The Idolawyer Tries To Figure Out If This Whole “Used MP3 Store” Thing Is Legal

JohnPStrohm / December 5, 2008

It’s difficult to think of a thornier or more complicated issue in copyright law than that brought up by Bopaboo, a startup that purports to provide a forum for consumers to buy and sell used digital audio files online, so I’ll try to keep this brief. I’m not going to comment specifically on Bopaboo, but rather on the legal implications of after-market sales of digital audio files, referred to in this article under the appropriate legalese of “digital phonorecords.”

The vexing legal question is whether the sale of a legitimately acquired digital phonorecord is permissible pursuant to the First Sale Doctrine under U.S. copyright law. The First Sale Doctrine, which developed in the common law but is codified in the current Copyright Act, permits the owner of a particular copy or lawfully made phonorecord to sell or otherwise dispose of possession of that copy or phonorecord. For example: If you buy an authorized CD containing a copy of a sound recording, you may sell it, or give it to a friend, or throw it away. The doctrine clarifies the distribution right vested in a copyright owner, which is one of several exclusive rights vested in the owner. It does not authorize the purchaser of a copy to make additional copies, which is within exclusive right of reproduction.

The First Sale Doctrine raises a number of questions with regard to consumer sales of digital phonorecords, including whether someone who purchases a digital phonorecord is its owner (as opposed to someone who has acquired a license, whereby First Sale would not apply); whether a digital file is a tangible object for purposes of the distribution right; and whether it is possible to sell a digital phonorecord without making a copy in the process. Someone could write a lengthy law review article on this subject, but I’ll stick to these few issues in the interest of brevity.

With regard to whether the acquisition of a digital phonorecord is a true transfer of ownership, the iTunes Store’s Terms of Service agreement provides some insight. Regarding the use of products, Apple limits the use of products to “personal, noncommercial use.” Therefore, to sell a file purchased from iTunes apparently constitutes a technical breach of the iTunes Terms of Service. Limiting the purchaser’s rights is not typical of a transfer of ownership, and Apple’s limitation appears to specifically undermine the First Sale Doctrine.

Nevertheless, in the recent California case UMG Recordings, Inc. v. Augustino, the court stated that the end user language on a promotional CD that purports to create a license between the record company and the recipient of the promo does not negate the First Sale Doctrine. One important question to ask, according to the court, is whether the distributor intended to regain possession of the particular good. If so, then it’s probably a license; if not, then it’s probably a sale. In a typical sale of a digital phonorecord, it’s unlikely that iTunes expects to get the file back from the consumer. Therefore, legally such a transaction may constitute the passing of title.

Whether the file is a tangible object appears to have an easy solution. In the recent federal district court case London-Sire Recordings, Inc. v. Doe 1, the court held that electronic files are material objects for purposes of the distribution right. Basically, any object (tangible or intangible) in which a sound recording can be “fixed” is a material object–including digital phonorecords. By extension, the transfer of a digital phonorecord constitutes distribution for the purposes of the copyright act. Nevertheless, the court held that a transfer of an unlawfully obtained file is not protected by the First Sale Doctrine. First Sale prevents the rightsholder from being able to control downstream sales; however, in the case of an unlawfully obtained file, the rightsholder didn’t have a chance to exercise its market rights over the copy in the first place. The difficulty, of course, is in confirming that digital phonorecords were lawfully obtained.

Finally, it could be challenging for a company facilitating after-market sales of digital phonorecords to keep such transactions completely within the distribution right and therefore within the First Sale Doctrine. It seems difficult to complete such a transaction without having to make copies of the digital phonorecord (thus infringing the reproduction right). Although it seems theoretically possible that one could transfer the exact same digital file purchased through a legitimate source to another user, the process seems a lot fuzzier than the after-market sale of a physical product, and it triggers potential issues that are beyond my expertise. If you transfer a file from one computer to another–even if you destroy the original file–are you not making a copy in the process? Is there a way to confirm that the files being sold are obtained legally and that the seller is not retaining copies? If not, is a company truly able to insulate itself from liability through its terms of use, and are consumers willing to take the risk? If such sales are determined not to be within the First Sale Doctrine, what are the implications regarding the company’s potential contributory infringement?

Since record labels have fought the secondary market with respect to used CD sales on several fronts (including, recently, by pushing for the passage of restrictive laws on the state level), it seems very likely that they will be aggressive in fighting a secondary market with respect to digital sales. Assuming this idea takes root, I’ll look forward to seeing how this one comes out in the courts.