License or Sale? Vernor v. Autodesk
On September 10, the Ninth Circuit Court of Appeals in Seattle decided a case styled Vernor vs. Autodesk, Inc. No. 09-35969 (D.C. No. 2:07-cv-01189-RAJ). A copy of the decision may be reviewed here.
Lining up on one side of this dispute were software developers and lovers of copyright protection. One the other side you have libraries, eBay, reseller of used books, video games, CDs, DVDs, etc.
The decision held that if a copyrighted work was distributed under a license, as opposed to being sold, then the licensee or any subsequent possessor of the copyrighted work could not use the “first sale doctrine” or the “essential use doctrine” as a defense to an action for copyright infringement.
Commenters who opt for the position taken by the resellers and eBay have roundly decried this decision, calling it “a major blow to user rights” by the use of “magic words” . Others have called it the “right decision for the wrong reason” and “an apparent gutting of the so-called first sale doctrine”.
The facts of the case are as follows:
Autodesk licensed copies of its AutoCAD software Release 14 version to its customer Cardwell/Thomas & Associates, Inc. (“CTA”). The licenses were part of a settlement of a claim by Autodesk of unauthorized use by CTA. CTA later upgraded to Release 15 for a substantially discounted price. The license governing Release 14 required destruction of copies of upgraded versions of the software with proof of destruction to be furnished to Autodesk upon request. Instead of destroying the copies, CTA (perhaps in the payback mode?) sold them at an office sale along with the handwritten activation codes necessary to use the software. Mr. Vernor, the plaintiff in the instant suit bought several copies of the software from CTA. Mr. Vernor is an eBay power seller and promptly began marketing the software on eBay. In a series of instances, Autodesk filed a DMCA take down notice and eBay canceled the auctions. Vernor filed counter-notices and Autodesk didn’t respond in any instance. The sales went forward. After about four of these DMCA dances, eBay suspended Mr. Vernor’s account because of the repeated claims of infringement. Mr. Vernor had previously sold over 10,000 items on eBay and because of the suspension of his account, he was unable to sell on eBay for over a month.
Mr. Vernor, violating the “let sleeping dogs lie” maxim, filed a suit for declaratory judgment in 2007 asking that the court declare that he was protected under the “first sale” doctrine. Autodesk moved for summary judgment and the district court denied the motion and found that Vernor’s sales were non-infringing because of the first sale doctrine and the essential step defense. Vernor v. Autodesk, Inc., 555 F. Supp. 2d 1164, 1170-71, 1175 (W.D. Wash. 2008). Autodesk appealed from that decision.
The first sale doctrine is an affirmative defense to copyright infringement that allows owners (significant distinction under this case) of copies of copyrighted works to resell those copies. Hence, the ability to resell used books.
The essential step defense is also an affirmative defense in the software arena that states that if copying of a software element is necessary (i.e. an “essential step”) in the use of the software (such as copying a program to a computer’s RAM upon loading), then that copying is not an infringement.
Both the first sale doctrine and the essential step doctrine were first espoused by courts and then later included in federal statutes.
As indicated above, the court’s ruling hinged on whether the transfer of the software was a license or a sale.
To make that determination, the court considered the following issues:
“First, …whether the copyright owner specifies that the user is granted a license.
Second, …whether the copyright owner significantly restricts the user’s ability to transfer the software.
Finally, …whether the copyright owner imposes notable use restrictions.” Vernor at page 13878.
The court stated that none of these issues is dispositive, in and of itself, but the totality of the arrangement must be considered.
Applying those considerations to the matter at hand, the court found that Autodesk:
1. Retained title to the software;
2. Stated that the license is nontransferable and the software can not be sublicensed or leased without Autodesk consent;
3. Restricted use of the software to the Western Hemisphere;
4. Prohibited modifying, translating or reverse engineering the software;
5. Prohibited removing any proprietary marks from the software;
6. Prohibited defeating any copy protection devices imbedded in the software; and
7. Provided for termination of the license upon the licensee’s unauthorized copying or failure to comply with other license restrictions.
The court found that these restrictions required that the transaction be a license as opposed to a sale. Therefore, CTA was a licensee rather than an owner and it was not entitled to resell its used Release 14 copies under the first sale doctrine. Consequently, Vernor did not receive title and could not pass ownership on to others. Because Vernor was not an owner, his customers also were not owners and when they installed the software on their computers and necessarily copied it to their RAM, they infringed and were not entitled to assert the essential step doctrine.
Good decision? It seems right under the law, the provisions of the license agreement and the facts in this case. However, I must admit some bias as most of my life has been spent representing licensors. It obviously presents problems for the secondary market in all used copyrighted goods. Will the owners start inserting “magic words” and turning everything into a license? The court recognized the problems and invited Congress to statutorily change if it so desired. I’m sure Congress will get right on that.
The court remanded the case for consider of other issues including a claim that Autodesk misused its copyright. This case is probably not over and may have taken on a life of its own.
Like the Frankenstein monster.
