UMG Recordings v. Augusto: First Sale Doctrine Protects Reseller of Promo CDs

Living on the west side of Los Angeles puts me smack in the middle of the entertainment industry. I have often seen promotional copies of DVDs of TV shows and feature films or music CDs being exchanged at parties, and even seen stacks of these being left out by the side of the street for trash pickup. Studios and labels don’t want this content distributed to the public because early distribution can foul up marketing campaigns, and because promotional versions of content may be remixed or reedited. But can the studios and labels prevent recipients from giving away or even reselling these lightly-controlled promotional discs? A June 2008 case said “No”.

The case is UMG Records, Inc. v. Augusto, C.D. Cal., No. CV-07-03106. UMG is a well-known record label and frequently produces promotional CDs. UMG’s promotional CDs are labeled with language stating that “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 defendant Augusto was not one of the original recipients of UMGs CDs, but came into possession of many of these promotional CDs through music shops and online auctions. Augusto then resold the promotional CDs via eBay, as rare collectibles that were not available in stores. After discovering the sales, UMG attempted to get eBay to take down Augusto’s auction sites. However, after initially taking them down, eBay eventually reinstated Augusto’s sites.

UMG then filed suit against Augusto for copyright infringement, arguing that the language on its CDs created a license agreement precluding sale or distribution of the CDs. Augusto defended, relying primarily on the “first sale” doctrine. Under the first sale doctrine, a copyright holder’s right to distribute a work is limited to the initial distribution of copies of a work, not to the resale or further transfer of possession of those copies. 17 U.S.C. § 109.
Central District Judge Otero held that principal issue in the case was whether UMG had transferred title when it sent out the promotional CDs. If the answer was yes, then the first sale doctrine applied and Augusto did not infringe UMG’s distribution rights when he resold the CDs on eBay.