Adobe Systems Inc. v. One Stop Micro, Inc.
84 F. Supp. 2d 1086, 2000 Daily Journal DAR 3079, 53 U.S.P.Q. 2d (BNA) 2003 (2000)
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Rule of Law:
A software distribution agreement that imposes significant restrictions on the transferee's ability to resell or distribute the product constitutes a license, not a sale. Consequently, the first sale doctrine does not apply, and downstream distribution that violates the license's terms constitutes copyright infringement.
Facts:
- Adobe Systems, Inc. ('Adobe') develops and markets software, including full retail versions and discounted educational versions.
- The educational versions are intended for students and educators, have different features (e.g., no upgrades), and are packaged with stickers identifying them as 'EDUCATION VERSION — Academic ID Required'.
- Adobe distributes its educational software through authorized resellers who are governed by an Off Campus Reseller Agreement ('OCRA').
- The OCRA restricts resellers to distributing the software only to qualified 'Educational End Users' and requires compliance with the terms of the End-User License Agreement ('EULA').
- One Stop Micro, Inc. ('One Stop'), an unauthorized reseller, acquired Adobe's educational software packages.
- One Stop physically altered the packages by removing the shrink-wrap, peeling off the 'EDUCATION VERSION' stickers and serial numbers, and re-shrink-wrapping the boxes.
- One Stop then sold these altered educational versions as if they were full retail versions to the general public, who were not educational end users.
- One Stop's president admitted to this conduct, stating he did it because 'the customer asked for it and I’m in business to make money'.
Procedural Posture:
- Adobe Systems, Inc. ('Adobe') filed a lawsuit against One Stop Micro, Inc. ('One Stop') in the U.S. District Court.
- Adobe's second amended complaint alleged claims including copyright infringement, trademark infringement, and unfair competition.
- The District Court previously granted Adobe summary adjudication on several of its trademark and state law claims.
- One Stop then filed a motion for summary judgment on the remaining copyright and trademark claims, asserting the first sale doctrine as a defense.
- In response, Adobe filed a cross-motion for partial summary judgment on its copyright infringement claim.
- The U.S. District Court is now ruling on these cross-motions for summary judgment.
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Issue:
Does a third-party reseller commit copyright infringement by acquiring and distributing educational versions of software to non-educational users when the original software publisher distributed the software to its authorized resellers under an agreement that imposed strict limitations on redistribution?
Opinions:
Majority - Ware, District Judge
Yes. A third-party reseller commits copyright infringement under these circumstances because the underlying distribution agreement is a license, not a sale, rendering the first sale doctrine inapplicable. The court reasoned that although the OCRA contained some sales terminology like 'purchase' and 'own', the substance of the agreement indicated a license. The numerous restrictions on distribution, particularly the requirement that resellers only distribute to 'Educational End Users' and pursuant to the terms of the EULA (which explicitly grants a license), were inconsistent with a sale of ownership. The court found it 'incongruous' that a reseller would be an owner while the end user was merely a licensee. Bolstered by extrinsic evidence of trade usage and the parties' intent, which confirmed that software is typically licensed, not sold, the court concluded the OCRA was a licensing agreement. Because no 'first sale' occurred, One Stop, by acquiring the software from a licensee, was bound by the license's restrictions. One Stop's admitted distribution to non-educational users exceeded the scope of the license and therefore constituted infringement of Adobe's exclusive right of distribution under copyright law.
Analysis:
This decision reinforces the primacy of the licensing model in the software industry and clarifies how courts distinguish a license from a sale. By looking past simple terminology to the substantive restrictions in an agreement, the court affirmed that copyright holders can use licenses to control downstream distribution and segment markets (e.g., educational vs. retail). The ruling limits the applicability of the first sale doctrine in the software context, establishing that even non-signatories who acquire software from a licensee are bound by the original license's terms. This provides a crucial protection for software developers' intellectual property rights and business models.
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