joegratz.net

A new music trading service, La La, just went live today. A few of my friends have been using it during its beta period, and I just signed up today. This, I think, is the apotheosis of the First Sale Doctrine. It works like this: each user lists the CDs they own, and the CDs they want. La La matches up the trades, pays the shipping charges, and provides shipping materials, charging the recipient of each disc $1 plus $0.49 shipping. This is all done through a very slick, AJAXy web interface. It’s a truly gorgeous business model. The physical objects they distribute (e.g., envelopes) are ancillary; their real product is pure information (e.g., the address of the person who wants your copy of that old Elvis Costello CD).

There are a few notable elements of the service from a legal point of view, but perhaps the most notable element has no bearing at all on the legality of the service. La La is donating 20% of revenue from trading to the Z Foundation, a nonprofit it formed that “will focus on providing health and dental care that is often inaccessible to working musicians.” (It turns out to be quite an important issue.) The founder has this to say on his blog:

Beyond a community forum, ‘la la’ is blending the economics of music with customers. Today we’re contributing 20% of trading revenue to musicians. Before this is all over, I’ll desparately try to direct 90% of all revenues to working musicians. We owe them nothing less.

Why?

Music is more than just content, it is a key part of our culture. Like great literature and art, it reflects and defines our society. This may be a lot to ask of a ‘CD trading site’.

It will be wonderful (though somewhat surprising) if the exigencies of building a business don’t get in the way of these goals.

From a legal standpoint, what’s interesting is not what the service lets users do, but what the service doesn’t let users do. Trading CDs in this manner is not an infringement of copyright, of course, because the First Sale Doctrine eliminates the copyright holder’s right to control the resale of lawfully made CDs. There’s a weak argument that what La La enables is an “act or practice in the nature of rental, lease, or lending” and is thus not covered by the First Sale Doctrine by operation of 17 U.S.C. 109(b)(1)(A), but I think that argument ultimately fails because no user is ever under any obligation to send any CD to anyone, and they’re definitely not under any obligation to re-trade the CDs they’ve received.

But La La may go beyond what the law requires. First, they prohibit trading “promotional” copies of CDs — copies marked “PROMOTIONAL USE ONLY” and/or “NOT FOR RESALE”. I don’t know of any case that’s dealt with the issue directly, but I can’t think of any reason this language could either vitiate the First Sale Doctrine or create a binding contract. The company’s rationale for this decision is that “promotional CDs are typically marked with language restricting outright ownership, and they may not share an identical song list with the original commercial version.” If the promo CDs contain different tracks, the restriction makes sense from a practical standpoint, but it’s not an infringement of copyright to trade promo CDs.

The second prohibition is much broader. The terms of service state that:

You may not illegally copy CDs or keep copies of CDs you trade. Your access to the Site or Services may be immediately terminated in the event you use the Site or Services for illegal purposes or make unlawful copies of CDs or unlawfully distribute CDs.

Strictly prohibiting trades in burned CDs makes perfect sense, since a CD burned for the purpose of trading it is likely to be an infringing copy under these circumstances, and people expecting original, pressed CDs will be unhappy if they receive CD-Rs. But users “may not . . . keep copies of CDs [they] trade”? It’s not entirely clear whether users have a right, under section 107 or section 1008, to make a personal-use copy of a CD when they intend to trade away the original after the copy is made. The trading intention might affect the fair use analysis and might change whether the copying is “noncommercial” in nature in the section 1008 analysis, but it might not. And if a person made a lawful fair use or section 1008 copy and only later decided to trade away the original, the lawfulness of their copy wouldn’t suddenly change.

The provision prohibiting keeping copying CDs you trade is practically unenforceable, since La La has no way of knowing what you do with your own CDs, so its inclusion is slightly puzzling. Maybe it’s intended as moral suasion; on the About La La page, the founder says:

I ask you to do your part by doing the right thing: remove songs from your iPod or PC if you’ve agreed to send the CD to another member.

If you want to listen to that CD again, just add it to your Want List and help us support that artist you can’t get enough of. You’ll have access to plenty of good music to enjoy in the meantime. We’ll make sure of that!

Respect the artists and Karma will be on your side.

It’s also a hedge against a Grokster-style inducement claim. Assuming arguendo the doubtful prososition that a consumer infringes when she copies a CD to her iPod then trades the CD for another, La La could be liable if they promoted such uses of the service. By explicitly disallowing such actions, La La is much more likely to avoid any secondary infringement liability even if its users’ personal copies somehow turn out to be infringing.

Their heart seems to be in the right place, their model is sound, and their interface is fantastic. I look forward to seeing how La La is received by music lovers and by the music industry.