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May 25, 2008 - Content has not be altered. Article has been reformatted for easier reading.

Court smacks Autodesk, affirms right to sell used software

By Timothy B. Lee | Published: May 23, 2008 - 12:21PM CT

A federal district judge in Washington State handed down an important decision this week on shrink-wrap license agreements and the First Sale Doctrine. The case concerned an eBay merchant named Timothy Vernor who has repeatedly locked horns with Autodesk over the sale of used copies of its software. Autodesk argued that it only licenses copies of its software, rather than selling them, and that therefore any resale of the software constitutes copyright infringement.

But Judge Richard A. Jones rejected that argument, holding that Vernor is entitled to sell used copies of Autodesk's software regardless of any licensing agreement that might have bound the software's previous owners. Jones relied on the First Sale Doctrine, which ensures the right to re-sell used copies of copyrighted works. It is the principle that makes libraries and used book stores possible. The First Sale Doctrine was first articulated by the Supreme Court in 1908 and has since been codified into statute.

Dueling DMCA notices As we discussed when the lawsuit was filed last year, Vernor makes his living selling used comic books, video games, software, and collectibles. He obtains these items at garage sales, office sales, and flea markets and auctions them off on eBay. When he began selling used copies of AutoCAD software,
he attracted the attention of its manufacturer, Autodesk, which began filing infringement notices under the Digital Millenium Copyright Act. After each notice, Vernor filed a counter-notice stating that he was selling authentic, used copies of the software. After the fifth such altercation, eBay suspended his account, preventing him from earning a living for a month.

Wanting to continue selling used software but fearing another suspension of his eBay account, Vernor sought the help of the progressive advocacy organization Public Citizen. They filed suit in federal court last year seeking a declaration that his actions were legal under copyright law and that Autodesk was abusing the DMCA by filing take-down notices. He argued that under the First Sale Doctrine, he was entitled to re-sell authentic copies of Autodesk's software with or without the company's permission.

In its reply, Autodesk argued that Vernor was not the lawful owner of the software he was selling because Autodesk only licenses copies of its software rather than selling them. Therefore, Autodesk claimed, no "sale" to the software's original owner had occurred, and the First Sale Doctrine did not apply. Moreover, Autodesk noted, the license terms specifically prohibited transferring the software to another party, which meant that Vernor could not legally acquire it without Autodesk's permission.

Quacks like a duck

But as Vernor's lawyers pointed out, the distinction between a lease and a sale is based on the actual characteristics of the transaction, not merely on how the transaction is described by the parties. And characterizing AutoCAD as merely licensed, rather than sold,
barely passes the straight face test. AutoCAD customers pay a lump sum at the time of purchase, with no obligation to make further payments or to return the software at the conclusion of the supposed lease. Even more damning, Autodesk's own website offers customers a variety of "purchase options" and the opportunity to "buy online" directly from Autodesk, with no indication that "buy" really means "license." Similarly, online retailer CDW offers customers an option to "lease" AutoCAD as an alternative to purchasing a copy.

As the Electronic Frontier Foundation's Corynne McSherry put it in a Thursday blog post, "if it looks like a duck and quacks like a duck, chances are it's a duck." Autodesk clearly sells its software, and merely re-labeling the transaction as a license doesn't negate the First Sale Doctrine.

Vernor's lawyers also noted that he had never opened the AutoCAD packages and installed the software contained inside. Therefore, to the extent the licensing agreements were enforceable, they were enforceable against the original owners, not against Vernor. And even if the license agreements did somehow bind Vernor, at most Vernor could be guilty of breach of contract, not copyright infringement, which makes the use of the DMCA inappropriate.

Judge: AutoCAD is sold, not licensed

In a 21-page decision, Judge Jones sided with Vernor. Citing the 1977 case of United States v. Wise, which involved the sale of used films obtained under dubious circumstances, Jones found that the Ninth Circuit's precedents suggested that the circumstances surrounding the sale of AutoCAD software constituted a sale, not merely a license. Therefore, the First Sale Doctrine applied, and Vernor was not bound by any of the terms in Autodesk's license agreement.

But the judge acknowledged that three more recent Ninth Circuit decisions involving software seemed to cut in the opposite direction without explicitly overturning Wise. Jones found that Wise was controlling precedent, and ruled in Vernor's favor. If the case gets appealed to the Ninth Circuit, the conflict among these precedents is likely to occupy the court's attention. The trio of more recent cases hints that the Ninth Circuit is sympathetic to characterizing software sales as licenses for legal purposes. However, none of those cases involved circumstances exactly like Vernor's, and the court never dealt squarely with the question of what factors determine whether software is sold or licensed.

If Jones's ruling is upheld on appeal, it will have important consequences for the software industry, where the legal fiction that software is merely licensed is widely employed. In addition to discouraging the market for used software, software firms have also attempted to use the "licensed, not sold" theory to enforce restrictions on reverse engineering that would otherwise be fair use under copyright law. If software is sold, rather than licensed, then no license is required to install and use the software, and the terms of shrink-wrap licenses may not be legally binding.

The Autodesk case is not the only case regarding the first sale doctrine working its way through the courts. Another lawsuit filed last summer concerns another eBay seller who sells used promo CDs. Like Vernor, the plaintiff in that case faced repeated DMCA takedown notices and sued to vindicate his right to sell used merchandise online. EFF is representing the plaintiff in that case, and McSherry tells Ars that while there are important differences between the cases, the opinion bodes well for EFF's case because "it affirms that copyright owners can't use license restrictions to strip away first sale rights."

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