A recent 9th Circuit ruling overrules a series of trial court results from the U.S. District Court for the Western District of Washington and reiterates the dangers of buying and selling software on eBay and other resale websites. Typically, the “first-sale doctrine” provides that the exclusive right of distribution granted to the owner of a copyrighted work extends only to the first sale of the work. Once the work has been sold, the new owner may resell the work without fear of copyright infringement. In addition, the “essential-step” defense provides that the owner of a copy of software does not infringe copyrights if the new copy is created as an essential step in using the software on a computer (for example, when copying software to a computer’s memory). However, in Vernor v. Autodesk Inc., 2010 WL 3516435 (9th Cir. Sept. 10, 2010), the court ruled that the first-sale doctrine and essential-step defense do not apply to software that is merely licensed rather than sold.
Timothy Vernor bought Autodesk software from Caldwell/Thomas & Associates, an architecture firm, and resold it on eBay. The license agreement Caldwell/Thomas received from Autodesk when it originally purchased the software included a number of restrictions regarding the nature of the transaction and the software’s use. The license agreement, most importantly, provided that Autodesk was merely licensing the software to Caldwell/Thomas and that the software was not being sold. The license agreement also restricted Caldwell/Thomas’ ability to transfer the software to a third party. The agreement contained additional restrictions regarding how Caldwell/Thomas may use the software.
Vernor claimed he was entitled to resell the software under the first-sale doctrine once Caldwell/Thomas acquired it from Autodesk. While the Washington trial court agreed, the Ninth Circuit stated that the first sale doctrine does not apply to a person who possesses a copy of a copyrighted work without owning it, such as a licensee. After reviewing the software license agreement between Autodesk and Caldwell/Thomas, the court determined that Caldwell/Thomas was a licensee and that it was not allowed to resell the software to Vernor. Vernor did not receive title when he purchased the software from Caldwell/Thomas and he could not pass ownership to subsequent purchasers.
Vernor also claimed the essential-step defense would permit his customers to install the software. In response, the Ninth Circuit provided a three-part analysis for determining whether a software user is a licensee or owner for purposes of applying the essential-step defense : 1) whether the copyright owner specifies that a 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 notable use restrictions. Because the Autodesk license agreement grants only a license, restricts users’ ability to transfer the software, and restricts the user’s use of the software, the court concluded that Caldwell/Thomas was a licensee and that neither it, nor Vernor, or his customers, was able to utilize the essential-step defense.
If you suspect software you plan to purchase may not be authorized and would not be protected under the first sale doctrine or the essential-step test, you should consult counsel experienced in advising clients regarding software licensing issues.