Today, the U.S. Court of Appeals for the Ninth Circuit handed down a major victory for the software and information industry on the issue of licensing and the “resale” of software on sites like eBay.
The issue in the Vernor v. Autodesk case addresses what it means to be an “owner of a copy” under the copyright law and the way courts distinguish between ownership and licenses. The court’s conclusion supports the software and information industries’ long tradition of licensing as the primary means for distributing its products and services to its customers.
In the case, Autodesk licensed its software to a third party. The district court looked at the license and found that the transaction was a sale, not a license, primarily because the Autodesk license did not require the software to be returned and specified a lump sum payment, as opposed to royalty payments over time.
As a result, the district court concluded that Vernor was the “owner of a particular copy” and not a licensee and therefore he was lawfully allowed to sell his copy of the software under the copyright law’s first sale doctrine despite terms in the license prohibiting such transfer. The first sale defense in section 109 of the Copyright Act provides that: “…the owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.” If the court had held that Vernor was a licensee, he would not be the “owner of a particular copy” and therefore the first sale doctrine would be inapplicable and he would not be able to transfer the software.
Because SIIA’s members usually license their works, a court decision (as in Vernor) that looks beyond the license and treats the transaction as a “sale” of the copyrighted work and allows the court and the customer to largely ignore the terms of a license, would have significant and adverse repercussions for the software and information industries. As a result, SIIA filed an amicus brief in support of Autodesk.
The Ninth Circuit court today, citing to SIIA’s brief, vacated the district court decision and remanded the case back to the district court. In the well-written 23-page decision, the Ninth Circuit held that neither the fact that “Autodesk allows its customers to possess their copies of the software indefinitely” or that it “does not require recurring license payments” is dispositive in determining whether the first sale doctrine applies.
Instead the court specified a new test (or perhaps, more accurately, clarifying its existing test) for determining whether a transaction is a license or a sale for purpose of determining the applicability of the first sale doctrine under section 109 and the essential copying doctrine under section 117 of the Copyright Act. This test provides that “a software user is a licensee rather than an owner of a copy where the copyright owner
- specifies that the user is granted a license;
- significantly restricts the user’s ability to transfer the software; and
- imposes notable use restrictions.”
The court applied these three consideration to the facts in the present case to conclude that Vernor was a licensee, not an owner, and that neither the first sale doctrine or the essential copying doctrine applied.
“Although unnecessary to…resolution of the case” the court addressed both the legislative history and the policy arguments made by the parties and amici, reaching the conclusion that “those who rightfully possess, but do not own, a copy of copyrighted software are not entitled to claim the essential step defense is also supported by the legislative history.”
SIIA has long believed that this case was wrongly decided–and today’s ruling made that wrong into a right for the software and information industries.
Posted by Keith Kupferschmid, Vice President, Intellectual Property Policy and Enforcement at SIIA