First Sale Doctrine

The "first sale" rule shields a reseller from infringement liability. Such protection to the reseller extends upto where the said
goods have not been altered so as to be materially different from those originating from the trademark owner.

First sale doctrine originally applied to copies that had been sold, but in the 1976 Act it was made to apply to any "owner" of a
lawfully made copy regardless of whether it was first sold.

Accordingly, if the copyright owner licenses someone to make a copy, then that copy (any drive or removable storage
medium) may lawfully be sold, lent, traded, or given away.

First sale doctrine does not include renting and leasing recorded music and generally computer software, though private
nonprofit archives and libraries are allowed to lend them with a notice that the work may be copyrighted.

U.S. courts have allowed manufacturers to restrict the first-sale doctrine by a clickwrap contract or other agreement. Though
the legality of allowing first-sale doctrine rights to be abrogated by contract is questionable.

The claim of software publishers that the first-sale doctrine does not apply arose because software is licensed, not sold, under
the terms of an End User License Agreement.

The U.S. Supreme Court cases, Bauer & Cie. v. O'Donnell and Bobbs-Merrill Co. v. Straus deal with copyright holders
trying to enforce terms beyond the scope of copyright and patent, by calling it a license.

State courts have ruled that a sale of software is indeed a sale of goods under the Uniform Commercial Code at the point
where funds are exchanged for the physical copy of the software.

The doctrine of first sale for bundled computer software - cases:
Softman v. Adobe (2001)
After purchasing bundled software (A box containing many programs that are also available individually) from Adobe Systems,
Softman unbundled it and then resold the component programs. The court ruled that Softman could resell the bundled
software, no matter what the EULA stipulates, because Softman had never assented to the EULA.
The Court decreed that software purchases be treated as sales transactions, rather than explicit license agreements. That is, the
court ruling argued that California consumers should have the same rights they would enjoy under existing copyright legislation
when buying a CD or a book.

Davidson & Associates v. Internet Gateway Inc (2004). The US District Court for the Eastern District of Missouri issued a
ruling which appears to contradict the position of the district courts in California and Texas. The first sale reasoning of the
Softman court was challenged, with the court ruling "The first sale doctrine is only triggered by an actual sale. Accordingly, a
copyright owner does not forfeit his right of distribution by entering into a licensing agreement." In addition, the court found the
plaintiff's EULA, which prohibited resale, was binding on the defendants because "The defendants .. expressly consented to
the terms of the EULA and Terms of Use by clicking 'I Agree' and 'Agree.'"

The Record Rental Amendment of 1984 and the Computer Software Rental Amendments Act of 1990 both amended Section
109 to prevent all owners of software copies or phonorecords, except non-profit educational institutions or non-profit libraries,
to dispose of said copies through the acts of rental, lease, or lending, or by any other act or practice in the nature of rental,
lease, or lending unless authorized by the owners of the copyright.

The acts specifically excluded:

A computer program which is embodied in a machine or product and which cannot be copied during the ordinary operation or
use of the machine or product; or

A computer program embodied in or used in conjunction with a limited purpose computer that is designed for playing video
games and may be designed for other purposes.

The privileges to sell or otherwise dispose of the possession of any particular copy or phonorecord and to display that copy
publicly one image at a time, including through projection, one image at a time where the copy is physically located do not,
unless authorized by the copyright owner, extend to any person who has acquired possession of the copy or phonorecord
from the copyright owner, without acquiring ownership of it.

However, section 109 specifically leaves the copyright holder bound by the Clayton Antitrust Act of 1915, if the copyright holder allows; rental, lease, or lending, or by any other act or practice in the nature of rental, lease, or lending.

3. Nothing in this subsection shall affect any provision of the antitrust laws. For purposes of the preceding sentence, "antitrust
laws" has the meaning given that term in the first section of the Clayton Act and includes section 5 of the Federal Trade
Commission Act to the extent that section relates to unfair methods of competition.

The copyright holder is liable for Clayton Act violations through the fact that they claim that the purchase of the software or
music is not a purchase and that the end user does not own the software but has rights to use it, thus engaging in other acts or
practice in the nature of rental or lease. They are through the terms of the EULA and TOS bypassng section 109.

The Clayton Act prohibits:

price discrimination between different purchasers if such discrimination substantially lessens competition or tends to create a
monopoly in any line of commerce (Act Section 2, codified at 15 U.S.C. § 13);

sales on the condition that (A) the buyer or lessee not deal with the competitors of the seller or lessor ("exclusive dealings") or
(B) the buyer also purchase another different product ("tying") but only when these acts substantially lessen competition (Act
Section 3, codified at 15 U.S.C. § 14);

mergers and acquisitions where the effect may substantially lessen competition (Act Section 7, codified at 15 U.S.C. § 18);

any person from being a director of two or more competing corporations (Act Section 8; codified at 15 U.S.C. § 19).

Section 109 includes the language "or by any other act or practice in the nature of rental, lease, or lending" and as having rights
to use property but not own is in the nature of rental, lease, or lending they are subject to the Clayton Act. Through the use of
the EULA and TOS which disclaim that the software is not owned but grants rights to use the property in order to preclude
consumers first sale rights, they increase their liability.

Software companies and some music companies often engage in practices of discriminatory pricing, enter into "exclusive"
contracts where in exchange for a discount they agree not to use competitors goods/services, or in the case of music services
favor one company or another to distribute thus violating the Clayton Act in some manner or another.

Microsoft v. Zamos

Dispute between Microsoft and David Zamos, a student at Kent State and the University of Akron in the United States.
Microsoft accused Zamos of illegally reselling his student-discounted copies of Windows XP Pro and Microsoft Office on
eBay. Microsoft sued Zamos claiming that "Microsoft has suffered and will continue to suffer substantial and irreparable
damage to its business reputation and goodwill as well as losses in an amount not yet ascertained... Defendant's acts of
copyright infringement have caused Microsoft irreparable injury." and sought legal fees and the profit from the sale.

At issue was the fact that Zamos acquired Microsoft software at a discount for academic use, then re-sold it to the general
public on eBay for a profit. Zamos contends, and can document, that he found the software unsuitable when he realized it
required him to format his computer's hard drive. He attempted to return the software, first at the University of Akron's
bookstore, then directly to Microsoft.

Zamos countersued Microsoft for making false claims.Microsoft was countersued in Microsoft Corp v. Zamos (Case:
5:04-cv-02504) for violating the Clayton Act. And further charged that, "Microsoft purposely established and maintained a
sales and distribution system whereby rightful rejection and return of merchandise that is substantially non-conforming is either
impossible or practically impossible due to the ineptness of its employees, unconscionable policies, malicious intent and
deceptive practices," thus engaging in fraud and violating the Consumer Sales Practice Act.

Zamos requested a trial by jury. Microsoft offered to drop their case if he would drop his countersuit. Zamos insisted on
reimbursement for the software, and an apology for Microsoft's behavior. Microsoft refused this, and Zamos wrote a brief
press release to the Akron Beacon Journal, which published the item on March 7, 2005.

The press release to the Akron Beacon Journal generated so much interest that Zamos immediately received requests for
interviews from across United States and the United Kingdom. Microsoft proposed a new settlement, and Zamos agreed. As
part of this settlement, Zamos has agreed not to discuss the case further.

The first-sale doctrine was established in this case Bobbs-Merrill Co. v. Straus, 210 U.S. 339 (1908). In Quality King v.
L'Anza, the Court described this opinion as follows:

“ In that case, the publisher, Bobbs-Merrill, had inserted a notice in its books that any retail sale at a price under $1.00 would
constitute an infringement of its copyright. The defendants, who owned Macy’s department store, disregarded the notice and
sold the books at a lower price without Bobbs-Merrill’s consent. We held that the exclusive statutory right to "vend" applied
only to the first sale of the copyrighted work... ”

'Betamax Case', Sony Corp. of America v. Universal City Studios, Inc., 1979. It was determined that because the VCR was
capable of substantial noninfringing uses, copyright owners objecting to infringement could not prevent its sale. The ruling,
coupled with the high price of the first few movies on VHS and Betamax tapes ($50 each) created a large market for home
video rental. Retailers purchased the expensive tapes and rented them to consumers at an affordable price, while studios
earned considerable revenue from volume sales to rental stores. First-sale doctrine excused these merchants from seeking
permission from the copyright holders.

Novell v. Network Trade Center 25 F. Supp. 2d 1218 (C.D. Utah 1997) - Transfer of a copyrighted work that is subject to
the first sale doctrine extinguishes all distribution rights of the copyright holder upon transfer of title.
Purchaser is an "owner" by way of sale and is entitled to the use and enjoyment of the software with the same rights as exist in
the purchase of any other good. Said software transactions do not merely constitute the sale of a license to use the software.
The shrinkwrap license included with the software is therefore invalid as against such a purchaser insofar as it purports to
maintain title to the software in the copyright owner. Under the first sale doctrine, NTC was able to redistribute the software to
end-users without copyright infringement.

Quality King Distributors Inc., v. L'anza Research International Inc. 523 U.S. 135 (1998)
Whether a copyright holder could restrict redistribution of material containing copyrighted content (authorized by the copyright
holder) which is imported into the United States as "grey market" goods. The Supreme Court found that the copyright holder
could not prevent re-importation of materials it had authorized. Unanimous ruling: in the case involving distribution of hair care
products bearing a copyrighted label.

The Supreme Court found that the doctrine does apply to importation into the US of copyrighted works (the labels) which
were made in the US, then exported.

Grey market imports of copyrighted works take advantage of lower price outside the US. The importation of goods first
manufactured outside the US under the copyright laws of other countries was specifically excluded from that decision.

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The licensed-and-not-sold argument - cases:
Step-Saver Data Systems, Inc. v. Wyse Technology
Vault Corp. v. Quaid Software
Blizzard v. BNETD (Davidson & Associates v. Internet Gateway Inc. (2004)).

The doctrine of first sale for bundled computer software - cases:
Softman v. Adobe (2001)
Davidson & Associates v. Internet Gateway Inc (2004)
Novell, Inc. v. CPU Distrib., Inc. (2000).

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