Misinterpreting the Record Rental Amendment: Brilliance Audio v. Haights Cross Communications.

• Author: Kass, Sean N.

TABLE OF CONTENTS I. INTRODUCTION II. BACKGROUND A. Facts and Procedural History B. Brilliance's Trademark Infringement Claims C. Brilliance's Copyright Infringement Claims III. ANALYSIS A. Plain Language of the Amendment B. Legislative History of the Amendment C. Policy Rationale of the Amendment IV. CONCLUSION I. INTRODUCTION

The first sale doctrine is the default rule governing second-order distribution of copies of copyrighted works. (1) The doctrine is codified in 17 U.S.C. § 109(a), which provides that "the owner of a particular copy or phonorecord ... is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord." (2) In addition to the right of resale, the first sale doctrine's "otherwise dispose" language has generally been interpreted to permit the rental, lease, or lending of a lawfully purchased copy without the consent of the copyright owner. (3) In 1984, Congress passed an exception to the first sale doctrine that has become known as the Record Rental Amendment ("the Amendment"). (4) The Amendment eliminates the owner's ability to rent, lease, or lend a lawfully purchased copy of a sound recording without the authorization of the copyright holder. (5)

The interaction between the first sale doctrine and the Amendment determines the scope of resale and lending rights enjoyed by the lawful purchaser of a copy of a sound recording. The first sale doctrine is a limitation on the copyright holder's traditional exclusive rights to sell or distribute his work. The Amendment, on the other hand, restores some of the copyright holder's exclusive rights by abridging the purchaser's ability to rent, lease, or lend certain copyrighted works. Extending the Amendment therefore limits the first sale doctrine, which in turns expands the exclusive rights of the copyright holder. Limiting the scope of the Amendment expands the rights of purchasers under the first sale doctrine, which in turn restricts the exclusive rights of the copyright holder.

In Brilliance Audio, Inc. v. Haights Cross Communications, Inc., (6) the U.S. Court of Appeals for the Sixth Circuit held that the Amendment to the first sale doctrine applies only to sound recordings of musical works. (7) It was the first time that a court had placed such a restriction on the Amendment. (8) If widely accepted, the Sixth Circuit's reasoning would mean that purchasers of non-musical sound recordings, (9) such as audio books and podcasts, would have substantially more freedom under the first sale doctrine than purchasers of musical sound recordings. (10)

This interpretation of the Amendment's scope has occurred at a time

when the market for non-musical recordings is rapidly expanding. (11) For example, non-musical programming has increased with the popularity of the podcast medium. (12) According to a 2006 survey, 12% of adult Internet users have downloaded a podcast at one time or another. (13) That percentage is likely to increase as more American adults purchase MP3 players. (14) Podcast content is now available from traditional media sources, including ABC, NBC, BBC, NPR, ESPN, and VH1. (15)

This Note argues that the Brilliance majority should not have declared the statutory text ambiguous, misread the legislative history, and overlooked critical policy issues. Part II sets forth the facts of the case, the relevant procedural history, and the Sixth Circuit's holdings on the plaintiff's trademark and copyright claims. Part III addresses the merits of the Sixth Circuit's reasoning. Part III.A argues that, contrary to the majority's finding, the Amendment is not "inescapably ambiguous" and that it was therefore improper to use the Amendment's legislative history and the attendant policy concerns to interpret the statute. Part III.B contends that even if the statute could be considered ambiguous, the majority misinterpreted the legislative history of the Amendment. Part III.C argues that while some policy concerns favor the majority's interpretation, the majority failed to consider some positive benefits that would result from an expansive interpretation of the Amendment; moreover, the majority failed to provide an adequate reason for distinguishing musical sound recordings from non-musical recordings.

2. BACKGROUND

   1. Facts and Procedural History

      The plaintiff, Brilliance Audio ("Brilliance"), produces sound recordings of literary works for retail and library distribution. (16) These works, known as audio books, are produced under exclusive licensing agreements with publishers and authors for the sound recording rights to their works. (17) Brilliance has amassed a substantial portfolio of audio books under such agreements and holds registered copyrights in these recordings, which are marketed and sold under the trademarked "Brilliance" brand name. (18) Brilliance produces and markets two different versions of its audio books, retail editions and library editions, which "are packaged and marketed differently." (19)

      The defendant, Haights Cross Communications ("Haights"), also produces audio books, and is one of Brilliance's competitors. Haights allegedly repackaged Brilliance's retail editions as library editions and used the Brilliance trademark without Brilliance's permission. (20) Brilliance further alleged that Haights rented the repackaged audio recordings to paying customers. (21)

      Brilliance filed suit in the Western District of Michigan, claiming that Haights's alleged repackaging amounted to trademark infringement, trademark dilution, unfair competition, and copyright infringement. (22) The district court granted Haights's motion to dismiss for failure to state a claim. (23) Brilliance appealed the decision to the U.S. Court of Appeals for the Sixth Circuit.

   2. Brilliance's Trademark Infringement Claims

      Before the Sixth Circuit turned to the plaintiff's copyright claims, the court reversed the district court's dismissal of Brilliance's trademark claims. The court of appeals unanimously disagreed with the lower court's holding that Haights's use of the Brilliance mark was protected by the first sale doctrine. (24) In the trademark context, the first sale doctrine generally permits resale of an item bearing a trademark. (25) After recognizing the general application of the doctrine, the court of appeals examined two exceptions. (26) If a party's conduct falls within either exception, the first sale doctrine does not provide a defense to claims of trademark infringement.

      Under the first exception, a party is not protected by the first sale doctrine if the public is not adequately informed that the product has been repackaged. (27) Relying on Prestonettes, Inc. v. Coty (28) and Enesco Corp. v. Price/Costco Inc., (29) the court of appeals reasoned that the manufacturer may be harmed if repackaging results in a lower quality product, and consumers, recognizing the trademark on the repackaged product, then associate the lower quality product with the original manufacturer. (30) Under the second exception, a party is not protected by the first sale doctrine if that party uses the trademark to sell goods that are "materially different than those sold by the trademark owner." (31) In both circumstances, the court explained, the party's actions dilute the trademark's value as an identifier of goods of a particular type and quality. (32)

      Applying these two exceptions to the facts alleged in the complaint, the Sixth Circuit concluded that Brilliance's allegations were sufficient to state a claim. (33) With respect to the first exception, Brilliance alleged that Haights did not provide consumers with adequate notice that it was repackaging Brilliance products. (34) Brilliance's complaint further alleged that Haights's repackaging led consumers to believe that the two companies had an ongoing relationship under which Haights had authorization to repackage Brilliance products. (35) In addition, the complaint alleged that Haights's repackaging of Brilliance's retail editions as library editions confused consumers about which product they were purchasing. (36) The court of appeals held that the facts alleged fell within the notification exception to the first sale doctrine. (37)

      With respect to the second exception, the court of appeals held that the district court erred in dismissing Brilliance's claim that the repackaged products were materially different because "an allegation of a material difference cannot properly be dismissed on 12(b)(6) grounds." (38) Relying on Davidoff & CIE v. PLD International, (39) the court of appeals reasoned that a difference between two products is material if the difference is "one that consumers consider relevant to a decision about whether to purchase a product." (40) The court stated that materiality is a fact-based inquiry with a deliberately low threshold. (41) The court relied on Brilliance's claim that the retail and the library editions were different because they were packaged and marketed differently. (42) While acknowledging "some ambiguity" as to whether the two products were actually different or whether only the packaging and marketing were different, the court of appeals concluded that Brilliance had alleged sufficient facts that fell within the material difference exception. (43) The court of appeals accordingly reversed the district court's dismissal of Brilliance's trademark infringement claims. (44)

   3. Brilliance's Copyright Infringement Claims

      While the panel was unanimous with respect to the trademark issues, the panel disagreed about the viability of Brilliance's copyright claims. The central copyright issue in the case was whether the Record Rental Amendment ("the Amendment") should be interpreted to exclude all sound recordings from the scope of the first sale doctrine, or alternately, whether the Amendment should be interpreted so that the first sale doctrine allows the rental of non-musical sound recordings. Generally, the...