A federal court has permitted an eBay trader to continue selling promotional
CDs he bought from music shops and online auctions.

The federal District Court in Los Angeles on June 10 denied Universal Music Group's motion for summary judgment, which requested the court to find Troy Augusto liable for copyright infringement. The record group claimed that promotional CDs it sends to journalists and others to promote and advertise a new release continue to be the label's property and may not be sold.

Universal argued that labeling on the CDs, which stated that the CDs were promotional and could not be sold to the public, were a license to listen to the CDs and not a sale of the CDs. The court disagreed, holding that Universal could not prevent anyone from selling those CDs.

Under U.S. copyright law, once the legal title to a lawfully made copy of a copyrighted work is transferred, then the person who obtains that copy owns it and may dispose of it. This "first sale" doctrine does not mean that anyone may make another copy of the sound recording or the composition; the doctrine only involves possession of the material object, like the actual CD. Although movie videos may be rented, music and software may not be rented under U.S. copyright law.

The court considered whether Universal transferred title to the promo CDs when the company sent them to "industry insiders."

Augusto argued that the license on the promo CDs was not valid; the insiders could treat the CDs as a gift under federal law; and Universal abandoned the promo CDs under California law.

To decide whether it was a license or a sale, the court considered the economic realities of the transaction.

Universal did not demonstrate an intent to regain possession of the CDs -- nothing on the packaging label required the recipient to return the CDs to the company, the court wrote in its order. The "license" did not provide recurring benefits for Universal, like a requirement that the recipient promote or expose the material on the CD.

Copies of software are often licensed to users rather than sold, but the court noted that the software must be copied onto a computer to function. Music CDs are not normally subject to such licenses.

The court then agreed with Augusto that promo CDs are a gift under federal law.

The Postal Reorganization Act prohibits the mailing of unordered merchandise without the prior express request or consent of the recipient. The recipient
may treat merchandise received without such request or consent as a gift -
to keep, use or sell.

The court did not agree with Augusto's argument that Universal intended to
abandon the CDs, however.

As a result of these findings, the court granted summary judgment in Augusto's favor on the copyright infringement claim.

But the court denied Augusto's motion requesting that Universal be responsible for damages as a result of the company's notice to eBay to take down auction from its site.

Under copyright law, a copyright holder may be liable for damages caused by an erroneous takedown notice sent to an Internet service provider. Since Universal believed in good faith that Augusto was infringing the company's copyrights, Universal could not be liable for damages.

Universal plans to appeal the summary judgment on the infringement claim.