First Sale Doctrine
Intellectual property rights holders have a certain number of rights to their creations or inventions. For example, trademark holders have the right to use their trademarks and prevent others from producing products containing confusingly similar trademarks. Copyright holders have the right to reproduce, display, distribute, and perform their work. Patent holders have the right to prevent others from utilizing their inventions for a statutory period of time.
What is the First Sale Doctrine?
However, each of these rights contains an important limitation – once a physical item is sold, the intellectual property holder loses the right to control distribution or resale of the physical item. This is known as the first sale doctrine in the United States and the “exhaustion of rights” doctrine internationally because once the item is sold, the IP holder has no more rights over the item. The first sale doctrine is a defense to claims of intellectual property infringement.
Under this doctrine, students may resell used textbooks at the end of the semester without the need to gain further copyright or trademark permission from the publisher. Likewise, a homeowner can generally sell used appliances at garage sales without the permission of a patent holder on the device.
However, purchasers of such items looking to resell them should be aware that intellectual property owners can limit the application of the first sale doctrine through contracts and licensing agreements.
First Sale Doctrine Definition
Although the first sale doctrine operates under the same principals in trademark, copyright, and patent law, each intellectual property branch presents its own definition. The first sale doctrine is codified in the Copyright Act under 17 USC 109 which states that the owner of a particular product encompassing a copyright is entitled to sell or otherwise dispose of the possession.
In patent law, this doctrine is not stated explicitly in the Patent Act. Instead, the concept can be found in Adams v. Burke, an 1873 Supreme Court case. Similarly, this right in trademark law can be found in court cases, such as in NEC Electronics v. CAL Circuit ABCO, which stated that once a trademark owner sells his product, the buyer may resell the product without committing trademark infringement.
First Sale Doctrine Trademark
Generally, the purchaser of a trademarked item may sell that item again under the first sale doctrine. However, while trademark brand owners lose many distribution rights when items are sold, they do maintain an interest in these items whenever these items are on the market, even the resale market, and as a result also maintain certain rights in resold goods.
This is because trademarks serve as a source identifier for these products. No matter when the product was first sold, so long as it bears trademarked elements, resale could potentially affect the goodwill or reputation of the brand. Additionally, trademarks contain consumer protection elements, as well. Consumers associate brand names with a measure of quality. Because of these, even resellers of trademarked goods must ensure there is no likelihood of consumer confusion when reselling branded products.
One major question that occurs in resale of trademarked items, especially luxury goods, is how to handle “refurbished” products. Although it is acknowledged that repaired items may be inferior, as long as they are sold as “refurbished” or “used,” the practice may not have a negative effect on the reputation of the brand owner and as such this practice may be permissible.
However, with luxury goods, such as Rolex watches, if repairs or changes are made to the product that utilize non-branded parts, this may result in more than refurbishment. The item might be considered a new product and selling the new item under the trademarked name could result in claims of infringement. In this sort of case, a disclaimer would not make a difference, because if a new product is created, a disclaimer would only cause consumer confusion.
It is important to note that material differences between the new goods and goods sold on the market could result in unauthorized sales.
A difference is material if consumers would consider it relevant in their purchasing decisions.
Material differences can be extremely subtle, but a product with material differences is not the same one sold by the trademark brand owner. Material differences could cause consumer confusion, and therefore could amount to trademark infringement. The first sale doctrine does not apply in these situations.
Material differences do not need to be physical; they could be differences in warranty protection or safety labels applied to the packaging. Differences in packaging or product shape could also constitute a material difference. This includes if products were originally purchased in bulk and then resold separately.
Resellers may be able to avoid claims of trademark infringement under the first sale doctrine if they provide adequate notice of the material differences to consumers. They also cannot state or imply they are authorized resellers or have some other special relationship with the brand if this is not the case. For more information you may see our trademark infringement page.
First Sale Doctrine Copyright
Although copyright holders can control initial distribution of their copyrighted work, their right to control distribution ends once the item is sold. In other words, their rights are “exhausted” once a physical item is sold.
The first purchaser may resell the item for a profit, give it away for free, or destroy it, and, absent any contractual agreement with the purchaser, the copyright holder has no control over these actions.
In order to prove first sale with regard to copyright law, a defendant must demonstrate:
- The product was lawfully made with permission or authorization of the copyright holder;
- Ownership was initially transferred with permission or authority of the copyright holder;
- The defendant is a lawful owner of the copy in question; and
- The defendant’s use involves only the right to distribute the work, not to reproduce the work.
This right, with respect to copyright law, was discussed in the 2013 Supreme Court case, Kirtsaeng v. John Wiley & Sons, Inc.. There, a foreign student imported the same textbooks from his home country to sell domestically for a profit. The Supreme Court’s decision affirmed that sale of lawfully made and purchased books, even if they were designated for purchase outside the United States, is not limited by geography. As a result, the first sale doctrine permits resale of protected items, no matter where they were purchased.
It is important to note that the first sale doctrine does not protect resale of items that were stolen, or sales of copies of protected materials. It is not permissible to purchase a book, reproduce exact copies of its text, and sell or otherwise distribute those copies to others, even if they are not making a profit. All rights of a purchaser of copyrighted material end when they resell the hard copy of the item they purchased.
A limited exception to the first sale doctrine can be found in the Visual Artists Rights Act, which grants artists certain rights even after a work is sold. Specifically, an artist may:
- Claim authorship of the work, or have their name removed from the work if it has been modified or mutilated in a way that would be prejudicial to the author, and
- Prevent distortion, mutilation, or modification of the work that would be prejudicial to the author’s reputation.
This law only applies to paintings, drawings, prints, sculptures, and photographs produced for exhibition and existing in either single copies or limited editions of no more than 200 copies, signed and numbered by the artist.
First Sale Doctrine in the Digital World
The first sale doctrine also applies to digital material, including books, music files, or computer software. Buyers cannot purchase a .pdf file and print or distribute physical copies to others. They also cannot put the digital file online for others to access, or put software on their machines then resell the installation discs. To legally resell such items, the purchaser must first delete all digital copies of the item they own.
Due to the nature of software, there is often not a physical copy for copyrighted works to be transferred. Additionally, it is significantly easier to copy and reproduce digital items than physical ones. As a result, copyrighted electronic works are sold containing certain electronic licenses controlling how many devices the work can be placed on, the number of users that can access the work, how long the license lasts, or other usage or distribution limitations. This sort of license is controlled under contractual agreements between the copyright holder and the purchaser.
Additionally, although purchasers of copyrighted works may be permitted to rent or lend works under the first sale doctrine, such actions are specifically prohibited for computer programs or musical recordings. It is currently permissible to rent audiobooks. For more information you may see our copyright infringement page.
First Sale Doctrine Patent
In patent law, the first sale doctrine is more commonly known as an exhaustion of rights. In general, patent owners may not control resale of authorized goods through intellectual property restrictions. Once a patented item is sold, the purchaser may resell, license, rent, distribute, or destroy the product as they wish.
Patent holders are sometimes able to maintain their intellectual property rights by instituting contractual requirements, such as with licensing agreements. This type of agreement does not involve passing title to the object. Instead, it changes the color of the patent holder’s monopoly.
Additionally, the first sale doctrine may not apply in cases in which items were distributed without authorization. Stolen items, items manufactured without authority of the patent holder, or items sold by a licensee outside the terms of the licensing agreement, have not given the rights holder a chance to exhaust his or her patent monopoly rights.
Repair and Refurbishment
One area in which patent holders face competition for their own products comes from businesses that purchase and refurbish products. In 2017, the Supreme Court reaffirmed the application of the first sale doctrine to refurbished products in Impression Products Inc. v. Lexmark International, Inc.
There, a printer cartridge manufacturer attempted to limit purchase and refill of its products by instilling a contractual single use / no-refill requirement on customers. To assist in the enforcement of this rule, the patent owner installed a computer chip in the printers and brought an intellectual property infringement case against an organization that purchased used cartridges, refilled them, and sold them. The Supreme Court determined that the original sale of the patented cartridges exhausted the patent holder’s rights in them, regardless of the contractual provisions in the original sales agreements.
Moreover, the Supreme Court determined that products purchased in other jurisdictions and resold in the United States were protected by the first sale doctrine / exhaustion of rights rules. For more information you may see our patent infringement page.
First Sale Doctrine on Amazon and eBay
Because of the first sale doctrine in the United States, intellectual property owners only control the initial distribution of products they sell. Because of this, IP holders cannot always prevent resale of their goods on websites such as Amazon and eBay, which are designed for individuals and business owners to sell products online.
However, Amazon has created certain limitations on third-party sellers that allow brand owners to prohibit distribution of their products by anyone other than authorized distributors. Under its brand gating program, only third-party sellers that demonstrate permission from the manufacturer or distributor may sell these products as new. Unauthorized sellers may still sell the product as “used – like new,” but may not get the same sales volume they would by selling the product as new. Because Amazon brand owners may revoke permission from previously authorized sellers, this tool can be utilized to enforce contractual terms. These could include minimum price agreements, royalty agreements, or even complete bans on any third-party sales.
eBay has not yet rolled out such protections. However, like Amazon, it does have an eBay Vero program which allows intellectual property holders to police activity that infringes upon their rights. Verified Rights Owners may not currently utilize eBay reporting tools to police selective distribution agreements or other contractual limits, such as minimum price agreements.
Internet sellers who intend to rely on the first sale doctrine when selling products online should take a number of precautions to limit the possibility of an intellectual property violation. First, they should take steps to ensure that all products are the result of authorized sales. The first sale doctrine does not protect sellers or unauthorized or stolen products. Keeping track of receipts and purchase orders can help sellers document their legitimate purchases.
Second, sellers should take care in how they label their online listings. If there is no relationship with the brand owner, one should not be implied. Sellers should ensure proper disclaimers of warranty, if applicable, and ensure that safety warnings are in place. If the product is used or refurbished, this should also be clearly stated.
For a consultation regarding the first sale doctrine, please contact us.