UMG Recordings, Inc. v. Augusto
628 F.3d 1175 (2011)
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Rule of Law:
The unsolicited distribution of a physical copy of a copyrighted work constitutes a transfer of ownership to the recipient, triggering the first sale doctrine. A copyright holder cannot unilaterally impose licensing restrictions that prevent resale of such copies, especially when the distribution qualifies as 'unordered merchandise' under federal law.
Facts:
- UMG Recordings, Inc. (UMG), a major music company, owned copyrights to various sound recordings.
- UMG manufactured and distributed promotional compact discs (CDs) of its copyrighted music.
- These promotional CDs were sent unsolicited to a select group of industry professionals, such as music critics and radio programmers, at no cost.
- Recipients had no prior agreement with UMG to receive the CDs.
- Most CDs bore a statement indicating they were the property of UMG, licensed for personal use only, and that resale was not allowed.
- Troy Augusto, who was not an intended recipient, acquired numerous of these promotional CDs from various third-party sources.
- Augusto then sold these promotional CDs through online auctions on eBay.com.
- UMG attempted to halt the auctions through eBay's dispute resolution program but was unsuccessful.
Procedural Posture:
- UMG Recordings, Inc. filed a complaint against Troy Augusto in the United States District Court for the Central District of California, alleging copyright infringement.
- The district court granted summary judgment in favor of the defendant, Augusto.
- UMG, as the appellant, appealed the district court's judgment to the United States Court of Appeals for the Ninth Circuit. Augusto is the appellee.
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Issue:
Does the resale of unsolicited promotional compact discs, which bear a label purporting to create a license and prohibit resale, constitute copyright infringement, or is such resale protected by the first sale doctrine?
Opinions:
Majority - Canby, Circuit Judge
No, the resale of the promotional CDs is protected by the first sale doctrine and therefore does not constitute copyright infringement. UMG's unsolicited distribution of the CDs effected a transfer of ownership, not a license, to the original recipients. The first sale doctrine, codified at 17 U.S.C. § 109(a), states that the owner of a particular copy of a copyrighted work is entitled to sell or otherwise dispose of that copy without the copyright owner's authority. This transfer of title occurred for two primary reasons. First, the Unordered Merchandise Statute (39 U.S.C. § 3009) allows recipients of unsolicited merchandise to treat it as a gift and 'dispose of it in any manner' they see fit, a right that is 'utterly inconsistent' with the terms of a restrictive license. Second, the overall circumstances of the distribution—sending the CDs unsolicited, not tracking them, and not requiring their return—demonstrate a surrender of the incidents of ownership. The label's language purporting to create a license by 'acceptance' of the CD is ineffective, as there is no evidence that the recipients actually assented to these terms.
Analysis:
This decision significantly bolsters the first sale doctrine in the context of physical media, clarifying that a copyright owner cannot unilaterally transform a gift or sale into a license merely by affixing restrictive labels to an unsolicited item. The court's reliance on the Unordered Merchandise Statute creates a powerful defense against such 'shrink-wrap' license claims for unsolicited goods. The ruling curtails the ability of industries like music and publishing to control secondary markets for their promotional materials. It also draws a clear line between the unsolicited distribution of physical goods and the context of software licensing, where users typically enter into explicit agreements before gaining access to the product.
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