Sunday, September 12, 2010

The Ninth Circuit on first sale: "If it looks like a duck, and quacks like a duck, and flies like a duck . . . it's a CHICKEN!"

On Friday, September 10, the Ninth Circuit Court of Appeals released an opinion that prompted me to start this blog, at long last.   The opinion in Vernor v. Autodesk dealt with the "first sale" doctrine in Copyright law.

By way of background, the Copyright laws treat ownership in the copyright of a work of authorship differently than ownership of a copy of the work.  For example, if an artist paints a painting, the artist owns the copyright in the work, and can regulate the making and distribution of copies of the painting.  If the artist sells the painting, the buyer of the painting gets ownership of that copy of the work, but (usually) not the copyright in the work.  So while the buyer has possession of the painting, the buyer does not have the right to make copies of the painting -- only the owner of the copyright (the artist) has that right.

However, the buyer usually does have the right to resell the physical copy of the painting he bought, regardless of the artist's ownership of the copyright.  This is under the "first sale" doctrine, which says that once someone buys a legal copy of a copyrighted work, the owner can legally resell the copy.

Enter Vernor v. Autodesk and the Ninth Circuit.  Timothy Vernor had bought legal copies of Autodesk's AutoCAD software, and tried to sell them on eBay.  Autodesk claimed that the fine print in its original agreement with the purchasers of the software made the transaction only a "license," and not a sale, so the first sale doctrine did not apply.  The Court held:
"We hold today that a software user is a licensee rather than an owner of a copy where 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. Applying our holding to Autodesk’s SLA, we conclude that CTA was a licensee rather than an owner of copies of Release 14 and thus was not entitled to invoke the first sale doctrine or the essential step defense."

This ignores the economic realities of what a "license" usually is, especially a software license. In a license, the licensee usually (1) pays a recurring fee (e.g. an annual license fee); (2) gets the software for a limited term (e.g. a number of years); and (3) must return all copies of the software when the term is up, or must destroy all copies.

In a sale, the transaction is usually for (1) a one-time fee; (2) permanent transfer of possession of the copy (i.e. no limited term); and (3) permanent possession by the buyer with no obligation to return the software to the seller. (In the Vernor case, this is what the economic realities were.)

Compare renting versus buying a condo. If I rent a condo, I pay monthly rent; it is for a limited term; and I sure as heck have to give it back when the term is up. If I buy it, I pay the seller once (the only periodic payments are usually to the bank who lends me part of the sale price, not the seller); it is permanent and not for a limited term; and I don't have to give it back to the seller, ever. (Perhaps in the rare case where the seller happens to be the bank and I default on the loan, the seller/bank can foreclose; but if my seller isn't my bank, the seller never gets it back.)

Either way in buying a condo, Ninth Circuit factors (2) and (3) are usually present. A condo's CCR's usually have significant use restrictions, and restrictions on transfer (e.g. in a seniors complex the condo can only be resold to another senior). Those are present even when you buy a condo -- but most people who buy a condo would be very, very surprised to find that they only "licensed" it because of these factors, and didn't buy it.

That leaves Ninth Circuit factor (1), calling the transaction a license. The mere label something is given doesn't change the economic realities of the transaction. It brings to mind the old saying: "If it looks like a duck, and quacks like a duck, and flies like a duck, it's a duck, it's not a chicken." Calling a duck a "chicken" doesn't make it a chicken.

But now in the Ninth Circuit, if someone wants to call a duck a chicken, well then . . . it's a CHICKEN!

UPDATED:  Additional analysis by the EFF, Techdirt, and Ars Technica.

No comments:

Post a Comment