'First sale' doctrines examined by Sixth Circuit

In Brilliance Audio Inc v Haights Cross Communications Inc, the US Court of Appeals for the Sixth Circuit has affirmed the district court's dismissal under Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to start a claim upon which relief can be granted with respect to Brilliance Audio Inc's claim of copyright infringement, but reversed its dismissal of Brilliance's claim for trademark infringement. In doing so, the appellate court addressed upon first impression whether the record rental exception to the first sale doctrine under the Copyright Act applied to sound recordings of literary works, otherwise known as 'audiobooks' or 'books on tape". The Sixth Circuit held that the exception does not apply, and thus the copyright claim was properly dismissed. However, the court held that the plaintiff had sufficiently alleged in its complaint that the exception to the first sale doctrine under trademark law did apply to this case, and thus the trademark infringement claim was not properly dismissed.

Brilliance produces and sells audiobooks. It owns copyrights in these works, and also owns the federally-registered BRILLIANCE trademark. Brilliance produces two versions of its audiobooks: retail editions and library editions, which are packaged and marketed differently. Brilliance's complaint against Haights Cross Communications Inc alleged that Haights had repackaged and relabelled Brilliance's retail editions as library editions and distributed them for commercial advantage by rental, lease and lending, thereby committing copyright infringement. Brilliance also alleged that Haights's acts of repackaging and relabelling BRILLIANCE branded audiobooks misrepresented that the parties have a long-standing relationship and that Haights's use of the mark was authorized, thus constituting trademark infringement.

With respect to the trademark infringement claim, under trademark law, it is not considered trademark infringement for the first purchaser of a trademarked product to resell that product unless (i) the notice that the item has been repackaged is inadequate, or (ii) the trademarked goods sold by the alleged infringer are materially different from those trademark goods sold by the trademark owner. A material difference is considered a difference that consumers consider relevant to a purchasing decision. Brilliance alleged that Haights's actions fell within both exceptions. With respect to the first exception, Brilliance's complaint alleged that Haights's repackaging and relabelling of Brilliance's retail editions as library editions were inadequate because these actions created the misrepresentation that Brilliance authorized Haights's activities. Addressing the second exception, the complaint alleged that Haights repackaged the retail editions as library editions thereby altering Brilliance's product in a manner likely to cause consumer confusion. After construing the complaint broadly, the court found that Brilliance had alleged facts sufficient to permit granting relief. The Sixth Circuit therefore reversed the district court's dismissal of Brilliance's claims for trademark infringement.

The court next considered Brilliance's claims for copyright infringement. Under copyright law, the owner of a particular copy of a copyrighted work can dispose of it however he or she wishes, except for the limited exception to the first sale doctrine, the Record Rental Amendment of 1984, 17 USC § 109(b)(1)(A). Brilliance alleged that Haights's activities fell within the exception to the first sale doctrine. The exception provides that an owner of a particular phonorecord may not rent, lease or lend such a phonorecord for commercial advantage unless authorized by owners of copyright in the "sound recording" and "in the musical works embodied therein". Brilliance argued that this exception applied to sound recordings of literary works, as well as musical works. Haights countered that the statute applied only to sound recordings of musical works but not audiobooks. The Sixth Circuit found the plain language of the statute to be ambiguous, believing that both parties' readings of the statute were possible. The court, therefore, reviewed the legislative history of the statute to determine if it was meant to apply to sound recordings of literary works. The court concluded after an evaluation of the legislative history, the context in which the statute was passed, and the policies behind the statute, that the exception to the first sale doctrine was meant to be narrowly construed to exclude only sound recordings of musical works and not sound recordings of literary works. Consequently, the court affirmed the dismissal of Brilliance's copyright claims, determining that Haights's activities of repackaging and relabelling Brilliance's audiobooks did not constitute copyright infringement.

Circuit Judge Kennedy concurred in part and dissented in part. Kennedy agreed that the alleged activities would constitute trademark infringement, but believed that Brilliance also alleged actionable copyright claims, giving the exception a broader plain language meaning. Kennedy found the statute not "inescapably ambiguous" and thus believed that it was not necessary to examine the legislative history.

Lara A Holzman and Victoria E Ford, Alston & Bird LLP, New York