Court Rules That Software License Transfers Ownership
By Kate Wevers – Edited by Anthony Kammer
Vernor v. Autodesk, Inc., No. C07-1189RAJ (W.D. Wash., Sept. 30, 2009)
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.