Autodesk Wins: Software License Restrictions Trump “First Sale” Doctrine
Update: On September 10, 2010, the Court of Appeals for the Ninth Circuit (in Vernor v. Autodesk) reversed the District Count decision discussed below. Supporting software licensors’ reasonable business expectations, the Court held “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.” [Emphasis added.] Accordingly, Vernor, as a licensee, was not protected by the first sale doctrine when he sold copies of Autodesk’s software.
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In Vernor v. Autodesk, the U.S. District Court for the Western District of Washington told Autodesk that despite the restrictions in its license agreement, Autodesk could not preclude its customer from selling AutoCAD software to a third party.
Background: Vernor makes his living selling goods on eBay. On several occasions, when he purchased copies of AutoCAD (at a garage sale or from an architectural firm) and offered them on eBay, Autodesk sent eBay DMCA takedown notices, to which Vernor replied with counter-notices; eBay then reinstated the auctions. Eventually, however, eBay suspended Vernor’s account for one month because of repeat copyright infringement. Vernor brought a suit for declaratory relief to preclude Autodesk from stopping Vernor’s sale of additional copies of AutoCAD on eBay.
The court acknowledged that the AutoCAD license was “nontransferable” and stated that the licensee may not “rent, lease, or transfer all or part of the Software, Documentation, or any rights granted hereunder to any other person without Autodesk’s prior written consent.”
The court pointed out, however, that under the first sale doctrine (17 U.S.C. Section 109(a)), a person who owns a lawfully-made copy of a copyrighted work may sell or otherwise dispose of the copy. The issue, thus, was whether the initial transfer of the AutoCAD packages from Autodesk to its customer was a sale for copyright purposes.
Acknowledging an irreconcilable conflict among Ninth Circuit Court of Appeal cases (thus we probably should expect Autodesk to appeal), the court held that the initial transfer of the software packages to the customer was a sale, for copyright purposes – even though use of the software was merely licensed – because the transferee was entitled to keep the software (there was no obligation at any time to return the package to Autodesk).
The lesson for software licensors: If you provide packaged software and want to preclude licensees from transferring the software to third parties, require that the software be returned to you when it is no longer used or when it is upgraded to a new version. Although this approach could be perceived as a hassle, and there is no guarantee that it will be effective, the Vernor decision puts licensors on notice that typical license terms, alone, may not suffice.
Dana H. Shultz, Attorney at Law +1 510 547-0545 dana [at] danashultz [dot] com
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Dana Shultz is a business-savvy lawyer located in Northern California's San Francisco Bay Area (in the East Bay, near Oakland) who has in-depth knowledge of law, business, technology, and the needs of startup and early-stage companies.