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Last updated February 22, 2010

What Is A License?

According to the 9th Circuit Court of Appeals:

We hold today that a software user is a licensee rather than an owner of a copy where the copyright owner (1) specifies that the user is granted a license; (2) significantly restricts the userís ability to transfer the software; and (3) imposes notable use restrictions.

Vernor v Autodesk, decided September 10, 2010

The 9th Circuit Court of Appeals is called the 9th Circus for a reason: they are a bunch of clowns. The 9th Circuit Court of Appeals is overturned by the Supreme Court twice as often as any other Circuit. This reasoning by the 9th Circuit Court of Appeals grants the copyright owner sweeping powers not given by Copyright Law.

From UMG Recordings vs Troy Augusto:

a. The Licensing Language on the Promo CDs Does Not Create a License.

Each of the Promo CDs bore a label with words that purportedly "license" use of that Promo CD to the music industry insider receiving it. (Kossowicz Decl. Ex. 11.) UMG argues that these words create a license between UMG and any recipient who accepts the Promo CD and that under this license UMG retains title to the Promo CD. Augusto argues that these words do not create a license and that UMG's distribution of the Promo CDs qualifies as a gift or sale. In determining whether a transaction is a sale or a license, courts must analyze the "economic realities" of the transaction. Microsoft Corp. v. DAK Indus., 66 F.3d 1091, 1095 (9th Cir. 1995). "[T]he fact that the agreement labels itself a 'license' . . . does not control our analysis." Id. at 1095 n2.
i. One Hallmark of a License Is the Owner's Intent to Regain Possession.
The right to perpetual possession is a critical incident of ownership. See Krause v. Titleserv, Inc., 402 F.3d 119, 123 (2d Cir. 2005) (describing a person's "degree of ownership of a copy" as "complete" when "he may lawfully use it and keep it forever, or if so disposed, throw it in the trash"). Accordingly, the distributor of a copyrighted product's intent to regain possession is strong evidence that the product was licensed, not sold, to the recipient. The absence of this intent is strong evidence that the product was sold.

The Ninth Circuit's decision in United States v. Wise demonstrates the importance of regaining possession of the licensed product. 550 F.2d 1180 (9th Cir. 1977). In Wise, the court evaluated several contracts under which movie studios transferred movie prints. Most of the contracts required that the recipients return the movie prints after a fixed term. Id. at 1185 ("The license agreements with respect to the films involved in this case generally . . . required their return at the expiration of the license period."). The Ninth Circuit determined that these contracts were licenses.

However, some of the contracts permitted the recipient to keep the film print. In particular, one contract allowed an actress to keep possession of the film print "at all times" for her "personal use and enjoyment," but prevented her from transferring the print to anyone else. Id. at 1192. The Ninth Circuit determined that this contract was a sale, not a license.

Here, UMG gives the Promo CDs to music industry insiders, never to be returned. The recipients are free to keep the Promo CDs forever. Nothing on the packaging of the Promo CDs or in the licensing label requires that the recipient return the Promo CDs to UMG. (Kossowicz Decl. Ex. 11.) There are no consequences for the recipient should she lose or destroy the Promo CDs - which UMG allegedly considers its property. (Kossowicz Decl. Ex. 11.) UMG does not request that any recipients return the Promo CDs (Strouse Decl. ∂ 9) and does not otherwise make any affirmative effort to recover possession of the Promo CDs. Further, it appears that UMG could not take these actions; UMG does not keep permanent records identifying who received which Promo CDs. (Strouse Decl. ∂ 7.)

Accordingly, the music industry insiders' ability to indefinitely possess the Promo CDs is a strong incident of ownership through a gift or sale.

ii. The Absence of a Recurring Benefit to UMG Suggests the Transfer to Music Industry Insiders Is a Gift or Sale
Generally, licenses provide recurring benefits for the copyright owner. Microsoft, 66 F.3d at 1096 (determining that Microsoft sold its software to DAK in part because Microsoft received a set payment independent of DAK's length of use of the software); see also SoftMan Prods. Co. v. Adobe Sys., 171 F. Supp. 2d 1075 (C.D. Cal. 2001) (determining that Adobe sold its software in part because "the license runs for an indefinite term without provisions for renewal").

Here, UMG receives no recurring benefit from the recipients' continued possession. As an initial matter, UMG has no guarantee that it will receive any benefit from the distribution of a Promo CD. The licensing label does not require that the recipient promote or expose the material on the Promo CD. (To the contrary, most of the Promo CDs at issue contain a label with the phrase "for personal use only," indicating that any license would prohibit the recipient from making professional use of the Promo CD.) Nor does the licensing label require the recipient to provide UMG with any benefit to retain possession. At the time UMG distributes the Promo CDs, it is not guaranteed to get anything in return.

iii. The Only Apparent Benefit to a License Is to Restrain Trade.
Finally, the only benefit to a license for UMG is to restrain transfer of its music. This purpose was rejected 100 years ago by the Supreme Court. See Bobbs-Merrill Co. v. Strauss, 210 U.S. 339 (1908) (rejecting a book publisher's attempt to restrict resale of a book through a label that prohibited sales for less than one dollar); see also RCA Mfg. Co. v. Whiteman, 114 F.2d 86, 90 (2d Cir. 1940) (Hand, J.) ("[RCA] had no power to impose the pretended servitude upon [its] records [by placing a 'Not Licensed for Radio Broadcast' label upon them]."); SoftMan, 171 F. Supp. 2d at 1084 ("Adobe frames the issue as a dispute about the ownership of intellectual property. In fact, it is a dispute about the ownership of individual pieces of Adobe software.").

Unlike the use of software, which necessitates a license because software must be copied onto a computer to function, music CDs are not normally subject to licensing. Therefore, the benefits of a license for software do not exist under these facts.

Looking to the economic realities of the transaction, UMG's distribution of Promo CDs provides the recipient with many critical rights of ownership, including the right to perpetual possession and the freedom from obligations to UMG. Accordingly, UMG's distribution of Promo CDs to the music industry insiders is properly characterized as a gift or sale, not a license, and title to the CDs transferred to the insiders. Augusto is thus protected by the first sale doctrine.

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