Software Resale: US Appeal Ruling

September 13, 2010

In Timothy S Vernor v Autodesk Inc, the US Court of Appeals for the Ninth Circuit has overruled a first-instance decision that made a radical suggestion on the nature of software ownership: it suggested that a shrinkwrap licence may not prevent resale of software a person ‘owns’. Judge Callahan and his fellow judges in Seattle were not impressed with this step away from precedent. In a case remarkable for the range of amicus curiae briefs arguing on policy grounds, and which had the potential for radical change in the treatment of software, it was observed that:

‘our precedent from Wise through the MAI trio requires the result we reach. Congress is free, of course, to modify the first sale doctrine and the essential step defense if it deems these or other policy considerations to require a different approach’.

The background to the case is well summarised in Scott Vine’s article on the first-instance decision. Judge Callahan summarised the case as follows:

Timothy Vernor purchased several used copies of Autodesk, Inc.’s AutoCAD Release 14 software (“Release 14”) from one of Autodesk’s direct customers, and he resold the Release 14 copies on eBay. Vernor brought this declaratory judgment action against Autodesk to establish that these resales did not infringe Autodesk’s copyright. The district court issued the requested declaratory judgment, holding that Vernor’s sales were lawful because of two of the Copyright Act’s affirmative defenses that apply to owners of copies of copyrighted works, the first sale doctrine and the essential step defense.

Autodesk distributes Release 14 pursuant to a limited license agreement in which it reserves title to the software copies and imposes significant use and transfer restrictions on its customers. We determine that Autodesk’s direct customers are licensees of their copies of the software rather than owners, which has two ramifications. Because Vernor did not purchase the Release 14 copies from an owner, he may not invoke the first sale doctrine, and he also may not assert an essential step defense on behalf of his customers. For these reasons, we vacate the district court’s grant of summary judgment to Vernor and remand for further proceedings.  

The full judgment can be accessed here.