• UMG Recordings, Inc. v. Augusto
  • January 14, 2011 | Author: Barry I. Slotnick
  • Law Firm: Loeb & Loeb LLP - New York Office
  • In a copyright infringement action, the Ninth Circuit holds that (1) UMG’s shipment of promotional compact discs (“CDs”) constituted a “sale” within the meaning of the “first sale” doctrine, and (2) the defendant’s subsequent sale of those CDs “was therefore permissible without UMG’s authorization.”
     
    UMG Recordings, Inc. shipped unsolicited promotional CDs to a number of individuals, including music critics and radio programmers, for marketing purposes. Each of these CDs bore a “restrictive statement” asserting that it was intended for promotional use only, and was not for sale or resale. When the defendant - an unintended recipient - began selling these CDs in online auctions, UMG filed a copyright infringement action against him.

    The defendant invoked the “first sale” doctrine, and, in the alternative, argued that, under the Unordered Merchandise Statute, the CDs were gifts which could be retained, used, discarded, or sold by the recipient or any downstream recipient, like the defendant, without UMG’s authorization.

    The Ninth Circuit began its analysis by affirming that the “first sale” doctrine applies “not only when a copy is first sold, but [also] when a copy is given away or title is otherwise transferred without the accoutrements of a sale.” It then considered whether UMG’s distribution of the CDs effected a “transfer of ownership” over those CDs, or whether UMG’s “restrictive statement” was effective to create a limited license in the recipients thereof.

    After noting that UMG distributed the CDs without “prior agreement or request by the recipients” and made “no attempt . . . to keep track of where particular copies are or what use is made of them”, the court held that: (1) UMG transferred title to the promotional CDs to the recipients; (2) this transfer of title constituted a “sale” for purposes of the “first sale” doctrine; and (3) the defendant’s subsequent sale of the promotional CDs was “permissible without UMG’s authorization.”

    With respect to the Unordered Merchandise Statute, the court found that it was only indirectly applicable, as the defendant was not an initial recipient of the promotional CDs. The Unordered Merchandise Statute, 39 U.S.C. § 3009, provides that “the mailing of unordered merchandise . . . constitutes an unfair method of competition and an unfair trade practice. . . .” It also provides that “any merchandise mailed in violation . . . may be treated as a gift by the recipient, who has the right to retain, use, discard, or dispose of it in any matter he sees fit without any obligation whatsoever to the sender. . . .”

    After rejecting the defendant’s attempt to invoke the Unordered Merchandise Statute directly, the court explained that the “significance” of the Unordered Merchandise Statute to this case was not that it conferred any rights on the defendant, but rather that it conferred on the initial recipients the “right to retain, use, discard, or dispose of [the CDs] in any manner that [they] see[] fit, without obligation to the sender.” The court found that this provision was “utterly inconsistent with the terms of the license that UMG sought to impose on the recipients.”