U.S. Appeals Court Draws Bright Line Between Software Owners, Licensees

SAN FRANCISCO — A federal appeals court on Friday ruled that copyright’s "first sale doctrine" doesn’t apply to software, and possibly DVDs and other licensed content, as long as the vendor saddles the transfer with enough restrictions.

The decision is significant because it ensures software buyers will rarely be software owners, and the potential effects of the decision could turn simple breach of contract claims into copyright infringement suits for violating end-user license agreements.

The first sale doctrine limits a copyright holder’s right to exclusive distribution by allowing owners of copies of copyrighted works to resell those copies, but it makes no such exception for a person who possesses such a copy without owning it, such as a licensee.

Limiting the first sale doctrine’s applicability to so-called “shrinkwrap” licensing agreements, the 9th U.S. Circuit Court of Appeals agreed with software producer Autodesk Inc. that the terms it required customers to accept before they could install its software made the customers licensees of the copies — not owners.

The ruling by a three-judge panel tossed out a U.S. district judge’s ruling that an eBay merchant could sell used copies of software regardless of any agreement binding those from whom he purchased the copies.

Timothy Vernor bought four packages of Autodesk's AutoCAD software at a garage sale and tried to sell them on eBay but Autodesk threatened Vernor with a copyright lawsuit, claiming that its software is only “licensed” — never sold — pointing to the fine print on the end-user license agreements it had with the original purchaser.

Vernor filed suit in Seattle against Autodesk, asking the court to clarify his right to resell the computer-aided design software packages that he purchased. He prevailed before a lower federal court in 2009, when a federal judge held that he was a successive owner and entitled to resell copies he purchased under the first sale doctrine. Autodesk later appealed to the 9th Circuit.

Writing for the 9th Circuit, Judge Consuelo M. Callahan ruled that “a software user is a licensee rather than an owner of a copy where the copyright owner (1) specifies that the user is granted a license, (2) significantly restricts the user’s ability to transfer the software and (3) imposes notable use restrictions.”

The Electronic Frontier Foundation, which filed an amicus brief in the case, called Friday's decision "deeply disappointing" and "very bad news for consumers."

"We understand Mr. Vernor may seek en banc review of this decision," Corynne McSherry, an EFF senior staff attorney, told XBIZ. "We hope that the court agrees to review the case and treats it as an opportunity to put consumer rights and expectations ahead of the overreaching demands of software vendors."

The case is Vernor vs. Autodesk Inc., 09-35969.