Addressing for the first time the issue of whether the record rental exception to the copyright first sale doctrine applies to all sound recordings or only musical sound recordings, the U.S. Court of Appeals for the Sixth Circuit upheld the district court, holding that only musical sound recordings are subject to the exception. Brilliance Audio, Inc. v. Haights Cross Communications, Inc., Case No. 05-1209, (6th Cir., Jan. 26, 2007) (Gibbons, J.; Kennedy, J., dissenting in part). The Court also discussed the first sale doctrine as it applies to trademark infringement.
The plaintiff sells audio books in two editions: one for the retail market and one for libraries. The defendants allegedly repackage and relabel Brilliance retail editions of audio books as Brilliance library editions and then rent, lease or lend them. The repackaged audio books still bear Brilliance’s trademark. Brilliance sued Haights for copyright and trademark infringement, dilution and unfair competition. Haights moved for dismissal for failure to state a claim, arguing that Brilliance’s claims were precluded by the first sale doctrine. The district court granted Haights’ motions. Brilliance appealed.
Brilliance argued that Haights’ actions were covered by the Copyright Act’s record rental exception to the first sale doctrine for sound recordings. Haights argued that the provision applies only to sound recordings of musical works, noting that the provision specifically references musical works. The Court began by noting that unless a statute is “inescapably ambiguous,” a court should not look to outside authority to interpret it. Here, as both parties presented plausible, but opposing, interpretations of the statute, the Court held that the statute was ambiguous. Thus, examining the legislative history of the rental record exceptions, the context in which it was passed and the policy rationale behind the provision, the Court agreed with Haights that the exception was only intended to apply to musical recordings, noting that Congress’s focus in passing the Record Rental amendment was to protect the music industry. When the exception was later extended, a committee report made it clear the exception was limited to musical works because only musical recordings were likely to be listened to repeatedly. Congress reasoned that rented or borrowed copies of musical recordings were therefore more likely to be copied at home for future play, potentially displacing record sales.
The Court conceded that Congress focus on musical works was not dispositive: “a statute can be written so as to cover not only present concerns, but also future concerns that Congress cannot foresee at the time of enactment.” However, the Court found that because the record rental exception upset the traditional bargain between copyright owners and those who buy copies of their works, it should be narrowly construed. Accordingly, the Court upheld the district court’s dismissal of Brilliance’s copyright claim. On this issue, Judge Kennedy dissented. In his opinion, the statutory text unambiguously covers all sound recordings.
On the other hand, the Court found that Brilliance’s complaint could support a trademark infringement claim. The Court said it was true that under the first sale doctrine, resale of an original trademarked item is generally neither trademark infringement nor unfair competition. The rationale for the rule is that trademark law is designed to prevent consumer confusion regarding product origin, which does not occur if a genuine article bearing a true mark is sold. However, the Court said that two exceptions to this doctrine exist: when notice that the item has been repackaged by the reseller is inadequate and when the alleged infringer sells goods that are materially different than those sold by the trademark owner. The Court found that Brilliance’s complaint sufficiently alleged both exceptions. Thus, the Court reversed the district court’s dismissal of the trademark claims.