Under the first sale doctrine, a copyright owner has the exclusive right to make and authorize a first sale of copies of his copyrighted work. Once a first sale has occurred, the purchaser of a particular copy sold is free to resell that copy without authorization of the copyright owner, and whoever purchases that resold copy is entitled to do the same. The first sale doctrine garnered a lot of attention in 2008 with the highly publicized Ninth Circuit decision in Omega v. Costco, (see IP Update, Vol. 11, No. 10 ). (An appeal in that case is now pending before the U.S. Supreme Court.) Now, another decision out of the U.S. Court of Appeals for the Ninth Circuit has once again focused attention on this doctrine in ruling that an online reseller of the famous Autodesk software was liable for copyright infringement. In this case, the 9th Circuit concluded that the reseller was not permitted to rely on the first sale doctrine defense since he was only a licensee, not an owner, of the software. Timothy S. Vernor v. Autodesk, Inc., Case No. 09-35969 (9th Cir., Sept. 10, 2010) (Callahan, J.).
The plaintiff, Vernor, resold, on eBay, several used copies of Autodesk’s AutoCAD software that he had purchased from an Autodesk customer. The customer received those copies pursuant to Autodesk’s software license agreement (SLA), which each customer must accept before installing the software. Unlike the Omega case (involving resale of imported foreign-made goods), where the copies were made and first sold (in the United States or overseas) was not at issue. Rather, the central issue was whether the copies had been "sold" or "licensed" by Autodesk to the customer from whom the defendant bought them. If the copies were sold, then both the original customer and Vernor were "owners" of the copies and would be entitled to resell them under the first sale doctrine. Relying on a 1977 9th Circuit decision involving film prints (United States v. Wise), the district court held that Autodesk had sold—rather than licensed —the copies to the customer because Autodesk’s customers received indefinite possession of their copies with no obligation to return them to Autodesk. Autodesk appealed.
In reversing, the 9th Circuit rejected the district court’s narrow reading of Wise that a first sale occurs whenever recipients are entitled to keep their copies indefinitely. The court viewed indefinite possession as a relevant but non-dispositive factor. According to the court, if a copy is received pursuant to a written agreement, Wise calls for consideration of several factors, including whether the agreement was a license, whether the copyright owner retained title to the copy, required its return or destruction, forbade its duplication or required the recipient to keep possession of the copy for the agreement’s duration. The court also discussed three post-Wise 9th Circuit software cases in which it distinguished between owners and licensees. Viewing the case law collectively, the court concluded that under the circumstance present in obtaining a copy of Autodesk software, a software user is a licensee rather than an owner of a copy. Autodesk specified that the user is only granted a license, significantly restricted the user’s ability to transfer the copy and imposed notable use restrictions. Specifically, the court found that the SLA only granted the customer a nonexclusive and nontransferable license to use the software with Autodesk, retaining title to the software and prohibited the customer from renting, leasing or transferring the software without Autodesk’s prior consent.
Since the original customer was only a licensee, the court ruled that the original customer could not rely on the first sale doctrine when it sold its copies to Vernor; Vernor likewise had no authority to resell the copies to others on eBay.
Practice Note: It has long been the practice of the software industry to make software products available to users on the basis of a license rather than a sale. Thus, the 9th Circuit’s ruling in Vernor should be welcomed by the software industry. On the other side of the issue, customers of software products should be aware that just because they paid for their software does not mean that they "own" the copies and can freely transfer or resell to others.