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Lawsuit Challenges the "First Sale" Rule

(October 8, 2007) - Can book and music publishers circumvent the venerable "first sale" rule of copyright law by announcing that they are merely "licensing," not giving away, the promotional books and CDs that they send to reviewers and distributors? That is the question raised by a lawsuit now pending in San Francisco, where UMG Recordings, Inc., has sued Troy Augusto, who does business under the name of Roast Beast Music Collectables. Augusto's crime, according to UMG, is reselling promotional music CDs via eBay and other venues.

The first sale rule provides that copyright holders only control the first sale or distribution of their works, after which they can be given away, sold, donated to libraries, or otherwise passed along to others. The first sale rule is important because it helps to spread knowledge and ideas - the basic building blocks of a free society. Although Congress created an exception to the first sale rule to prevent sound recordings from being rented or lent (except by libraries or educational institutions), that exception doesn't apply to Augusto's business of reselling promotional CDs.

Yet UMG claims in its lawsuit that its "promo CDs" are only made available "under license," to "a select group of individuals who are in a position to generate 'buzz,'" and that the "license" expressly prohibits their sale.

Augusto, in response, argues that the music industry cannot circumvent the first sale rule by labelling its promotional give-aways to be only a "license." In fact, he has filed a "counterclaim" for damages against UMG, alleging that the company, in "take-down" demand letters to eBay, has intentionally misrepresented the copyright status of the CDs it has given away.

The UMG v. Augusto case reflects a larger problem created by publishers' efforts to prevent further distribution of promotional copies. Review copies of books are often available well before their publication date, at a fraction of their retail price. But some used book vendors, under threat from publishers, have stopped dealing in promotional copies.

Update: On June 10, 2008, a federal court ruled for Augusto. For details and more analysis of the issue, see Iam Tiaclf's commentary, Victory for First Sale Rule in the Case of Promotional CDs.)

The Electronic Frontier Foundation is co-counsel representing Augusto. All the documents in the case can be found on the EFF website.

For more on the first sale rule, see "The Progress of Science and Useful Arts": Why Copyright Today Threatens Intellectual Freedom.