A federal district judge in Washington state has ruled in favor of a man trying to hawk second hand software on the internet.

Defendant Autodesk makes design software which it licenses to third parties like Cardwell/Thomas Associates (CTA).  Plaintiff Vernor purchased several copies of Autodesk’s software from CTA in an “office sale.” Vernor then attempted to sell some of the physical copies of the software on eBay.

Autodesk filed a VeRO notice with eBay against Vernor in order to remove Vernor’s sales.  As a result of the VeRO notice, Vernor’s sales and eBay account were temporarily suspending.  Vernor then filed a complaint against Autodesk in the US District Court for the Western District of Washington alleging wrongful initiation of the takedowns, that the takedowns constituted unfair trade practice and for declaratory relief that Vernor had the right under the first sale doctrine to sell the copies of software he acquired from CTA.

Last year, the district court rejected Autodesk’s motion for summary judgment to dismiss Vernor’s complaint.  The court held that the original transaction between Autodesk and CTA constituted a sale and that the subsequent transfer of the software to Vernor was a further sale protected under the first sale doctrine.  On September 30, 2009, after the close of discovery, the court issued an order reaffirming its prior ruling and finding that Vernor had the right under the first sale doctrine to resell the software copies.

The determinative issue before the court was whether the Autodesk License “is a license that transfers ownership of the software copies included in the [software] packages.”

Under the Copyright Act, copyright holders have exclusive rights to control distribution and reproduction of their works.  The Copyright Act, however, places a limitation on these rights with the first sale doctrine.  “Owners” of a copy of a copyrighted work may “sell” that copy without infringing the rights of a copyright holder.

In United States v. Wise, the US Court of Appeals for the Ninth Circuit held that when the transferee of “licensed” copyrighted content had a right to indefinitely possess the work, the transferee “owned” the work for purposes of the first sale doctrine.  While the copyright holder had placed a provision in the agreement stating that the copyright holder reserved title in the copy, the Wise Court focused on whether the transferee had the right to retain possession of the copy indefinitely. 

After Wise, the Ninth Circuit decided a series of copyright cases which appeared to favor the copyright holder.  For example, in MAI Systems Corp. v. Peak Computer Inc., the Ninth Circuit found for the copyright holder when computer repair technicians made unauthorized copies of software, concluding that the customers were merely licensees.

While such decisions present conflicts in reasoning and application, the district court here concluded it was bound to follow Wise, the earlier precedent, and must ignore the often cited opinion in MAI Systems Corp.

Under Wise, licenses that permitted copyright holders to regain possession of the copyrighted work conferred “mere” licenses.”  The district court called Autodesk’s license “a hodgepodge of terms, that standing alone, support both a transfer of ownership and a mere license.”  Here, licensees were required to destroy copies when they purchased an upgrade but licensees were not required to purchase the upgrade.  Therefore, the licensee, not the copyright holder, had control over the disposition of the software. 

Because the copyright holder failed to provide for the ability to regain possession of the copy, “retaining title in a copy is meaningless.”  The court held that plaintiff owned his copies of the software and was free to resell them on eBay.

For further information on the implications of this decision, please contact Arent Fox trademark attorneys:

Anthony V. Lupo
lupo.anthony@arentfox.com
202.857.6353

Sarah I. Marks
marks.sarah@arentfox.com
212.492.3307