Legal Research

Shrinkwrap looking safe again, thanks to 9th circuit court

By scott

Catching up on things that happened whilst I was holiday and I was disappointed, but not urprised, to see that a three-judge panel of the US 9th Circuit Court of Appeal has overturned a federal district court ruling that had said that an individual can resell legitimate software on sites such as eBay without breaching copyright.

The case, which I covered here first back in October 2009 [see also slightly longer piece ‘US ruling on software resale’ - Comps. & Law 2009, 20(4), 5-6] , concerned an eBay merchant named Timothy Vernor, who bought authentic AutoDesk AutoCAD software packages at garage/office sales and put them up for auction on eBay. Autodesk sought to stop him from selling the copies arguing that as it only licenses copies of its software, rather than selling them, any resale of the software constitutes copyright infringement.

In its most simplistic form, the District court had interpreted the 9th Circuit’s ruling in United States v. Wise (concerning film print sales) to hold that a first sale occurs whenever the transferee is entitled to keep the copy of the work. Since Autodesk does not require its customers to return their copies of Release 14 (the software release in question), the district court found that Autodesk had sold Release 14 so Vernor and his eBay customers were successive ?owner[s] of a copy? of the software and were entitled to resell it under the first sale doctrine.

The 9th Circuit disagreed, stating whilst it did consider a transferee?s ability to possess a print indefinitely as one factor in its analysis of that case they did not treat it as dispositive. According to the court, its own precedents in wise and in MAI Sys. Corp. v. Peak Computer (cited in two subsequent cases) found that if a company licensed its software, its customers do not qualify as ‘owners’ of the software, and that a 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.

In this case, the court found it was clear that AutoDesk did each of these three things when it licenced the release of the software to CTA - the company Vernor bought his copies from in an office sale.

The court did concede that though there decision was based on precedent there were significant policy considerations raised by the parties and amici on both sides of this appeal, but that it would be for Congress to modify the first sale doctrine and the essential step defense if it deems these or other policy considerations to require a different approach than that taken by the court.

The court’s decision is not a big surprise. It seemed clear that, in case such as this, unless the shrinkwrap licence itself was struck down as unenforceable that, the licence makes it clear that the author retains ?ownership? of the software, and all you as a user are ?buying? is the license to use the software. As such, you cannot ?sell? that software to anyone else, because you don?t own it.

The decision does not bode well for MDY Industries, who are waiting for the 9th Circuit to rule on their appeal of a District Court for the District of Arizona ruling which found that purchasers of the game World of Warcraft (WoW) did not own their copy but were mere licensees of the game, and are required to adhere to the End User License Agreement and the Terms of Use set by Blizzard.

Vernor may try appealing the decision, by asking for an ” en banc? review of a full 11 judge panel of the Court.

Full post as published by Information Overload on September 14, 2010 (boomark / email).