In Autodesk case, 9th Circuit missed better reason to bar resales

Summary:The software Timothy Vernor tried to sell was supposed to have been destroyed due to subsequent upgrades. This would have been a sounder basis for the 9th Circuit's decision than the fact the EULA restricted sales, transfers, and copying.

The 9th Circuit's Vernor v. Autodesk decision last Friday has gotten a lot of attention and engendered a good deal of handwringing. Many are mourning the loss of the first sale doctrine (an exception to copyright law that lets someone who purchases a lawful copy of a protected work sell it, lend it, or give it away), and proclaiming we no longer own software, but merely use it instead at the pleasure of the licensor. See, e.g., commentary from David Kravets ("[S]oftware makers can use shrink-wrap and click-wrap licenses to forbid the transfer or resale of their wares, an apparent gutting of the so-called first-sale doctrine"), Mike Masnick ("This ruling is pretty depressing if you actually believe in property rights"), and Nate Anderson ("EULAs are binding, they can control just about everything you might dream up, and only Congress can change the situation"). Personally, I think the case may have been rightly decided, but for the wrong reasons.

There is something interesting and important about this case that has not come through in the coverage and commentary -- understandably enough, because the court didn't rely on it as the basis of its decision. If it had, we'd have a better reasoned case, more likely to survive rehearing and appeal, and less likely to occasion such panic. The plaintiff, Mr. Vernor, sought to sell some copies of AutoCAD on eBay, but he didn't buy them from Autodesk. Instead, he bought them from an Autodesk customer called CTA. Prior to then, CTA had purchased a paid upgrade from v.14 to v.15 of AutoCAD, at an upgrade price of $495/license (versus the $3,750 price v.15 would have otherwise cost). As part of the upgrade pricing and arrangement, CTA agreed to destroy previous versions of the software, and to give proof of that task to Autodesk upon request. This, CTA did not do. Instead, CTA sold its v.14 copies to Mr. Vernor, along with handwritten activation codes necessary for the software to work.

In other words, Autodesk gives customers the ability to upgrade at a discount well below the cost of buying new software, but also expects them not to deepen the effective discount by selling their old copies. Autodesk forbids this practice by having its software license agreement (SLA) require customers to destroy old copies after an upgrade. True, Autodesk also purports to require customers to obtain its consent to any sale of any of its software (e.g., if CTA had tried instead to sell v.15), but that provision did not need to be at issue here because CTA didn't try to sell any of its upgraded copies; it sold the outdated ones.

Given all this, the court seems to have missed a more palatable path to the same outcome. From a legal and policy standpoint, I'd be far more comfortable with a court saying CTA did not "own" its outdated v.14 copies for resale purposes, because it knowingly and reasonably forfeited those sorts of rights when it opted for the discounted upgrade. That's telling your customer it can't have its cake and eat it too, and shouldn't offend anyone's notions of rationality and fairness. Confoundingly however, that's not what the 9th Circuit hung its hat on here. Instead it found only, and much more broadly, that

[B]ecause Autodesk reserved title to Release 14 copies and imposed significant transfer and use restrictions, ... its customers are licensees of their copies of Release 14 rather than owners.

A better-reasoned outcome would have been that "ownership" of software is possible, even in the face of various transfer and use restrictions, but not when a customer opts for the covert "sell" over the contractually required and financially rewarded "destroy." The court viewed this case as black and white: you either own software or, if "significant transfer and use restrictions are present," you don't. It seems to have missed the gray area here: that maybe you can own it, but forfeit that right if you breach a provision specifying, "if it's old, it can't be sold."

In our era of increasingly digital and virtual goods, I'm even ok with upholding an "if it's old, it can't be sold" restriction -- tied, as here, to a discounted upgrade -- in the non-software context. Suppose an ebook author and publisher offer an updated copy of a publication annually, at a discounted price to prior purchasers who agree their prior copy will be replaced -- sounds good to me. Say a physical book author and publisher do the same thing, if buyers will trade in their old editions for the new one -- still fine. Not that I'm a fan of involving lawyers in book sales, but there's no denying that notions of ownership are evolving along with the nature of our goods:

Until the Free Culture movement gains much more traction, we can expect to see more, not fewer, license agreements governing the things we purchase, use, and consume. We need courts to construe them with common sense and fairness. It makes sense for both things -- licenses and resales -- to survive in the marketplace of bits you can't hold, but whether and how that will happen remains to be seen.

Update: More analysis from EFF's Corynne McSherry, “Magic Words” Trump User Rights: Ninth Circuit Ruling in Vernor v. Autodesk

Topics: Software

About

Denise Howell is an appellate, intellectual property and technology lawyer who enjoys broad industry recognition for her expertise on the intersection of emerging technologies and law. For further details please see her professional background and speaking schedule. Denise's career is characterized by her passionate engagement in intell... Full Bio

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