Another Victory for the First Sale Doctrine

The First Sale Doctrine (“FSD”) is an exception to the copyright owner’s exclusive
distribution right. Under the FSD, the owner of a lawfully made copy of a
copyrighted work may sell or otherwise dispose of that copy without the
authorization of the copyright owner.

Manufacturers sometimes try to defeat the FSD by distributing the good under a license agreement. Under this licensing approach, the manufacturer argues that (i) it has not
transferred ownership of the good but instead has only granted a limited right
to use the good and (ii) therefore, the FSD does not apply.

Before a new music CD is released for sale to the public, record labels often create and distribute promotional CDs to radio stations and other music industry professionals. UMG, like many other record labels, try to prevent the subsequent re-sale of their promotional CDs by labeling them “for personal use only” and “resale or transfer prohibited”.

UMG filed a copyright infringement lawsuit against Troy Augusto who had obtained second-hand and was selling on eBay promotional CDs. Augusto won. The court decided that UMG's distribution of promotional CDs to the music industry professionals qualified as a sale or as a gift, not as a license. Therefore, the music industry professionals could legitimately transfer the CDs to Troy Augusto who could in turn legally sell them on eBay.

In
a similar recent case involving the software industry, a federal court decided
that Timothy Vernor owned second-hand copies of AUTOCAD software and could  rely on the FSD to sell the software on
eBay.