CD's? CD's still exist? The law tries to catch up . . .

The trouble with technology and the law is that technology moves fast; the law does not.

So, finally a ruling on whether promotional music compact discs can be resold without violating copyright. The answer? Yes, because of the first-sale doctrine. UMG Recordings, Inc. v. Augusto, Case No. 08-55998 (9th Cir., Jan. 4, 2011) (Canby, J.).

UMG Records distributed promotional CDs. They sent them to critics, radio personnel, and others for promotion. Of course, they claimed the cd was only for those to whom they sent them: acceptance of the cd is a license; not for resale; promotional use only; resale or transfer is not allowed and may be punishable under federal and state laws. Very imposing.

I had always wondered, since way back in the day, when a local general manager of a Fort Wayne tv/radio empire gave me a new Iggy Pop album sent to them for promotion, whether I had been the unwitting recipient of a copyright violation or some kind of crime. Cal wasn't worried; but, I never wanted to risk my neck for Iggy Pop.

The question is answered. Despite the warning of the Dire Wolf on the recordings sent, unsolicited and for free, we need not beg "don't murder me record company, please don't murder me," although Mr Augusto was dragged to the Ninth Circuit. His sin? Ebay.

The district court granted Augusto summary judgment finding his sale on Ebay of Big Bad Record Company's promotional cd's permissible under the first-sale doctrine. Lawfully acquiring title of a copyrighted work gives one the permission to transfer, sell, or dispose of that work without permission from the copyright owner. That's the first sale doctrine (which says the second sale is not a copyright violation).

The Supreme Court created the first sale doctrine, which is very simple. Once you buy a car, you can resell it at any price. Why should copyright differ? In Bobbs-Merrill Co. v. Straus, 210 U.S. 339 (1908), the Supreme Court said it should not. Describing its own case, the Supreme Court explained: "In that 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 department store, disregarded the notice and sold the books at a lower price without Bobbs-Merrill’s consent. We held that the exclusive statutory right to vend applied only to the first sale of the copyrighted work..."

The Big Bad Record Company said its distribution of promotional CDs constituted a license and not a “sale,” pointing to its promotional statements on the CDs. But, the first-sale doctrine applies not only to a sale, but also to any transfer after the copyrighted work being placed in the stream of commerce. And, as any contract law 101 would teach, the free, unsolicited distribution did not create a license. And the commentators had explained that "first sale" really means "first transfer:" Although this statutory limitation is commonly referred to as the first sale doctrine, its protection does not require a "sale." The doctrine applies after the "first authorized disposition by which title passes." 2 Nimmer § 8.12[B][1][a]. This passing of title may occur through a transfer by gift. See 4 William F. Patry, Patry on Copyright § 13:15 ("Since the principle [of the first sale doctrine] applies when copies are given away or are otherwise permanently transferred without the accoutrements of a sale, 'exhaustion' is the better description."); 2 Paul Goldstein, Goldstein on Copyright § 7.6.1 n.4 (3d ed.) ("[A] gift of copies or phonorecords will qualify as a 'first sale' to the same extent as an actual sale for consideration.").

Best of all, there is a Unordered Merchandise Statute. Because the discs were unordered merchandise, the recipients were free to “retain, use, discard, or dispose” of them as they saw fit under the Unordered Merchandise Statute." That statute does, indeed, make unordered merchandise a gift. Kudos to the defense lawyers for this research.

The 9th Circuit dismissed the infringement claim. I am safe for receiving Iggy Pop. And future lawyers will try to understand what was a cd . . .

Deemed Distribution of Nude Women . . . I Mean Pictures . . .

The internet, occasionally, has been used to disseminate pictures of nudity. Whether art or free expression, it is distribution, and if the material is copyrightable, then the owner has the right to their distribution. So, does the Ninth Circuit's analysis of pictures of nude women help us understand the copyright issues relating to file sharing?

Perfect10 sues Google, objecting to their use of the Perfect10 pictures in the Gooogle system. Actually, Perfect10 asserts infringement of its display rights, which really does not help us understand file-sharing issues if the files are not pictures, but music. And the Ninth Circuit discusses the genealogy case, Hotaling, and Napster for its analysis.

The Ninth Circuit panel states that "Perfect 10 incorrectly relies on Hotaling v. Church of Jesus Christ of Latter-Day Saints and Napster for the proposition that merely making images 'available' violates the copyright owner’s distribution right. Hotaling v. Church of Jesus Christ of Latter-Day Saints, 118 F.3d 199 (4th Cir. 1997); Napster, 239 F.3d 1004. Hotaling held that the owner of a collection of works who makes them available to the public may be deemed to have distributed copies of the works. Hotaling, 118 F.3d at 203. Similarly, the distribution rights of the plaintiff copyright owners were infringed by Napster users (private individuals with collections of music files stored on their home computers) when they used the Napster software to make their collections available to all other Napster users. Napster, 239 F.3d at 1011-14." The Ninth Circuit panel calls this "deemed distribution."

Since Google did not have a copy of Perfect10's nude women, but linked to them, the Ninth Circuit reasoned that Google could not distribute copies. File sharers do own a copy of the work. They are a big step down the road to deemed distribution.

Next,the even bigger hurdle, contributory infringement. “One infringes contributorily by intentionally inducing or encouraging direct infringement, and infringes vicariously by profiting from direct infringement while declining to exercise a right to stop or limit it.” Grokster, 545 U.S. at 930.

File Sharing . . . Do Students Really Have Direct Knowledge?

So the big issue is whether merely placing copyrighted files in a shared folder available to others over the internet infringes the copyright owner's exclusive right to distribute the copyrighted work. But "distribute" is a term of art in the copyright statutes, meaning the exclusive right "to distribute copies ... 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). Applying the statute, placing a copyrighted file in a shared folder, for public use, seems to show intent to transfer ownership (in contrast to, say, placing the files in a folder accessible only by yourself). This still begs the question of whether an actual transfer must be shown.

The Napster case in the Ninth Circuit approaches this differently, focusing on contributory copyright infringement. “[O]ne who, with knowledge of the infringing activity, induces, causes or materially contributes to the infringing conduct of another, may be held liable as a ‘contributory’ infringer.” Gershwin Publ’g Corp. v. Columbia Artists Mgmt., Inc., 443 F.2d 1159, 1162 (2d Cir. 1971); see also Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d 259, 264 (9th Cir. 1996). The Ninth Circuit explains, in Napster, that "liability exists if the defendant engages in “personal conduct that encourages or assists the infringement.” Matthew Bender & Co. v. West Publ’g Co., 158 F.3d 693, 706 (2d Cir. 1998). The Ninth Circuit then stated that Napster had direct knowledge of actual infringement, and the walls came tumbling down. Does this "direct knowledge" requirement apply to the student file sharer using a service like Limeware?

File Posting or File Sharing? Which is Illegal?

So put yourself in the position of a judge. The record industry brings to you the head of the local college student. The copyright statutes bring you statutory damages of $750 per violation at a minimum. It is the copyright version of sentencing guidelines, leaving you a complete lack of discretion.

It has to be tough to be the judge. If this does not seem right, what do you do? Well, tighten the liability standards. And that is the question judges now face in file-sharing cases.

Judge Nancy Gertner of Boston felt that "merely exposing music files to the Internet is not copyright infringement" because those doing so could claim "they did not know that logging onto the peer-to-peer network would allow others to access these particular files." Judge Kenneth Karras in New York said just the opposite, that placing a copyrighted music file in a computer folder shared by peer-to-peer software users could amount to illegal publication of it.

At issue is what level of proof is required: just making the copyrighted digital files available on a shared network, or a showing that the digital files were actually shared. Judge Neil Wake of Phoenix is addressing this very issue in Atlantic v. Howell. The Howells contend that their file-sharing program was "not set up to share" and that the files were "for private use" and "for transfer to portable devices, that is legal for 'fair use.'" Judge Wake initially rejected their argument, but is now re-considering. But first, the Church of Jesus Christ of Latter Day Saints and Napster.

Yep. The Mormon Church was sued for placing an unauthorized copy of a genealogicial work in its collection and including the copy in its catalog or index system, making the copy available to the public. The District Court said this was not enough, but the Fourth Circuit reversed. It reasoned that "[w]hen a public library adds a work to its collection, lists the work in its index or catalog system, and makes the work available to the borrowing or browsing public, it has completed all the steps necessary for distribution to the public," violating §106(3). So, is a shared folder on limeware a "public library?" Judge Hall, in dissent, reads the statute, and says "the owner of a copyright does not possess an exclusive right to 'distribute' the work in any conceivable manner; instead, it has the exclusive right 'to distribute copies ... 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)." He notes that all use was in the library, and perhaps should be copyright infringement even if the work was not lent, but just used in the library; but, under the statute, it is not illegal distribution because Congress said "lending" is required. He's the minority in the Fourth Circuit, though.

But what about that public file? If another uses the folder, it seems like that would be lending the file. That fails to answer the question of what needs to be proved: merely an offer or an actual file-share? If one plays a song in the presence of another, is that lending? If the file remains only on your hard disk, but another plays it remotely, is that lending? The Ninth Circuit already has discussed file sharing in Napster, has it not? And everyone knows Napster. Or do they?

Even More Karoake . . .

Thank God copyright was invented to protect song owners against karoake. It appears that the karoake wars continue, and the battleground is the Ninth Circuit. Now the karoake record producers are suing each other and using copyright.

Who? Sybersound sued twelve competitors. What for? Cheating. Sybersound said its competitors represented to buyers that their songs were properly licensed, but they were not, and that they were using songs to which Sybersound held the copyright license. Sybersound attempts to couch a unique Lanham Act claim, i.e., that their competitors were improperly claiming to have copyright licenses, and Sybersound directly made a copyright infringement claim as a licensee.

To be fair, Sybersound says that the false representations to customers about having copyright permissions are the Lanham Act violations. But the Court would not go for this "theory":

Under copyright law, only copyright owners and exclusive licensees of copyright may enforce a copyright or a license. See 17 U.S.C. § 501(b) (conferring standing only to the “legal or beneficial owner of an exclusive right” who “is entitled . . . to institute an action for any infringement . . . while he or she is the owner of it”); Silvers, 402 F.3d at 885. Therefore, third party strangers and nonexclusive licensees cannot bring suit to enforce a copyright, even if an infringer is operating without a license to the detriment of a nonexclusive licensee who has paid full value for his license. See 3-10 Melville B. Nimmer;David Nimmer, Nimmer on Copyright, § 10.02 [B] [1] (2007).

Does that really respond to the Plaintiff's theory?

The Ninth Circuit finds a Supreme Court case, Dastar, addressing the interplay between the Lanham Act and copyright. There, an author used the Lanham Act to claim that, after a television series passed into the public domain, the producer failed to attribute the series to him, and the Supremes said that using the Lanham Act to extend attribution of the source of goods through the Lanham Act would be granting a perpetual right to a facet of copyright, but it commented that making a misrepresentation would be a Lanham Act claim. So, Sybersound wins, right? Wrong. The Ninth Circuit argues that:

Construing the Lanham Act to cover misrepresentations about copyright licensing status as Sybersound urges would allow competitors engaged in the distribution of copyrightable materials to litigate the underlying copyright infringement when they have no standing to do so because they are nonexclusive licensees or third party strangers under copyright law, and we decline to do so.

That makes little sense to me.

Perhaps the explanation is the Sybersound was greedy, also suing in copyright even though its assignment was not exclusive. The Copyright Act permits exclusive rights to be chopped up and owned separately, to be effective as a transfer of ownership, the assignment must be exclusive. And only owners may sue in copyright.