The First Sale Doctrine (“FSD”) is an exception to the copyright owner’s exclusive distribution right. Under the FSD, the owner of a lawfully made copy of a copyrighted work may sell or otherwise dispose of that copy without the authorization of the copyright owner.
Manufacturers sometimes try to defeat the FSD by distributing the good under a license agreement. Under this licensing approach, the manufacturer argues that (i) it has not transferred ownership of the good but instead has only granted a limited right to use the good and (ii) therefore, the FSD does not apply.
Before a new music CD is released for sale to the public, record labels often create and distribute promotional CDs to radio stations and other music industry professionals. UMG, like many other record labels, try to prevent the subsequent re-sale of their promotional CDs by labeling them “for personal use only” and “resale or transfer prohibited”.
UMG filed a copyright infringement lawsuit against Troy Augusto who had obtained second-hand and was selling on eBay promotional CDs. Augusto won. The court decided that UMG's distribution of promotional CDs to the music industry professionals qualified as a sale or as a gift, not as a license. Therefore, the music industry professionals could legitimately transfer the CDs to Troy Augusto who could in turn legally sell them on eBay.
