by David Muradyan

Do promotional CDs sent by music recording companies to radio disc jockeys and music critics which contain labels restricting distribution of the CDs and purport to create a license agreement actually create a license agreement between the recording company and the recipient, thereby rendering inapplicable the “first sale” doctrine—an affirmative defense to copyright infringement that allows owners of copies of copyrighted works to resell those copies? In UMG Recordings, Inc. v. Augusto, No. 08-55998 (9th Cir. Jan. 4, 2011) (“UMG Recordings”), the Ninth Circuit answered in the negative.

Like many music companies, UMG Recordings, Inc. (“UMG”)—which is among the world’s largest music companies—shipped specially-produced promotional CDs to a large group of individuals, such as music critics and radio disc jockeys. As the copyright owner, UMG used the CDs, which embodied a copyrighted sound recording, solely for marketing purposes, sending the CDs unsolicited to such recipients. Most of the promotional CDs were labeled with a statement warning that the CDs were UMG’s property and were licensed to the intended recipient for personal use only. The statement also stated that acceptance of the CD “shall constitute an agreement to comply with the terms of the license” and that the resale or transfer of possession of the CD was prohibited. Some of the CDs bore a less elaborate statement, such as “Promotional Use Only—Not for Sale.”

Although Troy Augusto (“Augusto”) was not among the select group of individuals that received the promotional CDs, he nevertheless managed to obtain a number of such CDs from various sources. Advertising the CDs as “rare . . . industry editions,” Augusto later sold them through online auctions at, a move which UMG contended infringed its exclusive right to distribute the CDs. After UMG’s attempts at halting the auctions through eBay’s dispute resolution program were unsuccessful, UMG filed a complaint against Augusto in the United States District Court for the Central District of California, alleging that Augusto had infringed UMG’s copyrights in the promotional CDs in violation of 17 U.S.C. § 501 of the Copyright Act of 1976, as amended (the “Copyright Act”).

“Copyright protection subsists . . . in original works of authorship,” which include “(1) literary works; (2) musical works, including any accompanying words; (3) dramatic works, including any accompanying music; (4) pantomimes and choreographic works; (5) pictorial, graphic, and sculptural works; (6) motion pictures and other audiovisual works; (7) sound recordings; and (8) architectural works.” 17 U.S.C. § 102(a). The Copyright Act confers several exclusive rights upon copyright owners, including the exclusive rights to (1) reproduce the copyrighted work; (2) prepare derivative works based upon the copyrighted work; and (3) distribute copies of the copyrighted work to the public by sale or other transfer of ownership. 17 U.S.C. § 106(1)-(3). Anyone who violates any of the exclusive rights of the copyright owner is an infringer of the copyright or rights of the author, as the case may be. 17 U.S.C. § 501(a).

To establish a prima facie case of copyright infringement, a plaintiff must show (1) ownership of a valid copyright, and (2) violation by the alleged infringer of at least one of the exclusive rights granted to copyright owners by the Copyright Act. See Ellison v. Robertson, 357 F.3d 1072, 1076 (9th Cir. 2004) (citing 17 U.S.C. § 501(a)). However, a copyright holder’s exclusive right to distribute copies of the copyrighted work “is limited by the first sale doctrine, an affirmative defense to copyright infringement that allows owners of copies of copyrighted works to resell those copies.” Vernor v. Autodesk, Inc., 621 F.3d 1102, 1109 (9th Cir. 2010). The “first sale doctrine”—first articulated by the United States Supreme Court in Bobbs-Merrill Co. v. Straus, 210 U.S. 339, 350-51 (1908) and codified by Congress thereafter in 17 U.S.C. § 109—permits the “owner of a particular copy” of a copyrighted work to sell or dispose of such copy without obtaining authorization from the copyright owner. Vernor, 621 F.3d at 1109-1111. The first sale doctrine does not apply to licensees, however, since licensees merely possess a copy of the copyrighted work without owning it. Id. (citing 17 U.S.C. § 109(d)). The Ninth Circuit in UMG Recordings also noted that despite its distinctive name, the first sale doctrine “applies not only when a copy is first sold, but when a copy is given away or title is otherwise transferred without the accouterments of a sale.” In sum, the Ninth Circuit stated that under the first sale doctrine, “a copyright owner who transfers title in a particular copy to a purchaser or donee cannot prevent resale of that particular copy.”

In the district court, Augusto contended, among other things, that the circumstances attending UMG’s distribution of the discs effected a “sale” (transfer of ownership) of the CDs to the original recipients and that, under the “first sale” doctrine, the recipients and subsequent owners of those particular copies were permitted to sell or otherwise dispose of those copies without authorization by the copyright holder. UMG countered that the promotional statement purporting to create a license agreement effected a license with the recipients and, because the recipients were not owners but licensees of the CDs, neither they nor Augusto were entitled to sell or otherwise transfer the CDs because the first sale doctrine does not apply to licensees. While the district court concluded that UMG established a prima facie case of copyright infringement because UMG proved that it owned the copyright to the promotional CDs and Augusto sold the CDs without UMG’s permission, it nevertheless granted summary judgment in favor of Augusto, concluding that the first sale doctrine was an affirmative defense against copyright infringement.  UMG appealed.

After considering the circumstances surrounding the distribution of the CDs, the Ninth Circuit concluded that the recipients were entitled to use or dispose the CDs in any manner they saw fit because UMG did not enter into a license agreement for the CDs with the recipients. UMG transferred title to the particular copies of its promotional CDs and could not maintain a copyright infringement action against Augusto for his subsequent sale of those copies. UMG sent the promotional CDs to the recipients without any prior arrangement as to those particular copies. Further, the CDs were not numbered, and no attempt was made to keep track of where particular copies were or what use was made of them. Finally, the written restrictions (as noted above), though placed in the labels of the CDs, did not create a license agreement between UMG and the recipients. For example, the succinct statement which read “Promotional Use Only—Not for Sale” did not even purport to create a license. Even the more detailed statement was flawed because it stated that “acceptance” of the CD constituted an agreement to a license and its restrictions. The Ninth Circuit stated that because there was no indication that the recipients agreed to a license, there was no evidence to support a conclusion that licenses were established under the terms of the promotional statement. Accordingly, the Ninth Circuit concluded that UMG’s transfer of possession to recipients, without meaningful control or even knowledge of the status of the CDs after shipment, accomplished a transfer of title, triggering the first sale doctrine, an affirmative defense to copyright infringement.

The Ninth Circuit concluded that UMG simply did not retain ‘sufficient incidents of ownership’ over the promotional CDs ‘to be sensibly considered the owner of the cop[ies]” because UMG had virtually no control over the unordered CDs it issued because of its means of distribution, had no assurance that any recipient had assented or would assent to the creation of any license or accept its limitations, and did not require the ultimate return of the promotional CDs to its possession. UMG Recordings (quoting Krause v. Titleserv, Inc., 402 F.3d 119, 124 (2d. Cir. 2005).) The Ninth Circuit further determined that UMG’s method of distribution transferred the ownership of the copies to the recipients, as UMG dispatched the CDs in a manner that permitted their receipt and retention by the recipients without the recipients accepting the terms of the promotional statements. In summary, the Ninth Circuit held that “UMG’s transfer of unlimited possession in the circumstances present here effected a gift or sale within the meaning of the first sale doctrine, as the district court held.”

It should also be noted that the Ninth Circuit based its decision in part on somewhat different grounds than those that had been relied upon by the district court. The district court, relying on cases that had dealt with software users, had held that the licensing language in the detailed promotional statement did not create a license because it lacked any provision for UMG to regain possession of the CDs. As the Ninth Circuit stated, this formulation “applies in terms to software users, and software users who order and pay to acquire copies are in a very different position from that held by the recipients of UMG’s promotional CDs.” Indeed, just a few months before the UMG Recordings decision, the Ninth Circuit in Vernor had held that some transfers of possession of a copy of copyrighted work—such as computer software—do not transfer title as copyright owners may create licensing arrangements so that users acquire only a license to use the particular copy of software and do not acquire title that allows them to transfer or sell that copy without the copyright owner’s permission. Vernor, 621 F.3d at 1110-11 (footnote omitted) (noting that in determining whether a software user is a licensee, the court should consider whether the copyright owner (1) specifies that a user is granted a license, (2) significantly restricts the user’s ability to transfer the software, and (3) imposes notable use restrictions.)

Thanks to the “first sale” doctrine, which is an affirmative defense to copyright infringement, radio disc jockeys and music critics who are provided with promotional CDs may resell such CDs without infringing the copyright holder’s copyright in those CDs.