The first sale doctrine permits the purchaser of a legal copy of a copyrighted work to treat that copy in any way desired, as long as the copyright owner’s exclusive copyright rights are not infringed. This means the copy can be destroyed, sold, given away, or rented. A common example is the rental of movie videos, where the store purchasing the videotapes is entitled to rent them out without paying any royalties to the owner of the copyright rights in the movie. If, however, the store made additional copies of the movie and also rented them out, the underlying copyright would be infringed. The term “first sale doctrine” comes from the fact that the copyright owner maintains control over a specific copy only until it is first sold.
As with many areas of copyright law, there is some confusion as to the boundaries of the first sale doctrine. Two cases involving the framing of artwork seem to have arrived at different results.
EXAMPLE 1: A company purchased a book of prints by the painter Patrick Nagel, then cut out the individual images in the book and mounted them in frames for resale. The Ninth Circuit Court of Appeals in California held that this practice was an infringement and was not permitted under the first sale doctrine. (Mirage Editions, Inc. v. Albuquerque A.R.T. Co., 856 F.2d 1341 (1988). A similar result was reached in Greenwich Workshop Inc. v. Timber Creations, Inc., 932 F.Supp. 1210 (C.D. Cal. 1996).)
EXAMPLE 2: A company purchased notecards and mounted them on tiles. A federal court in Illinois determined that this practice was not an infringement and was permitted under the first sale doctrine. (Lee v. Deck the Walls, Inc., 925 F.Supp. 576 (N.D. Ill. 1996). The Seventh Circuit affirmed this decision and singled out the Ninth Circuit for criticism (Lee v. ART Co., 125 F. 3d 580 (7th Cir. 1997). (A similar result occurred in C.M. Paula Co. v. Logan, 355 F.Supp. 189 (D.C. Texas 1973).)
Under these rulings, a person in California cannot mount individual images from an art book, while a person in Illinois can mount individual notecards. Should it matter whether the object that is mounted is from an art book or from a note card? In the California case, the justices felt that mounting the Nagel images separately created a derivative work. In the Illinois case, the judge did not believe that mounting an image on a tile created a derivative work, because the image was not altered or modified.
Another first sale decision added some confusion regarding the rights of software companies. A federal court ruled that the purchaser of a bundle of software programs could resell the individual components (separate programs on CDs). (Softman Products Co. LLC v. Adobe Systems Inc., 171 F.Supp.2d 1075 (C.D. Cal. 2001).)
There are exceptions to the first sale doctrine. As a result of lobbying by the computer and music industries, the rental of computer programs and sound recordings is prohibited. The sound recording exception is limited to musical works; it does not extend to audiobooks. (Brilliance Audio, Inc. v. Haights Cross Communications, Inc. 2007 474 F. 3d 365 (6th Cir. 2007). It is also not permissible under the first sale doctrine to destroy a fine art or photographic work that meets the requirements of the Visual Artists Rights Act (for example, signed and numbered photographs created in limited editions of 200 or fewer copies).
The first sale doctrine does not apply if the copyrighted work is made and sold outside the U.S. In a 2008 case, Costco bought Omega watches (with copyrighted designs) outside the U.S. and resold them in U.S. stores. When sued for infringement, the company used a first sale defense. The Ninth Circuit Court of Appeals rejected that defense holding that the first sale doctrine—the freedom to resell copyrighted goods—did not apply when the goods are made and first sold outside the U.S. (Omega v. Costco, 541 F.3d 982 (9th Cir. 2008).)
Supreme Court Steps In
In 2013, the U.S. Supreme Court rules that there are no geographic limitations on the first sale doctrine. In that case, a Thai student came to the U.S. to study and engaged in a business arrangement with his family in Thailand. They would send him the books purchased in Thailand and he would resell them in the U.S. market. The student expanded the business and eventually earned $100,000 profit. U.S. Publishers sued the student arguing that the first sale doctrine did not apply to “gray market goods” – lawfully made goods that were imported into (but not made in) the U.S. The Supreme Court disagreed and ruled for the student, stating that as long as the copies were lawfully made – under the direction of the copyright holder – there was no requirement that the books be manufactured in the U.S. (Kirtsaeng v. John Wiley & Sons, Inc., ___ U.S. ___ (2013).)Copyright Act: § 109.