The U.S. Court of Appeals for the Ninth Circuit affirmed a district court holding that a defendant’s resale of promotional music compact discs was permissible under the first-sale doctrine and did not constitute copyright infringement. UMG Recordings, Inc. v. Augusto, Case No. 08-55998 (9th Cir., Jan. 4, 2011) (Canby, J.).

Plaintiff UMG Records (UMG) is a major recording company that, as part of its marketing efforts, distributes promotional CDs embodying its copyrighted sound recordings to unsolicited individuals such as music critics and radio personnel. Defendant Troy Augusto, while not an intended recipient of the promotional discs, acquired eight such CDs and sold them for profit on eBay. After UMG was unable to halt Augusto’s sales through eBay’s internal procedures, UMG filed a copyright infringement suit alleging that Augusto violated its exclusive right to distribute the copyrighted recordings. The district court granted summary judgment in favor of Augusto, holding that although UMG made out a prima facie case of copyright infringement, the defendant’s actions were permissible under the first-sale doctrine. UMG appealed.

The 9th Circuit affirmed. Under the first-sale doctrine, one who lawfully acquires title of a copyrighted work is permitted to transfer, sell or otherwise dispose of that work without permission from the copyright owner. To support its argument that the first-sale doctrine was inapplicable because distribution of the promotional CDs constituted a license and not a “sale,” UMG pointed to a promotional statement on the CDs stating that the discs are the property of the record company that are licensed to the intended recipient for personal use and are not to be resold or transferred. The 9th Circuit rejected UMG’s argument, stating that the first-sale doctrine applies not only to a sale, but also to any transfer of title resulting from the copyrighted work being placed in the stream of commerce. Furthermore, the court stated that the circumstances surrounding the discs’ distribution did not create a license between UMG and the recipients because the discs were distributed without any prior arrangements with the recipients, there was no indication that any recipients agreed to a license arrangement and there was no meaningful control exercised over the distribution or use of the discs. In addition, because the discs were unordered merchandise, the recipients were free to “retain, use, discard, or dispose” of them as they saw fit under the Unordered Merchandise Statute, which are rights inconsistent with the restraints of the license UMG sought to impose.

Accordingly, the 9th Circuit affirmed dismissal of the infringement action against Augusto, holding that the circumstances surrounding UMG’s distribution of promotional CDs effected a transfer of ownership to its recipients and Augusto, as a subsequent recipient, was permitted to sell those copies without UMG’s authorization.