Access Rights and Copyright’s First Sale Doctrine, Part II

In which we discuss the Library of Alexandria, the United States as a pirate nation, and Vernor v. Autodesk, Inc. (9th Cir. Sept. 10, 2010)

Both the facts and the holding in the Ninth Circuit’s recent case, Vernor v. Autodesk, Inc. (9th Cir. Sept. 10, 2010), exemplify the challenges facing the first sale doctrine and highlight the questions regarding its continued viability.  In the case, Timothy Vernor brought a declaratory relief action against Autodesk to establish his right under the first sale doctrine to resell used Autodesk software (“Release 14”) on eBay.  A district court granted summary judgment in Vernor’s favor, but the Ninth Circuit reversed.  Vernor did not obtain his copies of Release 14 from Autodesk directly.  Rather, he purchased them from Cardwell/Thomas & associates, Inc. (“CTA”), an Autodesk customer.  Autodesk characterized the distribution of copies of its software CTA and others not as a sale, but as a license.  As such, it argued that use of its Release 14 software was conditioned to the terms of its license, which, among other things, prohibited renting, leasing or transfer copies of Release 14 to a third party without Autodesk’s consent.

The Ninth Circuit agreed that the initial transfer of the software—from Autodesk to CTA—was in fact a license, not a sale.  In so ruling, the Ninth Circuit synthesized and harmonized a series of rulings that the lower court had described as fundamentally irreconcilable:  United States v. Wise, 550 F.2d 1180 (9th Cir. 1977)—a criminal copyright infringement case that considered whether the transfer of copies of motion pictures pursuant to a written distribution agreement constituted a license or sale—and the MIA trio (MAI Sys. Corp. v. Peak Computer, Inc., 991 F.2d 511 (9th Cir. 1993); Triad Sys. Corp. v. Se. Express Co., 64 F3d 1330 (9th Cir. 1995); Wall Data, Inc. v. Los Angeles County Sheriff’s Dep’t, 47 F.3d 769 (9th Cir. 2006))—three cases that considered whether purchasers of software were owners of copies such that they qualified for the essential step defense under 17 U.S.C. § 117(c).  Specifically, the Court announced that a three part test to determine whether transfers of copyrighted material constitute licenses or sales:  (1) how the copyright holder characterizes the transfer; (2) if the copyright holder places significant restrictions on the user’s ability to transfer the software; and (3) if the copyright holder imposes notable use restrictions on the purchaser.  Under this test, the Court held that CTA possessed no right of transfer under the first sale doctrine and, by ‘selling’ Release 14 to Vernor, CTA was infringing Autodesk’s exclusive right of distribution secured under the Copyright Act.

The decision was notable on several levels.  First, it characterized the transfer to CTA as a license even though Autodesk had granted users such as CTA perpetual possession of the software and did not require any recurring license payments.  Second, the ruling effectively subjected Vernor to the terms of the license that Autodesk had entered into with CTA, even though Vernor had never agreed to the terms of Release 14’s license, never opened the sealed software packet and never installed or used the software.  Third, it reaffirmed the ability of copyright holders to circumvent application of the first sale doctrine through licenses.   While the Court recognized that significant public policy concerns weighed against its ruling, it suggested that it was Congress, and not the courts, who should address the issue.

Next Part:

The evisceration of the first sale doctrine and its consequences

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