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UMG Recordings, Inc. v. Augusto, et al.

The district court held that promotional CDs provided to music industry insiders are gifts, that the language on the CDs purporting to be a license that restricts the resale or transfer of the CDs is not an enforceable license, and that the defendant’s acts of selling the promotional CDs on eBay are protected by the first sale doctrine.

The plaintiff record company filed suit for copyright infringement against the defendant, who was not an original recipient of the promotional CDs, when he sold them on eBay. The plaintiff claimed that the CDs are licensed to music industry insiders and that the defendant was not authorized to sell them. The promotional CDs contain the following 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.”

Both parties moved for summary judgment on the copyright infringement claim. To determine whether the first sale doctrine applied, the court had to determine whether the CDs were a gift or were licensed to the recipients. The court concluded that the record company provided the CDs as gifts because it did not expect or require that the CDs be returned to it and because it did not derive any ongoing benefit from the recipients’ use of them. The court also held that the CDs are a gift under the federal Postal Reorganization Law which prohibits sending unordered merchandise without the recipient’s prior express consent and that such merchandise is a gift that the recipient has the right to use, discard and dispose of in any manner.

The court also ruled that UMG did not violate the DMCA when it notified eBay that the defendant was infringing its copyrights because it had a good faith belief that the defendant’s sale of the promotional CDs was an unauthorized use of the CDs.