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Software was sold, not licensed, says US court

A Seattle man is free to sell second-hand software on eBay, a US court has said. It found that the maker of the software, Autodesk, could not stop the resale by claiming that its software is licensed rather than sold.28 May 2008

Software companies have long claimed that software is not sold to users but licensed, and many software licences forbid the resale of the software. A Seattle District Court has found, though, that the packages of software in question were sold, not licensed, and that the licence is not binding on subsequent buyers.

Timothy Vernor bought several copies of Autodesk's AutoCAD design software in 2005 and 2007 from businesses that had originally bought the software from Autodesk. He then put the software up for sale on eBay. Each package contained discs, a copy of a licence agreement and other documentation.

Each time, Autodesk issued a Digital Millennium Copyright Act (DMCA) take-down notice asking eBay to suspend the auction, which it did.

Each time that happened Vernor wrote to Autodesk asserting his rights and saying that the software was legitimate and not a pirated copy, but received no reply. Ebay reinstated the auctions. At one point eBay suspended his seller's account for a month for repeat infringements of its policies when Autodesk had complained a number of times.

Vernor applied to the Court for a declaration that he had the right to sell the software because he believed that this process would be repeated every time he tried to buy and sell software.

The court said that Autodesk's initial transfer of the software to the businesses was a sale, not a licensing arrangement. Those businesses, therefore, had the right to re-sell the software with or without the permission of Autodesk.

The 'first sale doctrine' is an important part of US copyright legislation. Richard Jones, the judge in the case, said that if invoked, the doctrine would protect Vernor.

"If there were no License, there is no dispute that Mr. Vernor’s resale of the AutoCAD packages would be legal," he said in his ruling. "The first sale doctrine permits a person who owns a lawfully-made copy of a copyrighted work to sell or otherwise dispose of the copy."

The Court relied on a 1977 decision involving prints of films, in which the US government took action against Woodrow Wise, who operated a film sales operation in Los Angeles.

That case was the first to look at what is a licensing arrangement and what is a sale, Jones said. It found that in cases where a company expected the material to be returned – as it would if loaning a print to a cinema for display – that was a license arrangement. Where it never expected the material to be returned – such as when a studio allowed actress Vanessa Redgrave to have a print in return for money – that was a sale.

Jones said that subsequent decisions had backed Autodesk's contention that software distribution could be a sale, he had to stay consistent with the earliest relevant ruling, which was that of the case of Wise.

"Although technology has changed, the question at the core of this case is not technological," said Jones. "Mr. Vernor does not seek to take advantage of new technology to ease copying, he seeks to sell a package of physical objects which contain copies of copyrighted material. The essential features of such sales vary little whether selling movie prints via mail (as in Wise) or software packages via eBay."

The ruling also dealt with the extent of the power of the original software licence. Vernor asked the Court to declare that the original licence, which forbade the re-selling of the software, did not control his behaviour.

The Court said that the argument Autodesk had earlier made – that Vernor should not be allowed to own the software because the licence was non-transferable – must govern to whom it can apply.

"Not only has Autodesk failed to surmount the thorny issues of privity and mutual assent inherent in its contention that its License binds Mr. Vernor and his customers, it has ignored the terms of the License itself," said the ruling. "The Autodesk License is expressly 'nontransferable.' License: Grant of License. Autodesk does not explain how a nontransferable license can bind subsequent transferees."

The software industry relies on categorising what consumers often think of as software sales as software licensing agreements. If followed by other courts, the Autodesk ruling could affect the ability of software publishers to restrict the transfer of their technology in that way.

The court denied Autodesk's motion for dismissal or summary judgment. The case continues.

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