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Court Says First Sale Doctrine Doesn't Apply To Licensed Software

Posted by Soulskill on from the make-up-your-mind dept.

An anonymous reader wrote to tell us a federal appeals court ruled today that the first sale doctrine is "unavailable to those who are only licensed to use their copies of copyrighted works." This reverses a 2008 decision from the Autodesk case, in which a man was selling used copies of AutoCAD that were not currently installed on any computers. Autodesk objected to the sales because their license agreement did not permit the transfer of ownership. Today's ruling (PDF) upholds Autodesk's claims: "We hold today that a software 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. Applying our holding to Autodesk’s [software license agreement], we conclude that CTA was a licensee rather than an owner of copies of Release 14 and thus was not entitled to invoke the first sale doctrine or the essential step defense. "

21 of 758 comments (clear)

  1. Bad consequences by Anonymous Coward · · Score: 5, Insightful

    This is going to mean bad things for all the rest of us.

    1. Re:Bad consequences by ChrisKnight · · Score: 5, Insightful

      Just wait until publishers of physical books and magazines add a 'license agreement' to the first page.

      This ruling has the potential to strip the right of first sale from all future books, magazines, CDs, DVDs, etc.

      --
      -- This sig is only a test. If this were a real sig it would say something witty. --
    2. Re:Bad consequences by Maxo-Texas · · Score: 5, Interesting

      No. We need them to add it ASAP and push the issue hard.

      This is one of those "on the internet" type things where the judges are missing reality because they are not seeing it in a familiar context.

      Push the license for books, CD's, cars, clothing, everything you can.

      --
      She was like chocolate when she drank... semi-sweet at first and then increasingly bitter.
    3. Re:Bad consequences by Anonymous Coward · · Score: 5, Informative

      Just wait until publishers of physical books and magazines add a 'license agreement' to the first page.

      They used to do exactly that, and that is exactly what the First Sale doctrine was created in response to.

      This case is even more egregious than the summary suggests because the plaintiff Timothy Vernor never agreed to any license terms with Autodesk. He never opened the packages, never saw an agreement, never clicked through an agreement, and certainly never signed an agreement. Vernor owned these copies until this court said he didn't, and Autodesk's only recourse should have been a civil action against CTA for breaking its contract terms.

    4. Re:Bad consequences by Zencyde · · Score: 5, Insightful

      While I do hate this strategy, showing the obvious fallacies of a system by pushing it to its limits is one of the more effective ways. Reductum ad absurdum is not simply a logical argument but an overall strategy that can be applied to demonstrate scalable effectiveness of a system. I know we shouldn't expect a system to scale perfect but in this case the system seems to not scale very well at all.

      Also, I'd like for it to now be legally disallowed to use the term "buy software" in a commercial context as it no longer applies and would falsely advertise what it is that we "purchase".

      --
      What day is it? Could you please tell me?
    5. Re:Bad consequences by TheoMurpse · · Score: 5, Informative

      What all this ignores is that publishers' attempts to put restrictions on books was what CAUSED the creation of the "first sale doctrine" in the first place.

      I don't know what it is with some of these court decisions lately, but it's almost like in the last few years the judges have turned into a bunch of morons who ignore precedent and have never picked up a history book.

      To be fair, you're wrong that this case is exactly like Bobbs-Merill Co. v. Straus, 210 U.S. 339 (1908), the case that created the first-sale doctrine.

      In that case, Bobbs-Merill sold books to wholesalers their copyrighted book including a "shrinkwrap" license saying retailers shall not sell the book below a certain price. Wholesalers sold the books to retailers. Retailers sold the books below the certain price to consumers. The Court held that the license was not binding upon the retailers because there was no privity of contract between the retailers and Bobbs-Merill. This is true: there was only privity of contract between Bobbs-Merill and the wholesalers. And as the license only purported to bind retailers, the wholesalers did not violate the terms of the license either.

      However, the case at hand is distinguishable. Here, CTA initially installed the Autodesk software. However, as part of the installation process, CTA agreed not to resale the software. As the sale was from Autodesk to CTA initially, there was privity of contract. Thus, the license is enforceable against CTA.

      CTA later resold the software in violation of this agreement. This revokes CTA's license, which means the copies Vernor sold on eBay were unlicensed, infringing copies from the moment he purchased them. When he sold them, he also infringed. This is textbook copyright law. Read the first few sections of 17 USC to verify. I'm honestly too lazy to pull up a citation for something extremely uncontroversial in an otherwise engaging discussion on /.

      This case would only be analogous to Bobbs-Merill if the license in that case had forbidden the wholesalers from doing something, and the wholesalers had violated the license. Had the wholesalers violated the license, any copies sold to the defendants subsequent to the violation would have been infringing, and the first-sale doctrine would not have applied.

      If you have any questions, please respond. At first glance, the Autodesk case appears to be a rehash of the Bobbs-Merill case. However, Bobbs-Merill turned on privity of contract, while the Autodesk case turns on sales of unlicensed software. Privity is merely tangential to the Autodesk case.

      Seeing as how it is very difficult to explain things and make legal arguments on /. in this tiny <TEXTAREA>, I've undoubtedly not been clear enough in my explanation. Hopefully I have, but if I have not, I hope someone points it out so I have the chance to clarify.

      It also appears to ignore the issue of "shrink wrap" licensing, which violates the very basic principles of contract law, and which has never been found to be binding by any major court to date.

      Well, it ignores the shrinkwrap issue because it's wholly irrelevant to the case.

      To explicate by way of analogy: If you buy an infringing CD (illegal copy made by Son May in Asia, for example) and sell it to someone else, you have committed copyright infringement even if you did not know the CD was infringing. Similarly, Vernor (the Autodesk defendant) bought an already infringing copy and resold it. He therefore did commit copyright infringement, regardless of his knowledge of infringement.

      We can argue the merits of mens rea-less infringement on moral/ethical grounds, but the law is clear on that issue right now: you don't have to know you're infringing to infringe.

    6. Re:Bad consequences by Runaway1956 · · Score: 5, Insightful

      The problem is - what was truly absurd 50 years ago was made legal 40 years ago - and what was absurd 40 years ago was made legal 30 years ago. They keep pushing the envelope, and the kids coming up are brainwashed into accepting the newest absurdity. The "rights holders" outlive the voters and the customers, so today's customers have little idea where things started out, and little idea of what is absurd!

      --
      "Windows is like the faint smell of piss in a subway: it's there, and there's nothing you can do about it." - Charlie Br
    7. Re:Bad consequences by Belial6 · · Score: 5, Insightful

      Also, I'd like for it to now be legally disallowed to use the term "buy software" in a commercial context as it no longer applies and would falsely advertise what it is that we "purchase".

      Seriously. If a person watches a commercial that says a product is for "sale". They go into the store and see a "sale" sign for the product. They then take the product to the cash register and offer to "buy" the product. The cashier runs the transaction, takes their money, and hands them a "sales receipt". How is this not a SALE of the product?

    8. Re:Bad consequences by Chowderbags · · Score: 5, Interesting

      So the concession is that the copyright holders get to shaft us in a new way, and we get nothing? A compromise would be "licensed software doesn't have the first sale doctrine, but the license cannot be modified 'at will', preventing a licensed user from using their software entitles them to a full refund, licenses must be readable by people who didn't spend their youth getting a law degree, licenses should be fully available before purchase, if a EULA isn't agreed to a user can return it for a full refund to where they bought it, etc, etc". Hell, I'd settle for a copyright length that puts things produces when my grandparents were kids into public domain. This whole notion of "we should compromise" only works when dealing with reasonable actors. Corporations are not reasonable.

  2. Yay! by Pojut · · Score: 5, Insightful

    Wait...what? Seriously?

    Many industries have been trying for literally decades to prevent used or second-hand sales...but parts of the software industry are the ones to actually do it? Huzzah. That's so awesome. Thanks for fucking us over once again. Guess what people will do when they can't buy a used copy and don't have money for a new copy?

    Yaargh.

    --
    Living With a Nerd
    1. Re:Yay! by Culture20 · · Score: 5, Insightful

      Many industries have been trying for literally decades to prevent used or second-hand sales..

      Expect an End User License Agreement with your next car or house. Car manufacturers and home builders would love that.

    2. Re:Yay! by russotto · · Score: 5, Insightful

      What you buy is a license, and the contract you sign is the EULA you click through when you install the software.

      Piss on that, and piss on the Ninth Circuit (in whose jurisdiction I do not reside). What I buy is a copy of a piece of software. The thing in the box is merely an impermissible attempt to restrict my rights post sale.

      And the First Sale Doctrine is just that, a doctrine - not a federally protected right.

      It's in the copyright code, 17 USC 109.

    3. Re:Yay! by Sloppy · · Score: 5, Interesting

      The problem is, you are not actually buying something. You are acquiring a license to use.

      Let's look at two scenarios. In one case, a person is buying a loaf of bread. In another case, a person is buying software. I'm not going to tell you which is which.

      Scenario 1: person walks into store, takes [censored] off the shelf, carries it to cash register, pays $n dollars cash, does not sign or click anything, cashier places [censored] into a bag, and customer walks out of the store, carrying the bag.

      Scenario 2: person walks into store, takes [censored] off the shelf, carries it to cash register, pays $n dollars cash, does not sign or click anything, cashier places [censored] into a bag, and customer walks out of the store, carrying the bag.

      In which of these scenarios did a person acquire a license to use something, and in which did they become the new owner of a physical object?

      --
      As copyright owner of this comment, I authorize everyone to defeat any technological measure which limits access to it.
  3. Oh, crap by ak_hepcat · · Score: 5, Insightful

    This is a ruling that is going to spur a lot of changes to software vendors.

    *everybody* will end up being "a licensee" of the software, and you will no longer own anything.

    And yes, this will extend to FOSS as well... licensing through copyright is still licensing....

    Do these judges even understand the enormity of their decisions?

    --
    Support FSF: Stop thinking with your wallet, and think with your imagination. (cc/non-commercial)
  4. So let me get this straight... by Anonymous Coward · · Score: 5, Insightful

    You buy something (and you *are* buying it, because the "agreement" isn't presented before the sale.)

    You try to install it, and disagree with the EULA, so press "I disagree", and the software doesn't get installed.

    You then sell it to try to recoup some of your lost money.

    But you can't, because the *agreement*, which you did not agree to says you can't.

    The USA is officially the most fucked country on earth.

    1. Re:So let me get this straight... by Grond · · Score: 5, Informative

      You buy something (and you *are* buying it, because the "agreement" isn't presented before the sale.)
      You try to install it, and disagree with the EULA, so press "I disagree", and the software doesn't get installed.
      You then sell it to try to recoup some of your lost money.
      But you can't, because the *agreement*, which you did not agree to says you can't.

      Those weren't the facts of the case at all, nor is it the rule the court laid out. Read the opinion. The undisputed facts were that Autodesk busted a company (CTA) for unauthorized use of AutoCAD. It then licensed 10 copies of AutoCAD R14 to CTA. CTA accepted the terms of the license. Later, CTA upgraded to AutoCAD 2000, paying the upgrade price. It accepted the AutoCAD 2000 upgrade license, which required destruction of the copies of R14. Rather than destroy them, CTA sold the copies to Vernor along with the activation codes in violation of both the R14 and AutoCAD 2000 licenses. Vernor then tried to sell the copies on eBay.

      So, the rule is that if you accept the terms of a license and that license (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, then the first sale doctrine does not apply and you must abide by the terms of the license that you accepted.

      I don't think there's anything terrible about this ruling at all. Software companies imposing restrictions on customers through licensing agreements helps them perform price discrimination, which often benefits customers. For example, a company might sell a student version on the cheap with a license that says it can't be transferred or at least not transferred to a non-student. If a student could sell the student version to a non-student, then the company could no longer price discriminate, and it would have to charge students a higher price.

  5. Re:EULA-mania by AnonymousClown · · Score: 5, Insightful
    On eBay tomorrow you will find:

    Used "Iron Man" DVD case for sale: $6.00 - DVD thrown in for free!

    --
    RIP America

    July 4, 1776 - September 11, 2001

  6. Anyone Read It? by Legal+Penguin · · Score: 5, Informative

    Okay, I hesitate to weigh in here, because this isn't going to be a popular question, but did anyone read the opinion? This is, factually, a rotten case for first sale. CTA bought the software and agreed to the EULA which specifically required that they destroy Release 14 in order to get upgrade pricing on Release 15. They paid $495 per license for R 15 instead of the normal $3,750 they would have paid specifically BECAUSE they were required to destroy R 14. Instead they decided to say screw it and they sold their old R 14 copies on the secondary market with the activation codes handwritten on the package. Vernor bought the copies, knowing about the EULA, and then resold them and claimed protection from the first sale doctrine.

    Now I'm as gung ho as the next guy about appropriate limitations on copyright (maybe not the next guy here on /., but the average next guy); and in particular I think first sale, like fair use, is an incredibly important protection that's been getting the shaft in the courts lately. But in this particular context -- the upgrade context where the company that poured its dollars into writing better and stronger code is trying to cut its customers a break -- it's going to be a pretty hard sell. Vernor screwed himself here, and unfortunately I suspect he took a lot of other people with him.

    --
    "The true administration of justice is the firmest pillar of good government." - George Washington
  7. Re:9th Circuit by NeutronCowboy · · Score: 5, Informative

    Complete crap statistics. If it were true, it would mean that the USOC took at least 50 appeals for decisions from the 9th circuit, and overturned at least 47 of them in one year. Considering that they only granted review for 80 cases in the last term, that's basically an impossibility. And it actually is. According to this, the 9th circuit was overturned 71% of the time, which is actually less often than the other two next busiest courts of appeal.

    Did you make up these statistics on your own, or did you just regurgitate what you heard?

    --
    Those who can, do. Those who can't, sue.
  8. In my best Morbo voice by Sycraft-fu · · Score: 5, Interesting

    CONTRACTS DO NOT WORK THAT WAY!

    Contracts aren't something you can trick someone in to, they aren't something you can say "By nodding your head in that way you agree to all this stuff." In general, a contract must have few things that an EULA fails at:

    1) A contract must be an exchange. Contracts can't be one sided, they have to be an exchange. That's why if you do something like a quit claim deed (meaning you helped someone buy property and are now letting them have it) it'll say something like "For the sum of ten dollars and other valuable consideration I quit all claim," and so on. Even when the intent is to give something over, there MUST be an exchange for it to be a contract. An EULA just acts to tell you what you can't do.

    2) A contract has to be prior to the exchange or sale. This is why you sign all the paperwork related to a home purchase before it is yours. That contract is only binding if you sign it before things happen. They can't sell you something and then say "Oh by the way, here's the contract." Sorry, too late. Same deal with prenuptial agreements. They are "pre" the nuptial for that exact reason. You can't tack on terms after something is done, has to happen before hand.

    3) A contract must be open to negotiation. You don't have to accept what the other side proposes, of course, but you have to be open and available for it. You can't hand over a contract and then vanish. When my university signs a contract with MS or someone for a Software Assurance pack, there is negotiation. They send us the contract, our lawyers change it and send it back, they change it and send it back and so on. That has to be there, that opportunity. A contract cannot be a one sided demand, both sides have to discuss and mutually agree.

    None of this is new or special, this is how contracts work, this is why things are done as they are. For some reason though some people, including the 9th circuit, seem to be ignoring that for software and saying "Sure it is perfectly ok to put a bunch of requirements on shit ex post facto, never mind that we'd never allow that for other situations."

    I do not get this logic (or rather lack of logic).

  9. But you can't get a refund by Sycraft-fu · · Score: 5, Insightful

    Try taking software back to a store. Say you didn't like the license and want a refund. They'll tell you "No refunds on opened software, exchanges only." Of course you can fight that but it takes time and money.