You say potato, I say perpetual, irrevocable and transferable licence

There has been a fair bit of recent comment in the blogosphere about  Vernor v Autodesk, a case decided by the US 9th Circuit Court of Appeals in September (the 9th Circuit covers California and Washington State, which means that it often deals with technology-related cases).  Keen students of IP law in Australia would already have a fondness for Autodesk, given that it was Autodesk’s software that led to the High Court of Australia considering intellectual property rights in software (see Autodesk v Dyason, which was decided way back in 1992, and these days definitely needs to be read in the context of IceTV). 

Coming back to the more recent case, Mr Vernor (the plaintiff) was in the business of purchasing “used” copies of Autodesk software and reselling them on Ebay.  Over time Mr Vernor and Autodesk had a number of skirmishes, which generally followed the pattern of Autodesk issuing a DMCA takedown notice to Ebay, Ebay taking down the auction, Mr Vernor issuing a DMCA counter notice, and Ebay reinstating the auction.  After a number of these skirmishes, Mr Vernor sought – and was granted – a declaratory judgment from the district court which essentially confirmed the legality of his business model, and not-surprisingly Autodesk immediately appealed.

The key question in the case was whether or not the US “first sale” doctrine operated to allow Mr Vernor to resell the copies.  The US Copyright Act provides that it is not a copyright infringement if the “owner” of a copy of a work resells that work, and much of the court’s decision was taken up with whether the companies that sold the Autodesk software to Mr Vernor were more accurately characterised as “owners” or “licensees”.  The court summarised the relevant factors:

First, we consider whether the copyright owner specifies that a user is granted a license. Second, we consider whether the copyright owner significantly restricts the user’s ability to transfer the software. Finally, we consider whether the copyright owner imposes notable use restrictions.

Having looked at the Autodesk licence terms, which are pretty much in the form you would expect for enterprise software, the court ticked all three boxes, and unsurprisingly found that the Autodesk software was licensed not sold, and that Mr Vernor’s sales infringed Autodesk’s copyright.

So why the big fuss? (See, for example, Software re-sale restricted by US Court of Appeals, Appeals court ruling threatens used software sales and Pre-owned could become illegal in the US.)

The problem, unfortunately, is that this is an example of the language of real property creating confusion when applied to intellectual property.  If you told the average consumer that the “owner of a copy” is allowed to resell the copy without infringing copyright, then he or she would assume (reasonably) that anyone with physical possession of a DVD would be the “owner of a copy” and hence able to resell the DVD legally.

The average consumer would be blissfully unaware that “owner of a copy” in fact means the recipient of a perpetual, irrevocable and (most importantly) transferable licence to use the software on the DVD.  If the consumer does not have this right, then running the software will most likely be a copyright infringement.*  Or, to put it another way, possession and ownership of the DVD itself is (as mathematicians like to say) a necessary but not sufficient condition to the legal use of the software on the DVD.

Of course, we don’t have the first sale doctrine in Australia.  Nevertheless, the Autodesk decision is a good illustration of the fact that possession, in the context of intellectual property, is much less than nine-tenths of the law.

* All things being equal, such as, for example, there not being any statutory parallel importation rights available to the purchaser.


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