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Gold Cross Safety Corp., Inc. v. PHH Vehicle Management, et al.

A district court held that the existence of a contract governing the use of copyrighted material does not necessarily preclude a claim of copyright infringement.

The plaintiff licensed its copyrighted driver safety videos and workbooks to the defendant and claimed that the defendant violated the license by selling the videos to third-parties and by not returning the videos to the plaintiff.

The defendant moved to dismiss, arguing that once the holder of a valid copyright enters into an agreement granting another the right to distribute the product under certain circumstances, any alleged violation of the distribution rights is governed by the terms of that agreement, and that the plaintiff therefore could only sue for breach of contract.

The court disagreed, finding that the plaintiff succeeded in stating a claim for copyright infringement because it alleged the defendant exceeded the scope of the licensing agreement. “[E]ven in the presence of a binding agreement regarding the distribution of copyrighted material, a plaintiff may assert a claim for copyright infringement so long as the alleged distribution was prohibited by a condition restricting the authorized distribution.”

The court also rejected the defendant’s argument that the “first sale” doctrine precluded the plaintiff’s copyright infringement claim because whether or not the videos were sold to the defendant, rather than loaned, was in dispute so it was not appropriate for the court to dismiss the copyright infringement claim at this stage.