• Vernor v. Autodesk and the First Sale Doctrine: The District Court Has Nothing Further to Add, Judgment for Reseller
  • October 13, 2009 | Author: Jeffrey D. Neuburger
  • Law Firm: Proskauer Rose LLP - New York Office
  • Vernor v. Autodesk, Inc. is a closely followed case in which an eBay reseller of software argues that his resales are protected by the copyright first sale doctrine, and software company Autodesk is arguing that because the AutoCad software Mr. Vernor is auctioning on eBay is licensed, not sold, Mr. Vernor is not an owner of the copies within the meaning of the doctrine. Vernor instituted this action seeking a declaratory judgment that his resales did not constitute direct or contributory copyright infringement.

    In May 2008, the court denied Autodesk's motion for summary judgment dismissing Vernor's complaint. As we blogged at the time, the court ruled that the original transation between Autodesk and Vernor's transferor (an architectural firm that purchased the AutoCAD software for use in its practice) constituted a sale, and thus the subsequent transfer of the software to Vernor was a further sale protected by the first sale doctrine. Following discovery, the court has now concluded that there are no materially relevant facts different from those before the court, and that judgment should be entered in favor of Vernor.

    In ruling in favor of Vernor, the court reiterated its prior conclusion that panel decisions in the Ninth Circuit on the applicability of the first sale doctrine are hopelessly conflicting. Accordingly, the court once again determined that it should apply the first-decided panel ruling on the issue, United States v. Wise, 550 F.2d 1180 (9th Cir. 1977). Among the rulings that the court concluded it must ignore is the often-cited opinion in MAI Systems Corp. v. Peak Computer, Inc., 991 F. 2d 511 (9th Cir. 1993), even though the court acknowledged that applying MAI System would lead to a result in favor of Autodesk.

    Before turning to the court's application of Wise, a point of interest is the court's discussion of the core issue in the case. The question is not whether the subject software was either "licensed" or "sold," the court concluded, because it is possible to license software while still selling the copies themselves:

    There is no dispute that Autodesk licensed its software to CTA. The court makes this observation because the parties and their witnesses too often suggest that their dispute is about whether Autodesk "sold" rather than "licensed" its software. That dispute is not determinative, because the use of software copies can be licensed while the copies themselves are sold. Autodesk unquestionably licensed the software in that it limits the right to use it. *** The question before the court is whether the Autodesk License is a license that transfers ownership of the software copies included in AutoCAD packages. To capture that distinction, the court will use the terms "mere license" and "mere licensee" in reference to licenses that do not transfer ownership of any copies. The question before the court is whether Mr. Vernor is the "owner" of the copies of copyrighted material in the AutoCAD packages he acquired from CTA, or whether CTA was a mere licensee who had no ownership to transfer to Mr. Vernor.

    Applying the analysis in Wise, the court focused on the fact that although the AutoCAD license stated that Autodesk retained title to the software, it contained no provision for return of the copies to Autodesk:

    Of all the agreements that the Wise panel analyzed, the License is most analogous to the Redgrave Contract. Like the License, the Redgrave Contract purported to reserve title in the copy to the copyright holder, but made no provision for the copyright holder to regain possession of the copy. Like Ms. Redgrave, Autodesk licensees pay a single price to the copyright holder at the outset of the transaction. Like the License, the Redgrave Contract severely restricts the use and transfer of the copy. But, like the panel in Wise, this court concludes that the License transferred ownership of the software copy despite those restrictions.

    In this court’s view, retaining title in a copy is meaningless unless the copyright holder has some means to regain possession of the copy. Wise requires the court to look at a transaction holistically, and the court finds no basis for the conclusion that an agreement to permit perpetual possession of property can be construed as reserving ownership. Autodesk’s attempt to establish the common understanding of "ownership" by citing a legal dictionary equating ownership with unrestricted ownership is consistent neither with Wise nor with common understanding.

    There appear to be some post-judgment motions pending, but assuming that they are resolved, the case is ready for appeal to the Ninth Circuit, which will have an opportunity to sort out the conflicting opinions cited by Judge Jones.