Ninth Circuit says consumers may not own their software

by Greg Beck

Most people outside the software industry probably assume that when they pay money in exchange for a package of software, they have just purchased that software. In Vernor v. Autodesk, the Ninth Circuit today cast that assumption into doubt. The court held that Timothy Vernor, who purchased authentic, second-hand copies of software at garage and office sales to sell on eBay, did not own that software and thus had no right to resell it.

Public Citizen represented Vernor in his case against software-publisher Autodesk, which claimed that reselling the software on eBay was copyright infringement. The district court agreed with Vernor and rejected Autodesk’s copyright argument, holding that Vernor had a right to resell the software under copyright’s first-sale doctrine. The first-sale doctrine holds that the “owner of a particular copy” of a copyrighted work has the right to resell that work without permission of the copyright owner. The doctrine dates from a 1908 Supreme Court decision in which the Court held that a book publisher could not restrict the price at which its books were sold on the secondary market, and Congress subsequently added the doctrine to the Copyright Act as one of the law’s crucial consumer-protection provisions. Here, the district court held that Vernor was the “owner” of the software, and thus entitled to the doctrine’s protection, because Autodesk had distributed the software in exchange for a one-time payment and had no expectation that the software would ever be returned. In other words, because the transaction looked like a sale, it was a sale.

The Ninth Circuit disagreed, relying on the “license agreement” that Autodesk packages with its software. The license stated that Autodesk retained title in the software, restricted redistribution, and imposed some other terms that are pretty typical in the software industry, such as a prohibition on reverse engineering. The Ninth Circuit held that these terms were restrictive enough that anyone in possession of the software could not be considered its actual owner. Although Vernor never installed the software or agreed to its terms, the court held that license effectively bound him anyway because Autodesk, as the software’s legal owner, could dictate the terms on which it was used.

If standard fine-print license terms like Autodesk’s are enough to withhold ownership, it is safe to assume that most people do not own the software they believe they have bought. And, unfortunately, there is no obvious reason why other publishing industries couldn’t begin imposing the same terms. If they do, it may be the end of ownership of books and music.

The Ninth Circuit acknowledged the seriousness of some of these concerns, but held that its hands were tied by prior circuit decisions. Hopefully, the en banc court will be willing to reconsider those decisions.

Comments

[Alex]

Just to add...

The ruling actually doesn't affect me because I live in a small European region which as a home of Mercedes and Porsche (but I drive BMW), the problem is the following scenario:

I, as an owner of multiple Philips LCD TVs with Ambilight (very high quality and best experience, highly recommended) receive an offer from Philips to buy the latest and greatest version at discounted price.

The fine print says that I must "destroy" all my Philips LCD TVs previously bought from Philips.

Instead, I sell all my old TVs to the Ninth Circuit for 0.01 EURO.

Question: Am I guilty of trafficking in stolen goods?

Is Ninth Circuit also a criminal for using one of my old TVs?

[Alex]

A court headquotered in California overruled California Civil Code?

It has been pointed out that Vernor opinion suggesting that Vernor was not an owner of copies he bought (suggesting that it was not his property) contradicts California Civil Code:

http://law.justia.com/california/codes/2009/civ/654-663.html

"The ownership of a thing is the right of one or more persons to possess and use it to the exclusion of others. In this Code, the thing of which there may be ownership is called property."

It's unbelievable... simply unbelievable.

Vernor opinion also contradicts the 2nd Cir.

http://caselaw.findlaw.com/us-2nd-circuit/1357970.html

"Several considerations militate against interpreting § 117(a) to require formal title in a program copy. First, whether a party possesses formal title will frequently be a matter of state law. See 2 Melville B. Nimmer & David Nimmer, Nimmer on Copyright § 8.08[B][1] (stating that copy ownership “arises presumably under state law”). The result would be to undermine some of the uniformity achieved by the Copyright Act. The same transaction might be deemed a sale under one state's law and a lease under another's. If § 117(a) required formal title, two software users, engaged in substantively identical transactions might find that one is liable for copyright infringement while the other is protected by § 117(a), depending solely on the state in which the conduct occurred. Such a result would contradict the Copyright Act's “express objective of creating national, uniform copyright law by broadly preempting state statutory and common-law copyright regulation.” Cmty. for Creative Non-Violence v. Reid, 490 U.S. 730, 740, 109 S.Ct. 2166, 104 L.Ed.2d 811 (1989); see also 17 U.S.C. § 301(a).

Second, it seems anomalous for a user whose degree of ownership of a copy is so complete that he may lawfully use it and keep it forever, or if so disposed, throw it in the trash, to be nonetheless unauthorized to fix it when it develops a bug, or to make an archival copy as backup security.

We conclude for these reasons that formal title in a program copy is not an absolute prerequisite to qualifying for § 117(a)'s affirmative defense. Instead, courts should inquire into whether the party exercises sufficient incidents of ownership over a copy of the program to be sensibly considered the owner of the copy for purposes of § 117(a). The presence or absence of formal title may of course be a factor in this inquiry, but the absence of formal title may be outweighed by evidence that the possessor of the copy enjoys sufficiently broad rights over it to be sensibly considered its owner."

Vernor opinion is whittling away at our rights. It sounds like a ruling made in socialist heaven. Of course we don't own our CDs, books, records, tapes, DVDs, software etc etc. Now all they need to do is figure out a way to take the copyrights away so that nobody own any intellectual property. Cultural revolution anyone?

Please appeal to en banc/SCOTUS ASAP!

[MLeFou]

I'm not a lawyer but making what sense I could of that decision's pdf terrified me. You say " there is no obvious reason why other publishing industries couldn’t begin imposing the same terms" and I agree -- in fact most books and films already impose #2 and #3 of the dispositive criteria, viz:
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

I'm thinking of the !FBI Warning! prior to the feature that tells me I can't do anything whatsoever with the movie, and the similar language inside every book.

If they squeeze the word "license" into this warning somewhere, it would mean you couldn't resell any of these things. Or -- at least -- that you'd have a lot of work to do to make sure you owned them and could legally sell them.

[Nathan Johnson]

Personally, I can swallow that I don't own the software itself, that is the intellectual property that they created. The same way I can't say I created the words in a book that I purchased; but I do own the pages upon which it was printed and can therefore loan, rent or sell it as I see fit. I don't see why the courts refuse to make the connection and simply say that those terms of the EULA violate first sale and are therefore unenforceable.

Bottom line is there should be no way they can say you don't own the license to use that software and therefore should not be able to restrict your ability to sell that license.

[Dan Moulding]

In what bizzare universe is distribution of copies via "licensing" a concept that even makes any sense? There is no exclusive right to distribute copies via "licensing", that I'm aware of. It's simply not in the list of enumerated exclusive rights in 17 USC 106. The copyright holder has the right to distribute "by sale or other transfer of ownership, or by rental, lease, or lending". Clearly Autodesk's characterization of the distribution isn't "sale or other transfer of ownership". But it doesn't fit any of "rental, lease, or lending", either. All three of those types of distribution entail eventual return of the property.

It would seem that anyone may distribute copies via "licensing" since that's not one of the exclusive rights of the copyright holder. Could Vernor avoid all this trouble by crafting his own "license" by which he distributes the discs? Obviously this is absurd, but it seems to be an inescapable consequence of the court's finding.

[Ray]

How can someone agree to such a unique license when that license is behind a sealed cover in a closed box? I'm sure all licenses are unique to the software and I have never seen anything on the box that says there are special agreements that must be made. Once that box is opened you can’t return it. Whenever I have purchased software there is always some part of it that says 'by opening and installing this software you agree...' stuck to the case/envelop that contains the disc. This is just another example of how business and law are acting childish.

[Jmosch0410]

Does that mean that if publishers of books, movies and video games started to put the same restricted redistribution terms on their products that all of the stores that sell used books, movies and video games would have to close their doors?

There should be some restrictions on what kind of restrictions are allowed.