BATTLES IN SEATTLE - Vernor v. Autodesk, Inc. Decision

A couple of months ago, Copyright Chronicle covered the 3 cases (UMG Recordings v. Augusto, Vernor v. Autodesk, Inc., and MDY Indus. v. Blizzard Entertainment) involving the first sale defense heard in Seattle by the Ninth Circuit in our First Sale Frenzy: Battles in Seattle series of posts.

The first decision has been made in the Ninth Circuit in the Vernor v. Autodesk case.

Procedural History/Summary: Vernor sold copies of Autodesk’s software on eBay. Autodesk filed several DMCA takedown notices with eBay. After several notices, Vernor’s account was suspended. Vernor filed a declaratory judgment action against Autodesk.

Autodesk alleged that it had licensed its software to CTA. Part of the license included that when updates were provided to its customers, they were to destroy the previous versions. However, CTA sold Version 14 to Vernor.

Autodesk was able to trace the software available on eBay to CTA. Autodesk maintained activation codes and serial numbers to verify registrations of its software. Portions of Autodesk’s agreements with its customers include use restrictions associated with the software.

The district court granted Vernor summary judgment finding that Vernor did not infringe on Autodesk’s software because Vernor was protected by the first sale defense under Section 109 and the essential step defense. The primary issue and question in the case was whether the transaction between Autodesk and CTA was a license or a sale. The first sale under Section 109 and the essential step defense do not apply to licenses but only to sales. The district court found that the transaction between Autodesk and CTA was a sale and therefore, Vernor was free to sell Version 14 on eBay. Vernor v. Autodesk, Inc., 2009 U.S. Dist. LEXIS 90906, *42-44 (W.D. Wash. 2009).

The case was appealed to the Ninth Circuit. The Court found the following factors relevant to the inquiry of whether a transaction is a license or a sale: (1) whether the copyright owner specifies that the user has a license; (2) whether the copyright owner significantly restricts the user’s ability to transfer the software; (3) whether the copyright owner places restrictions on use by the user. The Court found that the district court erred in finding that a sale occurs when a transferee is entitled to keep the work. Because Autodesk did not require a return of its work, the district court found there was a sale. Vernor v. Autodesk, Inc., 2010 U.S. App. LEXIS 18957, *25-26 (9th Cir. Wash., Sept. 10, 2010).

The Ninth Circuit reversed and remanded, holding that a software user is a licensee where the copyright owner: (1) specifies that the user is granted a license; (2) significantly restricts that user’s right to transfer the work; and (3) imposes restrictions on use. As these criteria were met in the transaction between Autodesk and CTA, Vernor was in the same position as CTA and had no right to sell Autodesk’s software. (CTA has previously settled with Autodesk.)

There were several amici involved in the case who had indicated that there were significant policy considerations; however, the Court found its ruling based on its precedent and Congress was free to amend or modify the law based on policy considerations. Vernor at *37.