Record Rental Exception to First Sale Doctrine Limited to Musical Sound Recordings
The Sixth Circuit Court of Appeals has narrowly construed the Record Rental exception to the copyright first sale doctrine, ruling that it does not apply to sound recordings of literary works, i.e., audio books. In Brilliance Audio, Inc. v. Haights Cross Communications, Inc., 2007 WL 188103 (6th Cir. Jan. 26, 2007), the audiobook publisher, Brilliance Audio, sued Haights Cross Communications for copyright and trademark infringement. Brilliance’s beef was that Haights was repackaging and relabeling retail editions of Brilliance’s audio books as library editions and then distributing them via rental, lease, and lending.
Both copyright and trademark law contain a “first sale” exception that provides a defense to claims of infringement. The default rule of the "first sale doctrine" in copyright is that the copyright holder controls the right to the underlying work, but the owner of a particular copy can dispose of it in any manner he or she wishes. 17 U.S.C. §109(a). However, in response to rampant piracy of popular music recordings, Congress carved out a limited exception to the first sale doctrine-- the Record Rental Amendment of 1984 -- which states that, “unless authorized by the owners of a copyright in the sound recording[,] ... and ... in the musical works embodied therein, [ ] the owner of a particular phonorecord ... may [not], for the purposes of direct or indirect commercial advantage, dispose of, or authorize the disposal of, the possession of that phonorecord ... by rental, lease, or lending, or by any other act or practice in the nature of rental, lease, or lending.” 17 U.S.C. §109(b)(1)(A). Brilliance asserted that its audio books fell within this exception to the first sale doctrine. The court disagreed.
The court’s analysis started with the observation that the statute is somewhat ambiguous as to its scope. On the one hand, the record rental exception explicitly applies to all “sound recordings,” a term defined elsewhere in the Copyright Act to include both musical and non-musical works. On the other, it states that sound recordings may not lawfully be rented, leased or loaned unless authorized by the “owners of a copyright in the sound recording ... and ... in the musical works embodied therein.” It then noted that, at the time Congress adopted the exception in 1984, its exclusive focus was on protecting the music industry. Finally, it observed that the exception upsets the traditional bargain between the rights of copyright owners and the personal property rights of individuals who own a particular copy , extending the copyright monopoly for a limited set of works. In order to protect the bargain between copyright owners and personal property owners, the court declined to construe the exemption from the first sale doctrine any more broadly than explicitly mandated by Congress. Brilliance’s copyright claim was, therefore, dismissed.
However, Brilliance faired better on its trademark claim. Under the first sale rule in trademark law, resale by the first purchaser of a repackaged trademarked item does not constitute infringement so long as (1) the reseller gives the public adequate notice that the item has been repackaged and (2) the resold item is not materially different from those sold by the trademark owner. Brilliance’s complaint asserted that Haights’ notice of repackaging is inadequate because it creates the misrepresentation that Haights has a long-standing relationship with Brilliance and that Brilliance authorized and sponsored its activities. As a result, it alleged, there is a likelihood of consumer confusion that will dilute the value of the trademark. Brilliance also asserted that its genuine library edition is different from its retail edition and that, by repackaging retail editions as library editions, Haights altered the product in a manner likely to cause consumer confusion. Because of these allegations, the court refused to dismiss Brilliance’s Complaint for trademark infringement. Ultimately, however, the success of its claim will depend on whether it can, indeed, convince a judge (or jury) that Haights’ notice is inadequate to prevent confusion or that the differences between the retail and library versions of its audiobooks are sufficiently material that passing one off as the other is likely to confuse consumers.
Both copyright and trademark law contain a “first sale” exception that provides a defense to claims of infringement. The default rule of the "first sale doctrine" in copyright is that the copyright holder controls the right to the underlying work, but the owner of a particular copy can dispose of it in any manner he or she wishes. 17 U.S.C. §109(a). However, in response to rampant piracy of popular music recordings, Congress carved out a limited exception to the first sale doctrine-- the Record Rental Amendment of 1984 -- which states that, “unless authorized by the owners of a copyright in the sound recording[,] ... and ... in the musical works embodied therein, [ ] the owner of a particular phonorecord ... may [not], for the purposes of direct or indirect commercial advantage, dispose of, or authorize the disposal of, the possession of that phonorecord ... by rental, lease, or lending, or by any other act or practice in the nature of rental, lease, or lending.” 17 U.S.C. §109(b)(1)(A). Brilliance asserted that its audio books fell within this exception to the first sale doctrine. The court disagreed.
The court’s analysis started with the observation that the statute is somewhat ambiguous as to its scope. On the one hand, the record rental exception explicitly applies to all “sound recordings,” a term defined elsewhere in the Copyright Act to include both musical and non-musical works. On the other, it states that sound recordings may not lawfully be rented, leased or loaned unless authorized by the “owners of a copyright in the sound recording ... and ... in the musical works embodied therein.” It then noted that, at the time Congress adopted the exception in 1984, its exclusive focus was on protecting the music industry. Finally, it observed that the exception upsets the traditional bargain between the rights of copyright owners and the personal property rights of individuals who own a particular copy , extending the copyright monopoly for a limited set of works. In order to protect the bargain between copyright owners and personal property owners, the court declined to construe the exemption from the first sale doctrine any more broadly than explicitly mandated by Congress. Brilliance’s copyright claim was, therefore, dismissed.
However, Brilliance faired better on its trademark claim. Under the first sale rule in trademark law, resale by the first purchaser of a repackaged trademarked item does not constitute infringement so long as (1) the reseller gives the public adequate notice that the item has been repackaged and (2) the resold item is not materially different from those sold by the trademark owner. Brilliance’s complaint asserted that Haights’ notice of repackaging is inadequate because it creates the misrepresentation that Haights has a long-standing relationship with Brilliance and that Brilliance authorized and sponsored its activities. As a result, it alleged, there is a likelihood of consumer confusion that will dilute the value of the trademark. Brilliance also asserted that its genuine library edition is different from its retail edition and that, by repackaging retail editions as library editions, Haights altered the product in a manner likely to cause consumer confusion. Because of these allegations, the court refused to dismiss Brilliance’s Complaint for trademark infringement. Ultimately, however, the success of its claim will depend on whether it can, indeed, convince a judge (or jury) that Haights’ notice is inadequate to prevent confusion or that the differences between the retail and library versions of its audiobooks are sufficiently material that passing one off as the other is likely to confuse consumers.
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