Update: Ownership Or License?

Posted on May 4, 2011

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In June 2010, we discussed the case of Vernor v. Autodesk, Inc. In 2008, Autodesk, a business that produces 3-D modeling software, sued Craig Vernor for selling used copies of the company’s software on E-Bay. Autodesk argued that software is licensed and not owned by the user, therefore making it illegal for any purchaser to re-sell the product and profit from it.

While Vernor prevailed in early proceedings, the Ninth Circuit Court of Appeals vacated the district court’s grant of summary judgment to Vernor and remanded for further proceedings.

Unlike earlier courts, the Ninth Circuit Court of Appeals ruled that Vernor licensed the software rather than owning it. Since he did not purchase ownership rights from Autodesk, he did not have the authority to re-sell the company’s products. According to the court, he cannot invoke the first sale doctrine to protect him in this matter.

The first sale doctrine was established in 1908 and holds that once the owner of a copyright has sold the work, he or she can no longer make claims on subsequent sales of the work. Bobbs-Marrill Co. v. Straus, 210 U.S. 339 (1908).  (Think of used book, car and clothing markets.) At stake in this case was the issue of whether a transferee of a copy of a copyrighted work is an owner or licensee of that copy.  If Vernor licensed the software rather than owning it, the first sale doctrine would no longer apply, as the court eventually ruled.

The Court of Appeals held that “a software user is a licensee rather than an owner of the copy where the copyright owner (1) specifies that the user is granted a license; (2) significantly restricts the user’s ability to transfer and software; and (3) imposes notable use restrictions” Vernor v. Autodesk, Inc., 621 F. 2d 1102, 1112 (2010).  Autodesk retained title to its software and imposed significant restrictions on those who buy its software.  The court thus came to the conclusion that Vernor was a licensee and thus cannot invoke the first sale doctrine or essential step defense.

The entirety of the decision can be found here.

The Court recognized that its decision could have major ramifications for the software and motion picture industries, and it remains to be seen what effect, if any, this reversal will have on future litigation.

Elizabeth Ritter
Ritter Law Firm, LLC

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