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.