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Impenatrable EULAs and the Dying First Sale Doctrine: Vernor v. Autodesk

Today, the Ninth Circuit issued its opinion in Vernor v. Autodesk, reversing the district court’s ruling which held a sale of software transferred ownership of the copy to a customer and not a mere license.

This case hits on a number of fascinating legal topics (first sale, UCC, licensing rights, statutory interpretations of copyright act, copyright misuse, etc) that are not easily explained in a simple blog post.  Hopefully we can pick this one up for discussion on this week’s podcast and give it some more thought.  In the meantime, here’s a quick rundown of facts/holdings and some quick observations:

Copies of AutoCAD are normally sold from Autodesk (the developer/marketer) with a software license agreement (a/k/a a EULA).  Although there are a few different versions of the license, all of them clearly state that Autodesk retains title to all copies and the customer is receiving a non-exclusive, non-transferable license to use the software.  Also, these agreements state the license terminates upon non-compliance and, if the software is an “upgrade,” the customer “must destroy [any AutoCAD software] previously licensed” to them,  “including [hard and soft] copies, within 60 days of purchas[ing] the upgrade.”

A person named Vernor bought several copies of used AutoCAD, from a few different sources — includes at least a garage sale and an office sale (think “going out-of-business” sale) from a company named “CTA.” Each copy was apparently in a product box, which had already been opened (no shrink wrap on the outside), contained the necessary optical media, and activation code. Vernor never installed any of the copies on his computer — and instead listed them for sale on eBay.

Autodesk, threatened to sue for copyright infringement and sent takedown notices each time they found an eBay listing. Vernor counter noticed each time and sold a bunch of copies.

Eventually, after nearly losing his eBay account, Vernor wrote to Autodesk and argued that he had the right to sell copies of the software under the first sale doctrine (which limits a copyright holder’s ability to collect royalties following the first sale of a hard copy, see 17 USC § 109) since he bought it used.  Vernor also argued that the license agreement did not apply to him, because he never agreed to it or installed the software (no “I agree” click-through UI splash).

Autodesk disagreed. Then, Vernor sued Autodesk seeking a declaratory judgment (asking the judge to declare he was not infringing) and alleged copyright misuse. The District court (see MTD and MSJ orders) held Vernor’s sales were not copyright infringements based on the first sale doctrine but never resolved the misuse of copyright claims. Autodesk appealed to the Ninth Circuit.

Interesting questions posed and the ninth circuit’s (paraphrased) answers:

(1) Were the original copies sold or licensed by Autodesk, despite what the license said?

Ninth cir: The AutoCAD EULA is a license, because Autodesk called the EULA a license, restricted the customer’s ability to transfer a copy of the software upon sale, and had a series of additional restrictions on use.

(2) Since the Autodesk EULA allowed “indefinite” possession of the software in perpetuity, can it still be a license?

Ninth Cir: Yes, it’s still a license. The ability to hold rights in perpetuity is a factor in analysis, but not dispositive by itself.

Result: The right to use software is distinct from the right to own it, at least in this case.

Why is this opinion important? There are a lot of journal articles that devote hundreds of pages to this topic and argue both sides fervently on the merits – instrument drafting and UCC Art. II sale/license distinctions, software policy. They are all worth reading — I love thinking about these things as a lawyer.

But, as a consumer, I’m bummed by what I perceive to be the death throes of the first sale doctrine. I wonder if it’s only a matter of time before (possibly not even within my own lifetime) that all (or at least most) media will only be available in these restrictive formats, with licenses or DRM, the concept of a secondary media market is lost, and the first sale doctrine will be as dusty and forgotten as the 3d Amendment.

Posted in: Analysis, Commentary by David O'Brien.

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