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Foolishly Fighting First-Sale Rights

Appearing on On The Media, Fred von Lohmann explains Universal’s latest initiative to shut down the festering collectable CD aftermarket.  von Lohmann discusses some interesting cases in the course of the program; here’s the core issue:

Host Bob Garfield: A few months ago, Universal Music Group, the biggest of the four record labels, filed suit in federal court against California resident Troy Augusto. Augusto makes a living buying collectable CDs, mostly rare promotional copies, and then reselling them on eBay. Universal, however, has argued that it still owns those CDs and Augusto isn’t authorized to sell them.


FvL: [Under the first sale doctrine,] if you buy a CD, you should be allowed to resell that CD or to give that CD away. If Universal here is able to trump the First Sale Doctrine by putting a little label on a product that says “For promotional use only, not for resale,” then I think you’re going to see a lot of copyright owners try to do the same kind of thing. You’re going to see labels that say, “This book not for use in libraries, for personal reading only.” You’re going to see labels on DVDs that say, “This DVD not for video rental, for home use only.”

I suppose we see here a combination theory of 1) using licensing to get around the first-sale doctrine and 2) asserting a reversion of the licensed item to the licensor once the licensee breaks the terms of the original license by offering the item for sale.  Query: what if promo CD is just abandoned?  Can Universal assert the license terms “run with” the CD, ala (what some might expect) a Creative Commons license term would do?

This idea would certainly put libraries on a short leash, as Pat Schroeder apparently hopes:

FvL:  The American Association of Publishers . . . [has] always had an uneasy relationship with libraries because they feel that librarians buy books and then they give them out, loan them for free.  That has led Pat Schroeder, the head of the association, to say that they have, quote, “serious issues with libraries,” unquote. And one of their spokespeople, back in 2001, compared some in the library community to Ruby Ridge and Waco-style terrorists.

Wow, imagine the names they might call the people who are interested in extending access to government-funded medical research. 

Cory Doctorow claims that, rather than putting into place some sensible collective licensing scheme,  “The record industry giants would prefer to go on suing music fans and technology companies — an activity that pays the record companies handsomely, while encouraging fans to defect from buying music in the future, and which does not pay one cent to any artist.”  Though the industry probably feels that analysis is unfair, it does not help its own image with lawsuits like this.

4 thoughts on “Foolishly Fighting First-Sale Rights”

  1. First promo CDs, then libraries, then the world, eh? Before entering the slippery slopes, I think the argument has to be made in the promo CD situation first, which seems factually distinct from the rest of the parade of horribles. I imagine the argument is going to center on 109(d), and UMG is going to argue that the promo CDs were not even gifts, and therefore that ownership of the CD never transferred, unlike Basmajian. Even if UMG wins on that argument, how in the world would you extend it to cover ordinary retail sales?

    As for the Schroeder and AAP statements, Fred’s a great advocate. Which is why I’d want to see those quotes in context before drawing any conclusions.

  2. If I give something (some “thing”) to you, but I put a label on the “thing” that says “I have not given this ‘thing’ to you, then have I given it to you, or not? “Ceci n’est pas une pipe,” perhaps. A gift typically requires delivery (check) and donative intent (hmmm – there are mixed messages here!); the answer one way or the other literally changes the nature of the “thing” in the recipient’s possession. The question may not be as broad as Frank or Fred might believe, but it isn’t sui generis. Shameless self-promotion: In a different context, precisely this problem prompted Law as Design: Objects, Concepts, and Digital Things, 56 Case W. Res. L. Rev. 381 (2005).

  3. This issue never struck me as particularly mysterious. We understand that giving over a car pursuant to a standard sale where title passes from one person to another is different than giving over a car pursuant to a lease agreement. Physical transfer takes place in both cases, but the former is a complete transference of ownership rights, while the latter is a physical transfer pursuant to limited conditions that constrain the operator’s use.

    Seems that the CD example is the same. We have straightforward sales, and then we have licensing agreements where the owner retains control but cedes certain use privileges to users. Sure, the promotional-CD context is a bit different because it involves a gift, but I’m not sure why the lack of consideration changes the equation (save for making property rather than K principles apply). Why shouldn’t parties be able to make donative transfers of use rights (presuming they comply with relevant notice-generating formalities)? E.g., “I gift to you the right to pick apples from my orchard.”

    This isn’t to say that objections to shrink- or click- or browse-wrap agreements on contract, UCC, or preemption grounds aren’t good reasons to resist the enforceability of these agreements, but I don’t see why the license terms are conceptually problematic from the perspective of basic property principles.

  4. DAve,

    I’m sypathetic to the conclusion, but I don’t buy the premise. How is a typical lease of a car a “physical transfer pursuant to limited conditions that constrain the operator’s use”? If I lease a car, I have to live with the rules of the road, but unless I make a special agreement with the lessor, I can do anything else with the car that I like – subject to the physical limitations inherent in the automobile. The lessor has no “privileges” that it “cedes” to me. With occasional exceptions, property law has enforced the no-equitable-servitudes-on-chattels principle pretty consistent for a long time. Some people (Glen Robinson) argue that the enforceability of software licensing shows that this isn’t so, but I think that the argument has its propositions backward. If software licensing is inconsistent with the principle barring equitable servitudes on chattels, then software licensing may (emphasis on “may”) be illegitimate. It doesn’t show that the principle has no force.

    In other words, “basic property principles” aren’t necessarily so basic. If you separate the use-right clearly from the chattel-right, then it’s easy and I think right to get the result that you offer in the apple case. So, conceptually, the second part of your argument seems unremarkable. “The right to pick my apples” is clearly something that can be alienated by gift, or contract, or something else. But in the minds and experiences of the donees, that “right” is clearly and easily distinguished from any item of chattel property. The apples themselves unambigously belong first to the donor, and later to the donee.

    To make it closer to the CD example, suppose that the apple picking “gift” takes the following form: “I give you the right to pick apples from my orchard, provided that you use the apples only to make pies that don’t compete with my own pies.” The donee picks and bakes and competes. The donor sues for trespass to chattel (violation of the property right to exclude) and conversion (mis-appropriation of the apples). Now the “use” restriction is much more clearly tied to the chattel itself, and in the absence of (i) assent by the “donee” or (ii) some physical detail of the apple that makes baking difficult or impossible, “basic property law” is suspicious of the constraint, and reluctant to uphold the donor’s trespass and conversion claims — if the claim goes to an absolute property right. (In my view, ambiguity about whether use-rights or chattel-rights or some combination of the two is involved is why the trespass-to-website claims are so controversial.) The apples themselves are either gifts or they’re not; the donor cannot have them back, or stop the baking. By long-standing tradition (supported, if one likes, by plausible economic arguments as well as by sensible psychological and sociological ones) the donor’s interest ends, and the donee’s interest takes over, at the moment of physical transfer.

    That doesn’t necessarily leave the donor apple grower out of luck. A different way to slice the problem, and perhaps a better one, is to enforce the use-restriction on liability grounds but not enforce the chattel-restriction as a property rule. If the apple-picker bakes and competes in violation of the restrictive gift, the remedy may be damages for violation of the use right, but no injunction against reuse of the apples.

    Bringing this full circle: There is no property right against re-sale of CDs, whether those are gifts or commercial sales in the first place, but producers have a case for compensation. The law might give them an unfair competition remedy in damages, or it might plausibly say that producers can fix their revenue problems by managing prices differently, or by manufacturing their products so as to clearly differentiate non-reusable/re-salable “things” from other “things.”



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