BATTLES IN SEATTLE (Part 2 of 3)

Today is the second part of our three part series discussing the oral arguments in a trio of copyright cases presented to the Ninth Circuit on June 7, 2010.

Round 2 - Vernor v. Autodesk, Inc.

Autodesk holds the copyright in AutoCAD, a 3-D modeling software program that sells for approximately $4,000. AutoCAD is sold with a shrinkwrap license which prohibits, among other things, resale of the software. In addition, AutoCAD is sold in sealed boxes for a fixed price with no-recurring fees or expirations for use.

Craig Vernor purchased several copies of AutoCAD from an architecture firm and listed those copies on Ebay and ultimately sold two copies for approximately $400 per copy. Autodesk sent Ebay a takedown notice claiming copyright infringement. Vernor responded with a counter-notice stating that he was reselling legitimate software. As a result of additional complaints from Autodesk, Ebay suspended Vernor’s account for a month.

Vernor then filed a declaratory judgment lawsuit in Federal District Court seeking a holding that he did not infringe upon Autodesk’s copyright. The District Court held in Vernor’s favor, finding that his actions were protected by the first sale doctrine and that his resale of legitimate copies of AutoCAD did not infringe Autodesk’s copyright. Autodesk counter-claimed for copyright infringement and contributory copyright infringement

Autodesk argued that it retained ownership of the copy of the software by virtue of the license agreement, and that the copy was merely licensed and not owned by the original purchaser. Therefore, Autodesk products could not be resold to third parties because only an "owner of a copy" has rights under the first-sale doctrine, as codified 17 U.S.C. § 109(a). Vernor was thus infringing Autodesk's copyright and Autodesk was within their rights to block such sales. Autodesk further claimed that, because the CD was a mechanism for making a copy of the software, Vernor enabled his clients to make unlicensed copies of Autodesk software and Vernor was liable for contributory copyright infringement.

The District Court noted a conflict in the precedent. The Court noted that the transfer of software from Autodesk accompanied by a restrictive license under the MAI Sys. Corp. v. Peak Computer, Inc., 991 F.2d 511 (9th Cir. 1993), Triad Sys. Corp. v. Southeastern Express Co., 64 F.3d 1330 (9th Cir. 1994), and Wall Data, Inc., v. Los Angeles County Sheriff's Dept., 447 F.3d 769 (9th Cir. 2006) cases would not be a sale and the first-sale doctrine would not apply, and thus Vernor would not be permitted to redistribute the software. However, under United States v. Wise, 550 F.2d 1180 (9th Cir. 1977), Vernor would be protected under the first-sale doctrine because the transfer of copies of Autodesk's software implies a right of perpetual possession of the copy. Given the conflicting precedents, the court felt compelled to rely on the earliest precedent, Wise, and thus found in Vernor's favor.

The oral arguments in Vernor v. Autodesk, Inc. centered on whether or not the sale of a software CD was a sale or a license. Counsel for Vernor likened this situation to that of Bobbs-Merrill Co. v. Straus (the 1908 Supreme Court case where Bobbs-Merrill sued Macy’s for selling copies of a book for 89 cents when the book publisher printed a "license agreement" in the front flap of the book, stating that any book dealer who sold the book for less than one dollar would be liable for infringing the publisher's copyright. The Supreme Court ultimately ruled that merely labeling something a "license” does not make it a license, and that resellers could sell the book at 89 cents.). When a justice challenged this analogy, counsel for Vernor noted that Autodesk had no expectation of getting the CD back once it was sold, thus the realities of the transaction are inconsistent with Autodesk’s assertions that they retain ownership in the copy. Autodesk’s counsel, meanwhile, focused upon the impact on the software licensing system and the industry as a whole. Autodesk also noted that the significant restrictions, enumerated in the shrinkwrap license, attendant to the use of the AutoCAD software indicate that users are truly licensees, rather than “owners”. Autodesk’s attorney argued that it does own the individual copies of its software that users purchase, Autodesk just doesn’t have any interest in getting them back. (This statement in particular might prove troublesome for Autodesk).

Implications: If the District Court’s ruling in Vernor v. Autodesk is upheld it may harmonize the application of the first-sale doctrine by treating used copies of software like used books, music CDs, and movie DVDs. On the other hand, the foundation of the software industry’s business model may be damaged, requiring a restructuring of software sales going forward and potentially raising software prices.

Listen to the oral argument in its entirety here.


Stay tuned...The third and final round of our "Battles in Seattle" series takes place tomorrow!