Indiana Law Review


Notes

Copyright Reform and the Author's Right
To "Vend": The Case of the Unpaid Manufacturer

I. Introduction

One who agrees to sell or manufacture goods for a customer has a
panoply of remedies available to him in the event the customer
refuses to pay the contract price. ^ One such remedy, the right to
resell the goods, has been a part of commercial practice since the
early common law.^ However, when the goods in question are
protected by copyright, the manufacturer's right of resale comes into
conflict with the copyright holder's exclusive right to "vend" his

work.^ To resolve this conflict a court must either subordinate the
state law remedy to the federally protected right,^ or develop an

^The Uniform Commercial Code provides:
Where the buyer wrongfully rejects or revokes acceptance of goods or

fails to make a payment due on or before delivery or repudiates with respect
to a part or the whole, then with respect to any goods directly affected and, if

the breach is of the whole contract (Section 2-612), then also with respect to

the whole undelivered balance, the aggrieved seller may
(a) withhold delivery of such goods;

(b) stop delivery by any bailee as hereafter provided (Section 2-705);

(c) proceed under the next section respecting goods still unidentified

to the contract;

(d) resell and recover damages as hereafter provided (Section 2-706);
(e) recover damages for non-acceptance (Section 2-708) or in a proper

case the price (Section 2-709);

(f) cancel.

U.C.C. § 2-703.

Throughout this note the terms "seller" and "manufacturer" are used synony-
mously to designate one who has contracted to manufacture, produce, or assemble
goods which in their final form represent an accurate reproduction of a copyrighted
work. The person with whom the seller has contracted is the holder of the copyright,
either by assignment, license, or because he is the creator of the original work. The
terms "buyer," "author," "copyright proprietor," or "rights holder" will be used to refer

to the holder of the copyright protecting the goods manufactured under the terms of
such a contract.

23 S. WiLLiSTON, Sales § 546 (rev. ed. 1948).
3 See notes 20-30 infra.

^Platt & Munk Co. v. Republic Graphics, Inc., 315 F.2d 847, 855 (2d Cir. 1963),
suggested this solution. But see notes 100-10 and accompanying text infra.



508 INDIANA LAW REVIEW [Vol. 10:507

interpretive compromise between the conflicting rights which will
protect the expectations of both parties to such a contract.

The purpose of this Note is to analyze the approach to this
problem taken by the courts, and to determine whether the preceden-
tial value of past decisions will be affected by the recent copyright
revision, Public Law 94-553.^

II. The Right of Resale

The common law never doubted that a merchant holding title and
possession of goods had the right to resell the goods when the buyer
refused to make payment.^ When title, but not possession, had
already passed to the defaulting buyer, the merchant was said to have
a lien on the goods to the extent of the unpaid purchase price, which

could be enforced by reselling the goods to a more cooperative buyer."^
Under the Uniform Sales Act, the disappointed seller found his

common law remedies codified, specifically the right of resale when
title had already passed to the buyer.^ While the Uniform Sales Act
did impose certain conditions precedent on the right of resale, the Act
did not hold the seller accountable for resale profits in excess of the

original contract price.^

Today, every state but one has adopted the Uniform Commercial
Code which provides an explicit right of resale free of the conditions
imposed by the Uniform Sales Act, but like the prior Act, also free of
accountability for excess profits on resale. ^^ The Code rejects the
"title" concept in establishing the rights of the parties, and the
drafters specifically warn that there is no longer any need to
distinguish between resale on the strength of the merchant's title and
resale by virtue of a lien where title has passed. ^^

^Copyright Act of 1976, Pub. L. No. 94-553, § 101, 90 Stat. 2541 (1976) (to be

codified in 17 U.S.C. § 101). The 1976 Act provides in section 102 of the Transitional
and Supplementary Provisions that the effective date for most provisions of the new
Act is January 1, 1978. Consequently, an extended discussion of the 1909 Copyright

Act and the cases arising during its reign is of more than historical interest. The only
sections of the 1976 Act which took effect on January 1, 1977 are: § 118 treating

licensing agreements between noncommercial broadcasters and copyright owners; §
304(b) granting a seventy-five year copyright term, from the date of creation, for
copyrights in their renewal term, or registered for renewal between December 31,
1976, and December 31, 1977; and §§ 801-10 creating the Copyright Royalty Tribunal.

^E.g., Johnson v. Powell, 9 Ind. 566 (1857).
Terrine v. Barnard, 142 Ind. 448 (1895); Sherry v. Picken, 10 Ind. 375 (1858).

When the buyer was guilty of misrepresentation or concealment, the seller was
permitted to reclaim the goods after delivery. Brower v. Goodyer, 88 Ind. 572 (1883).

Cf. U.C.C. § 2-702(2).

^Uniform Sales Act § 60.
9/d § 60(1).
loU.C.C. § 2-706.

"M, Comment 3.



1977] COPYRIGHT REFORM 600

When the injured party is not a merchant selling goods, but
rather an artisan who increases the value of a chattel by providing
common law artisan's lien. ^2 x^jg ijen is possessory in nature; while
the artisan continues in possession, his lien is perfected against all

other interests, but delivery of the chattel to the owner results in the
loss of the lien.i^ At common law the artisan had no right to resell the
chattel, but had to reduce his claim to judgment before levy of
execution and sale were proper.^'* A number of states have codified
the artisan's lien, some giving the lienholder the right to sell the
chattel directly, and others giving him the right to foreclose his lien
by judicial process.^^ Significantly, the Uniform Commercial Code
preserves the effectiveness of the artisan's lien by excluding such

liens from the scope of Article Nine and by giving the artisan's lien
priority over earlier, perfected security interests in the chattel. ^^

The importance to the unpaid manufacturer of deciding whether
his right of resale arises under the Code or under the artisan's lien
law should not be underestimated. The Code establishes definite
guidelines for public and private resales, while the various lien laws

may require public sale only, or foreclosure by judicial proceedings
before sale is permitted. ^^ An improper resale may leave the

>2Wall8 V. Long. 2 Ind. App. 202. 28 N.E. 101 (1891).
i^Tucker v. Taylor. 53 Ind. 93 (1876).

'^Restatement of Security § 72, Comments a. b. d (1941).
'*/d. The most common form of statute requires notice to the owner of the chattel,

followed by public sale, with a period of redemption before sale. Some statutes provide
for a deficiency judgment in the event the sale price is insufficient to compensate the
artisan. Compare N.Y. LiEN Law §§ 180. 200 (McKinney Supp, 1968), with iND. Code
§§ 32-8-30-1 to -2 (Burns 1973).

»«U.C.C. §§ 9-104(c). 9-310.

'^See note Wmpra. See aim U.C.C.f 9-501(1). giving a secured party the option of
proceeding against the collateral by judicial foreclosure.

The resale provisions of Article Two. governing an injured seller, read in full:

(1) Under the conditions stated in Section 2-703 on seller's remedies,
the seller may resell the goods concerned or the undelivered balance thereof.
Where the resale is made in good faith and in a commercially reasonable
manner the seller may recover the difference between the resale price and
the contract price together with any incidental damages allowed under the
provisions of this Article (Section 2-710), but less expenses saved in

consequence of the buyer's breach.

(2) Except as otherwise provided in subsection (3) or unless otherwise
agreed resale may be at public or private sale including sale by way of one or
more contracts to sell or of identification to an existing contract of the seller.
Sale may be as a unit or in parcels and at any time and place and on any
terms but every aspect of the sale including the method, manner, time, place
and terms must be commercially reasonable. The resale must be reasonably
identified as referring to the broken contract, but it is not necessary that

the goods be in existence or that any or all of them have been identified to the
contract before the breach.

(3) Where the resale is at private sale the seller must give the buyer
reasonable notification of his intention to resell.



510 INDIANA LAW REVIEW [Vol. 10:507

labor and/or materials, the remedy for a customer's default is the
manufacturer with no other remedy but an action for the contract
price—an unhappy result if the buyer is defaulting because of
insolvency.i^

In any case, when the defaulting buyer is also the holder of a
copyright protecting the manufactured articles, the unpaid manu-
facturer must not only have the right to resell under state law, he
must, additionally, circumvent the copyright holder's exclusive right

to "vend" the copyrighted work.^^ The manufacturer's success
depends on his appreciation of the nature and scope of his adversary's
federally created rights.

III. The Right To Vend

The United States copyright laws derive from the constitutional
authorization to "promote the Progress of Science and useful Arts, by

(4) Where the resale is at public sale
(a) only identified goods can be sold except where there is a

recognized market for a public sale of futures in goods of the kind;

and

(b) it must be made at a usual place or market for public sale
if one is reasonably available and except in the case of goods which

are perishable or threaten to decline in value speedily the seller

must give the buyer reasonable notice of the time and place of the

resale; and

(c) if the goods are not to be within the view of those attending

the sale the notification of sale must state the place where the goods

are located and provide for their reasonable inspection by prospec-

tive bidders; and

(d) the seller may buy.
(5) A purchaser who buys in good faith at a resale takes the goods free

of any rights of the original buyer even though the seller fails to comply with

one or more of the requirements of this section.

(6) The seller is not accountable to the buyer for any profit made on
any resale. A person in the position of a seller (Section 2-707) or a buyer who
has rightfully rejected or justifiably revoked acceptance must account for
any excess over the amount of his security interest, as hereinafter defined
(subsection (3) of Section 2-711).

U.C.C. § 2-706.

isBraswell v. American Nat'l Bank, 117 Ga. App. 699, 161 S.E.2d 420 (1968), held
that a sale conducted without notice to the debtor would deny the secured party, selling

under § 9-504 of the Code, any right to a deficiency judgment. Accord, Jefferson Credit

Corp. V. Marcano, 60 Misc. 2d 138, 302 N.Y.S.2d 390 (N.Y. Civ. Ct. 1969). Contra,

Mutual Finance Co. v. Politzer, 21 Ohio St. 2d 177, 256 N.E.2d 606 (1970).
While the Politzer, Marcano, and Braswell decisions were concerned with the sale

of collateral by a secured party under Article Nine of the Code, it is predictable that

cases discussing the requirement of a "commercially reasonable" sale found in § 9-504

will be influential in defining a "commercially reasonable" resale under § 2-706. See

generally J. White & R. Summers, Handbook of the Law Under the Uniform
Commercial Code § 7-6 (1972) [hereinafter cited as White & Summers].

i^See notes 38-41 infra and accompanying text.



1977] COPYRIGHT REFORM 511

securing for limited Times to Authors and Inventors the exclusive
Right to their respective Writings and Discoveries."^" The 1909
Copyright Act gives an author the right to "print, reprint, publish,

copy, and vend" his protected works.-^ Of these enumerated rights, it
has been correctly stated that the right to vend and the right to
publish differ from all of the other rights granted to an author, in
that vending and publishing deal directly with the public distribu-
tion of a work, while the other rights concern distribution only

indirectly because they are all concerned with reproducing the

work." Thus, in the first instance, distribution is controlled by
deciding how many copies of a given work will be reproduced for
future sale to the public. The right to vend and the right to publish
allow an author to further control the distribution of his work by
deciding when, for what price, to whom, and how many of the
authorized copies will then be transferred. In this light, the right to

vend may be seen as complementing the rights of reproduction,
making it possible for an author to control, or even to prevent, the
distribution of his copyrighted work.^^

Standing alone, the author's right to vend has been carefully

defined by judicial opinion.^^ The vending monopoly allows an author
to control the disposition of particular copies^^ of his work until he has
parted with title to those copies.^^ Thereafter, in the absence of a

valid contractual restriction, the transferee may dispose of those
copies as he pleases. ^'^ It must be emphasized, however, that while the
subsequent disposal of the copies by the transferee does not infringe
the author's vending right, the transferee does not have the privilege

of making additional copies, or of doing any of the other acts granted
exclusively to the author with respect to the work itself.^^

This critical limitation on the transferee's interest in the copy-

right, as well as the unlimited right of disposal as to the particular

copies transferred, stems from the unique distinction between a
copyright and the objects protected thereby. The transfer of a
copyrighted object is a transfer of the object only, and not a transfer

20U.S. Const, art. I, § 8, cl. 8.
2117 U.S.C. § 1 (1970) (amended 1976).
22M. NiMMER, NiMMER ON COPYRIGHT § 103.31 (1963) [hereinafter cited as

NiMMER].

^'E.g., Blazon, Inc. v. DeLuxe Game Corp., 268 F. Supp. 416, 433-34 (S.D.N.Y.
1965).

25For the rationale of applying the vending monopoly only to copies of the work,
see Corcoran v. Montgomery Ward & Co., 121 F.2d 572 (9th Cir. 1941).

26Henry Bill Publ. Co. v. Smythe, 27 F. 914 (C.C.S.D. Ohio 1886).

2"Bobbs-Merrill Co. v. Straus, 210 U.S. 339 (1908); Independent News Co. v.
Williams, 293 F.2d 510 (3d Cir. 1961).

28Hampton v. Paramount Pictures Corp., 279 F.2d 100 (9th Cir. 1960); National
Geographic Soc'y v. Classified Geographic, Inc., 27 F. Supp. 655 (D. Mass. 1939).



512 INDIANA LAW REVIEW [Vol. 10:507

of any of the author's rights.^^ The reason that resale of a protected
copy by the transferee is no infringement of the right to vend is
because that particular monopoly ceases to exist after the initial
transfer, and not because the transferee has obtained from the author
an exclusive right to vend that copy.^^

The distinction between the copyrighted object and the copyright
itself was codified in section 27 of the 1909 Copyright Act.^^ After
stating that the transfer of the object is not a transfer of the

copyright, and conversely, the assignment of the copyright is not a
transfer of the material object, section 27 continues: "[B]ut nothing

in this title shall be deemed to forbid, prevent, or restrict the transfer
of any copy of a copyrighted work, the possession of which has been
lawfully obtained."32

While the first clause of section 27 seems never to have disturbed
the courts, the "but nothing*' clause has met with less than consistent
interpretation.^ The difficulty stems from the language of the "but
nothing" clause which speaks in terms of lawful possession. The
Committee Report which accompanies section 27, on the other hand,
implies that lawful possession will result only from a "first sale" by
the author.^

This unfortunate divergence in terminology provides authority

for the conflicting positions of both the unpaid manufacturer and the
defaulting buyer in a disputed resale of copyrighted goods. Predict-
ably, the unpaid manufacturer will argue that his possession is
"lawful," in literal compliance with section 27, so that a resale in the

event of breach is no infringement of the right to vend. The copyright
holder will argue that the Committee Report indicates the impro-
priety of a literal reading of the "but nothing" clause. Since the

defaulting buyer has not yet had the privilege of voluntarily making
the "first sale" of the particular articles, he will insist that his right to
vend those articles has not been lost.

Faced with these conflicting interpretations, the United States
Court of Appeals for the Second Circuit rejected both arguments,
holding in Piatt &Munk Co. v. Republic Graphics, Inc.^ that the "first
sale" referred to in the Committee Report need not be "voluntary,"
but could be involuntary, based on implied consent or estoppel.^

29Stephens v. Cady, 55 U.S. (14 How.) 528 (1852).
«>United States v. Wells, 176 F. Supp. 630 (S.D. Tex. 1959).
3117 U.S.C. § 27 (1970) (amended 1976).
32/d.

^Compare United States v. Wells, 176 F. Supp. 630 (S.D. Tex. 1959), imth
Creative Arts, Inc. v. Abady & Sultan, Inc., 134 U.S.P.Q. 388 (S.D. Fla. 1962).

34H.R Rep. No. 2222, 60th Cong., 2d Sess. 19 (1909).
35315 F.2d 847 (2d Cir. 1963).
^Id. at 854.



1977] COPYRIGHT REFORM 513

The plaintiff, Piatt & Munk, had entered into a series of contracts
with defendant, Republic Graphics, obligating Republic to manu-
facture and deliver to Piatt & Munk a shipment of educational toys
and games which were protected by a copyright in plaintiffs name.
When plaintiff refused to accept the shipments, claiming the goods
were defective. Republic notified plaintiff of its intention to resell the
goods. Plaintiff then sought and received a preliminary injunction
restraining the sales.^"^

On appeal. Republic contended that under section 141 of the New
York Personal Property Law,^^ it had the right of resale given an
unpaid seller of goods. Further, since Republic's possession of the

goods was "lawfully obtained," the vending monopoly could not
"forbid, prevent or restrict the transfer" of the copyrighted articles.^^

In rejecting this contention, the court noted that the argument proved
too much. Throughout the manufacturing and distribution process,
copyrighted goods pass through the hands of shippers and other
bailees whose possession is "lawful," but who have no authority to sell
the goods."*^ While an unauthorized sale by a bailee in possession
would be grounds for an action in conversion, the copyright holder's

vending rights would be lost to him, leaving an unanticipated hiatus
in the rights and remedies created by the federal statute.^^

Relying on the Committee Report's reference to "first sale" and
the further statement therein that section 27 was "not intended to
change in any way existing law," the Piatt & Munk court held that
lawful possession was not enough to permit the vending of copy-
righted goods against the copyright holder's wishes.''^ However, the
court also rejected plaintiffs contention that the "first sale" language

meant, literally, a first sale voluntarily made for adequate con-
sideration.'*^ Such a view would immunize copyrighted goods from
creditor process and commercial obligations, a view once adhered to
in decisions of the last century but long since rejected.'*'' Instead, the

correct view in the court's opinion was that the first sale required to
terminate the vending monopoly could be either voluntary or

3Vd at 850.
^This statute was identical to § 60 of the Sales Act, repealed by the adoption of

the Uniform Commercial Code. See N.Y. U.C.C. § 2-706 (McKinney 1964).
39315 F.2d at 851.

^^Id. The court's apprehension on this score was not entirely groundless. See
Kipling V. G.P. Putnam's Sons, 120 F. 631 (2d Cir. 1903).

^>17 U.S.C. § 101 (1970) (amended 1976). See generally NlMMER,swpra note 22, §
103.31.

^2315 F.2d at 851.

«M at 853-54.
**Compare Dart v. Woodhouse, 40 Mich. 399, 29 Am. R. 544 (1879), with Wilder v.

Kent. 15 F. 217 (C.C.W.D. Pa. 1883). See Note, Creditors' Rights Against Interests in

Patents and Copyrights, 26 Va. L. Rev. 1038 (1940).



514 INDIANA LAW REVIEW [Vol. 10:507

involuntary, as in the case of seizure by creditors, based on a theory of

implied consent or estoppel. ^^ When the holder of a copyright has
unjustifiably refused to pay the contract price for copies of his work,
the court continued, the "first sale" requirement is satisfied, and the
unpaid manufacturer has the right to resell the goods. However,

when the copyright holder asserts that he is justified in with-
holding payment, the manufacturer must be restrained from resell-
ing the goods until he proves to the court that he is not the

perpetrator, but the victim of the breach.''^

While the Piatt & Munk court's adoption of the "first sale"
language has been criticized, "^"^ that criticism weakens when two
aspects of the decision are placed in perspective: first, the court's

actual treatment or interpretation of the "first sale" doctrine; and
second, the court's requirement that a copyright holder be permitted

to enjoin resale on the strength of a good faith claim that his refusal to

pay was justified. "^^

The court's treatment of the "first sale" doctrine must, in turn, be
analyzed on two levels to appreciate its superiority over the "lawful

possession" approach: (a) the justification or rationale for requiring a

first sale at all; and (b) the definition of first sale as applied by the

court.

A. Rationale of First Sale Doctrine

The earliest cases discussing "first sale" under a prior Copyright
Act,"^^ indicate the obvious conclusion that the doctrine is a double-

edged sword demarcating the boundary between the author's right to
control the distribution of copies of his work, on one side, and the

policies against restraints on trade and those favoring the free
alienation of property, on the other side.^^

In Henry Bill Publishing Co. v. Smythe,^^ a copyrightee sold books
by private subscription only. When the author's agent placed several
books with a book dealer—an act beyond the agent's scope of
authority—the author was able to enjoin the dealer from selling the

^^315 P\2d at 854. The Piatt & Munk court cited Henry Bill Publ. Co. v. Smythe,
27 F. 914 (C.C.S.D. Ohio 1886), in support of the estoppel theory, but Smythe merely
treated the estoppel question by way of dictum. 27 F. at 918. For an excellent
advancement of the theory that an unpaid manufacturer has an implied license to

resell copyrighted articles, see Note, The Manufacturer's Right To Resell Patented and
Copyrighted Goods, 38 N.Y.U. L. Rev. 948 (1963).

46315 F.2d at 855.

4^NlMMER, supra note 22, § 103.323.
48315 F.2d at 855.

«Act of Feb. 3, 1831, ch. 16, § 1, 4 Stat. 436.
50C/. NiMMER, supra note 22, § 103.31.
5127 F. 914 (C.C.S.D. Ohio 1886).



1977] COPYRIGHT REFORM 515

books, based on an infringement of the copyright. The defendant's
contention that the plaintiff had lost the vending monopoly as to the
copies in question when the books had been first sold was dismissed
by the court: "[T]he absence of [plaintiffs] authority to sell his
literary property constitutes the defect of [defendant's] title, no

matter how that want of authority arises. "^^ By way of dictum, the
Smijthe court indicated that plaintiff might have been estopped from
denying a "first sale" had he placed the books with brokers or
distributors for general sale.^^

On the other hand, the copyright holder in Harrison v. Maynard,
Merrill & Co.'^"^ was held to have lost his vending monopoly when he
allowed a book binder to sell, for scrap only, fire damaged copies
which the purchaser promptly rebound and sold as second hand
books. Once the author had parted with title, held the court, he could
not restrain the purchaser's use of that particular copy by asserting

copyright infringement.^^

Likewise, in Bobbs-Merrill Co. v. Straus,^^ the United States
Supreme Court held that a publisher who sold books to the defendant,
a department store, could not assert copyright infringement when
the defendant sold the books at less than the agreed-upon resale price

which plaintiff had printed in the front of the books. Once the "first
sale" was made, the Court held, plaintiff was limited to an action in
contract and had no further vending monopoly as to the particular
copies he had sold.^'^

The following year, partially in response to Bobbs-Merrill,
Congress codified the first sale doctrine in the "but nothing" clause to

make it clear that there is no intention to enlarge in any way
the construction to be given to the word Vend' .... Your
Committee feels that it would be most unwise to permit the
copyright proprietor to exercise any control whatever over
the article which is the subject of copyright after said
proprietor has made the first sale.^^

Against this authority,the court in Piatt & Munk Co. v. Republic
Graphics, Inc.^^ measured the likely aftermath of adopting the
language of lawful possession found in the "but nothing" clause.

Deciding that a literal reading would permit bailees to escape

52M at 918.
^Id. See discussion of Smythe in note 45 supra.
^61 F. 689 (2d Cir. 1894).
^Id. at 691.

^210 U.S. 339 (1908).
"/d. at 350.

58H.R. Rep. No. 2222, 60th Cong., 2d Sess. 19 (1909).
5^315 F.2d 847 (2d Cir. 1963).



516 INDIANA LAW REVIEW [Vol. 10:607

infringement actions for unauthorized sales of an author's work, the
court concluded that language of "possession" had been used to
demonstrate that the "but nothing" clause was intended as a
limitation on the first half of section 27.^°

This reasoning seems correct when it is noted that the first half of
section 27 speaks of "the sale or conveyance, by gift or otherwise, of
the material object "^^ Thus, to apply the "but nothing" clause to

the various types of conveyances other than sales, Congress employed
general language of possession, rather than of purchase. It cannot be

gainsaid that a bailment is not a conveyance.^^ The former is a mere
entrusting, while the latter is a transfer of title.^s

However, Republic, the defendant in Piatt <fe Munk asserted that
it had title to the goods because it had supplied the raw materials
used in the manufacturing process, and since Piatt & Munk had not
taken delivery, the vending right never attached.^^ Rejecting this

contention, the court disparaged the idea that "copyright protection

should turn on v^hich party has furnished the physical stuff to which
the copyrighted conception is affixed . . . ."^^

The language used by the court in rejecting Republic's "title
theory" contains two key ideas which the court failed to pursue. The
first, that Republic furnished the "physical stuff," correctly differ-

entiates between the tangible and intangible components of copy-
righted articles.^^ Republic had title to the physical stuff, but it did
not have title to Piatt & Munk's copyright component. Therefore, so

^m. at 851.
8117 U.S.C. § 27 (1970) (amended 1976) (emphasis added).
^^Compare Lyon v. Lenon, 106 Ind. 567, 7 N.E. 311 (1886), with Hagey v.

Schroeder, 30 Ind. App. 151, 65 N.E. 598 (1902).
8aR. Brown, The Law of Personal Property § 10.5 (3d ed. 1975).
fi^Brief for Appellant at 3-6, Piatt & Munk Co. v. Republic Graphics, Inc., 315

F.2d 847 (2d Cir. 1963).
6§315 F.2d at 854.

88Thi8 attack on the manufacturer's title theory is mounted in Note, The
Manufaeturer's Right To Resell Patented and Copyrighted Goods, 38 N.Y.U. L. Rev.
948 (1963). The commentator there argues that a manufacturer has title to the
physical goods, not the author'a copyright component. Hence, the manufacturer
cannot resell the goods because his title is defective as to the combined tangible and
intangible elements. Id. at 960. This argument clearly ignores the statutory
distinction between copyright and the tangible objects protected thereby. 17 U.S.C. §
27 (1970) (amended 1976). The Piatt & Munk court, too, stumbled on its rejection of
the title theory. The court gave no explanation of why the theory was unacceptable,
but merely dismissed it as "exceedingly odd." 315 F.2d at 854.

A conceptually smoother approach would concede a manufacturer's title to the
goods, while holding that an attempted resale will, nonetheless, infringe the vending

monoploy, unless title was obtained by a transfer from the author. See notes 131-33

infra and accompanying text.
The language of section 27, the Committee Report, and the discussion in Piatt &

Munk are each sufficiently broad to permit this restriction on the manufacturer's title.



1977] COPYRIGHT REFORM 517

long as the two components were united in the goods, Republic had
only two alternatives: disassemble the goods and sell the material as
scrap,'^" or claim that Piatt & Munk's conduct somehow resulted in a
conveyance to Republic of the entire product, thereby giving

Republic title to not just the goods, but to the copyrighted goods.^^

The second idea touched upon by the court lurks in the statement
that the "copyrighted conception is affixed" to the physical stuff. This

view strongly implies, and other cases have held,^^ that the manu-
facturer of copyrighted goods is not a seller, but rather an artisan

who increases the value of a chattel by the addition of labor or
material, or both."^

In North American Leisure Corp. v. A&B Duplicators, Ltd.,^^ the
manufacturer, A&B, had reproduced from NAL's master tape a
huge inventory of sound recordings. The tape, cartridges, and
packages had been supplied by the manufacturer. A&B kept the
inventory in its control and received assurances from NAL that the
manufacturer had a lien on the inventory for the unpaid purchase
price. During NAL's bankruptcy proceedings the referee found, and
was affirmed by the district court, that A&B had a vendor's lien
because it had provided the raw materials making up the goods. On
appeal, nine years after skirting the issue in Piatt & Munk, the Court
of Appeals for the Second Circuit decided that A&B had an artisan's
lien, not a vendor's lien.^^

Such an approach has the further advantage of accurately reflecting the underlying

policies of the vending monopoly itself. See text accompanying notes 22, 23 and 49-60

supra. Where the terms of the contract indicate an intention to make the
manufacturer the owner of the copies, or where the author's refusal to pay the contract
price is unjustified, there is no objection to finding that the contract or conduct,

respectively, constitutes a transfer of title from the author, thereby ending the right to

vend.

Finally, this view of title does no violence to existing case law because the

contract terms or conduct of the parties is the touchstone of the manufacturer's right to

resell copyrighted goods, under either view of the title question. Compare Piatt &
Munk Co. V. Republic Graphics, Inc., 315 F.2d 847 (2d Cir. 1963), with United States v.
Wells, 176 F. Supp. 630, 633 (S.D. Tex. 1959).

^"This was the apparent result suggested by Sawin v. Guild, 21 F. Cas. 554
(C.C.D. Mass. 1813) (No. 12, 391). There, Justice Story held that a sheriff who sold
patented machines pursuant to an execution against the patentee had sold only the

material, not any part of the patent. Since the right of "use" granted by the patent

laws, now codified at 35 U.S.C. § 154 (1970), was not a part of the sale, Justice Story's
decision avoided an infringement action against the sheriff, but left the purchaser at

execution sale with little more than scrap metal.
^*^See note 66 nupra, and the text accompanying notes 132-34 infra.
^^See discussion in note 72 infra.

'"See text accompanying notes 12-14 supra.
71468 F.2d 695 (2d Cir. 1972).
''^Why the issue was not squarely faced in Piatt & Munk is somewhat mysterious.

The authority relied upon in deciding A&B Duplicators was already available when



518 INDIANA LAW REVIEW [Vol. 10:507

Obviously, had the Second Circuit decided in Piatt & Munk that
Republic was an artisan, as the lower court had done,'^^ the higher
court could have ended Republic's title theory with little effort. In
that event, title to the goods would have been lodged in Piatt & Munk,
subject only to a lien for the unpaid debt. Instead, the court directed

that Republic, on remand, have a speedy trial on the issue of whether
Piatt & Munk's refusal to pay was justified, or whether Piatt & Munk
had been in default in the payment of the price for an unreasonable
time.'^'^ The former question applied to artisan's liens, the latter to
seller's remedies under the Sales Act.

Still, the rationale underlying the first sale doctrine was left intact
because, regardless of Republic's status, the central question in the

view of the Second Circuit was whether a manufacturer should be
permitted to resell copyrighted goods merely on the strength of his
lawful possession, or whether the balancing of an author's rights
against the policy favoring the free alienation of property, in this

instance, required something more {i.e., a first sale) on the author's
part.'^^ Opting for a first sale requirement, it remained for the court
to determine just what actions by the author would constitute such a
conveyance.

the Piatt & Munk decision was written. William H. Wise & Co. v. Rand McNally & Co.,
195 F. Supp. 621 (S.D.N.Y. 1961), had held that a book printer provides a service, not a

sale of goods, when he affixes the publisher's literary property to the physical copies.
Somewhat earlier, the same conclusion had been reached in Gross Income Tax

Division v. W. B. Conkey Co., 228 Ind. 352, 90 N.E.2d 805 (1950), cert, denied, 340 U.S.
941 (1951). There, the Indiana Supreme Court held that since a printer provided
services, not a sale of goods, the state could tax the printer's business transactions

without restricting the "sale of goods" in interstate commerce.

Although A & B Duplicators, Wise, and Conkey focused on taxation or creditors'
rights rather than copyright infringement, it seems anomalous to say that a

manufacturer of copyrighted goods has an artisan's lien when his adversary is another
creditor of the copyright holder, but a vendor's lien when the adversary is the
copyright holder himself.

Part of the court's reluctance to find that Republic was an artisan may have
stemmed from the fact that Republic had attempted to resell the goods privately
rather than publicly as required by the New York Lien Law. Furthermore, where the
contract does not require payment until delivery, a possessory lien does not (indeed,
could not) arise. Newark Slip Cont. Co. v. New York Credit Men's Adjustment Bureau,
Inc., 186 F.2d 152 (2d Cir. 1951). The court may have hesitated to restrict
manufacturers of copyrighted goods to an artisan's lien when the bulk of such
manufacturing contracts no doubt call for delivery before payment. In Republic's

case, however, possession had been regained following Piatt & Munk's rejection of the
goods, so that the artisan's lien would still be effective security for the unpaid debt.
Piatt & Munk Co. v. Republic Graphics, Inc., 315 F.2d 847, 849-50 (2d Cir. 1963).

73315 F.2d at 855 n.4.

''Id. at 855.

757d at 852.



1977] COPYRIGHT REFORM 519

B. Definition of First Sale Doctrine

In addition to what was quoted above, the Connmittee Report
which accompanied section 27 of the 1909 Act clearly indicated that
the statutory language was "not intended to change in any way
existing law, but simply to recognize the distinction, long established,

between the material object and the right to produce copies
thereof.""^

As early as 1852, the Supreme Court held in Stephens v. Cady'^'^
that copperplates of a copyrighted map purchased at execution sale
could not be used to print copies of the map. The defendant had
purchased only the material object at the sale, said the Court, not the
intangible copyright; hence he had no right to produce copies, since
"copying" is part of the copyright which still remained in the
plaintiff, the copyright holderJ^ By way of dictum, the Court did
suggest that a creditor's bill in equity, with personal jurisdiction over

the copyright holder, and a court-compelled transfer of the intangible

copyright might overcome the hurdle of the tangible-intangible
distinction.'^

Stephens v. Cady and a number of other state and federal
opinions^^ left the impression that an author's intangible copyright

could not be subjected to creditor process for the payment of the
author's debts. However, in Ager v. Murray,^^ a patent case,^^ the
Supreme Court indicated that federally protected rights were indeed
subject to creditor process by holding that an equity court, having

'6H.R. Rep. No. 2222, 60th Cong., 2d Sess. 19 (1909).
7"55 U.S. (14 How.) 528 (1852).

'm. at 530-31.
79/d at 531-32.

^^See, e.g., Stevens v. Gladding, 58 U.S. (17 How.) 447 (1854); Dart v. Woodhouse,

40 Mich. 399, 29 Am. Rep. 544 (1879). See generally Note, Creditors' Rights Against
Interests in Patents and Copyrights, 26 Va. L. Rev. 1038 (1940).

81105 U.S. 127 (1881).

82it is not uncommon to find courts relying on patent cases in rendering copyright
opinions. The many similarities between the rights of an author and those of an
inventor make this practice acceptable. Compare 17 U.S.C. § 1 (1970), as amended by
Copyright Act of 1976, Pub. L. No. 94-553, § 101, 90 Stat. 2541 (copyright), with 35

U.S.C. § 154 (1970) (patent). While patent law is beyond the scope of this note, one

difference from copyright must be noted. In addition to the right to vend, an inventor
enjoys the exclusive right to "use" his invention. This right, like the others, may be
assigned or licensed separately. Adams v. Burke, 84 U.S. (17 Wall.) 453 (1873).

When an unpaid manufacturer of patented goods attempts to resell, he must not
only overcome the patentee's vending monopoly, he must additionally seek a court-
compelled transfer of the right of "use." Without this added effort, the purchaser at

resale may find that any attempt to use the article will be met with an infringement
action, reducing the practical value of the article to scrap value only. See note 67

supra.



520 INDIANA LAW REVIEW [Vol. 10:507

jurisdiction over the rights holder, could compel a transfer of the
intangible patent rights, giving the purchaser the full value of his

purchase.^3

Following this lead, a lower federal court carried the purchaser's

rights one step further. In Wilder v. Kent,^"^ the defendant had
purchased two patented machines at a sheriffs sale, held pursuant to
a writ of execution against the plaintiff, whose assignment from the
patentee gave him the exclusive right of use in his territory. In
holding that the defendant had not infringed the plaintiffs rights, the
court reasoned that the purchaser at a sheriffs sale ought to succeed

to the interests of the debtor.^^ Because the purchaser claimed no

rights in the patent, only in the machines, there should be no

difference between a voluntary sale by the plaintiff, and an
involuntary sale by the sheriff, and the purchaser would have
whatever interest in the machines the debtor had had before the
sale.^^

If execution and sheriffs sale are the equivalent of a voluntary
sale by the rights holder, the conclusion is inescapable that other
state processes, such as lien foreclosures or the resale rights of an

unpaid manufacturer may just as well fulfill the requirement of a
"first sale" by an author in copyright cases. It was so held by the Piatt
& Munk court which referred to Wilder v. Kent as the "sensible
rule."87

The question to be asked, said the Piatt & Munk court, was
whether the copyright holder had "received from his creditor some
value for which the copyrighted . . . article is now demanded unless
the debt is paid."*^ The answer must be in the affirmative when a
manufacturer has fulfilled his contract obligations by producing the
goods and then seeks payment from a defaulting copyright holder.
The buyer, having received the benefit of the contract, should not be
placed in a position to demand more favorable terms from the
manufacturer by withholding payment, knowing that the manu-
facturer cannot look to the goods for security because they are
protected by copyright. By equating the buyer's breach with a "first
sale" on his part, the court effectively shifted any unwarranted

83105 U.S. at 130-31.

8^15 F. 217 (C.C.W.D. Pa. 1883).

86/d at 219. This conclusion, no doubt, was based on the theory that a sale by the
patentee will usually eliminate the right of use if so stated in the contract. Bloomer v,
McQuewan, 55 U.S. (14 How.) 539 (1852).

s^This reasoning is sound as applied to copyrights, but the court erred in its
treatment of the right of "use," since no court-compelled transfer of this intangible

right had been obtained. See discussion in note 82 supra.
87315 F.2d at 854.

88/d.



1977] COPYRIGHT REFORM 521

bargaining leverage away from a potentially dishonest buyer.^^ This
is particularly important when the buyer's financial status is shaky,
making a resale of the goods the only remedy realistically available to
the manufacturer.^^

The essence of a first sale, then, as defined by the Piatt <& Munk
court is that the author has received a benefit from the manufacturer,
just as the author would have received a benefit from the outright
sale of copies of his work.^^ In either case, having received the quid
pro quo, the author must make delivery. When the creditor already
has the copies, the author's failure to meet his obligations constitutes
the "conveyance" making the creditor's possession "lawful."^^ When
the copies are not in the creditor's possession, the state law process of
levy and execution makes the sheriffs possession lawful, so that the
purchaser at execution sale receives the copies free from the vending
rights of the author.^^ However, since the first sale doctrine ends only
the vending monopoly, the purchaser from the sheriff (or from the
reselling manufacturer) may not copy, exhibit, make new versions, or
exercise any of the other exclusive rights which remain in the
author.^^ These other intangible rights remain subject to the Ager v.
Murray requirements of personal jurisdiction and court-compelled
transfer before the purchaser attempting to exercise these rights will

be safe from infringement suits.^^
Viewed in this fashion, the Piatt & Munk requirement of a "first

sale" is superior to the literal "lawful possession" approach because
the latter interpretation would create a gap in the copyright
remedies against dishonest bailees.^* At the same time, the courfs
forward looking definition of "first sale" as a voluntary or involuntary

**See text accompanying notes 104-11 infra.
^Id.

®*"In such event . . . the copyright owner has received 'his reward' " 315 F.2d
at 855.

^See, e.g.. Independent Film Distrib., Ltd. v, Chesapeake Indus., Inc., 148 F.
Supp. 611 (S.D.N.Y. 1957). rev'd an other ffraunds, 250 F.2d 951 (2d Cir. 1958).

**See text accompanying note 28 supra.

'^In Independent Film Distrib.. Ltd. v. Chesapeake Indus., Inc., 148 F. Supp. 611
(S.D.N.Y. 1957). the defendant, a film processor, had foreclosed a statutory lien given

an unpaid processor on the film, the exhibition and the distribution rights. N.Y. LlEN
Law § 188 (McKinney Supp. 1968). When defendant attempted to sell the film and the
rights following a default judgment against the rights holder, the rights holder sued
alleging infringement- The court held that jurisdiction, obtained by substituted
service, had been insufficient to pass the intangible copyright. Cf. Ager v. Murray. 105
U.S. 127 (1881).

'^NiMMER. «Mpra note 22, § 103.31 at 385.1 n.73. Interestingly, Nimmer appears to
change course when he later criticizes Piatt & Munk for its adoption of the "first sale"
doctrine. There, he argues that an action in conversion or breach of contract would be

an adequate remedy when faced by a dishonest bailee. Id. § 103.323, at
386.



522 INDIANA LAW REVIEW [Vol. 10:507

payment for benefits received, protects unpaid manufacturers
against overreaching copyright proprietors.^'^

By making the buyer's breach of contract the equivalent of a
"first sale," the Piatt & Munk court permanently resolved the legal
question, but created a question of fact requiring resolution with each

new case in which the fact is controverted by the parties.^^ Thus, the
court was forced to develop a method of resolving the issue of breach
which would not tip the scales it had delicately balanced in resolving
the legal issues. The court's solution was to limit the manufacturer's
state law remedy of self-help by permitting a buyer to challenge and
enjoin the threatened resale of copyrighted goods, and to grant the

parties a speedy resolution of the factual issue of breach.^^ This

formula is the second aspect of the court's decision which enables it
to overcome the criticism leveled at the first sale requirement.

The Piatt & Munk court, while deciding that in a proper case the
right of resale "must yield to the federally created right,"!^^ qualified
that statement by saying that this subordination would only occur
"where the copyright owner makes a good faith claim that its failure
to pay for the goods was justified "^^i When the author admits his
default by doing nothing, or when he seeks an injunction but cannot
marshal sufficient evidence for even a "good faith claim," the unpaid

manufacturer may exercise the right of resale. i'^^ However, the right
of resale is not an absolute right to be exercised unilaterally by a
manufacturer in every situation. In a proper case the buyer with a
valid objection can move to protect his contract rights, as well as his
copyright.i^^

Under the Uniform Sales Act, a buyer had the right to seek
specific performance of the contract. The Sales Act intended to
liberalize this buyer's remedy by not requiring that the buyer
demonstrate the inadequacy of his legal remedy or the uniqueness of
the goods. i<^4 Instead, the granting of relief was left to the informed
discretion of the court.^*^^ The Uniform Commercial Code has carried

^''See notes 104-11 infra and accompanying text
^^The court rationalized: "The difficulty comes from the fact that the law gives

an unpaid manufacturer a right to sell without prior adjudication of the merits of his

claim." Piatt & Munk Co. v. Republic Graphics, Inc., 315 F.2d 847, 855 (2d Cir. 1963)
(emphasis added).

99/d. at 855.

1*^2Admittedly, this conclusion is drawn by negative implication, but this
conclusion hardly seems debatable in view of the court's own language: "Where the
copyright owner makes a good faith claim." Id. (emphasis added).

103U.C.C. § 2-716(1).

io^Uniform Sales Act § 68.
105/d But see Eastern Rolling Mill Co. v. Michlovitz, 157 Md. 51, 145 A. 378 (1929);

Manchester Dairy System, Inc. v. Hayward, 82 N.H. 193, 132 A. 12 (1926).



1977J COPYRIGHT REFORM 523

forward the liberal approach of the Sales Act by permitting specific
peformance "where the goods are unique or in other proper
circumstances. "•^'^ Presumably, a buyer who invokes this particular
remedy combined with a count to enjoin a resale by the manufacturer
must still post bond and demonstrate the likelihood that he will
ultimately prevail in the dispute.

^^'^

The Piatt & Miink court, however, would appear to sanction the
granting of an injunction on a lesser showing than that traditionally
required of the moving party. The test there announced was that the
buyer need only make "a good faith claim that . . . failure to pay for
the goods was justified. "^^^

Conceivably, when faced with the issue, a federal district court
might well equate the two standards. That is, a buyer who cannot
demonstrate the likelihood that he will prevail is not making a good
faith claim. Such an approach not only borders on circuity, it runs
the risk of reversal in light of the Second Circuit's statement that, to
this extent, "state contract or lien law must yield to the federally
created right."^^^ Assuming that the higher court was not unmindful
of a maligned buyer's right to enjoin resale in a proper case, it
becomes evident that the yielding, or subordination of state law to
federal law was an alteration in degree rather than substance.

Furthermore, whether the buyer of goods is an author with a
federally protected right, or a non-copyright buyer with a state law

right to have his goods delivered, a breaching seller cannot seriously

expect to deprive his buyer of something substantial without being

forced into litigation. Conversely, when the buyer is the breaching
party, he will seldom attempt to block the seller's efforts to salvage
what he can by reselling the goods, because the proceeds of resale will
mitigate the buyer's damage liability. ^^^ It is only where the basis of a
dispute is genuine and the goods in question are unique {e.g.,
copyrighted goods) that the buyer will want to enjoin the resale.

Permitting the buyer in copyright disputes to enjoin an

Apparently, the courts were reluctant to take advantage of the Sales Act's liberal

approach to specific performance in sales of goods cases. See generally White &
Summers supra note 18, § 6-6.

'o^U.C.C. § 2-716(1).

^"'Prior to 1970, the posting of bond was required by statute in Indiana. Act of

April 7. ch. 38 § 183, 1881 Indiana Acts 240 (repealed by Act of March 13. ch. 191 § 3,
1969 Indiana Acts 723). Currently, the applicable statute provides: "Upon the

granting or continuing of an injunction, such terms and conditions may be imposed
upon the party obtaining it, as may be deemed equitable." IND. Code § 34-1-10-5
(Burns 1973).

'08315 F.2d at 855.

109/d.

I'OU.C.C. § 2-706(1). Cf. National Importing Co. v. California Prune & Apricot
Growers, Inc., 85 Ind. App. 315. 151 N.E. 626 (1926).



524 INDIANA LAW REVIEW [Vol. 10:507

attempted resale on the good faith claim that his refusal to pay was
justified, is a defensible solution which, in practice, should work to
the benefit of both parties while protecting their respective interests.

The benefits to the author are obvious; where his position is
ultimately vindicated, the preliminary injunction has preserved his

vending monopoly as to the copies in question. The lesser showing
required by the Piatt & Munk court permits an author to act quickly
and decisively to protect his copyright before resale has begun. Even
though the author might recover damages in a subsequent infringe-
ment action against both the manufacturer and the resale buyers (if
they in turn attempt to market the copies), the fact remains that
without the injunction the author would have lost his right to control
or prevent the public distribution of his work.^^^ An additional
protection for the buyer is that a dishonest seller attempting to

elevate a minor contract dispute to the level of a full blown breach (as
a basis for resale) will not be able to extort concessions or totally

overreach a financially marginal buyer with the threat of resale,

when the buyer can easily enjoin the resale by asserting his good faith
claim. The traditional requirement that the buyer show the
likelihood of ultimate victory, by contrast, puts leverage in the hands
of a dishonest manufacturer.^^^

The legitimate seller, on the other hand, also benefits from an
early adjudication of a genuine dispute. By notifying the buyer that
he intends to resell the goods, the seller establishes a basis for

asserting a laches or estoppel defense if the buyer acquiesces in the

resale, but later brings an infringement action.^^^ If the author
moves to enjoin the resale, but cannot establish even a good faith

"^See notes 41 and 96 supra.
"^On the other hand, there are factors which might persuade a dishonest

manufacturer that an attempted resale is unwise. A resale without justification would
constitute criminal infringement 17 U.S.C. § 104 (Supp. IV 1974), as amended by
Copyright Act of 1976, Pub. L. No. 94-553, § 506, 90 Stat. 2541. Furthermore, should

the author prevail on the issue of contract breach, he could conceivably recover both his

contract damages and the manufacturer's resale profits under 17 U.S.C. § 101 (Supp. I
1971), as amended by Copyright Act of 1976, Pub. L. No. 94-553, § 504, 90 Stat. 2541.
See, e.g., Sheldon v. Metro-Goldwyn Pictures Corp., 309 U.S. 390 (1940).

i^it is frequently stated that mere inaction, or silence where there is no
affirmative duty to speak, will not raise an estoppel. Lavengood v. Lavengood, 225 Ind.

206, 73 N.E.2d 685 (1947); French v. National Ref. Co., 217 Ind. 121, 26 N.E.2d 47

(1940). In practice, however, equity will measure the facts involved in deciding
whether a party's conduct should prevent his recovery. See, e.g., Kelley v. Fisk, 110
Ind. 552, 11 N.E. 453 (1887).

Laches is a particularly appropriate defense to a belated infringement action

where the manufacturer must give notice of his intended resale under § 2-706 of the
Uniform Commercial Code, or underthe notice requirements ofthe typical artisan's lien
statute. See note 15 supra. As with estoppel, the successful laches defense will turn on
the facts of each case. Harwood v. Railroad Co., 84 U.S. 78 (1872).



1977] COPYRIGHT REFORM 525

claim, the seller may proceed. In either situation the marketability of
the goods, and the consequent asking price, are enhanced because the
chances of a subsequent infringement action against the resale

purchaser have been reduced. Admittedly, a dishonest buyer with at

least a colorable claim may be in a position to extract concessions by
threatening to enjoin the resale, but this weapon is blunted by the
requirement that the buyer post bond.^'^ The bonding requirement
adequately protects a seller when the value of the goods depends upon
timely marketing, as with seasonal items or perishable commodities.

The result of the Plait & Munk requirement that the contract
issues be quickly adjudicated when the buyer has a colorable claim is
that effective restraints have been placed on both the dishonest buyer

and the dishonest seller, while eliminating any unwarranted leverage

in the hands of either. Concurrently, the early adjudication

requirement works to the benefit of both parties if the dispute is
legitimate and if the rights asserted by the buyer and seller are

substantial enough to justify litigation on self help.

Taken together, the early adjudication requirement and the
court's insistence on a "first sale," albeit involuntary, successfully

balance the privileges of an author's copyright against the commer-
cial expectations of a manufacturer of copyrighted articles. Whether
this delicate balance will survive the new copyright revision, Public
Law 94-553, remains to be seen.

IV. Copyright Revision

The drafters of Public Law 94-553 can hardly be said to have
written on a tabula rasa, since this particular copyright revision is

merely the culmination of what must be described as the most
tenacious effort at copyright reform in congressional history.

A concentrated attempt to clarify the more confusmg aspects ot
the 1909 Copyright Act and to codify the case law developed under
that Act, was begun most recently in 1955 when the Copyright Office
initiated thirty-five studies on various facets of copyright law.^^^ The
report of the Register of Copyright was issued in 1961; and in 1963
the Copyright Office published a preliminary draft of a proposed
revision bill. The following year the proposed bill was modified and
submitted to both Houses of Congress on July 20, 1964. ^^^

Beginning with the 88th Congress, each succeeding Congress had

'^•See discussion in note 107 supra.

i'^Cambridge Research Institute, Omnibus Copyright Revision: Compara-
tive Analysis of the Issues 21 (1973) [hereinafter cited as Cambridge Research
Institute. Omnibus Revision].

ii^H.R. 11947. S. 3008, 88th Cong., 2d Sess. (1964).



526 INDIANA LAW REVIEW [Vol. 10:507

attempted, but failed, to produce a bill for Presidential signature. ^^^

The balancing of interests which occurred in Piatt & Munk repre-
sents only one of many potential conflicts between authors and non-
authors concerning the numerous uses of the copyright. Any
statutory reform "must simultaneously protect the rights of authors,
preserve the incentives of publishers, and give the general public
access to the new creations. "^^^ While such a delicate balance may be
difficult, it is not impossible. The three most recent proposals,
including the new Act, have been strikingly similar, and the previous
inability to achieve final passage appears to have centered around the

debate over such rapidly changing technologies as cable television,
photocopying, and computer programs. ^^^

Nonetheless, all of the proposed revisions since 1964 had been in

agreement on at least a few basic tenets of copyright philosophy
which are relevant to the problem of the unpaid manufacturer of
copyrighted goods: the exclusive right of an author to vend copies of
his work; the divisibility of the copyright into tangible and intangible
components; and the susceptibility of both the tangible and intangible
copyright to the demands and obligations of commercial life.^^o

The word "vend" is not used in Public Law 94-553, nor was it used
in the proposed revision which preceded the new Act, Senate Bill
1361. Instead, section 106 of the new Act is identical to section 106 of
Senate Bill 1361, which enumerates the exclusive rights of an author,

including the exclusive right "to distribute copies ... of the
copyrighted work to the public by sale or other transfer of ownership,
or by rental, lease, or lending.''^^! Obviously, Public Law 94-553 has
improved upon the vague generality of the single word "vend," by
specifically setting out the types of conveyances which will be
protected by federal statute. Furthermore, those conveyances will

now include rental arrangements not included as part of the previous
vending monopoly.^22

However, the exclusive rights granted an author by section 106
of the new Act are subject to specific limitations set out in sections
107 through 117, dealing with fair use, photocopying, cable tele-

vision, and other uses of the copyright by non-authors which proved a

ii^M- H.R. 4347, 89th Cong., 1st Sess. (1965); H.R. 2512, 90th Cong., 1st Sess. (1967);
S. 543, 91st Cong., 1st Sess. (1969); S. 644, 92d Cong., 1st Sess. (1971); S. 1361, 93d Cong.,
1st Sess. (1973).

ii^Cambridge Research Institute, Omnibus Revision, supra note 115, at 5.
119/d at 22, 23.

i20Sections 106, 107, 108, and 202, dealing with these concepts have appeared in
identical language in the three latest proposed reform bills. See note 117 supra.

i2iCopyright Act of 1976, Pub. L. No. 94-553, § 106. 90 Stat. 2541 (1976).
i22See Bauer et Cie v. O'Donnell, 229 U.S. 1, 13 (1913).



1977] COPYRIGHT REFORM 527

constant source of infringement litigation under the 1909 Copyright

Act.i^'^

One such limitation on the new right to vend is found in section
109, which replaces the troublesome "but nothing" clause found in

section 27 of the 1909 Act.^-^ Section 109 gives the owner of a
particular copy the right to sell or dispose of the possession of that

copy without the author's permission. However, this power to

transfer copies free of the vending monopoly is itself limited to those

having ownership, not merely possession of the copies. ^'-^^ The

language of section 109 is an effective response to those litigants who
have argued that the reference to lawful possession in the former

section 27 permits a bailee, or manufacturer, to resell copyrighted

goods without infringing the author's vending monopoly. ^^e Notably,

the new section 109 is also a codification of two cases which at least
one copyright authority considered to be in conflict in their inter-

pretations of the former section 27.^^7 Qne, of course, is Piatt & Munk
which rejected the lawful possession theory of defendant, holding

that an author must have made a first sale of the protected copies
before the right to vend is terminated — but holding further that
such a sale could be voluntary or involuntary by operation of law. The
second case, apparently in conflict with Piatt & Munk, is United
States V. Wells.''^^

The Wells court was faced with the question of whether the
defendant, who had a license to make and use as many maps as he
wished from a negative supplied by the copyright holder, had
infringed the right to vend by selling copies of the map so produced.
The license had specifically prohibited the defendant from selling or
transferring his copies, but did permit the defendant to reproduce
the maps for his own use for "such time as [he] deems fit.^^^g jj^
holding that defendant had not infringed the vending monopoly, the
Wells court pointed out that ownership of the authorized copies was
in the defendant, not the copyright holder. While violation of the
license might be a breach of contract, it could not be a basis for
infringement because the license had failed to state that ownership of
any and all copies would remain in the author.^^^ The court hinted,

^23See, e.g., Teleprompter Corp. v. Columbia Broadcasting System, Inc., 415 U.S.
394 (1974); Williams & Wilkins Co. v. United States. 487 F.2d 1345 (Ct. CI. 1973), affd,
420 U.S. 376 (1975); Benny v. Loew's Inc., 239 F.2d 532 (9th Cir. 1956), affd, 356 U.S.
43 (1958).

12^7 U.S.C. § 27 (1970) (amended 1976).
i25Copyright Act of 1976, Pub. L. No. 94-553 § 109. 90 Stat. 2541 (1976).
i26piatt & Munk Co. v. Republic Graphics, Inc., 315 F.2d 847, 851 (2d Cir. 1963).
i2"NlMMER, supra note 22, § 103.323.
128176 F. Supp. 630 (S.D. Tex. 1959).

129/d. at 632.

130/d. at 634.



528 INDIANA LAW REVIEW [Vol. 10:507

and would have been correct in holding, that the terms of the license,
and the consideration received for the granting thereof, constituted a
"first sale" by the copyright holder of the copies produced by the
defendant.^^i

The reliance on ownership in Wells could easily be viewed as
conflicting with the Piatt & Munk court's rejection of the "title
theory" advanced by the defendant in the latter case.^^^ The
distinction which makes the two cases compatible is that ownership
in Wells resulted from the author's transfer of title under the terms of

the license, while the title asserted by the defendant in Piatt & Munk
resulted from its position as a seller of goods under the Uniform Sales
Act, not from any act of transfer on the part of the author.^^^ Hence,
Republic's right to resell the goods was contingent on some act of
transfer by the author which would give Republic "ownership." The
Piatt & Munk court found this transfer in an author's refusal to pay
for the benefits of the manufacturer's performance.^^''

While the language of the new section 109 gives no hint of any
qualification of the "ownership" a reselling manufacturer might need
to escape an infringement charge, it is submitted that the Committee
Report which accompanied the new Copyright Act, and the title of
section 109 itself indicate that the author must transfer a particular
copy before losing the exclusive right to vend that copy.^^^ Fortu-
nately, by substituting "transfer" for "first sale," the new Act should
avoid the arguments formerly presented by copyright proprietors
that "first sale" means voluntarily, for adequate consideration.^^^ The
terminology of transfer is sufficiently broad to cover conveyances

ranging from true sales to the commercial law "involuntary sale"
developed in Wilder v. Kent,^^'^ and adopted in Piatt & Munk. This
view is supported by the definition given "transfer" in the new Act, as
well as by the provisions of Chapter Two of Public Law 94-553:
"Copyright Ownership and Transfer."^^^

i^^The court suggested:

[I]t can be argued that the copyright proprietor exhausted his right to vend
such copies by granting and selling to the licensee the right to publish
them. Thus he would have had the opportunity to exercise one time his
exclusive right to vend . . . such copies by the act of granting the license and
receiving a consideration therefor.

Id. at 635.

^^^See note 65 supra and accompanying text.
133315 F.2d at 855.

134/d.

135S. Rep. No. 94-473, 94th Cong., 1st Sess. 71 (1975). The title of § 109 is
"Limitations on exclusive rights: Effect of transfer of particular copy or phonorecord."

136315 F.2d at 854.
13715 F. 217 (C.C.W.D. Pa. 1883).
i3« Copyright Act of 1976, Pub. L. No. 94-553, ch. 2, 90 Stat. 2541 (1976).



1977] COPYKlGHr REFORM 529

Section 202 of the new Act restates, in simple terms, the
fundamental difference between copyright and the material object to

which copyright attaches, leaving unchanged the substance of the
present section 27.^*^-' However, in the immediately preceding section

201, Congress has clarified and changed significantly the former law

regarding the transfer of the intangible element of the author's

copyright. Section 201(d) states: "The ownership of a copyright may
be transferred in whole or in part hij any means of conveyance or by
operation of law, and may be bequeathed by will or pass as personal
property by the applicable laws of intestate succession. "^"^"^

The distinct reference in the second clause to testate and intestate

succession clearly indicates that the separate preceding reference to

transfers by "operation of law" is a codification of the case law

holding that intangible copyrights are susceptible to creditor pro-

cess. ^^^ In truth, the new Act will liberalize this creditor process
because the new section 204 which requires a signed writing to
transfer copyright ownership makes an exception for transfers by
operation of law.^-'^ Under existing case law, when a transfer of an
author's intangible copyrights was sought, Ager v. Murray required
personal jurisdiction over the author and a court-compelled transfer,

in writing, signed by the author or his court-directed legal repre-
sentative. ^'^^

The relaxation of this formality indicates a welcome recognition
of the principle enunciated in Piatt & Munk that a copyright holder
should not be able to shield his assets from the ordinary obligations of
commercial life just because those assets are, or have had attached to
them, intangible rights created by federal statute. The balancing of
interests sought to be achieved by the new Act would have been
lopsided indeed had it failed to recognize the just demands of those
who do business with the author.

How, then, does one explain subsection (e) of the new section 201,
prohibiting involuntary transfers—the very heart of Piatt & Munk
and most other transfers "by operation of law"? Subsection (e) reads:

(e) INVOLUNTARY TRANSFER - When an indi-
vidual author's ownership of a copyright, or of any of the
exclusive rights under a copyright, has not previously been

'39CAMBRIDGE RESEARCH INSTITUTE, OMNIBUS REVISION, SUpra note 115, at 222.
i^'^Copyright Act of 1976, Pub. L. No. 94-553. § 201(d), 90 Stat. 2541 (1976).
'•'See notes 80-84 supra.

'''^This section reads: " A transfer of copyright ownership, other than by operation
of law, is not valid unless an instrument of conveyance, or a note or memorandum of the
transfer, is in writing and signed by the owner of the rights conveyed or his duly
authorized agent." Copyright Act of 1976, Pub. L. No. 94-553. § 204(a). 90 Stat. 2541

(1976) (emphasis added).

^^^See note 81 supra.



530 INDIANA LAW REVIEW [Vol. 10:507

transferred voluntarily by him, no action by any govern-
mental body or other official or organization purporting to
seize, expropriate, transfer or exercise rights of ownership

with respect to the copyright, or any of the exclusive rights

under a copyright, shall be given effect under this title.^'^^

At first blush, subsection (e) reads like a resurrection of century-
old case law—with a vengeance. However, the new Committee
Report indicates that subsection (e) does not apply to "[tjraditional

legal actions, such as bankruptcy proceedings and mortgage fore-
closures . . . since the author has, in one way or another, consented to
these legal processes by his actions.

"^"^^

Further references in the Committee Report to ''foreign authors"

and "foreign countries" ^''^ would indicate that subsection (e) is a

careless incorporation of an earlier bill introduced by Senator

McClellan in the Ninety-Third Congress.^^v That bill. Senate Bill

1359, was intended to circumvent oppression of dissident authors by
the Soviet Union.^^^ Though the aim of Senate Bill 1359 is laudable,
its emergence in Public Law 94-553 in such general statutory
language is an open invitation for specious arguments in creditor
process actions. Any court faced with a defense based on subsection
(e) should be quick to point out the caveat of the Committee Report, as
well as the unequivocal statements in sections 201 and 204 permitting
transfers of copyright ownership by operation of law.^^^

When the various sections of the new Act relating to transfers are
construed together, it becomes apparent that Congress has adopted
the view expressed in existing case law, that authors too must be
financially responsible in commercial transactions. The new Act
gives an author the right to distribute his work to the public on his
own terms, but terminates this right as to particular copies after the
author has transferred ownership of those copies to a second party.^^^

By giving "transfer" the broad definition it deserves. Congress has
streamlined the procedures and eliminated the pitfalls of creditor
process against copyright assets. ^^^ The prohibition in section 201 (e)
of involuntary transfers of an author's copyright must be regarded as
circumventing the oppression of free speech, not as avoiding the just

demands of creditors and unpaid manufacturers.

i44Copyright Act of 1976, Pub. L. No. 94-553, § 201(e), 90 Stat. 2541 (1976).

145S. Rep. No. 94-473, 94th Cong., 1st Sess. 107 (1975) (emphasis added).

i^-^S. 1359, 93d Cong., 1st Sess. (1973).
148CAMBRIDGE RESEARCH INSTITUTE, OMNIBUS REVISION, SUpra note 115, at 24.
14^ See notes 142-44 supra and accompanying text.
^^'^See note 125 supra.
isiSee, e.g., Sawin v. Guild, 21 F. Cas. 554 (C.C.D. Mass. 1813) (No. 12, 391).



1977] COPYRIGHT REFORM 531

V. Conclusion

Under the 1909 Copyright Act an author has the exclusive right
to make the first sale of copies of his work. However, the first sale
may be involuntary, as by execution and sheriffs sale, or as the result
of state contract or lien law giving an unpaid manufacturer the right

to resell copyrighted goods when the author refuses to pay the
contract price. Because the breach of contract issue is critical to the

right of resale, early resolution of that issue benefits both parties,

particularly where the dispute is genuine and the rights involved are
substantial. Permitting an author to enjoin a threatened resale on a

lesser showing than normally required for obtaining injunctions in
non-copyright cases, achieves a delicate but necessary balance

between federally created copyrights and state law commercial

remedies.

The 1976 Copyright Act, Public Law 94-553, adopts both the
rationale and the approach of existing case law in maintaining the

balance between authors and non-authors. The extreme positions
available to the defaulting buyer and the unpaid manufacturer under

prior law will be exorcised by the elimination, respectively, of first

sale and lawful possession language used in the 1909 Act. Instead, by
adopting the more precise language of "ownership," "transfer," and
"transfer by operation of law," the new Act proposes to shift the
conflict between buyer and manufacturer to the state law battlefield
where it originated.^^^

With the exception of section 201(e), believed to be inapplicable to
contract disputes between buyer and seller, the 1976 Act does not
directly treat the question whether an unpaid manufacturer is the
"owner" of copyrighted goods. Consequently, the procedure adopted

by the court in Piatt & Munk should remain viable. Under the new
Act the manufacturer will need to demonstrate his ownership by
setting up the buyer's default as an act of transfer. To protect the
author against groundless claims and dishonest manufacturers, the
resale should be vulnerable to an injunction where the buyer asserts a
good faith claim that his refusal to pay is justified. Finally, as in Piatt

& Munk, the issue of breach will be pivotal to the right of resale, and
should be resolved as quickly as possible.

Gregory A. Troxell

'^^Presumably, state law will furnish the definition of ownership, transfers, and
conveyances. However, the new Act does define a "transfer of copyright ownership."
See Copyright Act of 1976, Pub. L. No. 94-553, § 101, 90 Stat. 2541 (1976). Because
unpaid manufacturers of copyrighted goods will seldom need to transfer any

intangible rights along with the goods, section 101 will not apply. But see Stephens v.
Cady. 55 U.S. (14 How.) 528 (1852).