First Sale Doctrine

The “first sale doctrine” helps balance the interests of authors against the rights of the public. In short, authors only control the first distribution of any particular copy of his or her work. Once a copy has been distributed to the public, the owner of the copy is able to assert the typical rights of an owner of personal property (subject to limitations on making further copies and public displays).

The first sale “exhausts” the author’s rights in the further distribution of that particular copy of the work. Without this limitation, there would be no market for used books or movies or art.

History of the First Sale Doctrine

The first sale doctrine comes from the English common law tradition of limiting the ability of sellers to restrain the future alienation of property. The Supreme Court first articulated the first sale doctrine in its 1908 decision of Bobbs-Merrill Co. v. Straus, writing:

“[O]ne who has sold a copyrighted article, without restriction, has parted with all right to control the sale of it. The purchaser of a book, once sold by authority of the owner of the copyright, may sell it again, although he could not publish a new edition of it.”

210 U.S. 339, 350 (1908).

The first sale doctrine as codified in §109(a) of the Copyright Act, reads:

Notwithstanding the provisions of §106(3), the owner of a particular copy or phonorecord lawfully made under this title, 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.

Under the first sale doctrine, it is lawful, for example, for a person to purchase secondhand copies of copyrighted works, to remove the covers or to bind them in new covers, and to resell them to the public. Fawcett Publ’ns, Inc. v. Elliot Publ’g Co., 46 F. Supp. 717 (S.D.N.Y. 1942).

This careful balance between authors and the public may, however, be losing its stability in the digital age. More works are purchased (or licensed) and stored as digital copies. Changes in the first sale doctrine raises interesting questions about the nature of ownership of software and digital goods.

First Sale Allows Lending

By virtue of the ﬁrst sale doctrine, U.S. law does not afford the kind of “public lending right” given to the copyright owner in such nations as Great Britain and Germany. U.S. copyright owners can claim no royalty, and can interpose no ban, when third persons—such as public libraries or private lending libraries—lawfully purchase one or two copies of a work and lend them to the public many times, either free or for a price. Section 109(a) negates any such lending right.

It is lawful, for example, for a person to purchase secondhand copies of copyrighted works, to remove the covers or to bind them in new covers, and to resell them to the public. Fawcett Publ’ns, Inc. v. Elliot Publ’g Co., 46 F. Supp. 717 (SDNY 1942).

First Sale Doctrine Does Not Allow Creation of Infringing Derivative Works

The right to dispose of a lawfully purchased copy of a work does not include the right to makes alteration or incorporate such work in a compilation as a derivative work. For example, a court held that when a defendant purchased old copies of National Geographic magazine, tore out articles, and bound them together for sale with articles relating to a common subject matter, it had infringed on the owner’s exclusive right to prepare derivative works. Nat’l Geographic Soc’y v. Classiﬁed Geographic, Inc., 27 F. Supp. 655 (D. Mass. 1939).

International First Sales

Following decades of debate and uncertainty, the Supreme Court has finally held that the first sale doctrine applies to goods manufactured outside of the jurisdiction of the United States and that the Copyright Act cannot be used to prevent importation of gray-market goods. See Kirtsaeng v. John Wiley & Sons, Inc., 133 S.Ct. 1351 (2013).

In Kirtsaeng, the Supreme Court addressed the question of whether the clause “lawfully made under this title” in §109(a) of the Copyright Act effectively means “made in geographic area of the United States”. Additionally, the Court upheld the finding that the right of importation provided in §602(a)(1) is subject to the resale and transfer rights provided to owners under the first sale doctrine. See Quality King Distributors, Inc.v.L’anza Research Int’l, Inc., 523 U. S. 135 (1998). The Court reversed the holding of the Second Circuit, finding the “lawfully made under this title” is best interpreted as meaning lawful with respect to being in compliance with Copyright Act and not, as the Second Circuit had held, to mean with the physical boundaries where the Copyright Act applies.

The Court found that a non-geographical interpretation of the contested clause was a more straightforward reading of the words, noting that pirated copies of an American work that are printed or manufactured abroad are considered unlawfully made under the Copyright Act. See Id. at 1359-60. The Court also notes that the geographically interpretation could give rise to a list of “horribles”, which could severely limit the ability of Americans to re-sell everyday consumer items and of museums or libraries to display and lend books and art. See Id. at 1364-66.

Justice Kagan, concurring, writes that in essence what John Wiley is asking the Court to do is to eviscerate the first sale doctrine so that §106(3) does the hard work of preventing unauthorized importation, which should instead be the job of §602(a)(1). Justice Kagan, in what reads like a legislative guide map for Congress, suggests that issue be taken with the Court’s decision in Quality King and not Kirtsaeng.

The prior Supreme Court authority on this matter in Quality King Distributors, Inc. v. L’Anza Research International, Inc., 523 U.S. 135 (1998) confronted the question of whether the first-sale doctrine applies to works manufactured in the United States, but distributed and purchased abroad and then re-imported into the United States. Quality King Distributors, Inc. v. L’Anza Research International, Inc., 523 U.S. 135 (1998). To answer that question, the Court analyzed §602(a)(1)¹, which gives the U.S. copyright owner the exclusive right of importation. The central issue was whether the first-sale limitation set forth in §109(a) applied to imported goods, or whether §602(a)(1) afforded a “free standing” right not subject to the various exemptions (including fair use and first sale) in the Copyright Act. The Court concluded that the importation right under §602(a)(1) is a species of the public-distribution right under §106(3), so that the copyright owner exercises that right subject to the first-sale doctrine. So-called gray-market goods or parallel imports, at unauthorized discounted prices, cannot thus be restricted by invoking the Copyright Act.

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Limits on Renting Under the First Sale Doctrine

There are, however, two exceptions to this rule. They relate to the rental for proﬁt of either a phonorecord embodying a copyrighted sound recording of music or a copy of a copyrighted computer program. Congress concluded in 1984 that the newly emerging “record rental store” was being used by consumers as an inexpensive supplier of musical sound recordings that could be inexpensively taped at home, thus substituting for a purchase of the recording. Comparable conclusions were reached in 1990 with respect to the rental of computer software, which was also susceptible to reproduction for nonproﬁt personal use, by individuals on their home computers.

In the Record Rental Amendment of 1984 and the Computer Software Rental Amendments Act of 1990, Congress forbade the owner of a phonorecord or the possessor of a copy of a computer program “for the purposes of direct or indirect commercial advantage, [to] dispose of, or authorize the disposal of, the possession of that phonorecord or computer program . . . by rental, lease, or lending, or by any other act or practice in the nature of rental, lease, or lending.” These exceptions to the ﬁrst-sale doctrine are codified in section 109(b) of the Copyright Act. Explicitly excluded from the ban is the not-for-proﬁt rental, lease, or lending of phonorecords or computer software by most nonproﬁt libraries and educational institutions.

Particularly with respect to software, these exception have proved to be largely unnecessary and irrelevant, as software is typically sold as a license (e.g. a shrink-wrap license) and therefore is not permitted to be leased or rented, or even the physical CD containing the software re-sold in many instances. See discussion under The Problem of Licensing and First Sales below. Vernor v. Autodesk, Inc., 621 F. 3d 1102 (9th Cir. 2010).

The Problem of Software Licensing and First Sales

In certain cases, the purchaser of copyrightable material, such as software, may receive a license and not ownership of the item itself. In such cases, the first sale doctrine may not apply. See Vernor v. Autodesk, Inc., 621 F. 3d 1102 (9th Cir. 2010). Where a license and not actual ownership is found by the courts, the terms of the license dictate the permitted uses by the holder.

The distinction between a license over the material contained within a physical object and ownership over the physical object itself, with the right to resell the object, has been muddled in the case of software purchased subject to license terms. Notably, Nimmer takes objection to the holding of Vernor v. Autodesk and argues that it is likely unsupportable under core first sale principle’s in Bobbs-Merrill. See 2-8 Nimmer on Copyright §8.12; see also Clark D. Asay, Kirtsaeng and the First-Sale Doctrine’s Digital Problem, 66 Stan. L.Rev. Online 17 (May 17, 2013).