The first-sale doctrine is a limitation on copyright that was recognized by the U.S. Supreme Court in 1908 and subsequently codified in the Copyright Act of 1976, . The doctrine allows the purchaser to transfer (i.e., sell or give away) a particular lawfully made copy of the copyrighted work without permission once it has been obtained. That means that a copyright holder's rights to control the change of ownership of a particular copy end once that copy is sold, as long as no additional copies are made. This doctrine is also referred to as the "first sale rule" or "exhaustion rule".
In 1909 the codification originally applied to copies that had been sold (hence the "first sale doctrine"), but in the 1976 Act it was made to apply to any "owner" of a lawfully made copy or phonorecord (recorded music) regardless of whether it was first sold. So, for example, if the copyright owner licenses someone to make a copy (such as by downloading), then that copy (meaning the tangible medium of expression onto which it was copied under license, be it a hard drive or removable storage medium) may lawfully be sold, lent, traded, or given away.
The doctrine of first sale does not include renting and leasing phonorecords and certain types of computer software, although private nonprofit archives and libraries are allowed to lend these items if a notice that the work may be copyrighted is on the copy.
Some U.S. case law allows manufacturers to restrict the first-sale doctrine by a clickwrap contract or other agreement. The case law is conflicting, however, and the legality of allowing first-sale doctrine rights to be abrogated by contract has been questioned.
Federal district courts in California and Texas have issued decisions applying the doctrine of first sale for bundled computer software in Softman v. Adobe (2001) and Novell, Inc. v. CPU Distrib., Inc. (2000) even if the software contains an EULA prohibiting resale. In the Softman case, after purchasing bundled software (a box containing many programs that are also available individually) from Adobe Systems, Softman unbundled it and then resold the component programs. The court ruled that Softman could resell the bundled software, no matter what the EULA stipulates, because Softman had never assented to the EULA. Specifically, the ruling decreed that software purchases be treated as sales transactions, rather than explicit license agreements. In other words, the court ruling argued that California consumers should have the same rights they would enjoy under existing copyright legislation when buying a CD or a book.
The acts specifically excluded:
The privileges to sell or otherwise dispose of the possession of any particular copy or phonorecord and to display that copy publicly one image at a time, including through projection, one image at a time where the copy is physically located do not, unless authorized by the copyright owner, extend to any person who has acquired possession of the copy or phonorecord from the copyright owner, without acquiring ownership of it.
However, section 109 specifically leaves the copyright holder bound by the Clayton Act if the copyright holder allows; rental, lease, or lending, or by any other act or practice in the nature of rental, lease, or lending.
This leaves the copyright holder, through the terms of the EULA and TOS that many software and music companies favor in order to bypass section 109, liable for Clayton Act violations through the fact that they claim that the purchase of the software or music is not a purchase and that the end user does not own the software but has rights to use it, thus engaging in other acts or practice in the nature of rental or lease. While many states have changed their contract laws so that a sale of software is defined under the UCC, in response to UCITA through so called Anti-UCITA bills, so a purchase of software is a sale under the UCC at the point of purchase, thus the purchaser owns the software at the time of purchase and the EULA terms imposed after the sale, if not disclosed prior to the sale, are unenforceable, other states have not.
Under the Clayton Act it is unlawful to:
Section 109 includes the language "or by any other act or practice in the nature of rental, lease, or lending" and as having rights to use property but not own is in the nature of rental, lease, or lending they are subject to the Clayton Act. Through the use of the EULA and TOS which disclaim that the software is not owned but grants rights to use the property in order to preclude consumers first sale rights, they increase their liability. Most software companies and some music companies often engage in practices of discriminatory pricing, enter into "exclusive" contracts where in exchange for a discount they agree not to use competitors goods/services, or in the case of music services favor one company or another to distribute thus violating the Clayton Act in some manner or another.
This right was underlined by the US courts in the case of HEGB v Weinstein, in which a film-industry defendant accepted that it had no right to restrict buyers of DVDs from renting them to third parties.
Copyright owners sometimes affix warning notices to packaged DVDs, or display notices on screen before showing the content, which purport to list uses of the DVD that are forbidden under copyright law. Such notices do not always fairly reflect the buyer's legal rights established by the first-sale doctrine.
Zamos responded on Jan 3, 2005 by countersuing Microsoft with Clayton Act charges and further charged that, "Microsoft purposely established and maintained a sales and distribution system whereby rightful rejection and return of merchandise that is substantially non-conforming is either impossible or practically impossible due to the ineptness of its employees, unconscionable policies, malicious intent and deceptive practices," thus engaging in fraud and violating the Consumer Sales Practice Act.
Microsoft offered to drop the case when local Ohio papers carried the story. Zamos refused to drop the case until Microsoft apologized and paid for the cost of copies of legal documents at the local copy shop. In March 2005, Microsoft and Zamos agreed to a settlement, which included a non-disclosure agreement with regards to the settlement terms.
In that case, the publisher, Bobbs-Merrill, had inserted a notice in its books that any retail sale at a price under $1.00 would constitute an infringement of its copyright. The defendants, who owned Macy’s department store, disregarded the notice and sold the books at a lower price without Bobbs-Merrill’s consent. We held that the exclusive statutory right to "vend" applied only to the first sale of the copyrighted work...
In 1979 Sony Corp. of America v. Universal City Studios, Inc. (often called "The Betamax Case"), determined that because the VCR was capable of substantial noninfringing uses, copyright owners objecting to infringement could not prevent its sale. The ruling, coupled with the high price of the first few movies on VHS and Betamax tapes ($50 each) created a large market for home video rental. Retailers purchased the expensive tapes and rented them to consumers at an affordable price, while studios earned considerable revenue from volume sales to rental stores. First-sale doctrine excused these merchants from seeking permission from the copyright holders.
The Consumer Video Sales/Rental Amendment of 1983 (1983, H.R. 1029/S. 33) would have required stores to obtain permission from copyright owners before renting videotapes to the public. The bill was defeated.
In 1997 in Novell v. Network Trade Center 25 F. Supp. 2d 1218 (C.D. Utah 1997) purchaser is an "owner" by way of sale and is entitled to the use and enjoyment of the software with the same rights as exist in the purchase of any other good. Said software transactions do not merely constitute the sale of a license to use the software. The shrinkwrap license included with the software is therefore invalid as against such a purchaser insofar as it purports to maintain title to the software in the copyright owner. Under the first sale doctrine, NTC was able to redistribute the software to end-users without copyright infringement. Transfer of a copyrighted work that is subject to the first sale doctrine extinguishes all distribution rights of the copyright holder upon transfer of title.
In 1998 in Quality King Distributors Inc., v. L'anza Research International Inc. there was a unanimous ruling: in a case involving distribution of hair care products bearing a copyrighted label, the Supreme Court found that the doctrine does apply to importation into the US of copyrighted works (the labels) which were made in the US, then exported. This is significant for grey market imports of software, books, movies or other copies of copyrighted works, where the price outside the US may be lower than the price inside. The importation of goods first manufactured outside the US under the copyright laws of other countries was specifically excluded from that decision, leaving undecided whether goods "lawfully made" under the Copyright Act but made outside the United States also benefit from the first sale doctrine. Until that is decided, copyright holders are free to take action against foreign distributors who sell products made in their region into the US market.
In 2008, in Timothy S. Vernor v. Autodesk Inc., a U.S. Federal District Judge in Washington rejected a software vendor's argument that it only licensed copies of its software, rather than selling them, and that therefore any resale of the software constituted copyright infringement. Judge Richard A. Jones cited first-sale doctrine when ruling that a reseller was entitled to sell used copies of the vendor's software regardless of any licensing agreement that might have bound the software's previous owners .
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