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Don’t License This Argument—Buy It

Wednesday, August 22, 2007

Copyright holders want to redefine music and software sales as licensing agreements. Don’t let them.

If a company sends you an unsolicited free sample, and you re-sell it on eBay, are you trafficking in stolen property? The obvious answer might be “no,” but a lawsuit filed earlier this year by Universal Music Group argues otherwise. A victory by UMG would not only defy common sense, but it could undermine the First Sale Doctrine, a fundamental principle of copyright law that makes libraries and used bookstores possible.

Like other record labels, UMG distributes free CDs to radio stations and music reviewers in the hope of drumming up publicity. The CDs come stamped with the label "promotional copy, not for sale." California resident Troy Augustino makes a living selling promo CDs on eBay. UMG sued him in May for copyright infringement, claiming that it still owned the CDs, having merely licensed them for the personal use of recipients. UMG claims that Augustino is committing copyright infringement by reselling them.

The Electronic Frontier Foundation, an advocacy group that focuses on digital civil liberties, has agreed to take Augustino’s case. EFF attorney Fred von Lohmann argues that UMG’s argument is a direct assault on the First Sale Doctrine, which says that the owner of a legally-acquired copyrighted work is entitled to give or sell that copy to someone else without getting the copyright holder's permission.

Universal Music Group's argument is a direct assault on the First Sale Doctrine, which says that the owner of a legally-acquired copyrighted work is entitled to give or sell that copy without getting the copyright holder's permission.

The First Sale Doctrine was first articulated by the Supreme Court in the 1908 case of Bobbs-Merrill Co. v. Straus. In that case, publisher Bobbs-Merrill tried to prevent the sale of used copies of its books by printing a notice in each copy stating that selling the book for less than $1 “will be treated as an infringement of the copyright.” Bobbs-Merrill argued that copyright law gave it the right to place any conditions it liked on the sale of its books, even after selling them. The Supreme Court rejected that argument, holding that once a publisher sells a book to a customer, copyright law does not give the publisher any further control over what the customer does with that copy.

Von Lohmann says that the courts have applied the First Sale Doctrine to gifts as well as sales. For example, he points to a 1984 case in which Disney tried to prevent the auction of film cells that had been given to a former employee. The court found that the First Sale Doctrine applied and allowed the auction to go forward.

“Frankly, UMG’s argument reminds me of the one made by the goblin banker in the latest Harry Potter book—that somehow everything made by UMG remains their property forever, even after it is sold or given away,” von Lohmann says. “As readers of the book will recall, that's not how the law works, not even in the fantasy world of J. K. Rowling.”

Software Impact

Beyond its effects on the used music market, the case could have important implications for the software industry. It has become common practice for software industry to include “shrinkwrap licenses” (often termed End User License Agreements, or EULAs) with software products, stating that the customer has purchased the right to use the software, rather than a copy of the copyrighted work. In many cases, the terms of the license are not even visible to the customer until after the customer has taken the software product home and opened the box.

Such shrinkwrap licenses have generated considerable controversy, and some courts have rejected them outright. For example, in a 2001 case, a California judge ruled that Adobe's EULA did not apply to a California businessman who bought bundled Adobe software and resold the individual components. In that case, the judge held that despite Adobe's contention that it merely licensed its software, "the circumstances surrounding the transaction strongly suggest that the transaction is in fact a sale rather than a license."

A strong ruling for Augustino would strengthen the case against shrinkwrap licenses, and that would be good news for consumers. Calling the sale of software a “license” is little more than a word game. The average customer at Best Buy certainly thinks she is purchasing software, not licensing it. It’s not reasonable to expect a customer to abide by a license agreement that, in many cases, they don’t even have a chance to read until long after the transaction is complete. And software license agreements often include clauses restricting reverse engineering of their products, a process that the courts have upheld as legal and that is often crucial to enabling interoperability among competing products.

More fundamentally, a victory for Augustino would be consistent with the Constitution’s command that copyright “promote the progress of science and the useful arts.” That goal is advanced when authors are fairly compensated for their creative efforts, but it can be retarded if copyright holders are given absolute control over what customers do with legally acquired copies of their works.

Timothy B. Lee is an adjunct scholar at the Cato Institute and a regular contributor to the Technology Liberation Front.

Image credit: Photo by flickr user joshmadison.

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