UMG v. Augusto - "First Sale" Doctrine In Relation To Promotional CDs
UMG sends unsolicited, promotional CDs to potential reviewers, music critics and radio 
programmers to try to promote the sale, play and mention of such CDs. UMG does not charge for the CDs but it does put notices on the CDs.
One such notice reads:
"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."
Another, more terse notice reads:
“Promotional Use Only—Not for Sale.”
Defendant, Augusto, bought some of these CDs from the recipients and attempted to sell them on eBay. UMG sought to stop this by claiming copyright infringement and claiming that the language above and the acceptance by the recipient constituted a license rather than a sale under the provisions of Vernor v. Autodesk, which we discussed in length here. Therefore, the recipients could not sell the CDs without violating the copyright holder’s right of exclusive distribution.
Mr. Augusto claimed that the unsolicited delivery of the CDs constituted a “sale” for the purposes of our old friend the “First Sale Doctrine”. See our earlier discussions of this doctrine here, here and here.
The Court agreed with Mr. Augusto and stated that the mere receipt of the CDs without some other kind of action did not constitute an assent to the terms of the “license” and therefore, it had to be a sale. In addition, the Court also relied on the “Unordered Merchandise Statute” 39 U.S.C. § 3009(a), (b) (2006), which states that unsolicited merchandise may be treated as a gift. Hence, First Sale Doctrine applies and subsequent sales can be made without claims by the copyright holder. The Court’s opinion can be found here.
Lessons to be learned here are that in order to come under the license standards set out in Vernor v. Autodesk, the right kind of language has to be present and some overt act of acceptance of such language has to be displayed.
You are now free to buy those promotional Lady Gaga CDs you’ve had your eye on.
