Class 18: The Distribution Right

Introduction

In Class 15, we learned about the reproduction right. In Class 16, we learned about the adaptation right. And in Class 17, we learned about the exceptions to both of those rights. Among other things, we discussed the 17 U.S.C. § 108 exception to the reproduction right that allows libraries and archives to make copies; the 17 U.S.C. § 112 exception to the reproduction right that allows broadcasters to create ephemeral recordings; the 17 U.S.C. § 113 exception to the reproduction right in pictorial works embodied in useful articles; the 17 U.S.C. § 114 exception to the reproduction and adaption rights in sound recordings, limiting them to mechanical reproduction; and the 17 U.S.C. § 115 exception to the reproduction, adaptation, and distribution rights in musical works, creating the mechanical license.

In this class, we will learn about the distribution right, or the right to control the public distribution of a work. We will discuss the first sale doctrine, which limits the distribution right to the first sale of each copy of a work. And we will discuss certain exceptions to the first sale doctrine.

The Distribution Right

Section 106(3) of the Copyright Act grants copyright owners the exclusive right "to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending." 17 U.S.C. § 106(3).

In other words, the reproduction and adaptation rights grant copyright owners the exclusive right to make copies of the original elements of their copyrighted works, and the distribution right grants them the exclusive right to transfer those copies to the public.

As Congress stated when it enacted the Copyright Act:

Public distribution.—Clause (3) of section 106 establishes the exclusive right of publication: The right “to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending.” Under this provision the copyright owner would have the right to control the first public distribution of an authorized copy or phonorecord of his work, whether by sale, gift, loan, or some rental or lease arrangement. Likewise, any unauthorized public distribution of copies or phonorecords that were unlawfully made would be an infringement.

H.R. Rep. No 94-1476, at 62 (1976).

Hotaling v. Church of Latter-Day Saints, 118 F.3d 199 (4th Cir. 1997)

BUTZNER, J. 

In this appeal we hold that a library distributes a published work, within the meaning of the Copyright Act, 17 U.S.C. §§ 101 et seq., when it places an unauthorized copy of the work in its collection, includes the copy in its catalog or index system, and makes the copy available to the public. Because the district court ruled that these actions, by themselves, were insufficient to constitute distribution, we reverse the district court's summary judgment for the library and remand this case for further proceedings. 

Summary judgment is appropriate only if the record reveals no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). We review the entry of summary judgment de novo, applying the same standard as the district court. Stone v. Liberty Mutual Ins. Co., 105 F.3d 188, 191 (4th Cir.1997). 

We present the facts in the light most favorable to the plaintiffs, Donna Hotaling, William Hotaling, Jr., James Maher, and Dorothy Sherwood (collectively the Hotalings). See Yarnevic v. Brink's, Inc., 102 F.3d 753, 756 (4th Cir.1996). The Hotalings compiled and copyrighted a number of genealogical research materials. The validity of the copyrights is not at issue at this stage of the litigation. The Hotaling research materials were published in microfiche form and marketed by All-Ireland Heritage, Inc. At some point, most likely between 1985 and 1989, the defendant, the Church of Jesus Christ of Latter-Day Saints (Church), acquired a single legitimate copy of the microfiche and added it to its main library's collection in Salt Lake City, Utah. Sometime before 1992, the Church made microfiche copies of the works without the Hotalings' permission and sent the copies to several of its branch libraries, located throughout the country. The legitimately acquired copy had a black background, and the copies that were made by the Church had purple backgrounds. 

In July, 1991, Donna Hotaling learned that the Church was making copies and placing them in its branch libraries. She contacted the Church and demanded that it stop this activity. After receiving her complaint, the Church recalled and destroyed many of the copies that it had made. According to the affidavits submitted by the Church, it did not make any copies after 1991, and there is no evidence to contradict that assertion. 

In 1992, All-Ireland Heritage, Inc., sued the Church for copyright infringement based on the Church's copying and distribution of the Hotaling works. The district court dismissed the action because All-Ireland Heritage, Inc., did not own the copyright. As a result of the lawsuit, the Church became concerned that nine of its branch libraries might still possess copies of the Hotaling works. In October, 1993, the Church sent a memorandum to those branch libraries asking them to search their microfiche inventories for copies of the works. Six libraries found and returned one microfiche copy each. Upon receipt, the main library destroyed these copies. 

In 1994, Donna Hotaling visited a branch library in Rhode Island. During her visit, she discovered a paper copy of one of the Hotaling works. According to the Rhode Island library director, a patron made the copy and left it in an infrequently used section of the library. The director had been unaware, and believes the other staff members had been unaware, of the copy's existence. When the copy was discovered, the director destroyed it. Prior to April 1992, the Rhode Island library had returned to the Church's main library the microfiche from which the patron apparently had made the paper copy. 

In 1995, Donna Hotaling went to the Church's main library in Salt Lake City. There she observed that the library maintained a microfiche copy of the Hotaling works in its collection. She examined a portion of the microfiche and noticed that it had a purple background. The Church acknowledges that the single copy it keeps in its collection is one that it made. The library retained this copy, the Church explains, because the copy it originally acquired was destroyed inadvertently. 

In August, 1995, the Hotalings filed this suit. Following discovery, the Church moved for summary judgment, arguing that the record did not include any evidence of an infringing act within the three year statute of limitations. The district court granted the motion, and the Hotalings appealed. 

* * * 

III 

A copyright infringement is a violation of "any of the exclusive rights of the copyright owner." 17 U.S.C. § 501(a). One of those exclusive rights is the right "to distribute copies ... of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending[.]" 17 U.S.C. § 106(3). Generally, as permitted by what is known as the first-sale doctrine, the copyright owner's right to distribute a copyrighted work does not prevent the owner of a lawful copy of the work from selling, renting, lending, or otherwise disposing of the lawful copy. 17 U.S.C. § 109(a); see Professional Real Estate Investors, Inc. v. Columbia Pictures Industries, Inc., 508 U.S. 49, 52, 113 S.Ct. 1920, 1923-24, 123 L.Ed.2d 611 (1993). For example, a library may lend an authorized copy of a book that it lawfully owns without violating the copyright laws. See H.R.Rep. No. 94-1476, § 109, at 79 (1976), reprinted in 1976 U.S.C.C.A.N. 5659, 5693 and excerpted following 17 U.S.C.A. § 109. However, distributing unlawful copies of a copyrighted work does violate the copyright owner's distribution right and, as a result, constitutes copyright infringement. In order to establish "distribution" of a copyrighted work, a party must show that an unlawful copy was disseminated "to the public." 17 U.S.C. § 106(3); see National Car Rental v. Computer Associates, 991 F.2d 426, 434 (8th Cir.1993); 2 Nimmer, § 8.11[A] at 8-137. 

The Hotalings assert that the Church's libraries infringed their copyrights by distributing unauthorized copies of their works to the public. The libraries did not record public use of the microfiche. Consequently, the Hotalings concede that the record does not contain any evidence showing specific instances within the limitations period in which the libraries loaned the infringing copies to members of the public. But, they argue that proving the libraries held unauthorized copies in their collections, where they were available to the public, is sufficient to establish distribution within the meaning of the statute. 

The Church, on the other hand, argues that holding a work in a library collection that is open to the public constitutes, at most, an offer to distribute the work. In order to establish distribution, the Church argues, the evidence would need to show that a member of the public accepted such an offer. 

On this issue, we agree with the Hotalings. When a public library adds a work to its collection, lists the work in its index or catalog system, and makes the work available to the borrowing or browsing public, it has completed all the steps necessary for distribution to the public. At that point, members of the public can visit the library and use the work. Were this not to be considered distribution within the meaning of § 106(3), a copyright holder would be prejudiced by a library that does not keep records of public use, and the library would unjustly profit by its own omission. 

IV 

The Church argues that, even if holding a copyrighted work in a library's collection does constitute distribution within the meaning of the statute, there is no evidence showing that, within the limitations period, unauthorized copies of the Hotaling works were available to the public at any of its libraries. In response, the Hotalings point to the copy Donna Hotaling examined in Salt Lake City in 1995, the paper copy she found in Rhode Island in 1994, and the six copies that were returned and destroyed in 1993. 

The Hotalings presented sufficient evidence to create a genuine issue over whether the copy Donna Hotaling examined in Salt Lake City was being distributed to the public in 1995. According to Donna Hotaling's personal observations, that copy was part of the library's collection, listed in the card file, and available to the public. In addition, she asserts that the copy she inspected had a purple background. Based on this evidence, a reasonable jury could conclude that the library held an unauthorized copy of the Hotaling works in its publicly-accessible collection within the limitations period. Because the evidence is sufficient to show that this potentially infringing copy was being distributed to the public as recently as 1995, it provides a timely basis for Hotaling's suit. 

Although the Church acknowledges that its sole remaining copy is not the one it originally acquired from All-Ireland Heritage, Inc., it maintains that the remaining copy does not infringe Hotaling's copyright because it is a replacement copy, authorized by 17 U.S.C. § 108. The Copyright Act does permit libraries to make a replacement copy of a copyrighted work that has been published, but only if the library "has, after a reasonable effort, determined that an unused replacement cannot be obtained at a fair price," § 108(c), and the library has complied with other pertinent provisions of § 108. Because the district court did not reach this issue, we decline to address it for the first time on appeal. 

We turn next to the other copies that the Hotalings contend were distributed within the limitations period. Based on the evidence in the record, a reasonable jury could not conclude that the library distributed the Rhode Island copy to the public. According to the unrebutted affidavit of the Rhode Island library director, the paper copy was made and left behind by a library patron. Although the copy was later found in the library, there is no evidence to show that it was made part of the library's collection or listed in the library's catalog file. 

Nor is there sufficient evidence to establish that the six copies returned and destroyed in 1993 were held out to the public within the limitations period. The evidence in the record does not reveal where the branch libraries found the six copies or whether those copies had been available for public use. 

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VI

The Hotalings presented evidence that suggests the Church distributed at its main library one potentially infringing copy of the Hotaling works to the public within the limitations period. For that reason, dismissal of the suit based on the statute of limitations was inappropriate. 

Accordingly, we reverse and remand to the district court for adjudication of the Hotalings' surviving claim. If the district court finds that the Church complied with § 108, it should dismiss this action. If the court finds that the Church did not comply with § 108, it should conduct further proceedings on outstanding claims, including the validity of the copyright. 

REVERSED AND REMANDED 

HALL, J., dissenting 

I respectfully dissent. The statute specifically identifies the sorts of "distribution" that violate a copyright, and none of them fit this situation. 

The owner of a copyright does not possess an exclusive right to "distribute" the work in any conceivable manner; instead, it has the exclusive right "to distribute copies ... of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending [.]" 17 U.S.C. § 106(3). The Church did not sell or give an infringing copy to anyone. The Church did not "rent" or "lease" a copy; indeed, the public may use the Church's libraries and all of their contents for free. 

"Lending" is the only remaining candidate. Because they are for research, the libraries do not permit materials to be checked out and used by a member of the public off-premises. Do the libraries nonetheless "lend" a work each time a patron consults it? I think not. The patron might report that he "used" or "looked at" the work, but he would not likely say that it had been "lent" to him. 

Moreover, in this case, the plaintiffs do not even have any evidence that anyone used or looked at an infringing copy during the limitations period. The majority suggests that such evidence might have existed had the libraries--unlike all or nearly all others--recorded each and every use of its millions of volumes. It might have, but it does not. 

In closing, I should say that I have some sympathy for the result reached by the majority. A library's allowing on-premises public use of an unauthorized copy should probably infringe a copyright. Nonetheless, I believe that current law does not deem this sort of use an infringing "distribution," and that, in any event, there is no evidence of such use in this case. 

I would affirm the judgment of the district court.

Microfiche Card

Microfiche Reader

Questions:

1. Microform is a method of preserving documents in a compact format, by creating microreproductions of the original document, which are usually 1/25 the size of the original. Microfiche is a method of microform, in which the microreproductions are created on sheets of photographic film. Did the Church of Latter Day infringe the Hotalings' reproduction right by creating microfilm copies of their work?
2. The court held that the Church of Latter-Day Saints infringed the Hotalings' distribution right by making microfiche copies available for the public to use. Do you agree?
3. If a person offers to make copies of a copyrighted work and give them away for free, but no one is interested, has that person infringed the distribution right of the copyright owner?
4. In A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004 (9th Cir. 2001), the court held that Napster users infringed the distribution rights of copyright owners by uploading files to the server, and in London-Sire Records, Inc. v. Doe, 542 F. Supp. 153 (D. Mass. 2008), the court held that availability can support an inference of distribution. Does infringement of the distribution right require actual distribution? Should it?

The First Sale Doctrine

The Supreme Court adopted the "first sale" doctrine in Bobbs-Merrill Co. v. Straus, 210 U.S. 339 (1908), holding that the distribution right is exhausted by a copyright owner's first sale of a particular copy of a copyrighted work. Congress approved, codifying the first sale doctrine in the Copyright Act of 1909. 17 U.S.C. § 41 (1909). The first sale doctrine is currently codified in Section 109 of the Copyright Act, which provides:

Notwithstanding the provisions of section 106 (3), the owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.

17 U.S.C. § 109(a).

In other words, under the first sale doctrine, the distribution right empowers copyright owners to control the initial transfer of ownership or "first sale" of copies of their copyrighted works, but not to control the subsequent disposition of those copies. The lawful owner of a copy of a copyrighted work is entitled to sell, rent, gift, or destroy that copy.

As Congress explained:

Section 109(a) restates and confirms the principle that, where the copyright owner has transferred ownership of a particular copy or phonorecord of a work, the person to whom the copy or phonorecord is transferred is entitled to dispose of it by sale, rental, or any other means. Under this principle, which has been established by the court decisions and section 27 of the present law, the copyright owner’s exclusive right of public distribution would have no effect upon anyone who owns “a particular copy or phonorecord lawfully made under this title” and who wishes to transfer it to someone else or to destroy it. 

Thus, for example, the outright sale of an authorized copy of a book frees it from any copyright control over its resale price or other conditions of its future disposition. A library that has acquired ownership of a copy is entitled to lend it under any conditions it chooses to impose. This does not mean that conditions on future disposition of copies or phonorecords, imposed by a contract between their buyer and seller, would be unenforceable between the parties as a breach of contract, but it does mean that they could not be enforced by an action for infringement of copyright. Under section 202 however, the owner of the physical copy or phonorecord cannot reproduce or perform the copyrighted work publicly without the copyright owner’s consent. 

To come within the scope of section 109(a), a copy or phonorecord must have been “lawfully made under this title,” though not necessarily with the copyright owner’s authorization. For example, any resale of an illegally “pirated” phonorecord would be an infringement, but the disposition of a phonorecord legally made under the compulsory licensing provisions of section 115 would not.

H.R. Rep. No. 94-1476, at 79 (1976).

Notably, the first sale doctrine applies only if the copyright owner transferred ownership of the copy, by sale or gift. So, it extends to any person who owns a copy or phonorecord, but does not "extend to any person who has acquired possession of the copy or phonorecord from the copyright owner, by rental, lease, loan, or otherwise, without acquiring ownership of it." 17 U.S.C. § 109(a). In other words, the first sale doctrine applies to permanent transfers, but not to temporary transfers.

Also, the first sale doctrine only limits the distribution right, not any of the other exclusive rights of copyright owners. For example, the first sale doctrine does not apply if the lawful owner of a copy of a work uses it in a way that infringes the reproduction or adaptation rights.

In sum, the first sale doctrine applies if, and only if:

1. The copy was lawfully made;
2. The copy was lawfully transferred;
3. The defendant lawfully owns the copy; and
4. The defendant's use of the copy only implicates the distribution right.

Questions:

1. What is the purpose of the first sale doctrine?
2. Why limit the distribution right to the initial transfer of a copy of a work?
3. In UMG Recordings, Inc. v. Augusto, 628 F. 3d 1175 (9th Cir. 2011), the court held that the first sale doctrine applied when a record label distributed CDs labeled "Promotional Use Only—Not for Sale" to individuals. Do you agree? What if the record label only distributed the CDs to individuals who explicitly agreed not to transfer them?
4. Law professors often receive casebooks labeled "Professor review copy, not for resale." Should the first sale doctrine apply to those casebooks? What if the professor specifically requests the review copy from the publisher? What if the publisher provides the review copy on the condition that the professor return or destroy it after one year?

The First Sale Doctrine & Computer Software

Copyright owners often try to avoid or limit the scope of the first sale doctrine by imposing contractual restraints on the transfer of a copies of a work. In particular, copyright owners of computer software often argue that they do not sell copies of their works, but only license them for use.

Software Licensing Agreement

Vernor v. Autodesk, Inc., 621 F. 3d 1102 (9th Cir. 2010)

CALLAHAN, Circuit Judge: 

Timothy Vernor purchased several used copies of Autodesk, Inc.'s AutoCAD Release 14 software ("Release 14") from one of Autodesk's direct customers, and he resold the Release 14 copies on eBay. Vernor brought this declaratory judgment action against Autodesk to establish that these resales did not infringe Autodesk's copyright. The district court issued the requested declaratory judgment, holding that Vernor's sales were lawful because of two of the Copyright Act's affirmative defenses that apply to owners of copies of copyrighted works, the first sale doctrine and the essential step defense. 

Autodesk distributes Release 14 pursuant to a limited license agreement in which it reserves title to the software copies and imposes significant use and transfer restrictions on its customers. We determine that Autodesk's direct customers are licensees of their copies of the software rather than owners, which has two ramifications. Because Vernor did not purchase the Release 14 copies from an owner, he may not invoke the first sale doctrine, and he also may not assert an essential step defense on behalf of his customers. For these reasons, we vacate the district court's grant of summary judgment to Vernor and remand for further proceedings. 

I. 

A. Autodesk's Release 14 software and licensing practices 

The material facts are not in dispute. Autodesk makes computer-aided design software used by architects, engineers, and manufacturers. It has more than nine million customers. It first released its AutoCAD software in 1982. It holds registered copyrights in all versions of the software including the discontinued Release 14 version, which is at issue in this case. It provided Release 14 to customers on CD-ROMs. 

Since at least 1986, Autodesk has offered AutoCAD to customers pursuant to an accompanying software license agreement ("SLA"), which customers must accept before installing the software. A customer who does not accept the SLA can return the software for a full refund. Autodesk offers SLAs with different terms for commercial, educational institution, and student users. The commercial license, which is the most expensive, imposes the fewest restrictions on users and allows them software upgrades at discounted prices. 

The SLA for Release 14 first recites that Autodesk retains title to all copies. Second, it states that the customer has a nonexclusive and nontransferable license to use Release 14. Third, it imposes transfer restrictions, prohibiting customers from renting, leasing, or transferring the software without Autodesk's prior consent and from electronically or physically transferring the software out of the Western Hemisphere. Fourth, it imposes significant use restrictions: 

YOU MAY NOT: (1) modify, translate, reverse-engineer, decompile, or disassemble the Software ... (3) remove any proprietary notices, labels, or marks from the Software or Documentation; (4) use ... the Software outside of the Western Hemisphere; (5) utilize any computer software or hardware designed to defeat any hardware copy-protection device, should the software you have licensed be equipped with such protection; or (6) use the Software for commercial or other revenue-generating purposes if the Software has been licensed or labeled for educational use only. 

Fifth, the SLA provides for license termination if the user copies the software without authorization or does not comply with the SLA's restrictions. Finally, the SLA provides that if the software is an upgrade of a previous version: 

[Y]ou must destroy the software previously licensed to you, including any copies resident on your hard disk drive ... within sixty (60) days of the purchase of the license to use the upgrade or update.... Autodesk reserves the right to require you to show satisfactory proof that previous copies of the software have been destroyed. 

Autodesk takes measures to enforce these license requirements. It assigns a serial number to each copy of AutoCAD and tracks registered licensees. It requires customers to input "activation codes" within one month after installation to continue using the software.[1] The customer obtains the code by providing the product's serial number to Autodesk. Autodesk issues the activation code after confirming that the serial number is authentic, the copy is not registered to a different customer, and the product has not been upgraded. Once a customer has an activation code, he or she may use it to activate the software on additional computers without notifying Autodesk. 

B. Autodesk's provision of Release 14 software to CTA 

In March 1999, Autodesk reached a settlement agreement with its customer Cardwell/Thomas & Associates, Inc. ("CTA"), which Autodesk had accused of unauthorized use of its software. As part of the settlement, Autodesk licensed ten copies of Release 14 to CTA. CTA agreed to the SLA, which appeared (1) on each Release 14 package that Autodesk provided to CTA; (2) in the settlement agreement; and (3) on-screen, while the software is being installed.
CTA later upgraded to the newer, fifteenth version of the AutoCAD program, AutoCAD 2000. It paid $495 per upgrade license, compared to $3,750 for each new license. The SLA for AutoCAD 2000, like the SLA for Release 14, required destruction of copies of previous versions of the software, with proof to be furnished to Autodesk on request. However, rather than destroying its Release 14 copies, CTA sold them to Vernor at an office sale with the handwritten activation codes necessary to use the software. 

C. Vernor's eBay business and sales of Release 14 

Vernor has sold more than 10,000 items on eBay. In May 2005, he purchased an authentic used copy of Release 14 at a garage sale from an unspecified seller. He never agreed to the SLA's terms, opened a sealed software packet, or installed the Release 14 software. Though he was aware of the SLA's existence, he believed that he was not bound by its terms. He posted the software copy for sale on eBay. 

Autodesk filed a Digital Millennium Copyright Act ("DMCA") take-down notice with eBay claiming that Vernor's sale infringed its copyright, and eBay terminated Vernor's auction. Autodesk advised Vernor that it conveyed its software copies pursuant to non-transferable licenses, and resale of its software was copyright infringement. Vernor filed a DMCA counter-notice with eBay contesting the validity of Autodesk's copyright claim. Autodesk did not respond to the counter-notice. eBay reinstated the auction, and Vernor sold the software to another eBay user. 

In April 2007, Vernor purchased four authentic used copies of Release 14 at CTA's office sale. The authorization codes were handwritten on the outside of the box. He listed the four copies on eBay sequentially, representing, "This software is not currently installed on any computer." On each of the first three occasions, the same DMCA process ensued. Autodesk filed a DMCA take-down notice with eBay, and eBay removed Vernor's auction. Vernor submitted a counter-notice to which Autodesk did not respond, and eBay reinstated the auction. 

When Vernor listed his fourth, final copy of Release 14, Autodesk again filed a DMCA take-down notice with eBay. This time, eBay suspended Vernor's account because of Autodesk's repeated charges of infringement. Vernor also wrote to Autodesk, claiming that he was entitled to sell his Release 14 copies pursuant to the first sale doctrine, because he never installed the software or agreed to the SLA. In response, Autodesk's counsel directed Vernor to stop selling the software. Vernor filed a final counter-notice with eBay. When Autodesk again did not respond to Vernor's counter-notice, eBay reinstated Vernor's account. At that point, Vernor's eBay account had been suspended for one month, during which he was unable to earn income on eBay. 

Vernor currently has two additional copies of Release 14 that he wishes to sell on eBay. Although the record is not clear, it appears that Vernor sold two of the software packages that he purchased from CTA, for roughly $600 each, but did not sell the final two to avoid risking further suspension of his eBay account. 

II. 

In August 2007, Vernor brought a declaratory action against Autodesk to establish that his resales of used Release 14 software are protected by the first sale doctrine and do not infringe Autodesk's copyright. He also sought damages and injunctive relief. On January 15, 2008, Autodesk moved to dismiss Vernor's complaint, or in the alternative, for summary judgment. The district court denied the motion, holding that Vernor's sales were non-infringing under the first sale doctrine and the essential step defense. See Vernor v. Autodesk, Inc., 555 F.Supp.2d 1164, 1170-71, 1175 (W.D.Wash.2008). 

Following discovery, the parties filed cross-motions for summary judgment. The district court granted summary judgment to Vernor as to copyright infringement in an unpublished decision. However, the district court declined to resolve Vernor's affirmative defense that Autodesk had misused its copyright, reasoning that a misuse defense would not benefit Vernor since he had prevailed on copyright infringement. In October 2009, the district court entered judgment for Vernor, and Autodesk timely appealed. 

III. 

Copyright is a federal law protection provided to the authors of "original works of authorship," including software programs. 17 U.S.C. §§ 101-103. The Copyright Act confers several exclusive rights on copyright owners, including the exclusive rights to reproduce their works and to distribute their works by sale or rental. Id. § 106(1), (3). The exclusive distribution right is limited by the first sale doctrine, an affirmative defense to copyright infringement that allows owners of copies of copyrighted works to resell those copies. The exclusive reproduction right is limited within the software context by the essential step defense, another affirmative defense to copyright infringement that is discussed further infra. Both of these affirmative defenses are unavailable to those who are only licensed to use their copies of copyrighted works. 

This case requires us to decide whether Autodesk sold Release 14 copies to its customers or licensed the copies to its customers. If CTA owned its copies of Release 14, then both its sales to Vernor and Vernor's subsequent sales were noninfringing under the first sale doctrine. However, if Autodesk only licensed CTA to use copies of Release 14, then CTA's and Vernor's sales of those copies are not protected by the first sale doctrine and would therefore infringe Autodesk's exclusive distribution right. 

A. The first sale doctrine 

The Supreme Court articulated the first sale doctrine in 1908, holding that a copyright owner's exclusive distribution right is exhausted after the owner's first sale of a particular copy of the copyrighted work. See Bobbs-Merrill Co. v. Straus, 210 U.S. 339, 350-51, 28 S.Ct. 722, 52 L.Ed. 1086 (1908). In Bobbs-Merrill, the plaintiff-copyright owner sold its book with a printed notice announcing that any retailer who sold the book for less than one dollar was responsible for copyright infringement. Id. at 341, 28 S.Ct. 722. Plaintiff sought injunctive relief against defendants-booksellers who failed to comply with the price restriction. Id. at 341-42, 28 S.Ct. 722. The Supreme Court rejected the plaintiff's claim, holding that its exclusive distribution right applied only to first sales of copies of the work. Id. at 350-51, 28 S.Ct. 722. The distribution right did not permit plaintiff to dictate that subsequent sales of the work below a particular price were infringing. Id. The Court noted that its decision solely applied to the rights of a copyright owner that distributed its work without a license agreement. Id. at 350, 28 S.Ct. 722 ("There is no claim in this case of contract limitation, nor license agreement controlling the subsequent sales of the book."). 

Congress codified the first sale doctrine the following year. See 17 U.S.C. § 41 (1909). In its current form, it allows the "owner of a particular copy" of a copyrighted work to sell or dispose of his copy without the copyright owner's authorization. Id. § 109(a) (enacted 1976). The first sale doctrine does not apply to a person who possesses a copy of the copyrighted work without owning it, such as a licensee. See id. § 109(d); cf. Quality King Distribs., Inc. v. L'anza Research Int'l Inc., 523 U.S. 135, 146-47, 118 S.Ct. 1125, 140 L.Ed.2d 254 (1998) ("[T]he first sale doctrine would not provide a defense to ... any non-owner such as a bailee, a licensee, a consignee, or one whose possession of the copy was unlawful."). 

B. Owners vs. licensees 

We turn to our precedents governing whether a transferee of a copy of a copyrighted work is an owner or licensee of that copy. We then apply those precedents to CTA's and Vernor's possession of Release 14 copies. 

1. United States v. Wise, 550 F.2d 1180 (9th Cir.1977) 

In Wise, a criminal copyright infringement case, we considered whether copyright owners who transferred copies of their motion pictures pursuant to written distribution agreements had executed first sales. Id. at 1187. The defendant was found guilty of copyright infringement based on his for-profit sales of motion picture prints. See id. at 1183. The copyright owners distributed their films to third parties pursuant to written agreements that restricted their use and transfer. Id. at 1183-84. On appeal, the defendant argued that the government failed to prove the absence of a first sale for each film. If the copyright owners' initial transfers of the films were first sales, then the defendant's resales were protected by the first sale doctrine and thus were not copyright infringement. 

To determine whether a first sale occurred, we considered multiple factors pertaining to each film distribution agreement. Specifically, we considered whether the agreement (a) was labeled a license, (b) provided that the copyright owner retained title to the prints, (c) required the return or destruction of the prints, (d) forbade duplication of prints, or (e) required the transferee to maintain possession of the prints for the agreement's duration. Id. at 1190-92. Our use of these several considerations, none dispositive, may be seen in our treatment of each film print. 

For example, we reversed the defendant's conviction with respect to Camelot. Id. at 1194. It was unclear whether the Camelot print sold by the defendant had been subject to a first sale. Copyright owner Warner Brothers distributed Camelot prints pursuant to multiple agreements, and the government did not prove the absence of a first sale with respect to each agreement. Id. at 1191-92, 1194. We noted that, in one agreement, Warner Brothers had retained title to the prints, required possessor National Broadcasting Company ("NBC") to return the prints if the parties could select a mutual agreeable price, and if not, required NBC's certification that the prints were destroyed. Id. at 1191. We held that these factors created a license rather than a first sale. Id. 

We further noted, however, that Warner Brothers had also furnished another Camelot print to actress Vanessa Redgrave. Id. at 1192. The print was provided to Redgrave at cost, and her use of the print was subject to several restrictions. She had to retain possession of the print and was not allowed to sell, license, reproduce, or publicly exhibit the print. Id. She had no obligation to return the print to Warner Brothers. Id. We concluded, "While the provision for payment for the cost of the film, standing alone, does not establish a sale, when taken with the rest of the language of the agreement, it reveals a transaction strongly resembling a sale with restrictions on the use of the print." Id. There was no evidence of the print's whereabouts, and we held that "[i]n the absence of such proof," the government failed to prove the absence of a first sale with respect to this Redgrave print. Id. at 1191-92. Since it was unclear which copy the defendant had obtained and resold, his conviction for sale of Camelot had to be reversed. Id. 

Thus, under Wise, where a transferee receives a particular copy of a copyrighted work pursuant to a written agreement, we consider all of the provisions of the agreement to determine whether the transferee became an owner of the copy or received a license. We may consider (1) whether the agreement was labeled a license and (2) whether the copyright owner retained title to the copy, required its return or destruction, forbade its duplication, or required the transferee to maintain possession of the copy for the agreement's duration. Id. at 1190-92. We did not find any one factor dispositive in Wise: we did not hold that the copyright owner's retention of title itself established the absence of a first sale or that a transferee's right to indefinite possession itself established a first sale. 

2. The "MAI trio" of cases 

Over fifteen years after Wise, we again considered the distinction between owners and licensees of copies of copyrighted works in three software copyright cases, the "MAI trio". See MAI Sys. Corp. v. Peak Computer, Inc., 991 F.2d 511 (9th Cir.1993); Triad Sys. Corp. v. Se. Express Co., 64 F.3d 1330 (9th Cir.1995); Wall Data, Inc. v. Los Angeles County Sheriff's Dep't, 447 F.3d 769 (9th Cir.2006). In the MAI trio, we considered which software purchasers were owners of copies of copyrighted works for purposes of a second affirmative defense to infringement, the essential step defense. 

The enforcement of copyright owners' exclusive right to reproduce their work under the Copyright Act, 17 U.S.C. § 106(1), has posed special challenges in the software context. In order to use a software program, a user's computer will automatically copy the software into the computer's random access memory ("RAM"), which is a form of computer data storage. See MAI, 991 F.2d at 513. Congress enacted the essential step defense to codify that a software user who is the "owner of a copy" of a copyrighted software program does not infringe by making a copy of the computer program, if the new copy is "created as an essential step in the utilization of the computer program in conjunction with a machine and ... is used in no other manner." 17 U.S.C. § 117(a)(1). 

The Copyright Act provides that an "owner of a copy" of copyrighted software may claim the essential step defense, and the "owner of a particular copy" of copyrighted software may claim the first sale doctrine. 17 U.S.C. §§ 109(a), 117(a)(1). The MAI trio construed the phrase "owner of a copy" for essential step defense purposes. Neither Vernor nor Autodesk contends that the first sale doctrine's inclusion of the word "particular" alters the phrase's meaning, and we "presume that words used more than once in the same statute have the same meaning throughout." Moldo v. Matsco, Inc. (In re Cybernetic Servs., Inc.), 252 F.3d 1039, 1051 (9th Cir. 2001). Accordingly, we consider the MAI trio's construction of "owner of a copy" controlling in our analysis of whether CTA and Vernor became "owner[s] of a particular copy" of Release 14 software. 

In MAI and Triad, the defendants maintained computers that ran the plaintiffs' operating system software. MAI, 991 F.2d at 513; Triad, 64 F.3d at 1333. When the defendants ran the computers, the computers automatically loaded plaintiffs' software into RAM. MAI, 991 F.2d at 517-18; Triad, 64 F.3d at 1333, 1335-36. The plaintiffs in both cases sold their software pursuant to restrictive license agreements, and we held that their customers were licensees who were therefore not entitled to claim the essential step defense. We found that the defendants infringed plaintiffs' software copyrights by their unauthorized loading of copyrighted software into RAM. MAI, 991 F.2d at 517-18 & n. 5; Triad, 64 F.3d at 1333, 1335-36. In Triad, the plaintiff had earlier sold software outright to some customers. 64 F.3d at 1333 n. 2. We noted that these customers were owners who were entitled to the essential step defense, and the defendant did not infringe by making RAM copies in servicing their computers. Id. 

In Wall Data, plaintiff sold 3,663 software licenses to the defendant. Wall Data, 447 F.3d at 773. The licenses (1) were non-exclusive; (2) permitted use of the software on a single computer; and (3) permitted transfer of the software once per month, if the software was removed from the original computer. Id. at 775 n. 5, 781. The defendant installed the software onto 6,007 computers via hard drive imaging, which saved it from installing the software manually on each computer. It made an unverified claim that only 3,663 users could simultaneously access the software. Id. at 776. 

The plaintiff sued for copyright infringement, contending that the defendant violated the license by "over-installing" the software. Id. at 775. The defendant raised an essential step defense, contending that its hard drive imaging was a necessary step of installation. Id. at 776. On appeal, we held that the district court did not abuse its discretion in denying the defendant's request for a jury instruction on the essential step defense. Id. at 784. Citing MAI, we held that the essential step defense does not apply where the copyright owner grants the user a license and significantly restricts the user's ability to transfer the software. Id. at 784-85. Since the plaintiff's license imposed "significant restrictions" on the defendant's software rights, the defendant was a licensee and was not entitled to the essential step defense. Id. at 785.
In Wall Data, we acknowledged that MAI had been criticized in a Federal Circuit decision, but declined to revisit its holding, noting that the facts of Wall Data led to the conclusion that any error in the district court's failure to instruct was harmless. Even if the defendant owned its copies of the software, its installation of the software on a number of computers in excess of its license was not an essential step in the software's use. Id. at 786 n. 9 (citing Nimmer on Copyright § 8.08[B][1][c] at 8-136; DSC Commc'ns Corp. v. Pulse Commc'ns, Inc., 170 F.3d 1354, 1360 (Fed.Cir.1999) (criticizing MAI)). 

We read Wise and the MAI trio to prescribe three considerations that we may use to determine whether a software user is a licensee, rather than an owner of a copy. First, we consider whether the copyright owner specifies that a user is granted a license. Second, we consider whether the copyright owner significantly restricts the user's ability to transfer the software. Finally, we consider whether the copyright owner imposes notable use restrictions. Our holding reconciles the MAI trio and Wise, even though the MAI trio did not cite Wise. See Cisneros-Perez v. Gonzales, 451 F.3d 1053, 1058 (9th Cir. 2006) ("[W]e are required to reconcile prior precedents if we can do so.") 

In response to MAI, Congress amended § 117 to permit a computer owner to copy software for maintenance or repair purposes. See 17 U.S.C. § 117(c); see also H.R.Rep. No. 105-551, pt. 1, at 27 (1998). However, Congress did not disturb MAI's holding that licensees are not entitled to the essential step defense. 

IV.

A. The district court's decision 

The district court interpreted Wise to hold that a first sale occurs whenever the transferee is entitled to keep the copy of the work. Since Autodesk does not require its customers to return their copies of Release 14, the district court found that Autodesk had sold Release 14 to CTA. It reasoned that thus, CTA and Vernor were successive "owner[s] of a copy" of the software and were entitled to resell it under the first sale doctrine. The district court also found that Vernor's customers' copying of software during installation was protected by the essential step defense. 

The district court acknowledged that were it to follow the MAI trio, it would conclude that Autodesk had licensed Release 14 copies to CTA, rather than sold them. However, it viewed Wise and the MAI trio as irreconcilable, and it followed Wise as the first-decided case. See United States v. Rodriguez-Lara, 421 F.3d 932, 943 (9th Cir.2005). 

B. Analysis 

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 user's ability to transfer the software; and (3) imposes notable use restrictions. Applying our holding to Autodesk's SLA, we conclude that CTA was a licensee rather than an owner of copies of Release 14 and thus was not entitled to invoke the first sale doctrine or the essential step defense. 

Autodesk retained title to the software and imposed significant transfer restrictions: it stated that the license is nontransferable, the software could not be transferred or leased without Autodesk's written consent, and the software could not be transferred outside the Western Hemisphere. The SLA also imposed use restrictions against the use of the software outside the Western Hemisphere and against modifying, translating, or reverse-engineering the software, removing any proprietary marks from the software or documentation, or defeating any copy protection device. Furthermore, the SLA provided for termination of the license upon the licensee's unauthorized copying or failure to comply with other license restrictions. Thus, because Autodesk reserved title to Release 14 copies and imposed significant transfer and use restrictions, we conclude that its customers are licensees of their copies of Release 14 rather than owners. 

CTA was a licensee rather than an "owner of a particular copy" of Release 14, and it was not entitled to resell its Release 14 copies to Vernor under the first sale doctrine. 17 U.S.C. § 109(a). Therefore, Vernor did not receive title to the copies from CTA and accordingly could not pass ownership on to others. Both CTA's and Vernor's sales infringed Autodesk's exclusive right to distribute copies of its work. Id. § 106(3). 

Because Vernor was not an owner, his customers are also not owners of Release 14 copies. Therefore, when they install Release 14 on their computers, the copies of the software that they make during installation infringe Autodesk's exclusive reproduction right because they too are not entitled to the benefit of the essential step defense.[13] 17 U.S.C. §§ 106(1), 117(a)(1). 

Although unnecessary to our resolution of the case, we address the legislative history in order to address the arguments raised by the parties and amici. That legislative history supports our conclusion that licensees such as CTA are not entitled to claim the first sale doctrine. The House Report for § 109 underscores Congress' view that the first sale doctrine is available only to a person who has acquired a copy via an "outright sale". H.R.Rep. No. 94-1476, at 79 (1976), reprinted in 1976 U.S.C.C.A.N. 5659, 5693. The report also asserts that the first sale doctrine does not "apply to someone who merely possesses a copy or phonorecord without having acquired ownership of it." Id. 

Our conclusion that those who rightfully possess, but do not own, a copy of copyrighted software are not entitled to claim the essential step defense is also supported by the legislative history. Congress enacted § 117 following a report from the National Commission on New Technological Uses of Copyrighted Works ("CONTU") proposing Copyright Act amendments. DSC Commc'ns Corp. v. Pulse Commc'ns, Inc., 170 F.3d 1354, 1360 (Fed.Cir.1999) (citing Final Report of the National Commission on New Technological Uses of Copyrighted Works, U.S. Dept. of Commerce, PB-282141, at 30 (July 31, 1978)). 

CONTU's proposed version of § 117 was identical to the version that Congress enacted with one exception. Id. CONTU's version provided, "[I]t is not an infringement for the rightful possessor of a copy of a computer program to make or authorize the making of another copy or adaptation of that program...." Id. Without explanation, Congress substituted "owner" for "rightful possessor." Id. This modification suggests that more than rightful possession is required for § 117 to apply—i.e., that Congress did not intend licensees subject to significant transfer and use restrictions to receive the benefit of the essential step defense. 

C. Vernor's four counterarguments are not persuasive

1. The district court's decision concerning indefinite possession

Vernor contends that the district court correctly concluded that (1) Wise is the controlling precedent and (2) under Wise, the key factor is whether transferees are entitled to indefinite possession of their copy of a copyrighted work. As explained supra, we disagree. In Wise, we utilized a multi-factor balancing test to distinguish between a first sale and a license of a copyrighted film print. United States v. Wise, 550 F.2d 1180, 1190-92 (9th Cir. 1977). We considered a transferee's ability to possess a print indefinitely as one factor in our analysis, but we did not treat it as dispositive. If we had, we would not have needed to consider other contractual provisions, such as retention of title, copying prohibitions, and lending restrictions. Id. Moreover, we held in Wise that two agreements were licenses rather than first sales, even though those agreements did not describe any provision requiring the transferee to return the prints to the copyright owners. Id. at 1192 (analyzing VIP agreements for The Sting and Funny Girl). 

2. Circuit split with the Federal and Second Circuits 

Vernor contends that reversing the district court will create a circuit split with the Federal and Second Circuits. See DSC Commc'ns Corp. v. Pulse Commc'ns, Inc., 170 F.3d 1354 (Fed.Cir.1999); Krause v. Titleserv, Inc., 402 F.3d 119 (2nd Cir. 2005). We disagree.
In DSC, the Federal Circuit considered the essential step defense in a case in which the plaintiff and defendant sold competing telephone systems hardware cards. 170 F.3d at 1358. Rather than develop its own software, the defendant used its hardware to download plaintiff's software into RAM upon installation. Id. The plaintiff argued that this constituted copyright infringement, and the defendant countered that the relevant customers owned plaintiff's software, entitling them to an essential step defense. Id. at 1359-60. The court rejected the defendant's essential step defense, holding that plaintiff licensed its customers' use of their copies of the software in the relevant license agreement's transfer and use restrictions. Id. at 1360-61. Although the Federal Circuit rejected MAI's "characterization of all licensees as non-owners," it deemed MAI "instructive" and determined that the agreements there in issue were licenses. Id. at 1360. Although DSC is thus narrower than MAI, it does not conflict with our holding today that a software customer bound by a restrictive license agreement may be a licensee of a copy not entitled to the first sale doctrine or the essential step defense. 

The Second Circuit's decision in Krause is distinguishable. In Krause, the plaintiff-copyright owner was a software developer who sued his former employer for making allegedly infringing modifications to his software program. Krause, 402 F.3d at 120-21. The Second Circuit considered the totality of the parties' agreement to determine that the defendant was entitled to an essential step defense. Id. at 124. In Krause, unlike here, the parties did not have a written license agreement, the defendant-employer had paid the plaintiff-employee significant consideration to develop the programs for its sole benefit, and the plaintiff had agreed to allow the defendant to use the programs "forever," regardless of whether the parties' relationship terminated. Id. at 124-25. Thus, the Second Circuit found that the defendant-employer owned its copies of the work. Id. The facts and the analysis in Krause are not contrary to our determination that CTA is a licensee rather than an owner. 

3. The Supreme Court's holding in Bobbs-Merrill 

Vernor contends that Bobbs-Merrill establishes his entitlement to a first sale defense. See Bobbs-Merrill Co. v. Straus, 210 U.S. 339, 28 S.Ct. 722, 52 L.Ed. 1086 (1908). However, Bobbs-Merrill stands only for the proposition that a copyright owner's exclusive distribution right does not allow it to control sales of copies of its work after the first sale. Id. at 350, 28 S.Ct. 722. Decided in 1908, Bobbs-Merrill did not and could not address the question of whether the right to use software is distinct from the ownership of copies of software. Moreover, the Supreme Court in Bobbs-Merrill made explicit that its decision did not address the use of restrictions to create a license. Id. ("There is no claim in this case of contract limitation, nor license agreement controlling the subsequent sales of the book.") 

4. Economic realities of the transaction 

Finally, Vernor contends that "economic realities" demonstrate that Autodesk makes "first sales" to its customers, because Autodesk allows its customers to possess their copies of the software indefinitely and does not require recurring license payments. We held supra that neither of these factors is dispositive. Vernor cites no first sale doctrine case in support of this proposition. Rather, he cites In re DAK Indus., 66 F.3d 1091, 1095 (9th Cir. 1995), a case in which we interpreted the Bankruptcy Code to decide whether a particular transaction should be considered a pre-petition sale. We commented that "[w]hen applying the bankruptcy code to this transaction, we must look through its form to the `economic realities of the particular arrangement.'" Id. Nothing in DAK is contrary to our reconciliation of Wise and the MAI trio. 

V. 

Although our holding today is controlled by our precedent, we recognize the significant policy considerations raised by the parties and amici on both sides of this appeal. 

Autodesk, the Software & Information Industry Association ("SIIA"), and the Motion Picture Association of America ("MPAA") have presented policy arguments that favor our result. For instance, Autodesk argues in favor of judicial enforcement of software license agreements that restrict transfers of copies of the work. Autodesk contends that this (1) allows for tiered pricing for different software markets, such as reduced pricing for students or educational institutions; (2) increases software companies' sales; (3) lowers prices for all consumers by spreading costs among a large number of purchasers; and (4) reduces the incidence of piracy by allowing copyright owners to bring infringement actions against unauthorized resellers. SIIA argues that a license can exist even where a customer (1) receives his copy of the work after making a single payment and (2) can indefinitely possess a software copy, because it is the software code and associated rights that are valuable rather than the inexpensive discs on which the code may be stored. Also, the MPAA argues that a customer's ability to possess a copyrighted work indefinitely should not compel a finding of a first sale, because there is often no practically feasible way for a consumer to return a copy to the copyright owner. 

Vernor, eBay, and the American Library Association ("ALA") have presented policy arguments against our decision. Vernor contends that our decision (1) does not vindicate the law's aversion to restraints on alienation of personal property; (2) may force everyone purchasing copyrighted property to trace the chain of title to ensure that a first sale occurred; and (3) ignores the economic realities of the relevant transactions, in which the copyright owner permanently released software copies into the stream of commerce without expectation of return in exchange for upfront payment of the full software price. eBay contends that a broad view of the first sale doctrine is necessary to facilitate the creation of secondary markets for copyrighted works, which contributes to the public good by (1) giving consumers additional opportunities to purchase and sell copyrighted works, often at below-retail prices; (2) allowing consumers to obtain copies of works after a copyright owner has ceased distribution; and (3) allowing the proliferation of businesses. 

The ALA contends that the first sale doctrine facilitates the availability of copyrighted works after their commercial lifespan, by inter alia enabling the existence of libraries, used bookstores, and hand-to-hand exchanges of copyrighted materials. The ALA further contends that judicial enforcement of software license agreements, which are often contracts of adhesion, could eliminate the software resale market, require used computer sellers to delete legitimate software prior to sale, and increase prices for consumers by reducing price competition for software vendors. It contends that Autodesk's position (1) undermines 17 U.S.C. § 109(b)(2), which permits non-profit libraries to lend software for non-commercial purposes, and (2) would hamper efforts by non-profits to collect and preserve out-of-print software. The ALA fears that the software industry's licensing practices could be adopted by other copyright owners, including book publishers, record labels, and movie studios. 

These are serious contentions on both sides, but they do not alter our conclusion that our precedent from Wise through the MAI trio requires the result we reach. Congress is free, of course, to modify the first sale doctrine and the essential step defense if it deems these or other policy considerations to require a different approach. 

VI. 

The district court did not consider Vernor's claim that Autodesk misused its copyright. Copyright misuse is an equitable defense to copyright infringement which precludes the copyright holder's enforcement of its copyright during the misuse period. See Practice Mgmt. Info. Corp. v. Am. Med. Ass'n, 121 F.3d 516, 520 n. 9 (9th Cir.1997). The district court reasoned that a misuse defense would not benefit Vernor since he prevailed on copyright infringement below. Since we reverse the district court's grant of summary judgment in Vernor's favor on copyright infringement, we remand for the district court to consider Vernor's copyright misuse defense in the first instance. 

VII.

We vacate the district court's grant of summary judgment in Vernor's favor and remand. We hold that because CTA is a licensee, not an owner, the "sale" of its Release 14 copies to Vernor did not convey ownership. Vernor is accordingly not entitled to invoke the first sale doctrine or the essential step defense, on behalf of his customers. We remand for further proceedings consistent with this opinion, including consideration of Vernor's copyright misuse defense. 

VACATED AND REMANDED.

AutoCAD 14

Questions:

1. The district court held that the first sale doctrine applies whenever the transferee is entitled to keep the copy. By contrast, the circuit court held 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 user's ability to transfer the software; and (3) imposes notable use restrictions." How would you determine whether the first sale doctrine applies to a copy of a work?
2. Should the first sale doctrine apply to all categories of works in the same way?
3. Copyright owners of computer software often sell licenses to use a copy of their software, rather than transferring ownership of a copy of their software. Often, they do so by way of "shrink-wrap" agreements printed on the software package, or in "click-wrap" agreements to which users of the software must agree before installing the software. These are collectively referred to as end-user license agreements (EULAs). Should EULAs be enforceable? How are they different from promotional CDs?
4. Today, consumers often purchase digital copies of copyrighted works. Does the first sale doctrine apply to those purchases? As a practical matter, how does purchasing a physical copy of a work differ from purchasing a digital copy?

Importation of Copies & Phonorecords

The distribution right enables copyright owners to control not only the initial transfer of their works, but also the importation and exportation of their works, with certain exceptions. Section 602 of the Copyright Act provides:

(a) Infringing Importation or Exportation.— 

(1) Importation.— Importation into the United States, without the authority of the owner of copyright under this title, of copies or phonorecords of a work that have been acquired outside the United States is an infringement of the exclusive right to distribute copies or phonorecords under section 106, actionable under section 501. 

(2) Importation or exportation of infringing items.— Importation into the United States or exportation from the United States, without the authority of the owner of copyright under this title, of copies or phonorecords, the making of which either constituted an infringement of copyright, or which would have constituted an infringement of copyright if this title had been applicable, is an infringement of the exclusive right to distribute copies or phonorecords under section 106, actionable under sections 501 and 506.

17 U.S.C. § 602.

In other words, under Section 602, the distribution right enables copyright owners to control the exportation and importation of lawfully made copies of their works, with certain exceptions. So, if a copyright owner authorizes the reproduction and distribution of a copyrighted work in a foreign country, the copyright owner can prohibit the importation of copies purchased in the foreign country, and vice versa.

The purpose of Section 602 is to enable copyright owners to engage in price discrimination, by selling copyrighted works for different prices in different countries. Essentially, Section 602 enabled copyright owners to charge different prices in different countries, by authorizing them to prohibit the importation and exportation of copies of their copyrighted works.

But the question arose whether the Section 109 first sale doctrine conflicted with the Section 602 import/export restrictions. In Quality King Distributors, Inc. v. L'Anza Research Int'l Inc., 523 U.S. 135 (1998), the Court held that copies of copyrighted works lawfully manufactured in the United States, exported to a foreign county, and imported to the United States, are subject to the first sale doctrine. And then in Kirtsaeng v. John Wiley & Sons, Inc., 133 S. Ct. 1351 (2013), the Court held that copies of copyrighted works lawfully manufactured in a foreign country and imported to the United States are subject to the first sale doctrine.

Questions:

1. Why would copyright owners care about the importation and exportation of their copyrighted works?
2. Should copyright owners be able control the importation and exportation of their copyrighted works?