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The first-sale doctrine (also sometimes referred to as the "right of first sale" or the "first sale rule") is an American legal concept that limits the rights of an
intellectual property Intellectual property (IP) is a category of property that includes intangible creations of the human intellect. There are many types of intellectual property, and some countries recognize more than others. The most well-known types are copyright ...
owner to control resale of products embodying its intellectual property. The doctrine enables the distribution chain of copyrighted products, library lending, giving, video rentals and secondary markets for copyrighted works (for example, enabling individuals to sell their legally purchased books or CDs to others). In trademark law, this same doctrine enables reselling of trademarked products after the trademark holder puts the products on the market. In the case of patented products, the doctrine allows resale of patented products without any control from the patent holder. The first sale doctrine does not apply to patented processes, which are instead governed by the patent exhaustion doctrine.


Overview of copyright law application

Copyright law grants a copyright owner an exclusive right "to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending"
17 U.S.C. 106(3)
This is called a "distribution right" and differs from the copyright owner's "reproduction right" which involves making copies of the copyrighted works. Rather than the right to copy, the distribution right involves the right to transfer physical copies or phonorecords (i.e., recorded music) of the copyrighted work. For example, the distribution right could be infringed when a retailer acquires and sells to the public unlawfully made audio or video tapes. Although the retailer may not have copied the work in any way and may not have known that the tapes were made unlawfully, they nevertheless infringe the distribution right by the sale. The distribution right allows the copyright owner to seek redress from any member in the chain of distribution. The first-sale doctrine creates a basic exception to the copyright holder's distribution right. Once the work is lawfully sold or even transferred gratuitously, the copyright owner's interest in the material object in which the copyrighted work is embodied is exhausted. The owner of the material object can then dispose of it as they see fit. Thus, one who buys a copy of a book is entitled to resell it, rent it, give it away, or destroy it. However, the owner of the copy of the book will not be able to make new copies of the book because the first-sale doctrine does not limit the restrictions allowed by the copyright owner's reproduction right. The rationale of the doctrine is to prevent the copyright owner from restraining the free alienability of goods. Without the doctrine, a possessor of a copy of a copyrighted work would have to negotiate with the copyright owner every time they wished to dispose of their copy. After the initial transfer of ownership of a legal copy of a copyrighted work, the first-sale doctrine eliminates the copyright holder's right to control ownership of that specific copy. The doctrine was first recognized by the Supreme Court of the United States in 1908 (see '' Bobbs-Merrill Co. v. Straus'') and subsequently codified in the Copyright Act of 1908. In the ''Bobbs-Merrill'' 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 Macy's (originally R. H. Macy & Co.) is an American chain founded in 1858 by Rowland Hussey Macy Rowland Hussey Macy Sr. (August 30, 1822 – March 29, 1877) was an American businessman who founded the department store chain R. H. Macy and Comp ...

Macy's
department store, disregarded the notice and sold the books at a lower price without Bobbs-Merrill's consent. The Supreme Court held that the exclusive statutory right to "vend" applied only to the first sale of the copyrighted work. Today, this rule of law is codified in 17 U.S.C. § 109(a), which provides:
"Notwithstanding the provisions of section 106 (3), the owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord."
The elements of the first sale doctrine can be summarized as follows: (1) the copy was lawfully made with the authorization of the copyright owner; (2) ownership of the copy was initially transferred under the copyright owner's authority; (3) the defendant is a lawful owner of the copy in question; and (4) the defendant's use implicates the distribution right only; not the reproduction or some other right given to the copyright owner.


Limitations

The first sale doctrine only limits the distribution rights of copyright holders. This principle sometimes clashes with the holder's other rights, such as the right of reproduction and derivative work rights. For example, i
''Lee v. A.R.T. Co.''
the defendant bought plaintiff's artworks in the form of notecards and then mounted them on ceramic tiles, covering the artworks with transparent epoxy resin. Despite plaintiff's assertion of violation of his right to prepare derivative works, the
7th Circuit The United States Court of Appeals for the Seventh Circuit (in case citations, 7th Cir.) is the U.S. United States federal court, federal court with appellate jurisdiction over the United States district court, courts in the following United State ...
held that the derivative work right was not violated and that defendant's sale of the tiles was protected under the first sale doctrine. However, based on very similar facts, the 9th Circuit i
''Mirage Editions, Inc. v. Albuquerque A.R.T. Company''
held that plaintiff's right to prepare derivative works was infringed and that the first sale doctrine did not protect the defendant under such circumstances.


Application to digital copies

The first-sale doctrine does not neatly fit transfers of copies of digital works because an actual transfer does not actually happen – instead, the recipient receives a new copy of the work while, at the same time, the sender has the original copy (unless that copy is deleted, either automatically or manually). For example, this exact issue played out in '' Capitol Records, LLC v. ReDigi Inc.'', a case involving an online marketplace for pre-owned digital music. E-books have the same issue. Because the first sale doctrine does not apply to electronic books, libraries cannot freely lend e-books indefinitely after purchase. Instead, electronic book publishers came up with business models to sell the subscriptions to the license of the text. This results in e-book publishers placing restrictions on the number of times an e-book can circulate and/or the amount of time a book is within a collection before a library's license expires, then the book no longer belongs to them. The question is whether the first-sale doctrine should be retooled to reflect the realities of the digital age. Physical copies degrade over time, whereas digital information may not. Works in digital format can be reproduced without any flaws and can be disseminated worldwide without much difficulty. Thus, applying the first sale doctrine to digital copies affects the market for the original to a greater degree than transfers of physical copies. The U.S. Copyright Office stated that " e tangible nature of a copy is a defining element of the first sale doctrine and critical to its rationale." The
Court of Justice of the European Union The Court of Justice of the European Union (CJEU) (french: Cour de justice de l'Union européenne or "''CJUE''"; Latin Latin (, or , ) is a classical language belonging to the Italic languages, Italic branch of the Indo-European language ...
ruled, on July 3, 2012, that it is indeed permissible to resell software licenses even if the digital good has been downloaded directly from the Internet, and that the first sale doctrine applied whenever software was originally sold to a customer for an unlimited amount of time, as such sale involves a transfer of ownership, thus prohibiting any software maker from preventing the resale of their software by any of their legitimate owners. The court requires that the previous owner must no longer be able to use the licensed software after the resale, but finds that the practical difficulties in enforcing this clause should not be an obstacle to authorizing resale, as they are also present for software which can be installed from physical supports, where the first-sale doctrine is in force. The ruling applies to the European Union, but could indirectly find its way to North America; moreover the situation could entice publishers to offer platforms for a secondary market. In a notable case, the High Court of Paris found against
Valve A valve is a device or natural object that regulates, directs or controls the flow of a fluid (gases, liquids, fluidized solids, or slurries A slurry composed of glass beads in silicone oil flowing down an inclined plane A slurry is a mixt ...
for not allowing the resale of games from the
Steam Steam is water Water (chemical formula H2O) is an inorganic, transparent, tasteless, odorless, and nearly colorless chemical substance, which is the main constituent of Earth's hydrosphere and the fluids of all known living organism ...
digital storefront, requiring Valve to comply with the European Union Directives of first-sale doctrine within three months, pending appeals.


Ownership requirement

For the first sale doctrine to apply, lawful ownership of the copy or phonorecord is required. A
§109(d)
prescribes, first sale doctrine does not apply if the possession of the copy is "by rental, lease, loan, or otherwise without acquiring ownership of it". Some software and digital content publishers claim in their
end-user license agreement An end-user license agreement (EULA, ) is a legal contract entered into between a software developer A computer programmer, sometimes called a software developer, a programmer or more recently a coder (especially in more informal contexts), is ...
s (EULA) that their software or content is licensed, not sold, and thus the first sale doctrine does not apply to their works. These publishers have had some success in contracting around first sale doctrine through various
clickwrapA clickwrap or clickthrough agreementAgreement may refer to: Agreements between people and organizations * Gentlemen's agreement A gentlemen's agreement, or gentleman's agreement, is an informal and legally non-binding wikt:agreement, agreement be ...
,
shrink wrap Shrink wrap, also shrink film, is a material made up of polymer A polymer (; Greek ''wikt:poly-, poly-'', "many" + ''wikt:-mer, -mer'', "part") is a Chemical substance, substance or material consisting of very large molecules, or macromolecul ...

shrink wrap
, and other license agreements. For example, if someone buys
MP3 MP3 (formally MPEG-1 Audio Layer III or MPEG-2 Audio Layer III) is a coding format for digital audio Digital audio is a representation of sound recorded in, or converted into, Digital signal (signal processing), digital form. In digital a ...

MP3
songs from Amazon.com, the MP3 files are merely licensed to them and hence they may not be able to resell those MP3 files. However, MP3 songs bought through
iTunes Store The iTunes Store is a software-based online digital media Digital media means any media (communication), media that are encoded in Machine-readable data, machine-readable formats. Digital media can be created, viewed, distributed, modified, ...

iTunes Store
may be characterized as "sales" because of Apple's language in its EULA and hence they may be resellable, if other requirements of first sale doctrine are met. Courts have struggled and taken dramatically different approaches to sort out when only a license was granted to the end user as compared to ownership. Most of these cases involved software-licensing agreements. In general, courts look beneath the surface of the agreements to conclude whether the agreements create a licensing relationship or if they amount to, in substance, sales subject to first sale doctrine under §109(a). Thus, specifying that the agreement grants only a "license" is necessary to create the licensing relationship, but not sufficient. Other terms of the agreement should be consistent with such a licensing relationship. In '' Vernor v. Autodesk, Inc.'' the 9th Circuit created a three-factor test to decide whether a particular software licensing agreement is successful in creating a licensing relationship with the end user. The factors include: 1) whether a copyright owner specifies that a user is granted a license; 2) whether the copyright owner significantly restricts the user's ability to transfer the software to others; and 3) whether the copyright owner imposes notable use restrictions on the software. In ''Vernor'',
Autodesk Autodesk, Inc. is an American multinational corporation, multinational software corporation that makes software products and services for the architecture, engineering, construction, manufacturing, media, education, and entertainment industries. A ...
's license agreement specified that it retains title to the software and the user is only granted a non-exclusive license. The agreement also had restrictions against modifying, translating, or reverse-engineering the software, or removing any proprietary marks from the software packaging or documentation. The agreement also specified that software could not be transferred or leased without Autodesk's written consent, and could not be transferred outside the Western Hemisphere. Based on these facts, the 9th Circuit held that the user is only a licensee of Autodesk's software, not an owner and hence the user could not resell the software on eBay without Autodesk's permission. However, the same 9th Circuit panel that decided ''Vernor v. Autodesk'', refused to apply ''Vernor'' three-factor test in '' UMG v. Augusto'' to a purported licensing agreement created when UMG sent unsolicited promotional CDs to music critics. The promotional CDs' packaging contained the language: "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." Augusto tried to sell these CDs on eBay and UMG argued that first sale doctrine did not apply since the CDs were not sold and only a licensing relationship was created. However the court held that first sale doctrine applies when a copy is given away and that recipients of the promotional CDs did not accept the terms of the license agreement by merely not sending back the unsolicited CDs. In the case '' UsedSoft v Oracle'', the
Court of Justice of the European Union The Court of Justice of the European Union (CJEU) (french: Cour de justice de l'Union européenne or "''CJUE''"; Latin Latin (, or , ) is a classical language belonging to the Italic languages, Italic branch of the Indo-European language ...
ruled that the sale of a software product, either through a physical support or download, constituted a transfer of ownership in EU law, thus the first sale doctrine applies; the ruling thereby breaks the "licensed, not sold" legal theory, but leaves open numerous questions.


Importation of copies

Section 602(a)(1)
of the US copyright statute states that "importation into the United States, without the authority of the owner of copyright under this title, of copies or phonorecords of a work that have been acquired outside the United States is an infringement of the exclusive right to distribute copies or phonorecords." This provision provides the copyright owner an opportunity to stop goods from entering the United States market altogether. Application of this provision created difficult legal issues in the context of
gray market A grey market or dark market (sometimes confused with the similar term " parallel market") refers to the trade of a commodity through distribution channels that are not authorized by the original manufacturer or trade mark proprietor. Grey ma ...
products. Gray market dealers buy the genuine goods in foreign countries at a significant discount from U.S. prices. They then import these genuine goods into the U.S. and sell them at discount prices, undercutting the authorized U.S. dealers. The gray market exists where the price for goods outside the US is lower than the price inside. On the surface, §602(a), barring unauthorized importation, would seem to clash with the first-sale doctrine, which permits the resale of lawfully made copies. The issue comes down to whether §602(a) creates an affirmative right to bar all unauthorized importation, or does the first-sale doctrine limit the reach of §602(a), thus permitting the resale of at least some lawfully made imported copies. In 1998, the
U.S. Supreme Court The Supreme Court of the United States (SCOTUS) is the highest court in the federal judiciary of the United States of America The United States of America (USA), commonly known as the United States (U.S. or US), or America, is a coun ...

U.S. Supreme Court
in '' Quality King v. L'Anza'' found that first-sale doctrine applied to imported goods at least where the imported goods are first lawfully made in the United States, shipped abroad for resale, and later reenter the United States. That case involved importation of hair care products bearing copyrighted labels. A unanimous Supreme Court found that the first-sale doctrine does apply to importation into the US of copyrighted works (the labels), which were made in the US and then exported. However, the Supreme Court did not decide the issue where gray-market products are initially manufactured abroad and then imported into the US. The Court indicated that importation of goods made outside the US could perhaps be barred under §602(a), since such goods would not be "lawfully made under this title". Such products might be lawfully made, either by the copyright owner or a licensee, but they would not be lawfully made under US copyright law. Rather, they would be lawfully made under the copyright laws of the other country; and the first-sale doctrine would therefore not limit the §602 importation restriction. The 2008 case '' Omega v. Costco'' involved this exact unresolved issue, where the defendant
Costco Costco Wholesale Corporation (Trade name, doing business as Costco Wholesale and also known simply as Costco) is an American multinational corporation which operates a chain of membership-only Big-box store, big-box retail stores (warehouse cl ...
obtained authentic Omega watches, which feature a copyrighted design on the back of the watches, through the gray market and resold them in its stores in the US. Omega manufactured these watches outside the US and did not authorize their importation into the US. Based on the ''Quality King'' case, the 9th Circuit held that "application of first-sale doctrine to foreign-made copies would impermissibly apply" the Copyright Act extraterritorially. However, the court stated that first-sale doctrine might still apply to a foreign manufactured copy if it was imported "with the authority of the U.S. copyright owner". The Supreme Court granted certiorari to ''Omega v. Costco'', and affirmed 4–4. However, as an evenly split decision, it set precedent only in the 9th Circuit, not nationwide. However, in '' Kirtsaeng v. John Wiley & Sons, Inc.'', in 2013, the
United States Supreme Court The Supreme Court of the United States (SCOTUS) is the highest court in the federal judiciary of the United States of America The United States of America (USA), commonly known as the United States (U.S. or US), or America, is a cou ...

United States Supreme Court
held in a 6–3 decision that the first-sale doctrine applies to goods manufactured abroad with the copyright owner's permission and then imported into the US. The case involved a plaintiff who imported Asian editions of textbooks that had been manufactured abroad with the publisher-plaintiff's permission. The defendant, without permission from the publisher, imported the textbooks and resold on eBay. The Supreme Court's holding severely limits the ability of copyright holders to charge vastly different prices in different markets due to ease of
arbitrage In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods ...
. The decision removes the incentive to US manufacturers of shifting manufacturing abroad purely in an attempt to circumvent the first-sale doctrine.


Exceptions


Record rentals

The Record Rental Amendment of 1984, codified in 17 USC §109(b) prohibits an owner of a phonorecord that embodies a sound recording or musical work from renting it to the public for direct or indirect commercial advantage. This exception was designed to prevent music stores from renting records and thereby facilitating home copying. Section 109(b) is an exception to the first sale doctrine, but it is limited in several ways. It applies only to rentals, and not to resale or other transfers. It is also limited to a subset of sound recordings—only those sound recordings that contain only a musical work. It does not apply to sound recordings that contain other content, such as commentaries or dialog soundtrack, or to non-musical sound recordings, for example
audiobook An audiobook (or a talking book) is a recording of a book or other work being read out loud. A reading of the complete text is described as "unabridged", while readings of a shorter version are an abridgement. Spoken audio has been available in s ...
s. Lastly, libraries and educational institutions are exempt from this restriction, and may rent or loan musical sound recordings.


Software rentals

The Copyright Software Rental Amendments Act of 1990 amended §109(b) further to prohibit rentals of computer software for direct or indirect commercial advantage. The exception does not apply to lending of a copy by a nonprofit library for nonprofit purposes, provided the library affixes an appropriate warning. The amendment also specifically excluded: * A computer program which is embodied in a machine or product and which cannot be copied during the ordinary operation or use of the machine or product; or * A computer program embodied in or used in conjunction with a limited purpose computer that is designed for playing video games and may be designed for other purposes.


Overview of trademark law application

With reference to trade in tangible merchandise, such as the retailing of goods bearing a trademark, the first sale doctrine serves to immunize a reseller from infringement liability. Such protection to the reseller extends to the point where said goods have not been altered so as to be materially different from those originating from the trademark owner.


See also

* European Union law **
Copyright law of the European Union The copyright law of the European Union is the copyright Copyright is a type of intellectual property that gives its owner the exclusive right to make copies of a creative work, usually for a limited time. The creative work may be in a lit ...
**
Information Society Directive The Information Society Directive (familiarly when first proposed, the Copyright Directive) is a directive of the European Union The European Union (EU) is a political and economic union of Member state of the European Union, member s ...
2001/29/EC, including the right to make a copy for private use **
Computer Programs Directive The European Union The European Union (EU) is a political and economic union of Member state of the European Union, member states that are located primarily in Europe. Its members have a combined area of and an estimated total popula ...
2009/24/EC, including the first-sale doctrine applied to licensed computer software ** Droit de suite, policy in French and EU law as far as regards copyright on works of art ** Exhaustion of rights – A concept in EU law similar to the US "First-sale doctrine" as far as regards patents **
Directive on Copyright in the Digital Single Market The Directive on Copyright in the Digital Single Market, formally the Directive (EU) 2019/790 of the European Parliament and of the Council of 17 April 2019 on copyright and related rights in the Digital Single Market and amending Directives 96/ ...
*
Copyright infringement Copyright infringement (at times referred to as piracy) is the use of works Works may refer to: People * Caddy Works Pierce "Caddy" Works (January 2, 1896 – July 19, 1982) was an American basketball and baseball coach. He was the head b ...
*
Digital rights management Digital rights management (DRM) tools or technological protection measures (TPM) are a set of access control In the fields of physical security and information security, access control (AC) is the selective restriction of access to a place ...
*
Fair use Fair use is a doctrine Doctrine (from la, Wikt:doctrina, doctrina, meaning "teaching, instruction") is a codification (law), codification of beliefs or a body of teacher, teachings or instructions, taught Value (personal and cultural), prin ...
* Limitations on exclusive rights: Computer programs * '' Vault Corp. v. Quaid Software Ltd.'', a 1988 case on the extent of software copyright


References


General references

* * The VSD
(Video Software Dealer's Association)
s list o

includes protection of the First Sale Doctrine. * Explanation of th

* Quality King Distributors, Inc. v. L'anza Research International, Inc., 1998 WL 9626

an

* ttps://web.archive.org/web/20041015201757/http://www.freedom-to-tinker.com/doc/2004/bnetd_30sep.pdf Davidson & Associates v. Internet Gateway Inc rulingbr>Blizzard v BnetD
* Thomas Hoeren
Der Erschöpfungsgrundsatz bei Software
GRUR August 2010, 665 - 673 (German law)


External links


Full text of 17 U.S.C. § 109
{{DEFAULTSORT:First-Sale Doctrine Legal doctrines and principles United States copyright law United States trademark law de:Erschöpfungsgrundsatz