsolicited, from a record company to music critics and radio stations, were subject to “first sale doctrine” and could be freely re-sold—notwithstanding a disclaimer stating that the discs were licensed only and could not be re-sold or transferred.

In UMG Recordings, Inc. v. Augusto, No. 08-55998 (9th Cir. Jan. 4, 2011), Mr. Augusto somehow obtained a bunch of these promotional CDs and re-sold them on eBay. UMG sued him for copyright infringement, arguing that the disclaimer stamped on the discs precluded his “first sale defense”:

"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."

The court rejected UMG’s argument that the disclaimer created a license primarily because the UMG sent the CDs out unsolicited. The court also noted that no recipients responded back to UMG, and that UMG did not even try to figure out the status of the copies it sent to the initial recipients.

The court also held that the “Unordered Merchandise Statute,” 39 U.S.C. § 3009—the Unordered Merchandise Statute???; that's some good lawyering!—explicitly permits the recipients of any unsolicited merchandise sent through the mail or similar means to dispose of the merchandise any way they want. The court held that UMG’s unilateral attempt to create a license was inconsistent with this law.

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