Think Twice Before Selling Used Copies of Software

Roughly a year ago, I wrote about a couple of federal district court decisions. These cases ruled that a software license could, in certain circumstances, be characterized as a sale. Recently, one of those decisions, Vernor v. Autodesk, Inc., was overruled by the Ninth Circuit. This decision will give software owners some relief and better control in managing the distribution of their software in the marketplace. Nevertheless, software owners must continue to remain vigilant to protect their intellectual property.

The Lawsuit.

Autodesk makes AutoCAD, the popular computer-aided design software. Timothy Vernor purchased several copies of AutoCAD from one of Autodesk's customers, and then listed them at various times for sale on eBay. On each occasion, Autodesk sent Vernor and eBay a takedown notice under the Digital Millennium Copyright Act. Vernor believed that he was authorized to sell the software under the First Sale Doctrine and, therefore, brought suit in federal district court to establish that his resales of AutoCAD copies did not constitute copyright infringement.

The First Sale Doctrine places a limitation on a copyright owner's exclusive right to distribute a copyrighted work: the doctrine allows owners of copies of copyrighted works to resell those copies. This defense, however, is unavailable to mere licensees of copyrighted works. The district court found that Autodesk's customers were owners that could resell copies of AutoCAD under the First Sale Doctrine because Autodesk's license did not require its customers to return unused copies of AutoCAD. After an extensive review of precedent, however, the Ninth Circuit held that Autodesk's customers were merely licensees because the AutoCAD license (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. Hence, both Autodesk's original AutoCAD customers and Vernor were not entitled to resell AutoCAD under the First Sale Doctrine, but rather both had infringed upon Autodesk's exclusive right to distribution under the Copyright Act.

What This Means For You

Although the Ninth Circuit's reversal of the district court decision in Vernor gives software companies better control over the secondary market for their products, this decision is not binding outside of that circuit, and intellectual property law in this area will continue to evolve. Other courts may rule differently. Hence, as I wrote in my previous post: give your software product's license a careful review and determine whether you need to insert end-of-use termination provisions or a clause terminating the license after a particular date.

-- Anuj Desai, Esq.

Not If, But How

Arnall Golden Gregory LLP has significant experience in intellectual property law, including patents, trademarks, and copyright. Do not hesitate to contact us if we can be of help to you.

Please visit our web site for more information: www.agg.com.

Does Your Web Site Violate The Copyright Act?

Like many businesses, your business probably has an eye-catching web site managed by a hosting or IT services company. This company may have even added slick pictures or graphics to make your web site stand out. If this sounds familiar, you may want to consider the hypothetical tale below to ensure that your web site hosting company has secured copyright permissions on your behalf to display third-party pictures and other copyrighted material. Otherwise, you may be accused of infringement by the copyright owners, which, if true, could end up costing you a tidy sum of money.

The Demand Letter

ABC Company receives a demand letter from an international firm that serves as a licensing clearinghouse for photographers. The firm claims that ABC's web site displays photographs that are only available for license through the firm, and that the firm has no record of ABC ever obtaining a license for those photographs. Hence, the firm claims that ABC has committed copyright infringement. The firm demands that ABC remove the photographs from the web site and that it pay several thousand dollars to settle the matter.

ABC balks at this demand. It is confident that its web site hosting company has used legitimate, licensed photographs on the web site. Upon investigation, however, the hosting company cannot produce any records of where the photographs came from or how they were purchased. The licensing firm has no record of the photographs being purchased by the web site hosting company either.

While ABC may be of the opinion that this dispute is between its hosting company and the licensing firm, the Copyright Act holds the entity publicly displaying or distributing the photographs, i.e, ABC, liable for infringement. Moreover, ABC's lack of knowledge as to whether the images were or were not licensed does not serve as an excuse under the Copyright Act. Ultimately, ABC's web site displayed the photographs at issue, and, therefore, ABC is solely responsible under the Copyright Act to ensure that those photographs were licensed.

Lesson Learned

ABC ultimately removed the photographs from its web site and settled the licensing firm’s demand for a significant sum. This illustration should caution you to audit your own web site, whether it is hosted in-house or by a third party, to ensure that all of the imagery and text on the web site is validly licensed or owned by your business. Otherwise, you may also be an unfortunate recipient of a similar demand letter.

-- Anuj Desai, Esq.

Not if, but how

Arnall Golden Gregory, LLP has significant experience in the area of copyright licensing and disputes. Do not hesitate to contact us if we can be of help to you.

Please visit our web site for more information, www.agg.com.

Did You Inadvertently Allow Your Licensee To Sell Your Valuable Intellectual Property?

If your company licenses software, music, movies, or similar intellectual property, two recent federal court decisions may leave you scratching your head as to whether your license is, in reality, a “sale,” allowing your licensee freely to transfer or sell the licensed copy of your intellectual property to others. In light of these decisions, it may be prudent to include license termination provisions triggered by the licensee’s end of use of the licensed work or based on a future date.

The Lawsuits

Traditionally, under copyright law, a license is treated differently from a sale in one crucial respect. A licensee does not have the right to transfer or sell the licensed copy of the copyrighted work. A purchaser of a copy of the copyrighted work, however, is free to further transfer or sell the purchased copy of the work to others under the First Sale Doctrine. Note that neither a licensee nor a purchaser has the right to make additional copies of a copyrighted work; that right remains with the copyright holder unless otherwise assigned.

In Vernor v. Autodesk, a lawsuit filed in a federal court in Washington, and UMG Recordings, Inc. v. Augusto, a lawsuit filed in a federal court in California, this traditional principle was given a fresh look, and the courts came to a very surprising conclusion.

In the Vernor case, the plaintiff sought a declaratory judgment that the used copies of Autodesk software purchased and sold by him on eBay were lawful pursuant to the First Sale Doctrine. Autodesk, of course, disputed this contention because it claimed that its software was “licensed” and that the license agreement allowed only for nonexclusive use of the software, prohibiting the further sale, rent, lease, or transfer of the software.

Similarly, in the Augusto case, the plaintiff music recording company brought a copyright infringement suit against an individual who was selling promotional music CDs. The company claimed that the promotional CDs had been provided to a limited number of industry insiders and had been stamped “not for resale,” creating a license only to use the CD. The defendant claimed that he was allowed to sell the CDs under the First Sale Doctrine.

Both courts ruled that the sellers were “owners” for purposes of the First Sale Doctrine, and that their sales of the copyrighted works were lawful. The courts paid short shrift to the license agreement in Vernon and the CD stamped not for resale in Augusto. Rather, considering the totality of circumstances, the courts found it important that the person to whom the software or music was originally transferred had been allowed to keep the software or music perpetually. The courts found it crucial that the transferees were not required to return the software or music to the licensor. The courts found that the licensee’s right perpetually to possess and use the copyrighted work evidenced a sale, and not a license, thus allowing further transfer of the copyrighted work under the First Sale Doctrine.

What This Means For You

The law of intellectual property is constantly changing. While these decisions do not presently constitute the majority view, they may in the future. To safeguard your intellectual property rights, it may make sense to review your licenses and determine whether the operative language gives your licensee the right perpetually to possess the licensed intellectual property. If so, you may want to revise your licensing agreements to include a provision whereby the licensed work must be returned to your company after the licensee terminates its use of that work. Optionally, you may want to include a specific end date by which the licensed work must be returned. While this date may be several years out, this provision could help negate the argument that the licensee has the right perpetually to possess a copy of your intellectual property.

-- Anuj Desai, Esq.

Not If, but How

Arnall Golden Gregory LLP has significant experience in the area of drafting licensing agreements for a variety of works, including software, music, motion picture, publications, and more. We serve the business needs of growing public and private companies, helping clients turn legal challenges into business opportunities. We don't just tell you if something is possible, we show you how to make it happen.

Please visit our website for more information, http://www.agg.com/.