Court Rules That It's Legal To Sell Promotional CDs

from the first-sale-lives-on dept

Last year, we had noted that the 9th Circuit appeals court was set to hear three separate cases, all revolving around the first sale doctrine, which allows you to resell copyrighted works that you possess. The first ruling of the three, back in September, was bad news: overruling a good district court ruling, in Vernor v. Autodesk, saying that anyone could effectively wipe out your first sale rights by simply putting a “license” on it. The second ruling, in MDY vs. Blizzard, was more of a mixed bag. It accepted the basics of Vernor but said that just because you violate a “license,” it doesn’t automatically mean you violate the copyright.

Now, the ruling in the third case, UMG vs. Augusto, has come out and it looks pretty good. It upholds the first sale rights of people who get “promotional” CDs (pdf of the ruling, which is also embedded below). Basically, the court seems to agree with the lower court’s ruling, which suggested that being able to overrule first sale rights with a couple of sentences stamped on a CD, which the labels clearly never intended to get back, would undermine the entire principle of the first sale doctrine (though, it did so for different reasons).

So, how did the court square this ruling with its own decision in Vernor, which essentially said something different? It basically comes down to the fact that Universal Music gave out these CDs without expecting them back or without getting the original recipient to agree to anything specific. That is, the text stamped on the CD doesn’t count as a true license agreement. But all the crap included with Autodesk software does count as a license agreement (rather than a true transfer of ownership):

It is one thing to say, as the statement does, that “acceptance” of the CD constitutes an agreement to a license and its restrictions, but it is quite another to maintain that “acceptance” may be assumed when the recipient makes no response at all. This record reflects no responses. Even when the evidence is viewed in the light most favorable to UMG, it does not show that any recipients agreed to enter into a license agreement with UMG when they received the CDs.

Because the record here is devoid of any indication that the recipients agreed to a license, there is no evidence to support a conclusion that licenses were established under the terms of the promotional statement. Accordingly, we conclude that UMG’s transfer of possession to the recipients, without meaningful control or even knowledge of the status of the CDs after shipment, accomplished a transfer of title.

The main difference between the lower court ruling and this new ruling is that the appeals court focused on the lack of any actual “agreement” in the license, while the lower court focused on the lack of expected return of the promotional CD.

Not surprisingly, I think the court got this right but since I also believe that the earlier Vernor ruling was very, very wrong, it’s not surprising that I think this ruling does a nifty little tap dance to pretend that this ruling and the Vernor ruling are consistent. It basically says that it all depends on “the means of distribution,” in that recipients of promo CDs did not ask for them, while purchasers of software did. But that seems to be besides the point and somewhat unrelated. The same issue that seems to drive this ruling for Augusto should apply to Vernor as well. The court notes that there’s “no acceptance” of a license and you can’t assume acceptance via no response. And yet, that’s how most such software licenses work as well.

While I’m happy about this particular ruling, it still seems to conflict with itself and I would imagine we haven’t heard the last of these three first sale cases…

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Companies: universal music

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Comments on “Court Rules That It's Legal To Sell Promotional CDs”

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Anonymous Coward says:

I have not yet read the opinion, but the summary and quotation indicate that the ruling may or may not be good news for people with inclinations aligned with the general Techdirt audience.

Consider, for example, whether the GPL or Creative Commons license restrictions would would be binding under this ruling.

Probably easy enough to distinguish that scenario, but it’s not easy to tell whether this ruling is “good” or “bad” for people who desire certain results at first glance.

Anonymous Coward says:

A license isn't a contract

Um, of course not.

A “license” is equivalent to “permission.” You have to have the capability to give permission to give a valid license. The recipient doesn’t (necessarily) need to agree to anything to be permitted.

I think the question in this case is whether the recipient agreed that this was *not* a transfer of title and was *only* a license to use the CD for a particular purpose.

Without that agreement, giving someone some item would be presumed to be a transfer of title to the item.

Anonymous Coward says:


I haven’t really set forth an interpretation, have I? I was just raising a question.

I’m certainly not assuming that the GPL’s validity or invalidity is good or bad for anything else, though I was assuming that most TD readers would have a general pro-GPL, pro-creative commons sentiment.

I’m not sure why you think I made an assumption re: copyright’s relationship to creation. I do buy into the underlying assumption that copyright is an incentive to creation and dissemination of creative works, but that is not equal to “content would not be created without copyright.”

TheStupidOne says:


I disagree: GPL and Creative Commons licenses are in a different ballpark completely.

GPL and CC essentially say, “I have every right guaranteed to me by the current copyright law, but I want you to have some of those rights, but only get them if you agree to my terms.”

The not for resale stamp says, “Normally you have every right to resell this copyrighted work, but I don’t want you to, so you can’t”

The first is backed by federal copyright law and is the owner of a work granting permission for other people to make copies. This shouldn’t require any agreement by the person doing the copying because they are being given more than the government says they deserve.

The second should require an agreement because it is removing rights that the government says that you have. Nobody has the right to do that without your permission or by order of the government.

Anonymous Coward says:


While I disagree with your characterization a bit, I think you’re basically right.

The permission to do certain things for GPL and CC works is conditioned on certain rules, and violation of those rules removes the permission. At that point, the unauthorized acts may or may not be copyright infringement, regardless of whether anyone ever agreed to anything.

With a EULA, the receiving party may agree “I will not redistribute this stuff” or whatever, so distribution may be breach of contract regardless of whether there is any copyright infringement.

If there’s no agreement to the “don’t redistribute” language, then there’s no breach of contract, and the question is whether title was transferred int he first place (i.e., this wasn’t just a license, but a giveaway).

crade (profile) says:


My understanding is that GPL and CC are only really enforcable due to them only granting further priviledges that would normally be available under regular copyright law (they are basically a statement of permissions of what you are allowed to do in addition to what is already allowed by copyright law).

I’m sure in the case of the promotional CD, regular copyright law still fully applies as well and they won’t be allowed to make and distribute copies of the CD. What they are trying to do here is imply that the recipient has agreed to new restrictions. With GPL and CC, you don’t need to imply they agreed to anything because if they didn’t agree to the license agreement, they are just violating regular copyright law.

The Mighty Buzzard (profile) says:


Good point. If there’s no reasonable expectation that the recipient will actually read the agreement or even notice there was one, there can’t be a presumption that there’s been the necessary meeting of minds necessary to form a contract.

Personally, I have my brain trained to not notice anything even remotely smacking of legalese. Reading it always puts me in a Shakespearean mood regarding lawyers.

G Thompson (NLI) says:

A license isn't a contract

Exactly. There is no contract here people though the companies are sending out products that are a part of their advertising/promotional stream to whomever they feel best serves their promotional interests for that particular product.

The court got this absolutely correct in this instance.

Strangely if this was classified as a contract of sale/service the items could not be classified as promotional (ie: gifts) and therefore be claimed as tax rightoffs for business purposes (ie: advertisement can be claimed as a business expense). If the court had stated it was a contractual agreement between parties then the companies themselves would of been in a bind in regards to your IRS etc (and other countries tax laws as well).

If the companies now want to stop people onselling the original items they will need to include a method of delivering the items back to original sender AT NO COST OR DETRIMENT to the recipient, which means if some music company sends a radio station 100s of CD’s they better include paid return envelopes along with those cd’s plus maybe a nominal payment for cost of handling and repackaging by the radio station since there was no offer, acceptance, nor consideration on either part. If not and they expect the recipiebnt to mail back (and handle) at NO cost then that is detrimental and could be classed as fraudulant behaviour.

Anonymous Coward says:


The entire EULA thing is shady. You are basically forced to agree to them, as you have to buy the product before you can see them. Then you have to be a trained lawyer to understand them.

If you don’t agree to them, you just spent a lot of money on a useless (and crappy) frisbee in a box. Nobody will take back opened software so you’re stuck. The company has zero incentive to make them balanced, as the consumer has no power to decline it.

Crosbie Fitch (profile) says:


Contract cannot substitute for copyright.

Being a privilege (law), copyright derogates liberty (unethically).

Contract (agreement) cannot enable an individual to alienate their (inalienable) liberty to make and distribute copies. A reward can be conditioned on non-distribution, sure, but this is not a loss of liberty. A contract is not microlegislature. It can be conditioned on anything, but can only concern the exchange of that which is alienable, i.e. property.

There is nothing magical about calling a document provided with an authorised copy a “EULA”. There are contracts/agreements and there are copyright licenses.

1. One can provide a unilaterally agreed contract – optionally agreed to by a recipient (at any time, if ever), and that agreement cannot be inferred (through the performance of an act they are free to perform anyway, such as opening shrink-wrap or operating software, even infringing copyright).

2. One can provide a license (or several).

3. One can provide a unilaterally agreed contract that offers a license in exchange, but remember that a license is not necessary – there is no such thing as an authorised copy that a recipient is prohibited from using without a license.

Crosbie Fitch (profile) says:


Licenses are not enforceable. Copyright is enforceable. Licenses restore to people their liberties suspended by copyright. Licenses do not grant privileges. The state grants privileges. Copyright is a privilege. Copyright annuls the right to copy in the majority to leave it, by exclusion, in the hands of a few.

The issue with the promotional CD is whether it was ever the property of the recipient, as opposed to say ‘provided on approval’. Copyright doesn’t really have much to do with it. If it was the property of the recipient they could transfer it (copyright isn’t concerned with transfer of authorised copies). If not, they’d have to return it (or make it available for collection for some limited period).


Crosbie Fitch (profile) says:


No need to cross your fingers. Extortion does not obtain agreement.

As you observe, you’ve paid $2,000 for an authorised copy. The exchange has completed. The breaking of a seal or performing any other action necessary to utilise your property cannot signify agreement to anything. Agreement is something provided voluntarily, not under duress.

Unfortunately this is moot, because copyright is extortion in the first place, i.e. “Settle for $X or my privilege of copyright that allows me to so extort you is likely to cost you 2-10,0000 x $X depending upon your budget (and remote chance of a sympathetic judge)”. Predictably, copyright litigants tend to sue those with smaller litigation budgets. Hence copyright is a privilege for the larger corporation, not the meek individual protesting duress.

Generally, you can just ignore copyright, licenses, EULAs, etc. until you become an attractive target. It doesn’t even matter if you’re squeaky clean, being sued is always expensive for you and usually lucrative to the litigant. Copyright is a weapon by which the larger subjugate the smaller. It’s an instrument of injustice. An anachronism overdue for abolition.

Crosbie Fitch (profile) says:

A license isn't a contract

Let us say there is a royal decree that no-one save royalty can cross The Mall (an otherwise public street) without permission from the crown, which the mayor has been empowered to grant.

Your liberty to cross that street has been suspended.

The mayor can provide you or anyone with a license to cross it (conditionally restoring to people the liberty to cross that they once had). A license needs no consent on the part of the licensee.

This license could have as one of its conditions that the day is a Tuesday.

Note that the licensor is the holder or assign of the privilege derogating from people’s liberty. In other words, only those privileged are able to provide a license.

Of course some people would say “Sod the king!” and cross whenever they wanted.

You do know that the privilege of copyright was established by Queen Anne’s royal decree in 1709 don’t you? And her statute copied by the US in 1790.

It’s time to say “Sod the Queen!” and sing each others’ songs whenever you want. That’s how folk music used to work until copyright put a stop to it. Filesharing is just the tide of folk music coming back in, and there’s nothing any King or Queen Canute can do about it.

Anonymous Coward says:


“Licenses are not enforceable”
Not enforeceable by themselves by law perhaps.
The fact that people are subject to copyright law makes them enforceable to a certain extent.

“Licenses do not grant privileges”
There is no difference between “restoring the priviledges suspended by copyright” and granting priviledges. It’s just semantics. If there were a difference, then granting priviledges would be completely impossible and you would only ever be able to restore priviledges restricted by X law (really what is the difference?)

“The issue with the promotional CD is [not related to copyright]”

Crosbie Fitch (profile) says:


A license is not force, but liberty, so it’s a bit odd to talk of enforcing a license.

Even in the case of a copyleft license, one still asserts or enforces one’s copyright to ensure that a licensee licenses their derivative as per the license condition.

A privilege is ‘private legislation’ and requires a legislature, i.e. you have to be a king or Congress. We can all make agreements, but we can’t all pass laws.

NB Copyright was a privilege granted unconstitutionally by the US Congress.

Anonymous Coward says:


A priviledge is
“a grant to an individual, corporation, etc., of a special right or immunity, under certain conditions.”
You don’t need to be king to grant it, all you need is authority. I can grant proviledges to my kids because I have authority over them. Copyright law gives copyright owners authority over certain activities (making copies) and also gives them the ability to give people priviledges.

Anonymous Coward says:


“Contract cannot substitute for copyright.”

I don’t see why not (except that damages would be different).

“Contract (agreement) cannot enable an individual to alienate their (inalienable) liberty to make and distribute copies.”

Says you and only you. The law of the land does not agree.

“A contract is not microlegislature. It can be conditioned on anything, but can only concern the exchange of that which is alienable, i.e. property.”

Wrong again. We can agree to exchange services, neither of which are “property,” unless you are using some weird definition of the term (which I guess wouldn’t suprprise me, given your idiosyncratic views on this topic).

Ok, I’m going to stop refuting different things you’re saying, because you keep saying things that are simply unsupportable under our current legal system, and I know from past experience that you don’t feel any need to justifying what you say under the what the law actually is (as opposed to what you think it should be).

So, suffice it to say, I disagree with a lot of your post.

Crosbie Fitch (profile) says:


Your jurisdiction may vary, but here’s an example of someone else pointing out that contract cannot substitute for copyright legislation:

Copyright is the legislature’s annulling of the people’s right to copy. Contract cannot do this. It is not law, but agreement. People cannot agree to surrender their rights (as opposed to privileges).

And no, you cannot exchange service. You make an exchange conditional on service, e.g. “I’ll pay you $5 if you wash my car” – Not “I hereby submit myself to you into temporary bondage (assured by penalty of prison or severe fine) that I will wash your car to your satisfaction at a time of your choosing, for which I may receive $5 consideration”.

Payment for service (as opposed to bondage) works like this: If I wash your car, you owe me $5. If I don’t, you owe me nothing, I owe you nothing. If you paid me $5 in advance and I don’t provide the labour I owe you $5. Whatever agreement I make I remain at liberty not to provide my labour, and the law doesn’t require my punishment for enjoying that liberty. Otherwise, you’re just arguing for slavery.

Why don’t you have a go at justification and put your name to it rather than anonymous gainsaying?

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