When Is a Sale Not a Sale? When Software Changes Hands
One thing's for sure — you don't own what you
you own (and you certainly can't resell it). California software company Autodesk demolishes a broad challenge to software licensing at the Ninth Circuit.
By Joe Mullin|September 16, 2010 at 12:00 AM
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You probably don’t own your software—even if you bought it in a box like any other product—and you certainly can’t resell it. That’s the lesson from last week’s ruling by the U.S. Court of Appeals for the Ninth Circuit, where a three-judge panel ruled in favor of California software company Autodesk and against entrepreneur Craig Vernor, who resells software on eBay as part of an online business he runs. Vernor was represented by Public Citizen’s Greg Beck, a software engineer-turned-lawyer who, by representing Vernor, launched a broad challenge to software-licensing practices. The software industry viewed the possibility of a Vernor victory in the case as a near-catastrophic outcome. The reason: Software is so easily copied, said Autodesk counsel Jerome Falk, name partner at Howard Rice Nemerovski Canady Falk & Rabkin, that allowing copies to be widely resold would hurt the value of originals. “I didn’t think it was a particularly revolutionary decision,” said Falk. “It confirms the positions and practices of the software industry. If we had lost, it would have been a bombshell.” For those who buy software, the appellate court ruling—which reversed a lower court ruling in favor of Vernor without explanation—means that life will go on as usual, Falk said. Software resellers, on the other hand, won’t be able to do business without violating copyright law. “But they shouldn’t have been doing that in the first place,” Falk added. “They were doing so in violation of the licensing agreement.” In its ruling, the Ninth Circuit panel found that Autodesk had imposed significant limits on the use of the software at issue, bolstered the company’s argument that selling its software amounted to granting a license. As long as a copyright owner meets three qualifications, the court said, a transaction can be considered a “license” rather than a “sale.” First, the copyright owner must specify that the user is granted a license, as Autodesk did when users installed the AutoCAD software at issue in this case; second, the owner must restrict the ability to transfer the software; and third, the copyright holder must impose “notable use restrictions.” The court found that Autodesk met all three standards. Among the restrictions the company places on its software are bans on the use of the software outside the Western Hemisphere, removal of notices or labels, and reverse-engineering or decompiling the software. Consumer advocates and lawyers who defend resellers were quick to condemn the decision. On Public Citizen’s blog, lead Vernor attorney Beck suggested that he and his client will request an en banc rehearing from the court. Beck suggested that copyright owners outside the software industry could use the Ninth Circuit’s ruling as a go-ahead to start “licensing” and argue they still own individual copies that consumers buy, Beck suggested. “Unfortunately, there is no obvious reason why other publishing industries couldn’t begin imposing the same terms,” Beck wrote. “If they do, it may be the end of ownership of books and music.” Electronic Frontier Foundation attorney Corynne McSherry called the decision “a triumph of legal formalism over reality.” Under the court’s construction, she wrote, “the right ‘magic words’ can turn unsuspecting buyers into renters, which means they can’t claim the longstanding protections owners normally get, such as the right to resell their legally purchased software when they are done with it.” John Mitchell, a Washington D.C. attorney who has defended textbook and video game resellers using the first sale doctrine, called the Ninth Circuit decision a poor one. “I had to read it in two parts,” said Mitchell. “I got angry and I had to take a break.” What the panel ignored, said Mitchell, was the fact that while certain elements of Autodesk’s intangible copyright may have been licensed, the individual physical copy was clearly sold. Consumers who buy software have no obligation to return it, and consumers—not software publishers—bear the risk of loss. And, he said, those who buy software pay sales tax, not rental tax. All those facts, he argued, support the idea that when consumers pay for software, a sale has in fact occurred. “Courts have always said you’ve got to look to the substance of the transaction, not the label given to it,” said Mitchell, echoing Beck’s argument before the Ninth Circuit. It’s possible that textbook publishers might attempt to employ a similar strategy, simply “licensing” a textbook for a single semester. “They’ll say, you can’t sell it, you can’t lend it to your classmate,” said Mitchell. “[The court] has created a roadmap for being cute with the Copyright Act.” The Motion Picture Association of America sided with Autodesk, suggesting that at least in the realm of digitally distributed content, content industries are interested in pursuing a licensing model similar to that adopted by the software industry. Falk said that his opponents’ suggestion that licensing may run rampant is exaggerated: “If anyone thinks book or DVD manufacturers hadn’t heard of licensing up until now, they’re living in an alternate reality. They could have done this anytime in last 20 or 30 years if they’d wanted to. The question is whether the market would permit them to do it and whether there’s any reason for them to do it.” Documents and links for this story:
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