The Doctrine of First Sale

Over the millennia, property and ownership have always been extremely important issues in both human history and in law. One particular element of this that has received a significant amount of attention over the course of the last century has been ownership rights in artistic and literary creations. A facet of this is what is known as the doctrine of first sale, and it is the evolution of this concept in law and in application that is the subject of this paper.

In copyright case law, probably the first case to address what would be known as the “doctrine of first sale” was Bobbs-Merrill Co. v. Straus.[1] As described by John Rothchild in the article “The Incredible Shrinking First-Sale Rule,” the plaintiff, Bobbs-Merrill Company, was the publisher and copyright owner of a novel, and had sold copies of the book to the defendants, R.H. Macy & Company. The plaintiff included on each copy a notice stating that the retail price of the book was one dollar and that “no dealer is licensed to sell it at a less price, and a sale at a less price will be treated as an infringement of the copyright” (12). Despite this, the defendants sold the copies at a price of 89 cents, and Bobbs-Merrill brought suit. Rothchild further explains that the rationale for bringing suit was based on the “exclusive right to ‘vend’ under the 1831 [Copyright] Act” (12), in effect claiming that this right granted permission to control all sales of copyrighted works.

The Supreme Court disagreed, and Justice William R. Day said in the court opinion, “To add to the right of exclusive sale the authority to control all future sales, by a notice that such sales must be made at a fixed sum, would give a right not included in the terms of the statute and … extend its operation, by construction, beyond its meaning.”[2] In handing down its decision affirming the decision of the Second Circuit Court, the Supreme Court’s ruling did not refer to any such term as a “first sale,” though the opinion conveyed this concept.

Also of note in the court opinion is the affirmation that the existing copyright statutes, “while protecting the owner of the copyright in his right to multiply and sell his production,” do not grant or establish any right to “impose … a limitation at which the book shall be sold at retail by future purchasers.”[3] However, the court mentioned that the case was “purely a question of statutory construction” and that “there is no claim … of contract limitation, nor license agreement controlling the subsequent sales,”[4] which seems to suggest that a binding agreement could possibly create certain obligations or restrictions. Since such was not the nature of the case, though, the court did not expound the issue.

Approximately one year after the Bobbs-Merrill Co. case, the Copyright Act of 1909 was passed, and the Supreme Court’s ruling in the aforementioned case was directly responsible for the introduction of the first sale doctrine. Clearly, Congress felt the court’s “judicial interpretation of the copyright law” (Rothchild 12) the year before was significant enough to merit integration as a legal component of copyright. Rothchild says that, on one hand, the specific case of Bobbs-Merrill dealt with a somewhat narrow issue, namely, the “attempt by a copyright owner to control the price at which a material object holding a copyrighted work may be resold” (13). But, he says, the court made its ruling “based upon a more general common-law aversion to restraints on alienation, and therefore extends more broadly,” and so when the first sale doctrine became law the next year, it was those more wide-ranging implications that were codified (13).

Essentially what is being said is that, while the actual case focused on whether a copyright owner could impose price regulations on the resale (the secondhand sale) of his work, the court was cognizant of—and, thus, chose to address—larger matters at issue. The online encyclopedia Wikipedia refers to a “restraint on alienation” as a clause whose intended purpose is, upon “conveyance of real property” from one party to another, to prevent recipient from “selling or otherwise transferring” that property (“restraint on alienation”). Thus, when the court ruled that a copyright owner had lessened control over his work following its initial sale, the doctrine’s wording had that same expansive nature.

In the article “Don’t Judge a Sale by Its License,” Lothar Determann and Aaron Fellmeth state that, codified as section 27 in the 1909 Copyright Act, the first sale doctrine was originally worded as follows:

The copyright is distinct from the property in the material object copyrighted, and the sale or conveyance, by gift or otherwise, of the material object shall not of itself constitute a transfer of the copyright, nor shall the assignment of the copyright constitute a transfer of the title to the material object; but nothing in this title shall be deemed to forbid, prevent, or restrict the transfer of any copy of a copyrighted work the possession of which has been lawfully obtained. (11)[5]

Determann and Fellmeth say that the law as it was written did not seem intended to address any matters “regarding contractual restrictions on the disposition of copies that had been previously sold” (11), and they refer to the House Report to explain the intention of the new provision. The House Report summarized the function of the doctrine as being meant to “recognize the distinction … between the material object and the right to produce copies thereof”; also, the report emphasized that the doctrine was not codified to supersede existing copyright law. Additionally, though, the report suggested that, following the first sale of his item, the copyright owner should not be allowed any further control over the item, such as matters involving subsequent sales (11).[6] So, as Determann and Fellmeth reason, the House Report and the provision serve as two indicators that the goal was to prevent contracts that might otherwise limit restrictions on resale—in other words, the doctrine “would apply regardless of any contractual agreements” (11).

The Copyright Act, both as a whole and specifically with regard to the doctrine of first sale, did not undergo any substantial reinterpretation or revision until the passage and enactment of the 1976 Copyright Act. However, the importance of updating the existing copyright law had been a matter of governmental discussion for almost a decade prior to then; in 1967, Congress was focusing on how the 1909 Act could be modernized and expanded (Determann 11). Given the lack of change in copyright law since near the turn of the century, the legislative branch’s increasing attention to the matter during the late ‘60s marked the first time that serious attention was paid to the issues and challenges gradually emerging from the advent of new technologies and media.

In the 1976 Act, the new version of the first sale doctrine was codified in section 109, which reads, in part: “Notwithstanding the provisions of section 106(3), the owner of a particular copy or phonorecord lawfully made … is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.”[7] In the article “Copyright Clearances: First Sale’s Slow Fade,” K. Matthew Dames explains that section 101 in the Act defines “copy” and “phonorecord.” The former refers not to reproductions but to any copyrightable item that exists in a “‘tangible medium of expression’” and is “‘an original work of authorship’”; the latter refers to such items as CDs, cassette tapes and the various other “‘material object in which the sounds are first fixed’” (33).

Of significance in the wording of the doctrine is the stipulation that rights are “notwithstanding the provisions of section 106(3),” which is related to both another portion of section 106 and, in essence, part of the very foundation of the first sale provision. In his article, Dames explains: First sale is not applicable as a “limitation against the owner’s exclusive right of reproduction in Section 106(1),” because 106(3) limits the right of distribution (33). The essential distinction that is being pointed out is between distribution and reproduction. What the first sale doctrine provides is that, under most circumstances, people who own a legal copy of a copyrighted work are free to give away, resell, throw away or otherwise use or alienate it away—but only that copy. The copyright owner, following the first sale, forfeits his right “to control further distribution” (Dames 33). Anyone else making a copy of the work, though, infringes on the author’s exclusive right to reproduce the work.

Another aspect of the limitations of first sale is explained by Joseph Liu in an article titled “Owning Digital Copies: Copyright Law and the Incidents of Copy Ownership.” He points out that first sale applies to “owners,” not to people who have “‘acquired possession … through rental, lease, loan or otherwise’” (47)[8]. This serves to remind of the distinction of what ownership implies: A person who legally purchases a copy of a work does legally own that copy, along with the rights of distribution that transferred to him from the copyright owner. But ownership only extends to that physical copy itself; the copyright remains with the author.

Sometimes referred to as the “Betamax case,” the case also abbreviated as simply Sony v. Universal was a significant case in putting to the test the new Copyright Act, which had recently gone into effect. Multiple aspects of copyright law were brought up, including infringement, fair use and first sale. Liu’s article makes the observation that the “Betamax case” was one example of “the constant judicial attempts to grapple with the implications of new technologies in copyright law as a whole, in the absence of clear legislative guidance” (30-31); perhaps one of the most significant implications that arose from the case was that the 1976 Copyright Act was not thorough enough as it needed to be, since many questions were being raised by technological innovation. The case originated with Sony’s development of the Betamax tape format and Universal’s ownership of copyrights to various television programs. Says Tino Balio in an online article published on the Web site of the Museum of Broadcast Communications (“Betamax”), Universal claimed that because the videotape allowed consumers to record programs, the consumers were committing infringement by virtue of the making of copies, and so Sony should be held liable.

The case made its way through numerous courts, beginning with the U.S. District Court, Balio explains. The court sided with Sony, finding fair use in both time-shifting and the videotape copying of television shows; also, they didn’t feel monetary loss had been established (“Betamax”).

A further aspect of the case that Balio points out is that when the District Court “[addressed] the … retailing of videocassettes,” they affirmed the rights provided by first sale. Making a decisive ruling in first-sale case law, the court didn’t feel this instance of copying was a violation of the doctrine, and ruled that this “extended to the rental of videocassettes purchased from Hollywood studios” (“Betamax”). The court likely felt that copying by consumers was harmless and not done with any illegal intention; recordings were made and viewed within the home, so no commercial purpose or gain could exist. Ultimately, when the case reached the U.S. Supreme Court, the court also seemed convinced that the video recorders were not being sold with illegal intentions for use, and the since the machines had enough non-infringing uses, the manufacturers could not be liable even if some consumers were infringing, summarizes Balio (“Betamax”). Again, considering the case’s complexities and the multiple dissenting case opinions, part of the significance lies in the fact that it showed that perhaps the scope of the 1976 Copyright Act was not sufficient in addressing many of the technological questions and issues that were to come.

As stated earlier, the late 1960s were when Congress started to look at how the 1909 Copyright Act might be brought up-to-date and given more relevance. Determann says in his article that Sen. John McClellan took it upon himself to propose a bill that would create what he had named the “National Commission on New Technological Uses of Copyright Works,” abbreviated “CONTU” (11). When the bill was passed in 1974, the newly formed CONTU had the long-term project of studying and analyzing the 1909 Act so that recommendations could be made regarding how the revisions would most effectively “accommodate new technology such as photocopying and computer use” (11).

Rothchild explains that the 1978 report made two primary recommendations, both of which would end up being implemented: adding an amendment to section 117, and writing into section 101 a “definition of ‘computer program’” (23). Multiple sources, including both Determann and Rothchild, point out that a third suggestion was made: The term “lawful (or ‘rightful’) possessor” was proposed, but rejected in favor of “owner,” to refer to people who, under the new section, were legal owners of a copy of software program.

Under the 1980 amendments, and by the way in which those changes are worded, such owners are accorded the right to make a copy of a program—provided the purpose is either as backup copy or as a necessary component to run a piece of software.[9]

Two main exceptions to the first sale doctrine exist. According to David Ensign in the article “Copyright Corner,” one of these exceptions is a sort of group of various rights specifically reserved for libraries and some schools. Found within section 109, part of this first exception allows nonprofit libraries to lend books (that they have bought) without having to first get the consent of the copyright holder; similarly, another portion of 109 says that such libraries are exempt from the standard “prohibition of rental, lease or lending of computer software and sound recordings” (“Corner”).

The other exception, and the one with which the Rental Amendments Act more specifically concerns itself, is that “computer software cannot be rented or leased” to gain any manner of commercial advantage (Dames 35). Fred Cate’s article “The Technological Transformation of Copyright Law” adds that one of the reasons that software is excluded from first sale is that “a verbatim copy … can be made at very low cost and with no discernible effect on copy” (1303). Rothchild’s take on the Act is that one of the intended effects was to “put software rental stores out of business” (35). He points out later on in the article that there does not yet exist a fail-safe technological means to foil attempts at creating illicit copies of software programs (72).

In the article “Will the First Sale Doctrine Disappear?”, Anne Klinefelter describes what she seems to feel is a vicious cycle created in part by the passage of the Amendments Act of 1990. She says that because the language of the first sale doctrine specifically requires a lawful “owner,” publishers of software and other digital goods simply “avoid the law by avoiding owners” (“Disappear”). Now, she says, the publishers claim that they “sell certain uses of the copy,” not actual copies themselves. Lastly, the transactions “are achieved by the inclusion of contracts or licenses that outline the terms of purchase, take it or leave it. Thus the first sale doctrine cannot apply.” Or as Dames puts it in a slightly different light, “the first sale doctrine is often hampered by the terms and conditions” of such license agreements that come with software (36).

One of the other reasons that first sale technically is not “compatible” with software and other digital media, says Carol Ou in “Technology and Copyright Issues in the Academic Library,” is because “in the digital environment, any lending requires replication.” For example, many applications create what are sometimes known as “temp,” or temporary, files that serve such purposes as allowing documents and images to be viewed. And because reproduction is not allowable (to anyone but the copyright owner, or to someone who has obtained permission) under first sale, it may not be able to apply at all (“Technology”).

To paraphrase Eurie Smith’s article “Digital First Sale: Friend or Foe?”, another element of the above problem with digital first sale is that, while people would normally be quite free to lend a DVD to a friend, for example, it would not be legally permissible to share a copyrighted digital file with another—because when the file is sent, the original file is not being given away; rather, a duplicate of it is created and sent, clearly without permission (853).

In a way, it is unfortunate that few cases from recent years have been decided involving first sale—especially considering that it is an area of copyright law that has a great deal of current significance. With the complexity of the doctrine, the many ways in which people either try to circumvent the law or distort its meaning beyond what was intended, and the implications and uncertainties of a modern, Internet- and technology-based society, there exist probably hundreds of yet-unanswered questions, and those just on first sale alone.

One of the earlier tests of the amendments (in 1980) to the 1976 Copyright Act came in Vault Corp. v. Quaid Software, but as one site’s abbreviated summary of recent cases points out, the ruling in that case ran contrary to some and was similar to a number of others (“first-sale doctrine”). For example, the Step-Saver Data Systems v. Wyse Technology ruling held that not only was the license agreement not an enforceable one, but that “the sole reason of the [End User License Agreement] after 1990 was to preempt federal statutory and constitutional laws” (“Step-Saver Data Systems, Inc. v. Wyse Technology”).

But the broader significance of cases such as these is in the overall understanding that some courts, such as in California and Texas, essentially regard licensing and sale as one and the same, including within the concept of first sale—despite vendors’ attempts to gain an advantage and exert even further control over the sale and resale of their products. Other courts, such as in Missouri, appeared to take a narrower and more literal stance on the issue, ruling that only a literal sale can make available the first sale rights, and the purchaser had affirmed agreement with the terms (“first-sale doctrine”).

One commonly heard argument is that, because any digital item (whether file, program or otherwise) can easily be “fixed, manipulated, duplicated, distributed and transferred at almost no expense” (Smith 854), it would be unwise to modify laws accordingly. Because a higher court has not yet heard any cases of such a nature, no affirmative interpretation has been handed down, and it appears that dissenting rulings are still in existence.

All told, the future of first sale seems to still hang in the balance, and it is so interconnected with other aspects and facets of copyright law that it seems all but impossible to predict with any degree of certainty what will become of the doctrine. Clearly, as has been stated, it is a provision that has gone through quite the extensive evolution over the course of the past century or so, and it has been forced to try to adapt to the constant fluctuations in the realms of both copyright and new technology. The latter presents a very great challenge, as works and compositions have gradually moved from a hard, concrete medium into a digitized one. One of the most discussed changes in recent years has been the Digital Millennium Copyright Act, enacted in 1998.

A short column titled “Final Hearing on the Digital Copyright Act,” printed in 2001, included one person’s opinion: that of James Neal, the director of the libraries at Johns Hopkins University. “[Testifying] on behalf of the American library community at the U.S. Copyright Office’s final hearing” on the Act, Neal expressed concern that the Act would prevent first sale from ever being able to apply to digital media, and he said that Congress ought to consider “provisions that would clearly allow interlibrary lending, classroom use, archiving, fair use and donations to libraries” (18).

Others, such as Eurie Smith, see a potentially bright future for what could someday become digital first sale. For example, he makes a case for a “three-development” approach in favor of extending the doctrine. He proposes that by making ‘combining’ digital rights management, enforcement (in the form of the DMCA) and “concessions to technology” (such as fair use exceptions), first sale could benefit many. He also says that “the industry has demonstrated an ability to pursue and prosecute infringers effectively, and Congress and the courts have [been willing to] accommodate the demands of technology” when it clashes with copyright (856-858).

Clearly this is an area still rife with contradiction and confusion, and clarity from the legislatures and the courts is needed.

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(1996): 1395-1466. NexisLexis Academic. Reed Elsevier Inc. Benedictine Univ. Lib.,
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< http://www.findlaw.com/casecode/supreme.html>.

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[1] Bobbs-Merrill Co. v. Straus, 210 U.S. 339 (1908).

[2] See Bobbs-Merrill Co., 210 U.S. at 351.

[3] See Bobbs-Merrill Co., 210 U.S. at 350.

[4] See id.

[5] Copyright Act of 1909, ch. 320, § 27, 35 Stat. 1075, 1084 (1909).

[6] H.R. REP. NO. 2222, at 19 (1909).

[7] 17 USC § 109 (2000).

[8] 17 USC § 109(d).

[9] 17 USC § 117(a)(2).