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Ninth Circuit rules software reseller cannot invoke 'first sale doctrine' in copyright suit

By Dwyer Arce

[JURIST] A panel of the US Court of Appeals for the Ninth Circuit [official website] ruled [opinion, PDF] Friday that a second-hand software merchant may not invoke the first sale doctrine [17 USC § 109 text] as a defense in copyright litigation when the software licensing agreement (SLA) specifies that the distributor maintains ownership of the software. The court held that because the SLA specified that the distributor maintained ownership rights and the software user was a licensee, the merchant could not assert the first sale doctrine or essential step defense as defenses against a copyright infringement suit. The first sale doctrine is an affirmative defense to copyright infringement that allows the resale of copyrighted materials, such as software, books and films. The essential step defense allows the owners of software to copy the program where it is an "essential step in the utilization of the computer program." The court held that a software user is a licensee and not an owner of software when the copyright holder "(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." Applying this standard to the case, the court held that the merchant was a licensee and therefore could not invoke the two defenses:

Autodesk retained title to the software and imposed significant transfer restrictions: it stated that the license is nontransferable, the software could not be transferred or leased without Autodesk's written consent, and the software could not be transferred outside the Western Hemisphere. ... Thus, because Autodesk reserved title to [the software] and imposed significant transfer and use restrictions, we conclude that its customers are licensees of their copies of [the software] rather than owners. ... Therefore, Vernor did not [have] title to the copies ... and accordingly could not pass ownership on to others. ... Vernor's sales infringed Autodesk's exclusive right to distribute copies of its work.

The court went on to remand the case to the district court in order to decide on Vernor's copyright misuse defense, which is a defense to copyright infringement when the copyright holder has abused their copyright. Vernor's attorneys have stated their intention to seek an en banc review of the decision [AP report], and may appeal to the US Supreme Court.

The decision overturns the judgment of the US District Court of the Western District of Washington, which granted summary judgment [opinion text] in Vernor's favor. The case was brought against Vernor after he sold unopened copies of Autodesk's software he obtained at a garage sale on eBay. In April, the Supreme Court granted certiorari [JURIST report] in Costco v. Omega, in which it will review another decision of the Ninth Circuit regarding the first sale doctrine. The Ninth Circuit held in 2008 that the first sale doctrine does not apply to imported goods [JURIST report]. The case turns on whether the Supreme Court has already overturned the Ninth Circuits' jurisprudence on the first sale doctrine in the previous decision of Quality King Distributors, Inc. v. L'anza Research International, Inc. [opinion text].

Full post as published by JURIST - The Paper Chase on September 12, 2010 (boomark / email).