The facts are this: UMG (like other record labels) sends out promotional CDs to radio stations, music reviewers, and other industry insiders. The CDs contain labels that say the following (or something very close):
This CD is the property of the record company and is licensed to the intended recipient for personal use only. Acceptance of this CD shall constitute an agreement to comply with the terms of the license. Resale or transfer of possession is not allowed and may be punishable under federal and state laws.Of course, some recipients don't follow these instructions, and sell these promo CDs. Troy Augusto made a business of buying them at record stores or online, and re-selling them. UMG sued Augusto for copyright infringement, alleging a violation of its exclusive right to distribute its works under 17 USC § 106(3). Augusto defended by claiming that under the first sale doctrine, he's perfectly free to re-sell the CDs he bought, the "promotional use only" labels notwithstanding.
The district court sided with Augusto, ruling that UMG transferred title in the physical CDs to the initial recipients, and did not, as it argued, merely license them for a limited purpose to a limited group. The court relied in part on an obscure postal statute, 39 USC § 3009, which characterizes unordered merchandise" as a "gift." (The purpose of the statute is evidently to protect consumers from scammers who mail goods to consumers even when they don't request it, and then demand payment.)
When I listened to UMG attorney Russ Frackman face the panel, I was skeptical of the label's chances. The court practically begged him to give them a way not to follow the postal statute; he had to fall back on arguments based on the purpose of the law, the legislative history, and an insistence that words such as "recipient" and "merchandise" had some special meaning in this context other than their dictionary definitions. But I thought the panel was even tougher on Augusto's attorney Joseph Gratz. The court seemed a bit surprised by Gratz's concession that Augusto has the burden of proof on the first sale issue (at least one panel member had previously stated that it may be an open question), and it expressed considerable sympathy for the argument that UMG's relationship with the recipients of the promo CDs was indeed that of licensor/licensee -- or at least that Augusto may not have met his burden of proving otherwise.
In sum, I thought UMG came out of the argument with a slight edge, but predicting the result of the opinion would be a bit of a fool's errand. Listen for yourself and give your prediction in the comments. EFF collects the relevant documents here.
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I have to say, even as someone who has represented copyright owners for decades, I was pretty shocked to hear this. I like Russell, but I think arguing that someone can't sell their CD--even one given as a gift--does copyright a bit of a disservice.
ReplyDeleteI don't believe Frackman ever argued that a CD given as a gift can't be re-sold. Rather, he argued that the promo CDs at issue are not gifts, but are instead provided under license to the recipients.
ReplyDelete"(The purpose of the statute is evidently to protect consumers against scammers who mail goods to consumers even when they don't request it, and then demand payment.)"
ReplyDeleteKind of like the record companies in this case lol.
Perhaps UMG will have to actually enter into a contract with the stations and reviewers which spells out what they can do with the CDs when they arrive unannounced in the mail.
ReplyDelete@Anon 12:28:
ReplyDeleteThe situation isn't analogous. The labels don't demand payment from the people to whom they send the CDs.
@Randy: UMG's position (which Frackman articulated to the panel) is that they do enter into a contract with the recipients. He argued that the recipient's assent is manifested through conduct.
Dear Mr. Sheffner:
ReplyDeleteBy virtue of taking the time (i.e., the "consideration") to send you this unsolicited message , I am hereby "offering" you the chance to pay me $50. To "accept" my "offer" to pay me 50$ you need only read this message. Accordingly, by virtue of your conduct (i.e., reading this mesage), you have "accepted" my gracious "offer." Offer + acceptance + consideration = contract. Now send me the $50 that you have, via your conduct, contractually promised to pay me. This farsical scenario is exaggerated, but it doesn't seem to far removed from UMG's conduct in this case.
Seems to me the labels would have been better off having the receiving persons/entities sign off on receiving CD's pursuant to the terms of the restricted license terms you reference above before said CDs were actually sent out. Perhaps such a system is not logistically or economically feasible? Interesting case and, I think, a very tough call. Thanks for another informative post.
"The situation isn't analogous. The labels don't demand payment from the people to whom they send the CDs.
ReplyDelete"
No Ben it is analogous, they demand payment from the next party to buy the disk, in that they want them to buy a different disk direct from them (I'm guessing this is what they wanted the guy to do, buy a copy of the record straight from them once it was available). It just isn't directly analogous. Either way, sending people things in the mail they don't request and they asserting you pwn it, when you really just sent it to them for free is rather odd.
I have to wonder why, in this day and age, they even send them a cd at all. Why not just send them a mp3 or other more hi-def format file? Then there is no issue about the ownership of a disk recieved in the mail.
"@Randy: UMG's position (which Frackman articulated to the panel) is that they do enter into a contract with the recipients. He argued that the recipient's assent is manifested through conduct. "
Yeah, that's kind of a stu pid reasoning, and that's not even getting into that in this case it goes against the plain language of the statute. You can't make a contract to nullify the express language of a statute so far as I'm aware. Otherwise the bona fide scamsters would just include a "contractlol" that states that the cd is not a gift that they're sending the person in the mail and that their conduct signed the contract. Ridiculous. "Lawlyer Logiclol" at its finest.
They might could enter an agreement with the radio companies though, and send all the disks to them instead of the DJ's, and perhaps at some minimal cost. Then it is a matter of the radio companies owning the disks.
"By virtue of taking the time (i.e., the "consideration") to send you this unsolicited message , I am hereby "offering" you the chance to pay me $50. To "accept" my "offer" to pay me 50$ you need only read this message. Accordingly, by virtue of your conduct (i.e., reading this mesage), you have "accepted" my gracious "offer." Offer + acceptance + consideration = contract. Now send me the $50 that you have, via your conduct, contractually promised to pay me. This farsical scenario is exaggerated, but it doesn't seem to far removed from UMG's conduct in this case.
"
Alternatively you could just send him a pencil in the mail and include a similar "contract".
I, of course, am referring to a contract that both parties read and sign *before* any CDs are mailed. Why doesn't UMG simply do that? I'm guessing that the reviewers and stations would gladly and willingly agree so that they can get the music before the general public.
ReplyDeleteRandy
How can one license something that is itself not one of the exclusive rights in § 106? Possession of an existing copy is not a licensable subject. Thus, I'm not clear on what the subject matter of this purported license would actually be licensing the recipient to do (that recipient couldn't already be doing without a license). Barring 'license' (which is the fallback of the party that is admitting it doesn't otherwise have a valid contract), a true contract would do the trick, since you don't need to premise that on a license -- But, I'd argue there can't be a contract without some kind of assent, and the facts don't seem to bear that out.
ReplyDelete@Anonymous 11:58:
ReplyDeleteThe license UMG is referring to concerns the ownership status of that particular physical CD -- not ownership of the copyright in the works embodied in it.
Mr. Sheffner,
ReplyDeleteI am having great difficulty wrapping my arms around a fundamental requirement of contract law, namely, each party incurring a legal detriment sufficient to establish the mutual exchange of consideration.
Certainly, if one is to view the "label" license as an obligation enforceable by the copyright holder against the recipient of a promotional CD, then there does appear to be legal detriment assumed by the recipient. He/she may be subject to suit for breach of one or more of the license conditions.
Try as I may, I am at a loss to identify with any specificity the legal detriment assumed by the CD provider.
A contract presupposes each party having an action against the other for breach, and yet it is not at all clear to me just what activities would constitute a breach by the CD provider. Merely by way of one example, the UCC does not jump out at me as a basis for imposing on the provider any implied warranties of non-infringement, mechantability, suitability for its intended purpose, etc.
Any comments you may provide in this regard would be appreciate.
@Anonymous 3:51:
ReplyDeleteI understand UMG's view of the agreement to be: "We provide you with a promo CD; in exchange, you agree to abide by the terms that we've stamped on it (i.e., no resale)." I guess the "legal detriment" incurred by UMG is parting with physical possession of its CDs.
Mr. Sheffner,
ReplyDeleteIn a very crude sense I use "legal detriment" to mean "If you do not do 'this' I can sue you, and if I do not do 'that' you can sue me."
"This" stands out relatively clearly. It is "that" that has me flummoxed.
Maybe UMG should send it to the reviews as an MP3 file instead. Then there would be nothing to sell.
ReplyDeleteRandy
Anonymous 6/10/10 8:00pm:
ReplyDeleteIt's pretty clear from the license terms printed on the cd's envelope what the "that" is. The recipient promises not to dispose of the disc by sale, transfer, or otherwise, among other things.
A @ June 11, 2010 12:36 PM
ReplyDeleteNo, your "that" is my "this".
My "that" pertains to what rights under contract the CD recipient may be able to assert against the CD provider.
Anonymous 6/11/10 12:36 -
ReplyDeleteI think that you're straining to find something that simply isn't there. If we consider this as a bilateral contract, the mutual promises look like this:
1) Music Industry participant to cd recipient - I/We promise to provide you, at no charge, copies of advanced music for you to review, or play on the radio, or promote, etc. Also, we promise not to sue you for doing just that, which normally would violate the copyright.
2) CD recipient to Music Industry participant - I/We promise to abide by the terms as stated on the packaging, which includes waiving my right (if it ever existed) to dispose of the item by sale or otherwise.
One hallmark of contract law is that acceptance can be dictated by the terms of the agreement. Here it specifically says that the retaining of the cd constitutes acceptance. Once that happens, the Music Industry participant's promise and performance has been fulfilled, and there are no rights under the contract that can be asserted against them because there has been no breach of their promise to perform.
If those receiving the cds did not wish to abide by the terms of the contract, all they had to do is avoid acceptance by returning the cds to the sender.
Semi-serious argument: If UMG maintains title to the used promo CDs, then does UMG not acquire an obligation to collect EVERY UMG PROMO CD CURRENTLY HELD by every used CD store (or criminal music collector) in the USA? All of them, issued through the 35-year life of the CD? If I remember the original trial, UMG argued that even throwing away the promo CDs represented an unlawful transfer. Or does UMG argue that the recipient acquires an obligation to store an ever-increasing number of promo CDs in perpetuity, or to bear the cost of shipment back to UMG?
ReplyDeleteHow about promo vinyl LPs going back into the 1970s? Would UMG like those back too? :-)
My view is that, given how promo CDs are splashed around like water by the major labels, the free-goods-via-mail principle should definitely apply. (For those of us of a certain vintage, that postal code provision is not obscure: sending goods followed by an absurd bill was a known common fraud in the 1960s.) UMG seems to be arguing that they own the discs but have no responsibility for littering their property around the country.
Strategically, I'm curious why UMG has picked this hill to fight on, given that CDs are in their waning years. Maybe they hope to set precedents affecting the resale of digital files? Eventually, as digital music file collectors start to die, there could be an issue here. I don't see it though.
- wallow-T
Some of the analysis above is an exploration of the possible contract between UMG and the recipients.
ReplyDeleteOne point that I did not see stated is UMG's hope and expectation that the recipients of the promo CDs will do things FOR THE BENEFIT OF UMG: play the CD on the radio or in store, or write a review. Exposure. Exposure which otherwise would have to be obtained with paid advertising.
So UMG's hypothetical contract seems to be very one-sided: all the benefits are to UMG, none to the recipients.
Culturally and informally, the benefit to the recipient has been that the discs -- boxes and boxes of them, for many recipients -- could be resold for pocket money, but UMG seems determined to kill that understanding.
-- wallow-T again
Surprised that Gratz didn't challenge the assumption that a post-delivery use restriction constitutes a copyright license after Quanta. Even if the restriction were a valid contract, it would be enforceable under contract law, not copyright. As such, because Augusto was not in privity with UMG, the breach of contract could not be enforced against him.
ReplyDeleteThe other two cases argued before the same panel on the same day -- both also involving the first-sale doctrine -- are actually more interesting than Augusto. Odd to focus on Augusto and not on the Blizzard and Vernor cases.
ReplyDeleteQuanta is a patent infringement case. How exactly would that apply to a copyright case?
ReplyDelete