Roughly a year ago, I wrote about a couple of federal district court decisions. These cases ruled that a software license could, in certain circumstances, be characterized as a sale. Recently, one of those decisions, Vernor v. Autodesk, Inc., was overruled by the Ninth Circuit. This decision will give software owners some relief and better control in managing the distribution of their software in the marketplace. Nevertheless, software owners must continue to remain vigilant to protect their intellectual property.
Autodesk makes AutoCAD, the popular computer-aided design software. Timothy Vernor purchased several copies of AutoCAD from one of Autodesk's customers, and then listed them at various times for sale on eBay. On each occasion, Autodesk sent Vernor and eBay a takedown notice under the Digital Millennium Copyright Act. Vernor believed that he was authorized to sell the software under the First Sale Doctrine and, therefore, brought suit in federal district court to establish that his resales of AutoCAD copies did not constitute copyright infringement.
The First Sale Doctrine places a limitation on a copyright owner's exclusive right to distribute a copyrighted work: the doctrine allows owners of copies of copyrighted works to resell those copies. This defense, however, is unavailable to mere licensees of copyrighted works. The district court found that Autodesk's customers were owners that could resell copies of AutoCAD under the First Sale Doctrine because Autodesk's license did not require its customers to return unused copies of AutoCAD. After an extensive review of precedent, however, the Ninth Circuit held that Autodesk's customers were merely licensees because the AutoCAD license (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. Hence, both Autodesk's original AutoCAD customers and Vernor were not entitled to resell AutoCAD under the First Sale Doctrine, but rather both had infringed upon Autodesk's exclusive right to distribution under the Copyright Act.
What This Means For You
Although the Ninth Circuit's reversal of the district court decision in Vernor gives software companies better control over the secondary market for their products, this decision is not binding outside of that circuit, and intellectual property law in this area will continue to evolve. Other courts may rule differently. Hence, as I wrote in my previous post: give your software product's license a careful review and determine whether you need to insert end-of-use termination provisions or a clause terminating the license after a particular date.