Vernor v. Autodesk, Inc.
621 F.3d 1102 (2010)
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Rule of Law:
A software user is a licensee, rather than an owner of a copy, where the copyright owner specifies that the user is granted a license, significantly restricts the user’s ability to transfer the software, and imposes notable use restrictions. Consequently, such a licensee is not entitled to resell copies of the software under the first sale doctrine.
Facts:
- Autodesk, Inc. distributes its AutoCAD Release 14 software under a Software License Agreement (SLA) that customers must accept before installation.
- The SLA specifies that Autodesk retains title to the software copies, grants the customer a nonexclusive and nontransferable license, and prohibits transfer, rental, or lease without Autodesk's consent.
- The SLA also imposes significant use restrictions, such as prohibitions on modifying or reverse-engineering the software, and requires customers who upgrade to a new version to destroy their copies of the previous version.
- Autodesk's customer, Cardwell/Thomas & Associates, Inc. (CTA), acquired ten copies of Release 14 under the SLA.
- After upgrading to a newer version, CTA did not destroy its Release 14 copies as required, but instead sold them at an office sale to Timothy Vernor.
- Vernor, an eBay seller, purchased these copies from CTA and listed them for sale on eBay.
- Autodesk repeatedly issued Digital Millennium Copyright Act (DMCA) take-down notices to eBay, asserting that Vernor's sales infringed its copyright, which resulted in the temporary suspension of Vernor's eBay account.
Procedural Posture:
- Timothy Vernor brought a declaratory action against Autodesk in the U.S. District Court for the Western District of Washington to establish that his resales were lawful.
- The district court denied Autodesk's motion to dismiss and held that Vernor's sales were protected by the first sale doctrine.
- Following discovery, the parties filed cross-motions for summary judgment.
- The district court granted summary judgment in favor of Vernor, finding his sales to be non-infringing.
- Autodesk (appellant) appealed the district court's grant of summary judgment to the U.S. Court of Appeals for the Ninth Circuit.
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Issue:
Does the first sale doctrine apply to the resale of software when the original copyright holder distributes the software to a customer under a license agreement that retains title and imposes significant transfer and use restrictions?
Opinions:
Majority - Callahan, J.
No. The first sale doctrine does not apply because a software user is a licensee, not an owner, when the copyright holder's license agreement specifies it is a license, retains title, and imposes significant transfer and use restrictions. The court established a three-part test to determine whether a software user is an owner or a licensee. A user is a licensee if 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. In this case, Autodesk's SLA explicitly stated it was a nontransferable license, retained title to the software, and imposed numerous restrictions on transfer and use. Therefore, CTA was a licensee, not an owner of the software copies. Because CTA did not own the copies, it could not transfer ownership to Vernor, rendering the first sale doctrine inapplicable to Vernor's subsequent resales.
Analysis:
This decision significantly strengthens the position of software copyright holders by affirming their ability to use restrictive license agreements to prevent the resale of their products. It establishes a clear test for courts to distinguish a 'license' from a 'sale,' effectively allowing software companies to contract around the first sale doctrine. The ruling curtails the development of secondary markets for physical software and has broad implications for the ownership of digital goods, confirming that consumers who 'buy' software may in fact only be acquiring a limited right to use it, without the traditional rights of ownership like alienation.
