e law stuff

8/7/2019 E Law Stuff

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CBS V. SCORPIO

Plaintiff, Columbia Broadcasting System, Inc. (CBS), is a New York corporation which

owns United States copyrights to six sound recordings, copies of which comprise the subjectmatter of this copyright infringement case. On or about January 1, 1981, CBS-Sony, Inc., a

Japanese corporation, entered into two written agreements with Vicor Music Corporation(Vicor), a Philippines corporation, by which Vicor was authorized to manufacture and sell

certain phonorecords exclusively in the Philippines. Plaintiff, which retained the United Statescopyrights as to those recordings, consented to the agreement between CBS-Sony and Vicor.

On November 2, 1981, by telegraphic notice, CBS-Sony severed its manufacturing and

licensing agreements with Vicor. Prior to that date, however, on June 12, 1981, defendantScorpio, a Pennsylvania corporation, entered into a purchase agreement with International

Traders, Inc., a Nevada corporation, for several thousand phonorecords. Of the recordings whichScorpio ordered from International Traders, approximately six thousand were copies of

recordings to which CBS owns copyrights.

CBS-Sony and Vicor agreed that Vicor would have sixty days following termination of theagreements within which to liquidate its stock. International Traders bought the phonorecords

from Rainbow Music, Inc., a Philippines corporation, which had purchased them from Vicorbefore Vicor's sixty day selloff period expired.

CBS filed a complaint on February 1, 1982, alleging that without its consent, Scorpio

imported phonorecords of works to which CBS owns the copyrights and thereby violated 602of the Copyright Act.FN1 *48 17 U.S.C. 602. After discovery, plaintiff filed the instant motion

for summary judgmentFN2

on the ground that defendant's actions fall within the ambit of 602which prohibits the importation of phonorecords without consent of the copyright owner.

Defendant moves to dismiss or in the alternative for summary judgment. Defendant relies on thefirst sale doctrine,FN3

and alleges that 602 and 109(a) are incongruent. Scorpio argues that,

since the recordings were the subject of a valid first sale from Vicor to Rainbow Music,defendant has not infringed any of CBS' rights. Scorpio also argues that it is not an importer

within the meaning of 602 and that alleged antitrust violations based upon monopoly andconspiracy charges involved in the prosecution of this suit bar recovery by the plaintiff and

provide the basis for defendant's counterclaim.

FN1. Plaintiff also alleged trademark infringement and unfair competition. Those counts,however, were subsequently withdrawn.

FN2. Where, as here, no genuine issue of material fact is disputed, the entry of summaryjudgment is appropriate. United States v. Lewisburg, 539 F.2d 301, 305 (3d Cir.1976);

Fed.R.Civ.P. 56.

FN3. When a work is the subject of a valid first sale, the distribution rights of the copyrightowner are extinguished, and title passes to the buyer.Independent News. Co. v. Williams, 293


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F.2d 510, 517 (3d Cir.1961).

Section 602 provides, in pertinent part:

(a) Importation into the United States, without the authority of the owner of the copyright underthis title, of copies of phonorecords of a work that have been acquired outside of the United

States is an infringement of the exclusive right to distribute copies or phonorecords under section106, actionable under section 501.

17 U.S.C. 602. As a matter of uncontroverted fact, the phonorecords at issue were acquired

outside of the United States by International Traders and were imported without authorizationfrom CBS, the copyright owner. Scorpio concedes this. Nonetheless, Scorpio argues it is not a

proper defendant in this matter because it did not import the records from the Philippines; rather,it transacted its business with International Traders, within the United States. Since importation

is the infringing act under 602, Scorpio contends that the section does not proscribe its actions.

It is not clear whether Scorpio was the consignee of the shipment,FN4 but it is undisputed thatScorpio ordered the records with full knowledge of the importation problem. Under certaincircumstances, a consignee of imported merchandise may be treated as the importer. Blumenthal

Print Works v. United States, 51 F.Supp. 208, 212 (E.D.La.1943);see alsoHoover & Allison Co.v. Evatt, 324 U.S. 652, 65 S.Ct. 870, 89 L.Ed. 1252 (1944). The evidence produced as to

Scorpio's status does not permit a decisive determination of the scope of its role as an importer.However, the question whether defendant was the importer need not be resolved, in view of the

law regarding vicarious and contributory infringement and the undisputed fact that InternationalTraders was an importer.

FN4. Defendant's two exhibits concerning the consignee matter contain conflicting information.

Machinery Leasing Co. of Beverly Hills is named as consignee on an invoice, and Scorpio isdesignated as consignee on the bill of lading. Defendant contends that the bill of lading shows

Scorpio as consignee for destination purposes only, rather than for purposes of importation.

[I]t is well established that a suit for infringement is analogous to other tort actions andinfringers are jointly and severally liable; hence plaintiff need sue only such participants as it

sees fit. Costello Publishing Co. v. Rotelle, 670 F.2d 1035, 1043 (D.C.Cir.1981);KlitznerIndustries v. H.K. James & Co., 96 F.R.D. 614 (E.D.Pa.1983). Moreover, good faith, or lack

thereof, is irrelevant.FN5

Intent is not a necessary element of infringement, and the copyrightholder may proceed against any member of *49 the chain of distribution. Costello, 670 F.2d at

1044. CBS chose to file suit against Scorpio. That it did not proceed against InternationalTraders makes this action no less valid.FN6

FN5. An alleged copyright infringer need not have actual knowledge that the activity in which he

or she participates constitutes a copyright infringement. Universal City Studios v. Sony Corp.,659 F.2d 963, 975 (9th Cir.1981). Furthermore, a defendant's lack of awareness of the

infringement does not insulate it from liability; however, its innocence may, in limitedcircumstances, provide a basis for reducing the damages assessed against it.Id. at 975;17 U.S.C.


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504(c)(2).

FN6. Indeed, Scorpio had the foresight to secure a written indemnity agreement fromInternational Traders. In a letter to Scorpio, dated July 22, 1981, International Traders stated that

it agree[s] to pay all legal fees if [sic] in the event any legal actions are brought with regard todistribution of these records.

The major thrust of Scorpio's defense is that 602 does not apply to the facts of the instant

case whereas the restrictions of the copyright owners' exclusive distribution rights which are setforth in 106(3) and 109(a) do apply. Scorpio maintains that 109(a) supersedes any relevance

602 otherwise might have to the casesub judice. Specifically, Scorpio alleges that, because thephonorecords at issue were the subject of a valid first sale from Vicor to Rainbow Music, any

rights which CBS may have retained in those recordings were extinguished upon said transfer oftitle.

FN7

FN7. Sale of copies of a work that has been legally manufactured with the copyright owner'sconsent extinguishes the copyright owner's distribution rights as to those copies. Bobbs-MerrillCo. v. Straus, 210 U.S. 339, 28 S.Ct. 722, 52 L.Ed. 1086 (1908);see also Burke & Van Heusen,

Inc. v. Arrow Drug, Inc., 233 F.Supp. 881, 884 (E.D.Pa.1964).

[1] Defendant argues that the exclusive rights of a copyright owner, including the right todistribute which is accorded by 106(3),

FN8are limited inter alia by 109(a). Section 109(a)

provides:

FN8.17 U.S.C. 106(3) provides:Subject to sections 107 through 118, the owner of copyright under this title has the exclusive

rights to do and to authorize any of the following ... to distribute copies or phonorecords of thecopyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or

lending.

Notwithstanding the provisions ofsection 106(3), the owner of a particular copy or phonorecordlawfully 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 orphonorecord.

Defendant's contentions would be more persuasive were it not for the phrase-lawfully madeunder this title-in 109(a). I conclude that the section grants first sale protection to the third

party buyer of copies which have been legally manufactured and sold within the United Statesand not to purchasers of imports such as are involved here. The protection afforded by the United

States Code does not extend beyond the borders of this country unless the Code expressly states.Absent a clearly expressed legislative intent to the contrary, statutory language must be

recognized as conclusive. Consumer Product Safety Commission v. GTE Sylvania, Inc., 447 U.S.102, 100 S.Ct. 2051, 64 L.Ed.2d 766 (1980). Thus, I cannot honor Scorpio's request that the

court decide the breadth and meaning of 602 [by taking 109(a) into consideration] perhaps


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in a manner that circumscribes the apparent intent of Congress as reflected by the expresslanguage ofsection 602 and its legislative history.

FN9(emphasis added).

FN9. Defendant's Motion to Dismiss Certain Portions of Plaintiff's Complaint or for SummaryJudgment on Those Same Portions of Plaintiff's Complaint at 2.

Construing 109(a) as superseding the prohibition on importation set forth in the more

recently enacted 602 would render 602 virtually meaningless. Third party purchasers whoimport phonorecords could thereby circumvent the statute, in every instance, by simply buying

the recordings indirectly. Moreover, declaring legal the act of purchasing from a United Statesimporter who does not deal directly with a foreign manufacturer, but who buys recordings which

have been liquidated overseas, would undermine the purpose of the statute. The copyright ownerwould be unable to exercise control over copies of the work which entered the American market

in competition with copies lawfully manufactured and distributed under this title. This courtcannot construe the statute so as to alter *50 the intent of Congress, which has set restrictions on

the importation of phonorecords in order that rights of United States copyright owners can be

preserved.

[2] The application of 602 to the undisputed facts of this case demonstrates that Scorpio

is a copyright infringer under Title 17 of the United States Code as a matter of law. Defendantmakes reference to, but does not seriously argue, that the affirmative defenses pertaining to

antitrust law which are set forth in its answer are relevant both to its defense against plaintiff'scopyright claims and to its counterclaim.

FN10However, after full discovery, defendant cannot

point to any factual basis or legal authority for this defense. Accordingly, I will grant plaintiff'smotion for summary judgment and deny defendant's motion to dismiss and/or for summary

judgment.

FN10. Neither party has filed a motion concerning the counterclaim.


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UMG Recording v. Agusto

This matter is before the Court on Counter-Defendant UMG Recordings, Inc.'s (UMG)Motion for Summary Judgment as to Counter-Claim, Plaintiff UMG's Motion for Summary

Judgment as to Liability on Complaint, and Defendant and Counter-Claimant Troy Augusto's

Motion for Summary Judgment, all filed April 7, 2008. Both parties filed Oppositions andReplies in all instances. The Court found these matters suitable for disposition without oralargument and vacated the hearings set for May 5, 2008. SeeFed.R.Civ.P. 78(b). For the

following reasons, Counter-Defendant UMG's Motion is GRANTED, Plaintiff UMG's Motion isDENIED, and Defendant and Counter-Claimant Augusto's Motion is GRANTED IN PART and

DENIED IN PART.

*1058 I.BACKGROUND

Most of the facts in this case are undisputed. UMG owns the copyright to numerous songs and

produces CDs containing those songs. A majority of those CDs are created for sale to the public.Before a new CD is released for sale to the public, UMG often creates and distributes apromotional CD for purposes of promoting and advertising the release of the new CD. The

promotional CD is similar to the new CD, although a promotional CD may contain fewer songsand may not include the artwork included with the new CD. In addition, all promotional CDs are

labeled with the following language:FN1

FN1. Not all promotional CDs contain this exact language. For example, some promotional CDsmerely state: Promotion Use Only-Not for Sale. (Kossowicz Decl. Ex. 11.) Yet, the parties

agree that this more succinct language does not differ in meaning from the verbose version.(Benjamin Dep. 37.)

This CD is the property of the record company and is licensed to the intended recipient for

personal use only. Acceptance of this CD shall constitute an agreement to comply with the termsof the license. Resale or transfer of possession is not allowed and may be punishable under

federal and state laws.UMG sends these promotional CDs to music industry insiders who are in a position to provide

publicity and exposure for the upcoming commercial release of the new CD.Augusto is not one of these insiders. Yet, he obtained numerous promotion CDs from music

shops and online auctions. Augusto then sold many of UMG's promotional CDs through onlineauctions on eBay, advertising these promotional CDs as rare collectibles not available in stores.

UMG sent Augusto a cease and desist letter, notifying Augusto that UMG believed his sale ofthese promotional CDs infringed UMG's copyrights. UMG also notified eBay-through eBay's

Verified Rights Owner program (VeRO)-of its belief that Augusto's auctioning of UMGpromotional CDs infringed UMG's copyrights. This led eBay to temporarily stop Augusto's

auctions and to suspend Augusto's eBay account. Eventually, eBay reinstated Augusto's account.

When Augusto continued to sell UMG promotional CDs, UMG brought suit against Augustofor copyright infringement, alleging that UMG retained the exclusive right to distribute and sell


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the promotional CDs that Augusto sold through eBay (the Promo CDs). Augusto brought acounterclaim against UMG for violation of 512(f) of the Digital Millennium Copyright Act

(the DMCA), alleging that UMG knowingly misrepresented to eBay that Augusto's auctionsinfringed UMG's copyrights so that eBay would stop Augusto's auctions.

Now, both parties move for summary judgment on UMG's copyright infringement claim andAugusto's counter-claim for violation of 512(f).

II.DISCUSSION

Summary judgment is proper only if the pleadings, depositions, answers to interrogatories,

and admissions on file, together with affidavits, if any, show that there is no genuine issue as toany material fact and that the moving party is entitled to judgment as a matter of law.

Fed.R.Civ.P. 56(c);see also Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91L.Ed.2d 265 (1986). A material fact is one that could affect the outcome of the case, and an

issue of material fact is genuine if the evidence is such that a reasonable jury could return averdict for the nonmoving party.Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct.

2505, 91 L.Ed.2d 202 (1986). In deciding a *1059 motion for summary judgment, the Courtconstrues the evidence in the light most favorable to the nonmoving party.Rivera v. Philip

Morris, Inc., 395 F.3d 1142, 1146 (9th Cir.2005).

A. UMG's Claim for Copyright Infringement

UMG and Augusto both seek summary judgment on UMG's copyright infringement claim. To

establish a prima facie case of copyright infringement, UMG must show: (1) UMG owns a

copyright; and (2) Augusto violated one of the exclusive rights granted to UMG as owner of thatcopyright under17 U.S.C. 106. SeeLGS Architects, Inc. v. Concordia Homes, 434 F.3d 1150,1156 (9th Cir.2006).

Here, Augusto does not dispute that UMG has met its initial burden. UMG established that it

owns the copyright to sound recordings embodied in the Promo CDs (Kossowicz Decl. 2-3;Kossowicz Ex. 10) and that Augusto sold these Promo CDs through eBay (McDevitt Decl. 4;

McDevitt Decl. Ex. 6) in violation of UMG's exclusive right to sell copies of those soundrecordings to the public,see17 U.S.C. 106(3).

Augusto argues, however, that his conduct is protected by the first sale doctrine.

1. The First Sale Doctrine Permits the Owner of a Copy to Resell that Copy.

The first sale doctrine limits a copyright owner's exclusive right to distribute copies of a

copyrighted work to the public: [T]he owner of a particular copy or phonorecord lawfully madeunder [Title 17 of the United States Code] ... 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.


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109(a);see also 2 Melville B. Nimmer & David Nimmer,Nimmer on Copyright 8.12[B][1][a](2008) [hereinafterNimmer] (Section 109(a) provides that the distribution right may be

exercised solely with respect to the initial disposition of copies of a work, not to prevent orrestrict the resale or other further transfer of possession of such copies.).

Although this statutory limitation is commonly referred to as the first sale doctrine, itsprotection does not require a sale. The doctrine applies after the first authorized dispositionby which title passes. 2Nimmer 8.12[B] [1][a]. This passing of title may occur through a

transfer by gift. See 4 William F. Patry,Patry on Copyright 13:15 (Since the principle [of thefirst sale doctrine] applies when copies are given away or are otherwise permanently transferred

without the accoutrements of a sale, exhaustion is the better description.); 2 Paul Goldstein,Goldstein on Copyright 7.6.1 n. 4 (3d ed.) ([A] gift of copies or phonorecords will qualify as a

first sale to the same extent as an actual sale for consideration.).

To invoke the first sale defense for his sale of UMG Promo CDs, Augusto must show: (1) theCDs were lawfully manufactured with UMG's authorization; (2) UMG transferred title to the

CDs; (3) Augusto was the lawful owner of the CDs; and (4) Augusto disposed of, but did notreproduce, the CDs. 2Nimmer 8.12[B][1][a] (An affirmative answer to each question

validates the defense. Failure to qualify under any prong dooms it.).

Here, two of these elements are undisputed. The parties agree that the Promo CDs werelawfully manufactured (UMG Answer 13) and Augusto is accused only of selling the Promo

CDs, not of reproducing them (UMG Compl. 10).

The remaining two elements hinge on one question: Did UMG transfer title to the musicindustry insiders when it mailed them the Promo CDs? If the answer is yes, *1060 then UMG

transferred ownership of the CDs and Augusto lawfully owned the CDs at the time he soldthem,

FN2which permitted Augusto to sell the CDs under the first sale doctrine. If the answer is

no, then UMG retained title to, and ownership of, the CDs and Augusto was not the lawful ownerof those CDs at the time he sold them, which excludes Augusto's actions from the protection of

the first sale doctrine.

FN2. UMG argues that Augusto should have to trace the chain of title from him back to UMG.This is incorrect. By showing that UMG transferred ownership of the Promo CDs to the music

industry insiders, Augusto would show that UMG no longer has a copyright interest in the PromoCDs, which is sufficient under the first sale doctrine.

2.Because UMGT

ransferredT

itle to the Music Industry Insiders, Augusto Was theOwner of the Promo CDs at the Time He SoldThem.

Augusto argues that he owned title to the particular copies of the Promo CDs that he sold

under three theories: (1) the licenses on the Promo CDs are not valid; (2) the music industryinsiders may treat the Promo CDs as a gift under federal law; and (3) UMG abandoned the

Promo CDs under California law. If Augusto succeeds on any of these three arguments, the firstsale doctrine protects his actions. The Court addresses each argument in turn.


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

[1] 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 thatthese words create a license between UMG and any recipient who accepts the Promo CD andthat 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.

[2] In determining whether a transaction is a sale or a license, courts must analyze theeconomic realities of the transaction.Microsoft Corp. v. DAK Indus., 66 F.3d 1091, 1095 (9thCir.1995). [T]he fact that the agreement labels itself a license ... does not control our

analysis.Id. at 1095 n. 2.

i. One Hallmark of a License Is the Owner's Intent to Regain Possession.

[3] [4] The right to perpetual possession is a critical incident of ownership. SeeKrause

v. Titleserv, Inc., 402 F.3d 119, 123 (2d Cir.2005) (describing a person's degree of ownership ofa copy as complete when he may lawfully use it and keep it forever, or if so disposed, throw

it in the trash).FN3

Accordingly, the distributor of a copyrighted product's intent to regainpossession 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.

FN3. While the licensing label would not permit the music industry insiders to throw the Promo

CDs in the trash, the economic reality of the transfer entirely permits them to do so if sodisposed. SeeKrause, 402 F.3d at 123.

The Ninth Circuit's decision in United States v. Wise demonstrates the importance ofregaining 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 thecontracts 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 *1061 generally ... requiredtheir 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 herpersonal 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. Therecipients are free to keep the Promo CDs forever. Nothing on the packaging of the Promo CDs


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or in the licensing label requires that the recipient return the Promo CDs to UMG. (KossowiczDecl. 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 notrequest 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.FN4

Further, it appears that

UMG could not take these actions; UMG does not keep permanent records identifying whoreceived which Promo CDs. (Strouse Decl. 7.)

FN4. UMG does passively receive Promo CDs returned by the postal service as undeliverable orreturned by recipients as unwanted. (Strouse Decl. 10(a).) Rather than keep these Promo CDs

as an asset, UMG destroys them. (Strouse Decl. 10(a).)

Accordingly, the music industry insiders' ability to indefinitely possess the Promo CDs is astrong 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.

[5] 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 Microsoftreceived 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 itssoftware 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 aPromo 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 thephrase 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 toprovide 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 purposewas rejected 100 years ago by the Supreme Court. See Bobbs-Merrill Co. v. Straus, 210 U.S.339, 28 S.Ct. 722, 52 L.Ed. 1086 (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 alsoRCA 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 labelupon them].); *1062 SoftMan, 171 F.Supp.2d at 1084 (Adobe frames the issue as a dispute


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about the ownership of intellectual property. In fact, it is a dispute about the ownership ofindividual 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 perpetualpossession 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.

b. The Promo CDs Are a Gift Under Federal Law.

[6] Augusto also argues that UMG transferred title to the Promo CDs to the music industry

insiders under federal law. The Postal Reorganization Act prohibits the mailing of unorderedmerchandise without the prior expressed request or consent of the recipient. 39 U.S.C.

3009(a), (c). FN5 This merchandise may be treated as a gift by the recipient, who shall have theright to retain, use, discard, or dispose of it in any manner he sees fit without obligation

whatsoever to the sender. 39 U.S.C. 3009(b). The purpose of [ 3009] was to control theunconscionable practice of persons who ship unordered merchandise to consumers and then trick

or bully them into paying for it. Kipperman v. Academy Life Ins. Co., 554 F.2d 377, 379 (9thCir.1977).

FN5.Section 3009 is not limited to merchandise mailed through the United States Postal Service.65 Fed. Reg. 2867, 2868 n. 8 (Jan. 19, 2000) ([Section 3009] refers to mailing of unorderedmerchandise. [Prohibition of this] practice[ ] is not limited to unordered merchandise distributed

through the U.S. mail.). Accordingly, the Promo CDs shipped through private services, such asUPS, are also subject to 3009.

Here, UMG's actions fall within the plain text of 3009. UMG mails merchandise-the Promo

CDs-to music industry insiders without their prior expressed request or consent.FN6

Still,UMG argues that 3009 does not apply to their mailing of the Promo CDs because 3009:(1)

applies only to merchandise received by consumers; (2) applies only to merchandise for which

payment is requested; and (3) does not nullify agreements between the mailer and the recipient.

FN6. UMG claims this fact is in dispute. However, the declarations it cites as support provide noevidence that the music industry insiders have provided prior expressed consent to receive the

Promo CDs. ( See, e.g., Strouse Decl. 3 (identifying the type of person who receives a PromoCD, but providing no evidence of prior expressed consent).)


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i. Even If 3009 Applies Only to Consumers, the Music Industry Insiders Are

Consumers.

Although the text of 3009 references only recipients of unordered merchandise, UMGargues that the statute protects only consumers of that merchandise. For support, UMG relies

on one decision from the California Court of Appeals and a consent order from the Federal TradeCommission (FTC), the agency charged with enforcing 3009.

In Blakemore v. Superior Court, a cosmetics company sent unordered merchandise to its

independent sales representatives and then charged those representatives for the merchandise.129 Cal.App.4th 36, 27 Cal.Rptr.3d 877, 889 (Ct.App.2005). The California Court of

Appeals*1063 construed 3009 as applying to the mailing of unordered merchandise by theseller to the consumer of that merchandise, not to parties who have contracted with each other to

promote the sale of the same merchandise to third persons.Id. at 888. Because the salesrepresentatives were not consumers, 3009 did not prohibit the cosmetics company's actions.Id.

at 890.

The FTC has also suggested that the statute's protection does not extend beyond consumers.In a consent order issued nearly 30 years ago, the FTC enjoined a light bulb company from

violating 3009.In re Commercial Lighting Prods., Inc., 95 F.T.C. 750, 1980 WL 338972(1980). Yet, that consent order carved out non-consumers from the injunction's scope.Id.

(enjoining the light bulb company from mailing unordered merchandise to Persons andexcluding from the definition of Persons any person or entity which does not purchase said

Products for consumption, specifically identifying independent jobbers and wholesalers asexempt).

If the consumer requirement is read into 3009, this Court must decide whether the music

industry insiders are consumers. Certainly, these insiders are not the exempted non-consumers ofthe kind specifically identified in Blakemore and Commercial Lighting. Sales representatives,

jobbers, and wholesalers all pass the physical product on to purchasers. By contrast, musicindustry insiders consume the Promo CD just as any other purchaser would, by listening to it.

The reason these insiders are selected to receive the Promo CD is because they are not justconsumers, they are consumers with influence.

Accordingly, the music industry insiders are consumers.

ii.Section 3009 Does Not Apply Only to Merchandise for Which Monetary Payment

Is Requested.

Second, UMG argues that 3009 does not apply, because it does not request monetary

payment for the merchandise. Yet, the plain text of the statute does not include such arequirement. Instead, UMG relies on cases finding that offers of a service are not prohibited by

3009. See, e.g.,Kashelkar v. Rubin & Rothman, 97 F.Supp.2d 383, 395 (S.D.N.Y.2000) ([Thedefendant] did not send [the plaintiff] any merchandise-it sent him an offer to open a line of

credit, which he was free to accept or reject.).


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Here, recipients of the Promo CDs are not free to accept or reject the terms of the license.

UMG's mailing of the Promo CDs puts a recipient in a similar position as a recipient ofmerchandise for which the seller requests payment. Each recipient must return the item or face

some affirmative obligation. The music industry insiders must physically return the Promo CD or

make arrangements to keep it for all time because disposing of the Promo CD would violateUMG's property interest in the Promo CD.

Accordingly, enforcement of the license printed on the Promo CDs is no different in principlethan enforcement of a request for payment.

iii. UMG Did Not Create an Agreement By Mailing the Promo CDs to Music

Industry Insiders with a Licensing Label.

Finally, UMG argues that 3009 does not apply because the Promo CDs contained an

express license. (Opp'n to Augusto MSJ 10.) For support, UMG relies on a case in which theThird Circuit stated that 3009 does not explicitly declare any agreements to be void. (Opp'n

to Augusto MSJ 10 (quoting Wisniewski v. Rodale, Inc., 510 F.3d 294, 295-96 (3d Cir.2007)).)

*1064 This reliance is misplaced. In Wisniewski, the defendant sent the plaintiff unorderedmerchandise. The plaintiff paid for that merchandise to avoid damage to his credit rating, then

later brought suit under 3009.Id. at 296. The Third Circuit found that 3009 did not create aprivate right of action.Id. at 307. As a corollary to this holding, if the plaintiff was induced into

completing the contract by the defendant's unordered merchandise, 3009 did not void thatcontract.Id. at 306.

UMG compares Wisniewski to the facts of this case, arguing that the music industry insidersaccepted the licensing contract by keeping the merchandise and that 3009 does not void thislicensing contract. This comparison is incorrect for two reasons. First, the Ninth Circuit reached

a conclusion contrary to Wisniewski inKipperman, where the court determined that 3009 didcreate a private right of action for monetary damages. 554 F.2d at 380. Accordingly, the recipient

is able to bring suit to obtain a judicial declaration of [her] rights and, when necessary, to securerestitutionary relief. Second, UMG mistakes the music industry insider's actions-keeping the

Promo CDs-as accepting the license, when those actions are perfectly consistent with treating themerchandise as a gift. In fact, those music industry insiders whose Promo CDs ultimately ended

up in Augusto's possession affirmatively refuted the license agreement by transferring possessionto somebody else, an act prohibited by UMG's license language.

Accordingly, the Promo CDs are unordered merchandise subject to 3009. By sending the

Promo CDs to music industry insiders, UMG transferred title to those insiders and the PromoCDs are subject to the first sale doctrine.

c. UMG Did Not Abandon its Promo CDs.


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[7] Augusto also argues that UMG abandoned the Promo CDs under California law. Toshow that UMG abandoned the Promo CDs, Augusto must demonstrate: (1) UMG does not

possess the Promo CDs; and (2) UMG intended to abandon the Promo CDs. 1 Cal. Jur.3dAbandonment 2. Here, UMG concedes that it does not possess the Promo CDs, leaving only

UMG's alleged intent to abandon in dispute.

[8] [9] [10] Intent to abandon is determined based on consideration of all thecircumstances of the case, including all acts of ownership and dominion, or a want of such

acts.Moon v. Rollins, 36 Cal. 333, 338-40 (1868). Abandonment may arise from a single act ora series of acts.Pickens v. Johnson, 107 Cal.App.2d 778, 238 P.2d 40, 45 (Ct.App.1951). One

has intent to abandon when one relinquishes possession without any present intention torepossess. Utt v. Frey, 106 Cal. 392, 397, 39 P. 807 (1895).

[11] [12] Yet, abandonment requires something more than mere passivity. WilliamWolff & Co. v. Canadian Pac. Ry. Co., 123 Cal. 535, 538, 56 P. 453 (1899). There must be

some clear and unmistakable affirmative act or series of acts indicating an intention to relinquishownership. 1 Cal. Jur.3dAbandonment 14. In addition, [t]here is no such thing as an

abandonment to particular persons....McLeran v. Benton, 43 Cal. 467, 476 (1872). The ownermust leave [the property] free to the occupation of the next comer, whoever he may be....

Moon, 36 Cal. at 338.

Here, Augusto shows only passivity. UMG has simply made no attempt to reclaim themerchandise to which it attempts to retain title. UMG has not affirmatively *1065 disavowed its

rights to the Promo CDs, and in fact prints on the Promo CDs that it retains title. Finally, anyabandonment of a Promo CD by UMG would be to a particular person, the recipient of the

Promo CD, not the public at large.

Accordingly, UMG did not abandon the Promo CDs under California law.

3.Augusto's Actions Are Protected by the First Sale Doctrine.

Because title to the Promo CDs transferred from UMG to the music industry insiders,

Augusto's resale of those CDs is protected by the first sale doctrine. Augusto is entitled tosummary judgment on UMG's claim for copyright infringement.

B.Augusto's Counter-Claim for Violation of 512(f)

[13] UMG and Augusto both seek summary judgment on Augusto's counter-claim under

the DMCA. Section 512(c) of the DMCA permits copyright owners to provide Internet hostsnotice of potential copyright infringement. In order to curb abuse of this notice and takedown

provision, Congress included an expressly limited cause of action for improper infringementnotifications, imposing liability only if a copyright owner's notification is a knowing


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misrepresentation. Dudnikov v. MGA Entm't, Inc., 410 F.Supp.2d 1010, 1017 (D.Colo.2005)(quotingRossi v. Motion Picture Ass'n of Am., 391 F.3d 1000, 1004-05 (9th Cir.2004)).

Under 512(f) of the DMCA, a copyright owner may be held liable for damages caused by

an erroneous invocation of the notice and takedown provision only if the owner did not possess a

subjective good faith belief that its copyright was being infringed.Rossi, 391 F.3d at 1004;seealsoS.Rep. No. 105-90, at 49 (1998) ([Section 512(f) ] is intended to deter knowingly falseallegations to service providers.).

Here, UMG demonstrates that it had a subjective good faith belief that Augusto was

infringing its copyrights. UMG and its agents carefully documented Augusto's actions inpreparation for this lawsuit. (McDevitt Decl. 4.) UMG was aware that Augusto had entered into

a consent judgment in a previous case, in which Augusto admitted that selling promotional CDsviolated the owner's copyright. (Benjamin Decl. 6(e).). Further, the language on the Promo

CDs led UMG to believe that it could enforce its copyrights against an unauthorized seller ofthose CDs. (Benjamin Decl. 6.) Augusto's allegations that UMG should have known better do

not create a genuine issue of material fact as to this issue given the uncertainty of the law in thisarea.

Accordingly, UMG is entitled to summary judgment on Augusto's counter-claim. See

Dudnikov, 410 F.Supp.2d at 1018 (granting summary judgment in copyright owner's favor basedon declaration of counsel in charge of notifying eBay of potential infringement).

III.RULING

Augusto's actions are protected under the first sale doctrine. Accordingly, Plaintiff UMG's

Motion is DENIED and Augusto's Motion is GRANTED as to UMG's copyright infringementclaim.

UMG held a subjective good faith belief that Augusto was infringing its copyrights.Accordingly, Counter-Defendant UMG's Motion is GRANTED and Augusto's Motion is

DENIED as to Augusto's counter-claim for violation of 512(f) of the DMCA.

IT IS SO ORDERED.


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TB HARMS V. JEM RECORDS

These cross-motions arise out of a Complaint filed on June 7, 1985, by T.B. Harms Company(Harms) against Jem Records Inc. (Jem). This Court has federal question jurisdiction of this

action pursuant to 28 U.S.C. 1338(a). Plaintiff's Complaint alleges that defendant infringed

plaintiff's copyright in the musical composition Ol' Man River in violation of 602(a) of theCopyright Act of 1976, 17 U.S.C. 602(a), arising out of defendant's unauthorized importation,distribution and sale of phonorecords containing this composition. Presently before the Court are

cross-motions for partial summary judgment on the issue of liability.

The Facts

[1] In connection with the present cross-motions, the parties have stipulated to an agreedstatement of material facts which has been filed with the Court. The stipulated facts are as

follows: plaintiff Harms is a California corporation engaged in the business of licensing and

marketing copyrighted musical compositions; defendant Jem is a New Jersey corporationengaged in the manufacture, distribution and sale of phonorecords into the United States whichembody copyrighted musical compositions. At all times relevant to this case, Harms has been

and continues to be the lawful owner of a valid copyright in the musical composition Ol' ManRiver, which was written by Jerome Kern and Oscar Hammerstein II.

FN1This copyright is

*1577 registered in the United States Copyright Office and has been duly renewed. A notice ofuse has also been filed with the Copyright Office.

FN1. For purposes of clarity, it is necessary at this juncture to distinguish between a sound

recording, a musical composition and a phonorecord. The Copyright Act of 1976 defines theterms phonorecord and sound recording. Phonorecords are material objects in which sounds

... are fixed by any method ... and from which the sounds can be perceived, reproduced, orotherwise communicated, either directly or with the aid of a machine or device. 17 U.S.C.

101. Included in the term phonorecord is the material object in which the sounds are first fixed.Id. Sound recordings are works that result from the fixation of a series of musical, spoken or

other sounds, ... regardless of the nature of the material objects, such as disks, tapes or otherphonorecords, in which they are embodied.Id. A sound recording as copyrightable subject

matter must be distinguished from the copyrighted literary, musical or dramatic work embodiedin the sound recording and fixed on a phonorecord. When a copyrighted song is recorded on a

phonorecord, there are two separate copyrights: one on the musical composition and the other inthe sound recording. The sound recording is the aggregation of sounds captured in the recording

while the song or tangible medium of expression embodied in the recording is the musical

composition. H.R.Rep. No. 94-1476, 94th Cong., 2d Sess. 56, reprinted in 1976 U.S.Code Cong.& Ad.News 5659, 5669. Thus, the rights of an owner of a copyright in a sound recording do notextend to the song itself. A copyright in the recording and in the song are separate and distinct

and by statute are treated differently. N. Boorstyn, Copyright Law 5:11 n. 54 (1981 &Supp.1986).


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Ol' Man River as performed by Frank Sinatra has been made into a sound recording, whichis embodied in a phonorecord entitled His Greatest Hits, Frank Sinatra-New York, New York.

In addition to the musical composition at issue here, this phonorecord also contains fifteen othermusical compositions, each owned by a different party, and each performed by Frank Sinatra on

sound recordings embodied in the phonorecord. Pursuant to the equivalent of our compulsory

licensing provisions in the New Zealand Copyright Act, copies of the Sinatra phonorecordembodying the sound recording Ol' Man River were lawfully manufactured and distributed inNew Zealand by WEA Records, Ltd., an affiliate of WEA International, Inc. Chappel &

Intersong Music Group (Australia) Ltd., which owns the right to authorize the making anddistribution in New Zealand of phonorecords embodying performances of plaintiff's musical

compositions, received royalties with respect to the making and distribution of phonorecords byWEA Records containing Ol' Man River.

Copies of this Sinatra phonorecord manufactured by WEA Records were imported into the

United States by defendant Jem, who subsequently sold them in this country. Jem's importationof these phonorecords into the United States and its subsequent sale and distribution of them was

with the consent of WEA Records, which acted under the authority of the owners of the soundrecordings embodied therein. However, this importation and distribution by Jem was without the

authority, consent or permission of plaintiff Harms or anyone acting on its behalf. Nor did Jemhave the authority of any of the other owners of copyrights in the musical compositions

contained in the Sinatra album.

Both compulsory and negotiated licenses have been issued on behalf of plaintiff permittingthe manufacture and distribution in the United States of phonorecords embodying the musical

composition Ol' Man River. Moreover, a great number of licenses and other authorizationshave been issued to or obtained for the making and distribution of phonorecords embodying

performances of Ol' Man River outside the United States, many of which were obtained undercompulsory licensing provisions of the copyright laws of the respective foreign countries or

territories.

On a motion for summary judgment, [t]he judgment sought shall be rendered forthwith if thepleadings, depositions, answers to interrogatories, and admissions on file, together with the

affidavits, if any, show that there is no genuine issue as to any material fact and that the movingparty is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56(c). On the cross-motions

presently before the Court, the parties agree and the Court concurs, that there exist no genuineissues of material fact. Therefore, the Court will proceed, upon consideration of the pleadings

and affidavits submitted, to determine which party is entitled to judgment as a matter of law.

The Law

In its Complaint, plaintiff alleges that defendant infringed its exclusive copyright in the

musical composition Ol' Man River by defendant's unauthorized importation of phonorecordsembodying the composition in violation of 602 of the Copyright Act of 1976 (the Act).

Section 602 provides that:


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(a) Importation into the United States, without the authority of the owner of copyright under thistitle [17 U.S.C. 101et seq.] of copies or phonorecords of a work that have been acquired

outside the United States is an infringement of the exclusive right to distribute *1578 copies ofphonorecords under section 106 [17 U.S.C. 106], actionable under section 501 [17 U.S.C.

501]. This subsection does not apply to-

(1) importation of copies or phonorecords under the authority or for the use of the Governmentof the United States or of any State or political subdivision of a State, but not including copies or

phonorecords for use in schools, or copies of any audiovisual work imported for purposes otherthan archival use;

(2) importation, for the private use of the importer and not for distribution, by any person with

respect to no more than one copy or phonorecord of any one work at any one time, or by anyperson arriving from outside the United States with respect to copies or phonorecords forming

part of such person's personal baggage; or

(3) importation by or for an organization operated for scholarly, educational, or religiouspurposes and not for private gain, with respect to no more than one copy of an audiovisual work

solely for its archival purposes, and no more than five copies or phonorecords of any other workfor its library lending or archival purposes, unless the importation of such copies or

phonorecords is part of an activity consisting of systematic reproduction or distribution, engagedin by such organization in violation of the provisions of section 108(g)(2) [17 U.S.C. 108(g)(2)

].

(b) In a case where the making of the copies or phonorecords would have constituted aninfringement of copyright if this title [17 U.S.C. 101et seq.] had been applicable, their

importation is prohibited. In a case where the copies or phonorecords were lawfully made, theUnited States Customs Service has no authority to prevent their importation unless the provisions

of section 601 [17 U.S.C. 601] are applicable. In either case, the Secretary of the Treasury isauthorized to prescribe, by regulation, a procedure under which any person claiming an interest

in the copyright in a particular work may, upon payment of a specified fee, be entitled tonotification by the Customs Service of the importation of articles that appear to be copies or

phonorecords of the work.

17 U.S.C. 602 (emphasis added). This provision addresses two separate situations: (1)importation of piratical articles, which are copies or phonorecords made without the

authorization of the copyright owner, and (2) unauthorized importation of copies orphonorecords which are lawfully made. H.R.Rep. No. 94-1476, 94th Cong., 2d Sess. 169,

reprinted in 1976 U.S.Code Cong. & Ad.News 5659, 5785 (House Report). It is the latterprohibition which is the focus of plaintiff's Complaint.

[2] The general approach taken in section 602 is to make unauthorized importation an actof infringement in both situations dealt with in this section, but to permit the U.S. Customs

Service to prohibit importation only of piratical articles. Unless one of the three enumeratedexceptions in 602(a) applies, any unauthorized importation of copies or phonorecords acquired

outside the United States is an act of infringement. Thus, where the copies or phonorecords


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were lawfully made but their distribution in the United States would infringe the United Statescopyright owner's exclusive rights, the mere act of importation constitutes an act of

infringement. House Report at 170, U.S.Code Cong. & Admin.News 1976, p. 5786. See also17U.S.C. 501(a) (Anyone ... who imports copies or phonorecords into the United States in

violation of 602, is an infringer of the copyright); Columbia Broadcasting System, Inc. v.

Scorpio Music Distributors, Inc., 569 F.Supp. 47 (E.D.Pa.1983), aff'd mem.,738 F.2d 424 (3dCir.1984).

Jem Records has taken the position that 602(a) does not apply here because it onlyaddresses infringements of the exclusive distribution right of the copyright owner. Defendant

argues that no such exclusive distribution right exists in phonorecords of compositions, such asOl' Man River, available for compulsory licensing under 115 of the Copyright Act, 17

U.S.C. 115.

*1579 The exclusive rights granted the owner of a copyright pursuant to the Copyright Actincludes the exclusive right to reproduce the copyrighted work in copies or phonorecords and

to distribute copies or phonorecords of the copyrighted work to the public by sale or othertransfer of ownership, or by rental, lease or lending. 17 U.S.C. 106(1), (3). The scope of these

exclusive rights is somewhat limited or qualified by the provisions which follow 106, including 115 on compulsory licensing of copies or phonorecords. House Report at 61. Thus, the rights

in 106 are made subject to section 107 through 118, and must be read in conjunction withthese provisions.Id.

The compulsory licensing provision of the Copyright Act applicable to phonorecords states in

relevant part:

115. Scopeofexclusive rightsinnondramaticmusical works: Compulsory licensefor

makinganddistributingphonorecords In the case of nondramatic musical works, the

exclusive rights provided by clauses (1) and (3) ofsection 106 [17 U.S.C. 106(1)-(3) ], to makeand to distribute phonorecords of such works, are subject to compulsory licensing under the

conditions specified by this section.

(a)Availability and Scope of Compulsory License.

(1) When phonorecords of a nondramatic musical work have been distributed to the public inthe United States under the authority of the copyright owner, any other person may, by

complying with the provisions of this section, obtain a compulsory license to make and distributephonorecords of the work. A person may obtain a compulsory license only if his or her primary

purpose in making phonorecords is to distribute them to the public for private use....

* * *

(b)Notice of Intention to Obtain Compulsory License.


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(1) Any person who wishes to obtain a compulsory license under this section shall, before orwithin thirty days after making, and before distributing any phonorecords of the work, serve

notice of intention to do so on the copyright owner. If the registration or other public records ofthe Copyright Office do not identify the copyright owner and include an address at which notice

can be served, it shall be sufficient to file the notice of intention in the Copyright Office. The

notice shall comply, in form, content, and manner of service with requirements that the Registerof Copyrights shall prescribe by regulation.

(2) Failure to serve or file the notice required by clause (1) forecloses the possibility of acompulsory license and, in the absence of a negotiated license, renders the making and

distribution of phonorecords actionable as acts of infringement undersection 501 [17 U.S.C. 501] and fully subject to the remedies provided by sections 502 through 506 and 509 [17 U.S.C.

502-506, 509].

(c)Royalty Payable Under Compulsory License.

(1) To be entitled to receive royalties under a compulsory license, the copyright owner must beidentified in the registration or other public records of the Copyright Office. The owner is

entitled to royalties for phonorecords made and distributed after being so identified, but is notentitled to recover for any phonorecords previously made and distributed.

(2) Except as provided by clause (1), the royalty under a complusory license shall be payable

for every phonorecord made and distributed in accordance with the license. For this purpose, aphonorecord is considered distributed if the person exercising the compulsory license has

voluntarily and permanently parted with its possession. With respect to each work embodied inthe phonorecord, the royalty shall be either two and three-fourths cents, or one-half of one cent

per minute of playing time or fraction thereof, whichever amount is larger.

(3) A compulsory license under this section includes the right of the maker of a phonorecord ofa nondramatic musical work under subsection (a)(1) to distribute *1580 or authorize distribution

of such phonorecord by rental, lease, or lending (or by acts or practices in the nature of rental,lease, or lending). In addition to any royalty payable under clause (2) and chapter 8 of this title

[17 U.S.C. 801et seq.], a royalty shall be payable by the complusory licensee for every act ofdistribution of a phonorecord by or in the nature of rental, lease, or lending, by or under the

authority of the compulsory licensee. With respect to each nondramatic musical work embodiedin the phonorecord, the royalty shall be a proportion of the revenue received by the compulsory

licensee from every such act of distribution of the phonorecord under this clause equal to theproportion of the revenue received by the compulsory licensee from distribution of the

phonorecord under clause (2) that is payable by a compulsory licensee under that clause andunder chapter 8 [17 U.S.C. 801et seq.]. The Register of Copyrights shall issue regulations to

carry out the purpose of this clause.

17 U.S.C. 115 (emphasis added). Only in the case of nondramatic musical works, the mostcommon of which is a popular song, are the exclusive rights to reproduce and distribute

phonorecords of such works subject to compulsory licensing pursuant to 115. Boornstyn,supra, at 5:12 n. 62.


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In support of its position, defendant first argues that the language of 602(a) plainly statesthat that section applies only where the copyright holder has an exclusive distribution right to be

infringed. Secondly, defendant relies upon a discussion session of representatives of the musicindustry, such as the American Society of Composers, Authors and Publishers, with the General

Counsel of the U.S. Copyright Office in which comments were made concerning how the

compulsory licensing provision of the Act effects a copyright owner's ability to take advantageof the importation prohibition of 602. Lastly, Jem cites several opinions, decided under theCopyright Act of 1909, which it asserts stand for the proposition that a copyright owner's

exclusive reproduction and distribution rights are lost once a musical composition becomesavailable for compulsory licensing. See, e.g.,Jondora Music Publishing Co. v. Melody

Recordings, Inc., 351 F.Supp. 572 (D.N.J.1972), vacated,506 F.2d 392 (3d Cir.1974), cert.denied,421 U.S. 1012, 95 S.Ct. 2417, 44 L.Ed.2d 680 (1975);American Metropolitan

Enterprises, Inc. v. WarnerBrothers Records, Inc., 389 F.2d 903 (2d Cir.1968).

The Court does not find defendant's arguments or authorities persuasive. Jem's contention thatthe language of the Act is clear in that 602(a) is only enforceable by a copyright owner who

has the exclusive right of distribution of the copies or phonorecords is correct. The Courtdisagrees with defendant, however, on its interpretation of who has this exclusive right. As the

Supreme Court has recently stated in interpreting the Copyright Act, [i]n construing a federalstatute it is appropriate to assume that the ordinary meaning of the language that Congress

employed accurately expresses the legislative purpose. Mills Music, Inc. v. Snyder, 469 U.S.153, 105 S.Ct. 638, 645, 83 L.Ed.2d 556 (1985) (quotingPark 'n Fly v. Dollar Park & Fly, Inc.,

469 U.S. 189, 105 S.Ct. 658, 662, 83 L.Ed.2d 582 (1985)).

In the case of the Copyright Act, Congress employed the term exclusive rights to define therights of a copyright owner under the Act. See17 U.S.C. 106. The twelve provisions of the Act

following 106 are captioned Limitations on Exclusive Rights and Scope of ExclusiveRights. See17 U.S.C. 107-118. Specifically, 115 on compulsory licensing is entitled

Scope of Exclusive Rights in Nondramatic Musical Works. Thus, in no way does the plainlanguage of these provisions seem to imply that a copyright holder's exclusive rights are

extinguished once the compulsory licensing or other provisions addressing limitations on theseexclusive rights are invoked. This interpretation is further supported by 501 of the Act which

defines what acts constitute copyright infringement. Section 501(a) provides that:

(a) Anyone who violates any of the exclusive rights of the copyright owner as *1581 provided bysections 106through 118 [17 U.S.C. 106-118], or who imports copies or phonorecords into

the United States in violation ofsection 602 [17 U.S.C. 602], is an infringer of the copyright.

17 U.S.C. 501(a) (emphasis added). The plain meaning of this provision supports the view thatthe existence of the compulsory licensing provision of the Act does notautomatically extinguish

a copyright owner's exclusive rights. This provision is nothing more than a limitation on theowner's rights.

[3] The discussion and comments by members of the music industry on the preliminarydraft of the Copyright Act, specifically the interplay between 115 and 602 is also not

convincing. In the case of the Copyright Act of 1976, Congress initially placed the burden of


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laying the groundwork for the general revision of the copyright law with the United StatesCopyright Office. In carrying out this responsibility, the Copyright Office conducted numerous

panel discussions in which various interest groups participated by expressing their views andcomments on the then existing Act and the Copyright Office's proposed draft. In publishing the

statements made by these groups in the House Judiciary Committee's reports on the Act, the

Committee expressly disavowed these statements:

In issuing this material the committee neither approves nor disapproves any of the views

expressed therein. The material is issued for the information and convenience of personsinterested in U.S. copyright law revision.

Copyright Office, 88th Cong., 2d Sess., Copyright Law Revision, Part 4, Further Discussions and

Comments on Preliminary Draft for Revised U.S. Copyright Law III (Forward by Rep. Celler,Chairman, House Common on the Judiciary) (cited inHarry Fox Agency, Inc. v. Mills Music

Inc., 543 F.Supp. 844, 864 (S.D.N.Y.1982), rev'd,720 F.2d 733 (2d Cir.1983), rev'd sub nom.Mills Music Inc. v. Snyder, 469 U.S. 153, 105 S.Ct. 638, 83 L.Ed.2d 556 (1985)). Judge

Weinfeld, in his opinion interpreting the legislative history of the Copyright Act which wasupheld by the Supreme Court, stated that [u]nless a committee indicates its approval or

disapproval, information from an outside source reprinted in a Committee report is ordinarily nothelpful legislative history since it is not necessarily either representative or contrary to the

Committee's view.Harry Fox Agency, Inc., 543 F.Supp. at 864 ( citing2A C. Sands,Sutherland's Statutory Constructions 48.06, at 203 (4th ed. 1973). There, as here, the parties

were relying upon statements made at panel discussions used by the Copyright Office tocompromise differences among various interest groups and to help it prepare its draft revision

bills. The district court inMills Music was unwilling to find statements made at the paneldiscussions a reliable gauge of legislative intent because the views expressed by these

representatives were not necessarily the same as those of the legislators ultimately voting on thebill.Id. Accordingly, the statements made by private citizens at a committee hearing who

represent private interest groups which have a financial interest in how a statute will beinterpreted, is entitled to little, if any, weight in interpreting congressional intent.AccordHenry

Fox Agency, 543 F.Supp. at 864;Ernst & Ernst v. Hochfelder, 425 U.S. 185, 204 n. 24, 96 S.Ct.1375, 1386 n. 24, 47 L.Ed.2d 668 (1976). This leaves the court without affirmative evidence in

the legislative history that Congress even intended to cause 602(a) to be a nullity in the case ofphonorecords subject to the compulsory licensing provisions of 115.

Finally, defendant's assertion that the case law supports its position that a copyright owner'sexclusive rights of distribution are lost once a musical composition becomes available for

compulsory licensing is misleading. InJondora Music Publishing Co. v. Melody Recordings,Inc., a case dealing with tape duplication, the Third Circuit, in vacating the District Court of New

Jersey's ruling, interpreted the compulsory licensing provision of the Copyright Act. The courtconcluded that this provision was inserted in the Act not in an effort to penalize composers or

owners of copyrights *1582 in musical compositions but to prevent monopolies bymanufacturers. 506 F.2d at 395-96. Accordingly, the Court held that the compulsory licensing

provision of the statute should be interpreted in that spirit.Id.

Similarly, inAmerican Metropolitan Enterprises, Inc. v. WarnerBrothers Records Inc., theSecond Circuit found that a copyright holder's right of exclusivity is lost once he has made the


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*1583 In Scorpio, the district court found that in order for the defendant to take advantage of

the first sale protection of 109(a), the phonorecords in question must have been lawfully madeunder this title. 11 U.S.C. 109(a). Under the language of this provision, the protection it

affords is accorded only to third party buyers of copies which have been legally manufactured

and sold in the United States and not to purchasers of imports. 564 F.Supp. at 49. The otherrationale given by the court for its decision was that to construe 109(a) as nullifying acopyright owner's ability to invoke the protections against unauthorized importation would

rendersection 602 meaningless.Id. As to this latter rationale, the court stated:

Construing 109(a) as superseding the prohibition on importation set forth in the morerecently enacted 602 would render 602 virtually meaningless. Third party purchasers who

import phonorecords could thereby circumvent the statute, in every instance, by simply buyingthe recordings indirectly. Moreover, declaring legal the act of purchasing from a United States

importer who does not deal directly with a foreign manufacturer, but who buys recordings whichhave been liquidated overseas, would undermine the purpose of the statute. The copyright owner

would be unable to exercise control over copies of the work which entered the American Marketin competition with copies lawfully manufactured and distributed under this title. This court

cannot construe the statute so as to alter the intent of Congress, which has set restrictions on theimportation of phonorecords in order that rights of United States copyright owners can be

preserved.

Id. at 49-50. Accordingly, the district court granted plaintiff's motion for summary judgment andheld that the undisputed facts demonstrated that Scorpio violated section 602 of the Copyright

Act.Id.[5] In the present case, defendant similarly tries to persuade this Court to adopt aninterpretation of one of the several limitations on a copyright holder's exclusive distribution

rights listed in the Act, which would render the prohibitions ofsection 602 meaningless. The fact

that in Scorpio the copyrighted work was a sound recording does not distinguish it from the casesub judice. The only difference this creates is that the parties relied on different limitations on theowners' exclusive right of distribution. This distinction, however, does not in any way alter the

legitimacy and applicability of the reasoning utilized by the Scorpio court in reaching itsdecision. Here, as in that case, to allow the defendant to rely on a limitation of the owner's

exclusive rights to circumvent the prohibition on importation would tie the hands of thecopyright holder who seeks to exercise his rights to control copies of the work which enter the

American market. Thus, in order to construe the Copyright Act so as to fulfill Congress' intent toset restrictions on the importation of phonorecords in order to preserve the rights of these

owners, the Court finds that the exclusive rights of a copyright owner to enforce section 602 arenot limited by the compulsory licensing provision of the Act.

[6] In applying section 602 to the undisputed facts of this case, the Court concludes that asa matter of law, defendant Jem is a copyright infringer under the Copyright Act. See Selchow &

Righter Co. v. Goldex Corp., 612 F.Supp. 19 (S.D.Fl.1985);Nintendo of America, Inc. v. ElconIndustries, Inc., 564 F.Supp. 937 (E.D.Mich.1982). Accordingly, the Court grants plaintiff's

motion for partial summary judgment on the issue of liability and denies defendant's cross-motion for partial summary judgment.


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