Sai Vinod a 3rd year student at NUJS has sent in this very interesting guest post on the recent Autodesk judgment by the 9th Circuit Court.
Guest Post: Vernor v. Autodesk Inc: Thumbs Up for Software License Agreements (SLAs)!
In a dispute concerning the first sale doctrine in the context of software licensing agreements, the Ninth Circuit has overruled the decision of the District Court for Western District of Washington on which we have earlier blogged over here. The copy of the judgment of the Ninth Circuit can be found here.
(i)Facts
Timothy Vernor sold authentic copies of AutoCAD software on eBay which he purchased from a garage sale and from Cardwell/Thomas Associates (CTA). Autodesk issued a DMCA (Digital Millennium Copyright Act) notice to eBay claiming the sale as an infringement of their copyright to which his account was suspended for a month on grounds of repeated infringement. In reaction to this Vernor obtained a declaratory judgment by the District Court which concluded that Autodesk sold copies of the software to CTA by imposing “contractual restrictions on use and transfer of the software” and it is not a license.
Timothy Vernor sold authentic copies of AutoCAD software on eBay which he purchased from a garage sale and from Cardwell/Thomas Associates (CTA). Autodesk issued a DMCA (Digital Millennium Copyright Act) notice to eBay claiming the sale as an infringement of their copyright to which his account was suspended for a month on grounds of repeated infringement. In reaction to this Vernor obtained a declaratory judgment by the District Court which concluded that Autodesk sold copies of the software to CTA by imposing “contractual restrictions on use and transfer of the software” and it is not a license.
(ii)Issue
The issue before the Court was whether the CTA was the owner of the AutoCAD software purchased from Autodesk? Whether the sale of the software by Vernor on eBay is protected by the doctrine of first sale? Alternatively, if CTA was mere licensee, whether the sale by Vernor amounts to copyright infringement?
The issue before the Court was whether the CTA was the owner of the AutoCAD software purchased from Autodesk? Whether the sale of the software by Vernor on eBay is protected by the doctrine of first sale? Alternatively, if CTA was mere licensee, whether the sale by Vernor amounts to copyright infringement?
(iii)The Doctrine of First Sale
The exclusive right of distribution of software by the owner is limited by first sale doctrine. According to the doctrine of first sale the purchaser of a copyrighted work can dispose of the copy by sale or otherwise without amounting to copyright infringement. Only the “owner” of the copy can avail this defense and this does not extends to “licensees” as the title rests with the licensor. Therefore, determination of status of the purchasers i.e. licensee or owner, becomes critical for availing the defense.
The exclusive right of distribution of software by the owner is limited by first sale doctrine. According to the doctrine of first sale the purchaser of a copyrighted work can dispose of the copy by sale or otherwise without amounting to copyright infringement. Only the “owner” of the copy can avail this defense and this does not extends to “licensees” as the title rests with the licensor. Therefore, determination of status of the purchasers i.e. licensee or owner, becomes critical for availing the defense.
(iv)The Essential Step Defense
Storage of the software in the Random Access Memory (RAM) of user’s computer is indispensible for running the program. Making of such copy by the “owner” would not be an infringement as it is an essential step in the utilization of the computer program. This is known as the essential step defense and is peculiar to copyrights relating to software. It limits the extent on reproduction rights of the owner of the software. This defense, however, is available only to “owner of a copy”. The expression “owner of a copy” has similar meaning as “owner of a particular copy” of copyrighted software under the first sale doctrine. The Court pointed out that the usage of copies of software can be licensed at the same time copies themselves are sold. For instance installation of the software can be restricted by the license to limited number of computers as it is not an essential step for use of the software.
(v)Owner v. License
In order to determine whether the user is a licensee or an owner of a copy, the Ninth Circuit prescribed the following considerations:
(a)Firstly, if the copyright owner specifies that the user is granted a license
(b)Secondly, whether any significant restrictions are imposed on the user’s ability to transfer the software by the copyright owner such as retaining the title to the copy, required its return or destruction or required the transferee to maintain possession of the copy for the agreements’ duration; and
(c)Finally, any notable restrictions are imposed on the usage; for instance forbidding duplication.
Referring to precedents it deduced that retention of title by the copyright owner does not entail absence of the defense or indefinite possession of copy by the user makes a valid case for availing the defense.
In order to determine whether the user is a licensee or an owner of a copy, the Ninth Circuit prescribed the following considerations:
(a)Firstly, if the copyright owner specifies that the user is granted a license
(b)Secondly, whether any significant restrictions are imposed on the user’s ability to transfer the software by the copyright owner such as retaining the title to the copy, required its return or destruction or required the transferee to maintain possession of the copy for the agreements’ duration; and
(c)Finally, any notable restrictions are imposed on the usage; for instance forbidding duplication.
Referring to precedents it deduced that retention of title by the copyright owner does not entail absence of the defense or indefinite possession of copy by the user makes a valid case for availing the defense.
(vi) Is Vernor an “Owner” or “Licensee” of the Copy of the Work?
The written agreement accompanying the software stated that the “license” is nontransferable and the written consent of Autodesk is needed for transferring or leasing of the software within Western Hemisphere and not beyond. Further, the SLA restricts use of the software outside of the Western Hemisphere and against modifying, translating, or reverse-engineering the software, removing any proprietary marks from the software or documentation, or defeating any copy protection device. Moreover, non-compliance with the terms of the license and unauthorized copying would lead to termination of the license. The Ninth Circuit, hence, concluded that Vernor was not an “owner” of the software as Autodesk retained title to the software and imposed significant transfer restriction and thereby he is disqualified from taking the defense of first sale. The Court also reversed the decision of the district court and vacated the summary judgment in favor of Vernor.
The written agreement accompanying the software stated that the “license” is nontransferable and the written consent of Autodesk is needed for transferring or leasing of the software within Western Hemisphere and not beyond. Further, the SLA restricts use of the software outside of the Western Hemisphere and against modifying, translating, or reverse-engineering the software, removing any proprietary marks from the software or documentation, or defeating any copy protection device. Moreover, non-compliance with the terms of the license and unauthorized copying would lead to termination of the license. The Ninth Circuit, hence, concluded that Vernor was not an “owner” of the software as Autodesk retained title to the software and imposed significant transfer restriction and thereby he is disqualified from taking the defense of first sale. The Court also reversed the decision of the district court and vacated the summary judgment in favor of Vernor.
(vii)Policy Considerations
The Ninth Circuit acknowledging the non-precedential value of policy arguments presented by the parties, recognized such considerations and advised the Congress to modify the first sale doctrine and the essential step defense if it deems fits after taking them into account. Arguing for SLAs, Autodesk contends that this would enable tired pricing, increase sales, tackle piracy and lowers prices. Vernor opined that the decision is not in consonance with the law’s aversion to impose fetters on alienation of personal property and shows utter disregard to economic realities. The American Library Association expressed that it would hamper non-profit libraries’ ability to lend for non-commercial purposes and distribute out-print software. It also, feared that such licensing practices might be adopted by book publishers, record labels and movie studios.
The Ninth Circuit acknowledging the non-precedential value of policy arguments presented by the parties, recognized such considerations and advised the Congress to modify the first sale doctrine and the essential step defense if it deems fits after taking them into account. Arguing for SLAs, Autodesk contends that this would enable tired pricing, increase sales, tackle piracy and lowers prices. Vernor opined that the decision is not in consonance with the law’s aversion to impose fetters on alienation of personal property and shows utter disregard to economic realities. The American Library Association expressed that it would hamper non-profit libraries’ ability to lend for non-commercial purposes and distribute out-print software. It also, feared that such licensing practices might be adopted by book publishers, record labels and movie studios.
I am just expressing my displeasure over the “thumbs up” expression in this post. This judgment effectively takes away the first-sale doctrine by a license. The power of license emanates from copyright and when copyright is itself restricted by first sale, so should a license. I think this should have been the guiding principle in deciding this case. However courts have acted to restrict the fair use even more.
I do not see why there would be any more sale of a copyrighted good when the producer can “license” it.
I am totally surprised at the attitude of this article per se. It feels as if the author just copy pasted the facts and judgment without any analysis of his own. This case is of Utmost importance in US copyright law and the Augusto Case which majorly inspires from it. The future of secondary market is at stake, if the Augusto Case is also over-ruled by the 9th Circuit just like vernor case then it will severely undermine competition for used goods. Hence, I request you to please analyse the problem rather than regurgitating what you read without any thoughts into it.