Vernor v. Autodesk, Inc., No. C07-1189RAJ (W.D. Wash., Sept. 30, 2009)
Opinion

On September 30, the United States District Court for the Western District of Washington granted, in part, Vernor’s motion for summary judgment against Autodesk.After Autodesk became aware of Vernor’s attempts to sell copies of its copyrighted software, AutoCAD, on eBay, it invoked the takedown provisions of the Digital Millennium Copyright Act, causing Vernor to be barred from selling anything on eBay for a month. Vernor sued, seeking, among other remedies, declaratory judgment that these sales were not in violation of copyright. In granting summary judgment for Vernor, the Court held that a customer who had acquired AutoCAD packages pursuant to Autodesk’s software license agreement (”License”) became an owner of the physical copies of the software with the right to resell the AutoCAD packages under the first sale doctrine (17 USC § 109(a)).

The Court also accepted that the owner was protected from claims of contributory copyright infringement by 17 USC § 117. The Court had previously considered very similar issues in the context of Autodesk’s earlier motion to dismiss. See Vernor v. Autodesk, Inc., 555 F. Supp. 2d 1164 (W.D. Wash. 2008)).

A selection of briefs and relevant court documents are available here. The Technology & Marketing Law Blog provides a useful overview and analysis of the case. The outcome was heralded as pro-consumer by the Electronic Frontier Foundation, but Blog Nauseum suggests that the decision is not much of a win for consumers.

In holding as it did, the Court rejected Autodesk’s argument that it merely licensed the AutoCAD packages and remained the owner of the copies of the copyrighted material contained therein. The decision turned on the specific wording of the License and the resolution of two conflicting lines of precedent.

The AutoCAD packages in question were first transferred from Autodesk to Cardwell/Thomas Associates (“CTA”), an architecture firm, pursuant to the License. CTA then transferred the packages to Vernor in a sale of office equipment.  Vernor subsequently attempted to resell the AutoCAD packages on eBay, prompting Autodesk to invoke the “takedown” procedure. Vernor was barred from selling anything on eBay for a month. There was no suggestion that Vernor had used the software himself.

The Court’s determination turned on whether or not Autodesk had transferred ownership of the AutoCAD packages to CTA. If ownership was transferred, CTA and Vernor had first sale rights. The crucial question was therefore whether the terms of the Autodesk License transferred ownership of the software copies included in the AutoCAD packages to CTA, or whether CTA was a mere licensee.

The Court characterized the License as a “hodgepodge of terms” that could support both transfer of ownership and mere license. The fact it was designated a “license” was not determinative. Autodesk expressly retained title to the “Software and accompanying materials” but had no right to regain possession. The use and further transfer of the software was severely restricted. However, Licensees paid a single up-front price, consistent with ownership. Whether these terms were sufficient to transfer ownership required the Court to resolve conflicting precedents.

In United States v. Wise, 550 F.2d 1180 (9th Cir. 1977), an agreement that reserved all rights and title in the copyright holder was found to transfer ownership of the copy when coupled with upfront payment and the “rest of the language” of the agreement, in particular, the fact that the copyright holder had no right to regain possession.

On the other hand, a trio of cases referred to as the “MAI trio” characterized agreements transferring possession of software as mere licenses (MAI Sys. Corp. v. Peak Computer, Inc., 991 F.2d 511 (9th Cir. 1993); Triad Sys. Corp. v. Southeastern Express Co., 64 F.3d 1330 (9th Cir. 1995); Wall Data Inc. v. L.A. County Sheriff’s Dep’t, 447 F.3d 769 (9th Cir. 2006)).

The Court refused to select between precedents on the basis of policy, commenting that courts, unlike Congress, are not suited to render judgments on policy. Rather, the Court applied the principle that it must follow the oldest precedent among conflicting opinions from three-judge Ninth Circuit panels. Accordingly, the case fell to be decided for Vernor on the basis of Wise.

Vernor is one of a number of cases to consider first sale rights in the software context. Because this controversial issue was resolved on the basis of a technical rule of precedent, this decision is unlikely to be the end of the matter. Autodesk may appeal, and the Ninth Circuit is currently hearing several cases raising similar issues (see Electronic Frontier Foundation’s commentary). In the meantime, we can expect that attorneys for software developers will be reviewing the language of their clients’ “licenses” to strengthen the claim that ownership of the copy does not pass to the consumer.

WTO Finds China’s Media Laws Violate International Trade Laws

On August 12, Ars Technica and the New York Times reported that the World Trade Organization ruled against China in a complaint by the United States regarding China’s limitation on imports of songs, movies, and books. The Chinese laws constituting trade violations require that many forms of imported media must be distributed by a single, state-owned company. The laws also limit foreign ownership of Chinese media companies and allow domestic companies to bypass trade censors. Ron Kirk, the US trade representative at the WTO conference in Geneva, said that the “decision promises to level the playing field for American companies working to distribute high-quality entertainment products in China so that legitimate American products can get to market and beat out the pirates.”

Hollywood Group Secures Preliminary Injunction against DVD Copying Software

On August 11, U.S. District Court Judge Marilyn Patel issued a preliminary injunction against RealNetworks, barring the company from selling its RealDVD copying software until a jury can decide the issue, CNET News reports. She stated that RealNetworks cannot use fair use as a defense under the Digital Millennium Copyright Act or the company’s license with the DVD Copy Control Association, but noted that “[i]t may well be fair use for an individual consumer to store a backup copy of a personally owned DVD on that individual’s computer.” While the decision is seen as a major victory for the Motion Picture Association of America, the Electronic Frontier Foundations views it as a setback for innovators and consumers.

David Kappos Sworn in as New Director of USPTO

Patently-O reports that on August 13, David Kappos was sworn as Director of the United States Patent and Trademark Office. Kappos addressed USPTO employees at the ceremony, pledging to work on “reducing the backlog of unexamined patent applications, cutting pendency dramatically, working off the mounting appeals backlog, [and] improving re-exam processing.” He also projected his goals to secure more stable financial backing or the USPTO, hoping there will be no need to utilize the Office’s new authority to use trademark funds to pay for patent operations. A video of Kappos’s swearing in ceremony is available on the blog Anticipate This!

Jacobsen v. Katzer
Federal Circuit, August 13, 2008, No. 2008-1001
Slip Opinion

On August 13, the Federal Circuit ruled that open source license terms can create enforceable copyright conditions.  In Jacobsen v. Katzer, the Federal Circuit addressed the Northern District of California’s rejection of Jacobsen’s motion for preliminary injunction against competitor Matthew Katzer and Kamind Associates, Inc (”Katzer/Kamind”) for infringement of the terms of an open source license (”Artistic License”).  Jacobsen held the copyright to computer programming code, which he made available for free subject to the Artistic License.  According to Jacobsen, Katzer/Kamind incorporated portions of the code into one of their software packages without following the terms of the license. The district court concluded that the Artistic License was an unlimited non-exclusive license.  The district court held the terms of the license created mere covenants, not copyright conditions, and the defendants were thus not liable for copyright infringement.  At most, they had breached a non-exclusive license.  Breach of contract, unlike copyright infringement, creates no presumption of irreparable harm, and the court rejected Jacobsen’s motion for a preliminary injunction. The Federal Circuit reversed and remanded the district court.

The Open Source Initiative provides commentary, stating that “the District Court decision was wrong and wrong in a way that could have been a disaster for open source community.”

On appeal, the Federal Circuit reconsidered whether the terms in the Artistic License created conditions or merely covenants.  Katzer/Kamind’s admission that it had incorporated Jacobsen’s code into its own product established a prima facie case for copyright infringement, so the court examined whether Katzer/Kamind’s use fell outside of the scope of the license.  Katzer/Kamind argued that terms of the license did not create conditions, reasoning that code made available for free could not provide the copyright holder economic rights.

The Federal Circuit rejected this argument.  Although money does not change hands in open source licensing, the court said, the copyright holder enjoys economic benefits, including enhanced reputation and market share.  A copyright holder has an economic interest in requiring users to copy and restate license and attribution information, and license terms are vital to protecting this interest.   Moreover, the Artistic License explicitly described its terms as conditions and used the traditional language of conditions.  The court ruled therefore that the terms were conditions rather than mere covenants, concluding that “[t]he choice to exact consideration in the form of compliance with the open source requirements of disclosure and explanation of changes, rather than as a dollar-denominated fee, is entitled to no less legal recognition.”

At Proskauser Rose’s blog New Media & Technology, Jeff Neuburger suggests that this decision will “greatly bolster the efforts of the open source community to control use of open source software according to the terms set out in the open source licenses.”

Zohar Efroni from Stanford’s Center for Internet and Society also described Jacobsen v Katzer/Kamind as “landmark decision” because it “unequivocally held that free licensing does not mean that [the licensor has received] no economic consideration[.]“

MDY Industries, LLC v. Blizzard Entertainment, Inc. et al.
District Court of Arizona, July 14, 2008, No. CV-06-2555-PHX-DGC
Order (via Justia)

The District Court of Arizona entered a summary judgment motion finding that MDY Industries, LLC (“MDY”), creators of a software program called WoW Glider (“Glider”), were liable for contributory and vicarious copyright infringement because their program loaded a copy of a copyrighted Blizzard Entertainment, Inc. and Vivendi Games, Inc. (collectively, “Blizzard”) game into computer memory on the game-owners’ machines against the terms of the game’s End User License Agreement (“EULA”). As part of this decision, the Court also found that over-the-counter buyers of the computer game were licensees rather than owners and were thus bound by the terms in the EULA.

Judge David Campbell ruled that the EULA created a limited license rather than a sale because the title explicitly uses the word “limited” and because several of the provisions contain explicit restrictions on the use of the game which, when read together, prohibit the use of Glider. As licensees rather than owners of the game, users were only allowed to copy it under circumstances dictated by the EULA and were thus guilty of direct infringement when they used Glider because it loaded the game into the user’s RAM. A line of Ninth Circuit cases had previously held this to be “copying,” an exclusive right of the copyright holder under Section 106 of the Copyright Act. MDY was found to be liable for contributory and vicarious copyright infringement because it materially contributed to users’ direct infringement, profited from it, and declined to exercise its ability to stop Glider users from activities infringing the license.

The motions of both parties can be found here.

Public Knowledge argued that because 17 U.S.C §117 reserves to the computer user the right to make RAM copies to run the program, this construction of the EULA will allow Blizzard to retain rights it has never owned. Their amicus brief can be found here, and and Blizzard’s reply can be found here.

The Patry Copyright Blog notes the dismissal of the DMCA claim with approval but finds the copyright ruling to be wrongly decided and to also be a “chilling extension of control” by copyright holders over their products.

Corynee McSherry of the Electronic Freedom Foundation Blog also disagrees with the copyright ruling and notes other recent district court cases under Ninth Circuit jurisdiction which have come out differently, speculating that there will be an appellate decision on this matter soon.

A Note by Christina Hayes published at 22 Harv. J.L. & Tech. touched on whether Blizzard’s EULA could be enforced to limit users’ copyright fair use rights.

World of Warcraft (“WoW”) is a multiplayer online role-playing game whose copyright is owned by Blizzard. Many copies, though not all, are sold over the counter. To play the game a user must load a copy of the software and then access the online server using an online account for which the user pays a monthly fee. Glider automates some of the tedious game activities so that players progress through the game faster. In the process of carrying out this function Glider loads WoW onto the computer’s RAM.

The Court also ruled that MDY did not violate 17 U.S.C. § 1201(a)(2)(part of the Digital Millennium Copyright Act), which forbids tools that circumvent technological measures that a copyright holder has implemented to control access to its copyrighted work. Since the user does not have to pass through Blizzard’s security devices to gain access to the code, the Court found that Glider’s circumvention of these devices is not a § 1201(a)(2) violation. The Court denied summary judgment and wanted further fact-finding on the question of whether MDY violated this section with respect to “non-literal elements” of the game. Similarly, it denied summary judgment on potential MDY violations of § 1201(b)(1), which focuses on whether a technological measure protects copyright rather than whether it controls access.

The Court also granted summary judgment to Blizzard on a claim of tortious interference, to MDY on Blizzard’s claim of unfair competition, and denied summary judgment to MDY on an unjust enrichment claim.