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Appeals court holds that promo CDs can be resold

January 4, 2011 |  5:50 pm

A Ninth Circuit appeals panel sided with consumer advocates today, upholding a lower court's ruling that a record company couldn't block the resale of used CDs just by marking them as "not for sale."

The case pitted Universal Music Group against Troy Augusto, who acquired numerous promotional CDs and then sold them on EBay. Such discs, which the record company mails to reviewers and industry insiders, typically carry labels that declare "Promotional Use Only -- Not for Sale." They may also instruct the recipient that the discs remain the property of the record company and are merely being licensed for personal use.

The "first sale" provision of federal copyright law holds that the owner of a copy of a work may sell or dispose of it without the copyright owner's approval. UMG argued that its promotional CDs weren't covered by the first-sale rule because recipients of the discs didn't own them, they merely were licensees with limited privileges.

The Ninth Circuit had been sympathetic to similar arguments from software developers, ruling that they can bar the resale of their products by licensing them to buyers instead of selling them outright. But appeals court Judge William C. Canby Jr., writing for the three-judge panel, said that the same logic didn't apply to UMG's promotional CDs. That's because the discs were sent unbidden to people on UMG's mailing list, with no indication from the recipients that they agreed to the licensing terms in the packaging.

The recipients were thus free to dispose of the discs as they saw fit, Canby wrote, and Augusto was free to sell them on EBay.

Promotional CDs are a vanishing breed, but lawyers for the Electronic Frontier Foundation and Durie Tangri Page Lemley Roberts & Kent, which represented Augusto, said the ruling could apply to other kinds of copyrighted works as well. "The Ninth Circuit recognized an important principle: that you can't eliminate consumers' rights just by claiming there's a 'license agreement,' " Joe Gratz of Durie Tangri said in a statement. "Once a copyrighted work is freely given, the copyright holder isn't in charge anymore."

-- Jon Healey

Healeywrites editorials for The Times' Opinion Manufacturing Division.

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