The US District Court for the Northern District of California recently issued a decision in Adobe Systems Inc. v. Hoops Enterprise LLC, denying an eBay reseller of copyrighted works the protections of the first sale doctrine. The decision emphasizes the crucial distinction between licenses and sales of copyrighted works, as under Ninth Circuit precedent, the first sale affirmative defense does not apply to licensed works.

Adobe Systems Inc. (“Adobe”) sells copyrighted computer software, including the popular Photoshop Elements 8. Sometimes rather than selling its software separately, Adobe enters into licensing agreements with computer hardware manufacturers, such as Dell or Hewlett Packard, where Adobe’s software is preinstalled on the other party’s computers.

The defendant in Adobe Systems Inc. purchased bundled computer hardware and software and then resold the Adobe software separately on eBay without authorization from Adobe. The defendant claimed his actions were protected by the first sale doctrine, which holds that a bona fide purchaser of a physical copy of a copyrighted work may sell that copy to a third party without infringing the copyright owner’s exclusive distribution rights. He also alleged copyright misuse and unfair competition claims under state law.

In granting Adobe’s motion for partial summary judgment, the court found the first sale doctrine was not applicable to the case at bar because the software at issue was licensed to the original purchasers (e.g. Dell and Hewlett Packard), rather than sold to them. In holding that the software was licensed rather than sold, the court emphasized that the agreement between Adobe and the hardware manufactures (a) specifically stated that it granted a license to the software, (b) significantly restricted the user’s ability to transfer the software, and (c) imposed significant use restrictions on the software. The court also followed the landmark Ninth Circuit decision in Omega S.A. v. Costco Wholesale Corp., which found that the first sale doctrine does not apply to products that are manufactured abroad.

The Adobe case demonstrates to copyright owners the importance of properly drafting copyright license agreements and maintaining sufficient control over their licensed products so they do not lose the exclusive rights conferred by the Copyright Act.