UMG Recordings, Inc. v. Augusto

• Decision Date: 04 January 2011
• Docket Number: No. 08-55998,08-55998
• Parties: UMG RECORDINGS, INC., a Delaware corporation, Plaintiff-Counter-Defendant-Appellant, v. Troy AUGUSTO, an individual doing business as Roast Beast Music Collectables doing business as Roastbeastmusic, Defendant-Counter-Claimant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

628 F.3d 1175

97 U.S.P.Q.2d 1244

UMG RECORDINGS, INC., a Delaware corporation, Plaintiff-Counter-Defendant-Appellant,

v.Troy AUGUSTO, an individual doing business as Roast Beast Music Collectables doing business as Roastbeastmusic, Defendant-Counter-Claimant-Appellee.

No. 08-55998.

United States Court of Appeals,Ninth Circuit.

Argued and Submitted June 7, 2010.

Filed Jan. 4, 2011.

Russell J. Frackman, Mitchell Silberberg & Knupp, LLP, Los Angeles, CA, for the plaintiff, counter-defendant, appellant.

Joseph C. Gratz, Keker & Van Nest, LLP, San Francisco, CA, for the defendant-counter-claimant-appellee.

Robert W. Clarida, Cowan, Liebowitz & Latman, P.C., New York, NY, Jason Schultz, Samuelson Law, Technology & Public Policy Clinic, Berkeley, CA, for the amici curiae.

Appeal from the United States District Court for the Central District of California, S. James Otero, District Judge, Presiding.D.C. No. 2:07-cv-03106-SJO-AJW.

Before: WILLIAM C. CANBY, JR., CONSUELO M. CALLAHAN and SANDRA S. IKUTA, Circuit Judges.

OPINION

CANBY, Circuit Judge:

UMG Recordings appeals the district court's grant of summary judgment in favor of defendant Troy Augusto on UMG's claim of copyright infringement in violation of § 501 of the Copyright Act, which entitles copyright owners to institute an action for infringement of the exclusive right to distribute copies of the copyrighted work. See 17 U.S.C. §§ 501(a), (b), 106(3) (2006). The copies in issue comprise eight specially-produced compact discs, each embodying a copyrighted sound recording. UMG, the copyright owner, used the discs solely for marketing purposes, sending them unsolicited to individuals such as music critics and radio disc jockeys. Although Augusto was not one of those individuals, he managed to obtained the discs from various sources. He later sold them at auction, an act which UMG contends infringed its exclusive right to distribute the discs.

Augusto asserts that UMG's initial distribution of the discs effected a transfer of ownership of the discs to the recipients, rendering the discs subject to the "first sale" doctrine, which permits one who has acquired ownership of a copy to dispose of that copy without the permission of the copyright owner. See id. § 109(a). UMG argues that the statements on the discs and the circumstances of their distribution granted only a license to each recipient, not a transfer of ownership (or "sale") of the copy. Absent a sale, UMG remained the owner of the discs and, accordingly, the defense of the first sale doctrine would be out of Augusto's reach. We conclude that the mailing indeed did effect a sale of the discs to the recipients for purposes of the first sale doctrine, and we affirm the order of the district court.

BACKGROUND AND PROCEDURAL HISTORY

The material facts of the case are undisputed. UMG is among the world's largest music companies. One of its core businesses is the creation, manufacture, and sale of recorded music, or phonorecords, the copyrights of which are owned by UMG.¹ These phonorecords generally take the form of compact discs ("CDs").

Like many music companies, UMG ships specially-produced promotional CDs to a large group of individuals ("recipients"), such as music critics and radio programmers, that it has selected. There is no prior agreement or request by the recipients to receive the CDs. UMG does not seek or receive payment for the CDs, the content and design of which often differs from that of their commercial counterparts. UMG ships the promotional CDs by means of the United States Postal Service and United Parcel Service. Relatively few of the recipients refuse delivery of the CDs or return them to UMG, and UMG destroys those that are returned.

Most of the promotional CDs in issue in this case bore a statement (the "promotional statement") similar to the following:

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 anagreement 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.

Some of the CDs bore a more succinct statement, such as "Promotional Use Only—Not for Sale." ²

Augusto was not among the select group of individuals slated to receive the promotional CDs. He nevertheless managed to acquire numerous such CDs, many of which he sold through online auctions at eBay.com. Augusto regularly advertised the CDs as "rare ... industry editions" and referred to them as "Promo CDs."

After several unsuccessful attempts at halting the auctions through eBay's dispute resolution program, UMG filed a complaint against Augusto in the United States District Court for the Central District of California, alleging that Augusto had infringed UMG's copyrights in eight promotional CDs for which it retained the "exclusive right to distribute." The district court granted summary judgment in favor of Augusto, and UMG appealed. We have jurisdiction of the appeal pursuant to 28 U.S.C. § 1291.

STANDARD OF REVIEW

We review de novo a grant of summary judgment. See Bagdadi v. Nazar, 84 F.3d 1194, 1197 (9th Cir.1996). We may affirm on any ground supported by the record. See Video Software Dealers Ass'n v. Schwarzenegger, 556 F.3d 950, 956 (9th Cir.2009).

While it is an open question as to whether the plaintiff or defendant bears the burden of proving the applicability of the first sale defense, see United States v. Wise, 550 F.2d 1180, 1191-92 (9th Cir.1977) (government bears the burden of proof in the criminal context), we need not reach the issue in this case, because we would reach the same conclusion regardless of which party were to bear the burden.

DISCUSSION

To establish a prima facie case of copyright infringement, a plaintiff must show (1) ownership of a valid copyright and (2) violation by the alleged infringer of at least one of the exclusive rights granted to copyright owners by the Copyright Act (the "Act"). See Ellison v. Robertson, 357 F.3d 1072, 1076 (9th Cir.2004) (citing 17 U.S.C. § 501(a)). Section 106 of the Act grants copyright owners, such as UMG, the exclusive right, among others, "to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership." 17 U.S.C. § 106(3); see id. § 501(a) ( "Anyone who violates any of the exclusive rights of the copyright owner as provided by section[ ] 106 ... is an infringer of the copyright...."). The district court held that UMG made out a prima facie case of copyright infringement: UMG established that it owned the copyright to the promotional CDs and Augusto sold the CDs without UMG's permission.

Although UMG, as the owner of the copyright, has exclusive rights in the promotional CDs, "[e]xemptions, compulsory licenses, and defenses found in the CopyrightAct narrow [those] rights." Wall Data Inc. v. Los Angeles Cnty. Sheriff's Dept., 447 F.3d 769, 777 (9th Cir.2006) (citing 17 U.S.C. §§ 107-22). Augusto invokes the "first sale" doctrine embodied in § 109(a) of the Act. 17 U.S.C. § 109(a). He argues that the circumstances attending UMG's distribution of the discs effected a "sale" (transfer of ownership) of the discs to the original recipients and that, under the "first sale" doctrine, the recipients and subsequent owners of those particular copies were permitted to sell or otherwise dispose of those copies without authorization by the copyright holder.

In the alternative, Augusto argues that the original recipients were entitled to treat the CDs as gifts under the Unordered Merchandise Statute, enacted as part of the Postal Reorganization Act of 1970, and therefore had "the right to retain, use, discard, or dispose of [them] in any manner [they saw] fit," in this case, by selling those CDs to the thrift shops and second-hand stores where Augusto states he purchased them. See 39 U.S.C. § 3009(a), (b) (2006); see also Postal Reorganization Act of 1970, Pub.L. No. 91-375, 84 Stat. 719 (codified at 39 U.S.C. § 101).

UMG, on the other hand, contends that the promotional statement effected a license with the recipients and, because the recipients were not owners but licensees of the CDs, neither they nor Augusto were entitled to sell or otherwise transfer the CDs. See Quality King Distribs., Inc. v. L'anza Research Int'l, Inc., 523 U.S. 135, 146-47, 118 S.Ct. 1125, 140 L.Ed.2d 254 (1998) ("[B]ecause the protection afforded by § 109(a) is available only to the 'owner' of a lawfully made copy ..., the first sale doctrine would not provide a defense to ... any nonowner such as a bailee, a licensee, a consignee, or one whose possession of the copy was unlawful."); Am. Int'l Pictures, Inc. v. Foreman, 576 F.2d 661, 664 (5th Cir.1978) ("[U]nless title to the copy passes through a first sale by the copyright holder, subsequent sales do not confer good title.").

The Distribution of the Promotional CDs Effected a Sale

The first sale doctrine provides that "the owner of a particular copy or phonorecord lawfully made under [the Act], 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." 17 U.S.C. § 109(a). Notwithstanding its distinctive name, the doctrine applies not only when a copy is first sold, but when a copy is given away or title is otherwise transferred without the accouterments of a sale. See 4 Patry on Copyright § 13:15; see also United States v. Atherton, 561 F.2d 747, 750 (9th Cir.1977) ("The 'sale' embodied in the first sale concept is a term of art."). "[O]nce the copyright owner places a copyrighted item in the stream of commerce ..., he has exhausted his exclusive statutory right to control its distribution." Quality King, 523 U.S. at 152, 118 S.Ct. 1125. The seminal illustration of the principle is found in Bobbs-Merrill Co. v. Straus, 210 U.S. 339, 341, 28 S.Ct. 722, 52 L.Ed. 1086 (1908), where a copyright owner...