The first sale doctrine decouples intellectual property and physical property. Suppose, at an auction at Sotheby’s, someone bought a contemporary painting by Chuck Close. The buyer now owns the physical painting, but the copyright to the painting remains with the owner of the copyright—the painter Chuck Close or whomever Close may have transferred the copyright to. Absent the first sale doctrine, if the buyer either sold the painting or displayed it to the public, the buyer would potentially infringe the copyright in the painting. The copyright owner has the exclusive right to display copies (including the original, the first copy) of the painting to the public and to distribute copies to the public. However, the first sale doctrine provides that the owner of an authorized copy may display or distribute that particular copy without infringing. The distribution right and display right no longer apply; these rights are “exhausted.” Permission from the copyright owner is not required to resell copyrighted works or to display them. First sale permits a broad swath of activity. Used bookstores, libraries, swap fests, eBay, students reselling casebooks, and many more may rely on first sale to protect their distribution of copyrighted works. Museums, galleries, archives, bookstores, and more can likewise display their copies of copyrighted works without infringing under first sale. First sale (more commonly called “exhaustion” in patent law) also applies to patented products. Someone who buys a patented product (such as a pharmaceutical, computing device, or printer cartridge) can use or resell that product without infringing the patent, even though the patent owner has the rights to exclude others from using or selling the invention. First sale enables markets for resale or lease of patent products, from printer cartridges to airplanes.
First sale has its limits. In copyright, it applies only to the rights to distribute and to display the work. The copyright owner also has the exclusive right to make copies, to adapt the work, and to perform the work publicly, which are not subject to first sale. The painting buyer would potentially infringe if the buyer made a copy of the painting or adapted it into another artwork, but the buyer could not infringe the performance right, because one cannot perform a painting. The owner of a copy of a musical work may infringe if she performs it in public, which is why bars need licenses to play copyrighted music, even using copies they have purchased. The owner of a copy of a movie may infringe if she adapted the movie, such as making a sequel—or even dubbing the movie in another language. In patent, first sale likewise would not authorize the purchaser of a product to make additional copies. Similarly, first sale in patent would authorize the buyer of a patented item to use it or resell it, but not to make another one.
First sale is long-established, by statute in copyright and by judicial interpretation in patent. The underlying policy of first sale, however, has been unsettled. First sale can be seen to rest on either of two rationales. The first is a contract-based, gap-filler approach. If someone sells a painting, one would expect an implicit agreement that the buyer could display the painting or resell it, as both actions are customary with artworks. To simplify transactions, the rights to resell and display are automatically included in the transaction. The other justification is the policy against restraints on alienation, borrowed from the law of real property. Someone who sells property may not impose unreasonable restraints on the buyer’s ability to resell the property. As transplanted to intellectual property law, once a party voluntarily parts with a copy, she should no longer be able to control what the buyer does with it. Hence, her rights are “exhausted” in that particular copy. The underlying rationale is important for determining the extent of the first sale doctrine. If first sale is a gap-filler, then the parties could contract around it, agreeing that the property sold would not be subject to first-sale rights. If first sale is a policy-based bar against unreasonable restraints on alienation, then first sale is mandatory—it is not subject to the agreement of the parties but rather is the opposite: a limit on the enforceability of their agreement.
Both strains can be seen in the case law. Two recent Supreme Court cases, however, decisively rested first sale on the restraints-against- alienation rationale, expressly rejecting the proposition that parties can contract around first sale. This Article explores the implications of those cases for the boundaries of first sale, focusing on two issues. First, California’s resale royalty law required that artists receive 5% of the proceeds on resale of their work. The Ninth Circuit held that the California statute was preempted by the first sale doctrine of federal copyright law. We conclude that, if first sale serves to prevent unreasonable restraints on alienation, such resale royalty statutes should be valid. Rather than an unreasonable restraint on alienation, they permit resale, imposing a modest burden for a purpose entirely consonant with copyright law: rewarding authors. Second, software sellers have long avoided first sale by characterizing software sales as mere licenses, while formally retaining ownership of the software after delivery to the buyer. Courts have enforced transactions according to the parties’ contract. We conclude, however, that such transactions, which are intended to prevent resale of software, should be characterized as sales in substance, triggering first-sale rights to resell the software, overriding the contractual restraint on alienation.
Digital Exhaustion