First Sale Fandango

There are a number of dances that go by the name fandango, but they generally share a showy nature; hence, as wikipedia observes: “As a result of the extravagant features of the dance, the word is used as a synonym for 'a quarrel', 'a big fuss' or 'a brilliant exploit'.” A recent, extravagant attempt to circumvent the first sale doctrine is recounted in NEGB, LLC v. Weinstein Company Holdings, LLC, 2007 WL 1454460 (D. Mass. May 18, 2007).

The first sale doctrine was created by courts, and received endorsement by the Supreme Court in Bobbs-Merrill Co. v. Straus, 210 U.S. 339 (1908). It was codified the next year in the 1909 Act, and now resides in Section 109 of the 1976 and permits (with few exceptions) those who purchase a lawfully made copy of a work to sell it or otherwise dispose of that copy without the copyright owner’s permission.

Two hundred years of settled case law does not of course mean that copyright owners are happy about the situation, nor that attempts to undermine it have ceased. Sometimes these efforts have been successful and justifiably so: rental of phonorecords in the mid 1980s was not even a thinly veiled subterfuge for the encouragement of copying; software rental posed the same problem, so Congress gave copyright owners the ability to shut such uses down.

The NEGB case, however, was an old-fashioned effort, involving DVDs, to control legitimate rental. Plaintiffs were independent video rental business owners. Defendants were various entities associated with the Weinstein brothers who had struck an exclusive deal with Blockbuster to sell DVDs of theatrical and direct-to-video movies. Copies of these movies were, according to an interview with one of the defendants’ executives, to be branded with a Blockbuster logo, marked for sale only, and with a notice encouraging consumers to call a toll-free number if they rented the copy. The executive acknowledged the existence of the first sale doctrine, but expressed a desire to “control” the distribution of copies nevertheless.

Plaintiffs brought suit in state court alleging violation of state laws involving misleading statements and unfair and deceptive practices. Defendants removed to federal court, although the basis for the removal is not spelled out and is not self-evident to me. The state court had before removal ordered defendants to “re-author and reproduce” DVDs containing the ‘intended for sale only message. Defendants complained this would cost them several million dollars, “cause delays in distribution, and leave them vulnerable to suits from numerous retailers.” When those accused of infringement make such complaints, courts brush them aside as self-imposed.

Various hearings were held before the federal court, as recounted here:

On January 18, 2007, counsel appeared for argument on Plaintiffs' motion for a preliminary injunction. Notwithstanding Defendants' contentions to the contrary, the court noted its concern that Defendants' product labeling could give rise to a viable cause of action if such labeling implied criminality or wrongdoing on the part of rentailers such as Plaintiffs. However, based on Plaintiffs' inability to establish irreparable harm or a balance of harm in their favor, the court denied their motion for a preliminary injunction.

On February 2, 2007, Defendants moved to dismiss the complaint pursuant to Fed.R.Civ.P. 12(b)(6). Among other things, they argued that Plaintiffs could not satisfy Chapter 93A's jurisdictional requirement by showing that the conduct at issue occurred, or had its competitive impact, “primarily and substantially” in Massachusetts.

In response to this argument, Plaintiffs emphasized that “[t]he activity that forms the basis of the allegations in the Verified Complaint (distributing DVDs bearing the toll-free-number message) has yet to occur.” (Dkt. No. 26, Pls.' Opp'n to Defs.' Mot. to Dismiss 12.) Consequently, Plaintiffs took the position that it was premature to consider the question of “where exactly the threatened toll-free-number message would have its ‘primary’ impact.” ( Id. at 7.) After Defendants filed a reply brief, Plaintiff went one step further by acknowledging that

If the case was about nothing more than the intended-for-sale-only message, the Defendants might have an arguable point that “nothing in the alleged product labeling remotely suggests that plaintiffs are actually engaged in any criminal wrongdoing.” In and of itself, the intended-for-sale-only message would not imply criminality.... [T]he suggestion of wrongdoing is in the toll-free number notice....

On March 9, 2007, during oral presentations on the motion to dismiss, the argument took an unexpected turn. Noting Plaintiffs' concession that the “intended for sale only” message did not imply criminality, Defendants raised the question of whether this case remained ripe for judicial action since that message was the only “notice, assertion, or representation” that had been embedded. In other words, the conduct Plaintiffs considered actionable, embedding the message with the toll-free number in the DVD, had not occurred and might not ever occur.

Based on the lack of a perceived present harm, the court dismissed the case on ripeness grounds.