Autodesk and the First Sale Doctrine

Autodesk, Inc. and Timothy Vernor have gotten into a dispute over Mr. Vernor’s resale of Autodesk’s AutoCAD software on eBay.  Autodesk kept filing DMCA take down notices for each of Mr. Vernor’s auctions of AutoCAD software that Mr. Vernor had started on eBay.  After this happened a few times, Mr. Vernor hired a lawyer and sued Autodesk under the Declaratory Judgment Act, seeking a declaration of rights from a federal court within the 9th Circuit that Mr. Vernor had the right to resell Autodesk’s software.

Mr. Vernor won at the trial level.  A copy of the opinion is found at Vernor v. Autodesk, Inc., 555 F.Supp. 2d 1164 (2008).  At the heart of Mr. Vernor’s argument is the protections afforded by the Copyright Act under section 109, known as the “first sale doctrine.”  That section states: “Notwithstanding the provisions of section 106(3), the owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.”  17 U.S.C. § 109(a).  Mr. Vernor argued that his purchase at yard sales of copies of the AutoCAD software could have only occurred if AutoCAD had already sold copies of its software to another party prior to Mr. Vernor’s purchases.  Therefore, the first sale doctrine would immunize Mr. Vernor from further liability under the Copyright Act.

Autodesk, on the other hand, argued that effectively it had never sold a copy of its software to anyone, because any sale of its software is subject to a licensing agreement that specifically forbids transfer of the software, and the software in Mr. Vernor’s possession was not sold but was transferred to the prior holder via a settlement agreement between the prior entity and Autodesk.  Furthermore, the software itself is only offered for sale via a restrictive license, making the subsequent holder of the copy of the software a licensee.  As a result, section 109 provides such a person, such as Mr. Vernor, any defense.

After the trial court entered judgment for Mr. Vernor, Autodesk appealed.  The Ninth Circuit reversed the trial court.  A copy of their opinion is here: 09-35969, and is found at Vernor v. Autodesk, Inc., No. 09-35969 (9th Cir. Sep. 10, 2010).  The Ninth Circuit established a three part test for determining if the subsequent holder of a copy of software owns the software or is merely a licensee: “We hold today that a software user is a licensee rather than an owner of a copy where the copyright owner (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.”

For fun, I downloaded a copy of the End User License Agreement that Microsoft licenses its Office Suite, which you can read here: clientallup_eula_english.  I know that you will be surprised to discover that Microsoft licenses but does not sell its software to end users.  Section 7 of this agreement provides a whole host of restrictions on use and resale of its software.  So I checked on ebay to see if anyone would sell me a copy of Microsoft Office, and this morning I found 9,623 offers.  Searching for Autocad turned up over 2,400 copies for sale. Apparently many people who possess copies of software don’t pay much attention to the license agreement that makes them licensees rather than owners, and that now makes them into copyright infringers when they started offering these software packages for sale on sites like eBay.

The licensing terms for the Microsoft EULA do suggest that “use of the software” constitutes acceptance of the agreement.  Mr. Vernor indicated that he never used the copies of AutoCAD, and therefore he wasn’t bound by the agreement with AutoCAD, but this was not dispositive for the Ninth Circuit, as he bought the software from a prior holder that could not be called an “owner” based on the agreement between that entity, CTA, and Autodesk.  I’d expect this ruling from the Ninth Circuit to cause some trouble for licensees, many of whom have probably never thought when they bought that shrink-wrapped CD that they could not re-sell it later, given how common limited licensing agreements are in the world of proprietary software today.  Open Source, here we come!

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Maryland technology attorney and college professor.

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