Tim Vernor purchased copies of Autodesk software from CTA. Vernor never opened the software packets or installed the software on his computer. Instead, he attempted to resell the software on eBay. Autodesk repeatedly filed take-down notices with eBay claiming that Vernor's attempted sales infringed its copyright. Eventually, Vernor's eBay account was suspended.
Vernor brought a declaratory action against Autodesk arguing that his re-sale of the software was protected by the "first sale doctrine". Basically, he argued that since he had purchased the software, he was free to re-sell it to others. The District Court agreed.
Autodesk appealed. Importantly, CTA had bought a cheap upgrade to the software (while selling their non-upgraded version to Vernor). Autodesk was trying to prevent a re-sell market from developing in non-upgraded versions of its software.
The first sale doctrine allows the owners of copyrighted works the right to re-sell those works. After a copyright owner has sold their works to a first purchaser, the copyright owner can not stop the first purchaser from reselling the work to a second purchaser.
However, the first sale doctrine only applies to an owner of the work. It does not apply to a licensee.
The appeal court held that the software was not sold, but merely licensed from Autodesk to Vernor. As a result, Vernon was not an owner of the software. Therefore, he could not invoke the first sale doctrine. As a result, Autodesk succeeded in preventing Vernon from reselling the software (even though Vernon had purchased it and had never opened it or used it).
The court reached this decision by considering: (1) whether the copyright owner specifies that the user is granted a license; (2) whether the copyright owner significantly restricts the user's ability to transfer the software; and (3) whether the copyright owner imposes significant use restrictions. The court found that Autodesk's software license met all three of these conditions.
Specifically, the court noted that the software license specifically stated that Autodesk retained title to all copies; and only gives the customer a "nontransferable license to use" the software. This license also prohibited customers from renting, leasing or transferring the software without Autodesk's consent, and from electronically or physically transferring the software out of the western hemisphere.
Moreover, Autodesk took measures to enforce these license requirements. Autodesk assigns a serial number to each copy of the software, and tracks registered licensees. Autodesk also requires customers to input "activation codes" to use the software (after Autodesk confirms that the product serial number is authentic and is not registered to a different customer).
This case alerts us to the degree with which software creators can limit the ability of purchasers to resell their software. How far can this be extended with a strong software license? What about a laptop that comes with software pre-installed? Does the purchaser of the laptop have the automatic right to resell it with all of its software? Maybe not always.
Could this case also have implications beyond software? For example, could an audio CD or DVD manufacturer label their CDs and DVDs as being "licensed for personal use only" and thus prevent a person from re-selling them? Could the manufacturers of an electronic book reader claim that the purchaser doesn't own the books on the reader, but are merely licensed to view them? Can you re-sell your Kindle™ that's loaded with books at your garage sale? (In July 2009, Amazon actually remotely deleted copies of George Orwell's "1984" from their Kindle devices. This was because Amazon found out it had acquired the book from a company that did not have title to it. Again, do you own the books on your Kindle™ or does Amazon?)
Time will tell what will happen next. Two other cases to watch are UMG Recordings v. Agusto (08-55988, Ninth Circuit Court of Appeals) and MYD Industries v. Blizzard Entertainment (09-15932 and 09-16044, Ninth Circuit Court of Appeals). UMG Recordings deals with the right to resell promotional audio CDs that are given to radio stations. MYD Industries asks whether players of an on-line multi-role player computer game own or license the copies of the software they are using. How will these cases be decided under this new three prong test? We will be following these cases closely