EBay Sellers Can Hawk Copyrighted Promo CDs

(CN) - Selling promotional CDs on eBay does not violate record company copyrights, the 9th Circuit ruled Tuesday.

The federal appeals panel in Seattle affirmed a district court ruling that Troy Augusto dba Roast Beast Music Collectibles did not infringe on copyrights held by Universal Music Group (UMG) when he sold promo, marketing and "industry edition" CDs through the online auction site eBay, despite the presence of labels on the giveaway CDs warning that they should not be resold.

UMG Recordings and most other record companies regularly send promotional CDs to disc jockeys, music reviewers, record stores and others. Most of these products are stamped with a statement like "Promotional Use Only - Not for Sale."

Augusto, though not an intended recipient of UMG's promo CDs, obtained a collection and tried to sell them on eBay. UMG Recordings attempted to stop Augusto's auctions and, failing in that, filed a federal complaint against Augosto in California's central district, alleging that his sale of eight promotional CDs infringed on the company's copyrights and exclusive distribution rights.

U.S. District Judge S. James Otero granted summary judgment to Augosto, and the three-judge appellate panel agreed.

UMG argued that the statements on the discs merely granted licenses to intended recipient, rather than transfer of ownership of the copy, but the panel ruled that the discs fall under the "first-sale doctrine."

"UMG dispatched the CDs in a manner that permitted their receipt and retention by the recipients without the recipients accepting the terms of the promotional statements," Judge William Canby wrote for the panel. "UMG's transfer of unlimited possession in the circumstances present here effected a gift or sale within the meaning of the first-sale doctrine, as the district court held."

Canby added that the promos also fell under the Unordered Merchandise Statute since UMG did not number the CDs and made no attempt to the track them.

"Because the record here is devoid of any indication that the recipients agreed to a license, there is no evidence to support a conclusion that licenses were established under the terms of the promotional statement," he added. "Accordingly, we conclude that UMG's transfer of possession to the recipients, without meaningful control or even knowledge of the status of the CDs after shipment, accomplished a transfer of title."

Augusto, thus, had the right to sell the copies he acquired, Canby wrote.

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