First Gift Doctrine

by on August 15, 2007 · 2 comments

Over at Ars, I’ve got a write-up of EFF’s new case defending the First Sale Doctrine. Universal Music has been suing people who sell promotional CDs on eBay. EFF says (and I’m inclined to agree) that under the First Sale Doctrine, those CDs are the property of whoever the labels give them to, and the new owners are entitled to do what they wish with them. The case could have broader implications for the software industry:

Attempts to circumvent the first sale principle using license agreements is not unique to UMG. The practice is especially common among software firms, which routinely distribute their products with a shrinkwrap license. Such end-user license agreements typically state that the software has not been sold to users but has only been licensed for the customer’s personal use, subject to a variety of conditions spelled out in the EULA. Software firms contend that because their software is merely licensed to users rather than sold, the First Sale Doctrine does not apply.

Such shrinkwrap licenses have generated considerable controversy, and some courts have rejected them outright. For example, in a 2001 case, a California judge ruled that Adobe’s EULA did not apply to a California businessman who bought bundled Adobe software and resold the individual components. In that case, the judge held that despite Adobe’s contention that it merely licensed its software, “the circumstances surrounding the transaction strongly suggest that the transaction is in fact a sale rather than a license.”

UMG’s lawsuit against Augustino will test the boundaries of the First Sale Doctrine. UMG may argue that the First Sale Doctrine only applies to sales of copyrighted materials and not to CDs it gives away. But EFF attorney Fred von Lohmann tells Ars that the courts have applied the First Sale Doctrine to gifts in the past. For example, he points to a 1984 case in which Disney tried to prevent the auction of film cells that had been given to a former employee. The court found that the First Sale Doctrine applied and allowed the auction to go forward.

I think there are good reasons to be skeptical of the notion that these kinds of “shrinkwrap licenses” are validly enacted contracts at all, given that they are often presented to the customer only after he has completed his purchase and returned home. One party to a transaction can’t just unilaterally add new conditions after the transaction is complete. If UMG really believes it’s only licensing its promo CDs, it should require recipients to sign an explicit license agreement before giving them the CD, and it should demand the return of the CD after it’s been reviewed. But if they simply ship these CDs out to people unsolicited, it’s a little silly for them to then turn around and claim they weren’t really gifts. If it looks like a gift and quacks like a gift, the court should treat it like a gift, no matter what might fine print might be stamped on the CD itself.

  • http://www2.blogger.com/profile/14380731108416527657 Steve R.

    Also see “More Legal Defeats for Nasty Sneakwrap Terms” by Ed Foster.

  • http://www2.blogger.com/profile/14380731108416527657 Steve R.

    Also see “More Legal Defeats for Nasty Sneakwrap Terms” by Ed Foster.

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