Copyright

SpicyIP Tidbits: The End of ‘End User License Agreements’?


In a very recent judgement a U.S. District Court has ruled that the purchase of Autocad software from Autodesk under an End-User Licence Agreement (EULA) was not a licence but a sale. As a result the Court held that that a person who purchased the Autocad software could re-sell the same to another party and that Autodesk could not stop such a sale since it had exhausted it rights under the first sale doctrine. (Image from here)

The facts of the case are simple: Autodesk had initially licensed the Autocad software to an architectural firm by the name CTA Associates. CTA Associates was supposed to have destroyed the software in question when it got an upgrade from Autodesk. CTA however in breach of the licensing agreement sold the software to Timothy Vernor who made a living for himself by trading on E-Bay. Vernor then put up the software on E-Bay in response to which Autocad sent E-bay a take-down notice on the grounds of copyright infringement. Vernor disputed this by stating that he had original packages of the Autocad software. Vernor then succeeded in selling two copies of the software on the website after which he filed for declaratory relief on the grounds that Autodesk had no right to interfere with his business activities since it had exhausted its rights on the software under the first sale doctrine.

While analysing the agreement the Court noted that the label given to the EULA agreement by Autodesk was of no relevance and that the nature of the agreement had to be determined according to its content. Going by previous precedents of the Ninth Circuit the Court held that one of the main factors that distinguished on whether an agreement was a sale or a licence was whether the agreement had a clause requiring a return of the software package to Autodesk after a certain period of time. According to the Court this was the crucial factor in distinguishing between a sale and a licence. Analysing the EULA under which Autodesk was ‘licensing’ its software the Court held that the EULA did not have any such clause requiring return of the software package and thus the agreement could be termed as a transfer of ownership and not a licensing agreement. In this context the Court made a crucial distinction i.e. while Autodesk was well within its right to licence the terms of the use of the licence it had, for the purpose of the law, sold copies of the software package. Therefore although Autodesk sold the software package it could still enforce restrictions on fair use or reverse engineering or on how many computers the software as such was used. The distinction is therefore between the intangible software and the tangible software packages. Thus even if the person did not have the right to make copies of the software package in his possession he could still transfer ownership of the package as such to another person. A software manufacturer like Autodesk would not have the rights to control the future transfer of the software package since it would have exhausted its rights under the first sale doctrine. The implications of this judgement are massive for the software industry in the U.S.A. since it has opened up a market for second hand software packages.

It remains to be seen how this judgement will hold on appeal especially since the Ninth Circuit has a series of conflicting precedents on this point. The District Court chose the earliest of these conflicting judgements.

In a related development the Patently O has reported that the U.S. Supreme Court has indicated an interest in a case involving parallel imports and exhaustion of rights in an intellectual property rights case that involves the sale and transfer of Omega watches.

The Vernor v. Autodesk judgement is available here.

Prashant Reddy

Prashant Reddy

T. Prashant Reddy graduated from the National Law School of India University, Bangalore, with a B.A.LLB (Hons.) degree in 2008. He later graduated with a LLM degree (Law, Science & Technology) from the Stanford Law School in 2013. Prashant has worked with law firms in Delhi and in academia in India and Singapore. He is also co-author of the book Create, Copy, Disrupt: India's Intellectual Property Dilemmas (OUP).

6 comments.

  1. AvatarAnonymous

    “U.S. District Court has ruled that the purchase of Autocad software from Autodesk under an End-User Licence Agreement (EULA) was not a licence but a sale”

    Dont you mean ‘transfer’ pf AUtocad. If it is ‘purchase’; then there must be a sale – that would be assuming the conclusion.

    Reply
  2. AvatarPrashant Reddy

    I did mean to use the word purchase. If you read the entire post you will realize that the transaction was held to be a sale and not an act of licensing. In that context using the word’purchase’ was right.

    Reply
  3. AvatarAnonymous

    You kind of miss the point. No court ever rules that “the purchase is a sale” for the simple reason that such a conclusion would be tautological. A purchase is always a sale. A Court cannot possibly hold that a “purchase is not a sale”. You are effectively saying that “the Court held that the breach of contract was a breach of contract”.

    In other words, if you meant to say “Court ruled that the purchase was a sale” you are wrong – the Court held that the transfer in this case was a sale. Or are you saying that there can be a purchase without a sale? The only case where this happens is a hire-purchase – where again, there is no purchase but a hire purchae. Purchase, in law, is the corollary of sale.

    What is it with you fellows these days, why do you respond to comments under the impression that the commentator is only picking holes? Why insinuate that I have not read the post?

    Reply
  4. AvatarPrashant Reddy

    @ Anon: If I had used the word ‘transfer’ you would have insisted that I should have used the word ‘purchase’ because I had termed the transaction as a sale.

    Unfortunately for me, the English language allows you do that.

    So lets drop the English language debate and move on to a debate on the law?

    Prashant

    Reply
  5. Avatargoldenrail

    Two things about this case, as reported here, make me think the decision won’t matter. First, “The District Court chose the earliest of these conflicting judgments.” That seems like a good way to get overturned by the Court of Appeals. Second, the court decided that the software was sold and not licensed based on the fact that the agreement did not include a “clause requiring a return of the software package.” If that’s the only thing needed to license the software instead of sell it, companies will just add that into their EULAs.

    I’d like to see this case be a big break-through in applying first-sale doctrine to software. I just don’t see it happening.

    Reply

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