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The exhaustion doctrine, broadly defined, relates to attempts by intellectual property owners to extend their control of downstream uses of products covered by an underlying piece of intellectual property protection. In truth, the exhaustion doctrine is normally reserved for patent law. The copyright law counterpart is referred to as the first sale doctrine. In both cases, however, the law places a requirement upon intellectual property owners to obtain all financial benefit for the article or product embodying the intellectual property at the time of the sale, and prohibits placing limitations on purchased items.

The First Sale Doctrine of Copyright Law

The first sale doctrine allows purchasers of copyrighted material to sell that which they have purchased without violating the copyright laws. The theory here is similar to that of the exhaustion doctrine in patent law. The copyright owner must derive all revenue from the so-called first sale, and cannot control the future disposition of the article originally sold.

Under a strict reading of the copyright bundle of rights, selling or distributing a copy of a work that is covered by a valid copyright is an infringement. The problem arises in this scenario. You purchase a book that is copyright protected. You read the book and now have no use for the book. You sell the book. By completing the sale you have distributed a copy of a work that is covered by a valid copyright. If it were not for the first sale doctrine what you just did would be copyright infringement; namely distributing a copyrighted work without the permission of the copyright owner.

The key to understanding the first sale doctrine is to know that the copyright owner only has right to prevent others from copying and distributing (for free or for profit) copies of a work covered by a valid copyright. In the above example there has been no copying and, therefore, no infringement. You have taken what you purchased and transferred all right, title and interest to another. The copyright owner cannot stop this.

Change the facts to a more typical situation in the new digital economy, and the outcome would be very different. If you purchase software or perhaps an MP3 and you load it to your computer and then keep it on your computer and sell it to another you have committed copyright infringement. In order for the first sale doctrine to apply to this situation, you would have had to erase your copy upon transfer. This would be the same as transferring what you purchased. Keep a copy, however, and you are now not only distributing, but also copying, which is prohibited by the Copyright Act.

Increasingly, copyright owners are attempting to curtail first sale doctrine rights. Although the first sale doctrine is codified at 17 USC §109, there is a significant interplay between copyright law and state contract law. Federal law grants copyright protection, as well as defining certain things that users can do without fear of violating copyright laws. State law of contracts, however, allows individuals to order their own affairs and take on obligations of their own free will. With this in mind, many copyright owners are extracting from users promises in shrink wrap licenses and click on agreements that limit or abolish first sale rights.

The trend in the courts has seemed to be that such contracts are valid and enforceable, although they are not typically enforced. Given the growth of online auctions, this could change, and may be changing already. At some point in the not to distant future, it is likely that the courts will need to again address the interplay between copyright law and contract law. In January 2003, the Supreme Court issued dicta that seemed to suggest that fair use may be a constitutional requirement, which would mean that contractual attempts to abolish fair use rights would be unconstitutional. This may be an abberation, or it may foretell a future in which courts will have to define what copyrights individuals can give up under contract laws. In the meantime, however, if you are a copyright owner quite a lot can be done to strengthen your copyright and limit the rights of end users and consumers if appropriate language is included in a copyright license.

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