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

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.

TOPICS: Software

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

Topic: Software

Denise Howell

About Denise Howell

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.

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  • You're absolutely right

    Had the 9'th circuit used reasoning like you outlined, nobody would be up in arms.

    But what can you do when judges have no expertise in the matters they judge? They should have ruled narrowly (based on first doctrine) and didn't (ruling software sales aren't really sales).

    Wonder if this is headed to the SCOTUS. Sure hope so...
    • What's the legal process...


      ...when a judgement is correct but the reasoning used to arrive at it isn't? Is that grounds for overturning on appeal?
      • RE: In Autodesk case, 9th Circuit missed better reason to bar resales

        @rapson 2 chances: the 9th Circuit itself can agree to rehear and change the decision, or the U.S. Supreme Court can agree to review it.
        Denise Howell
      • Question remains


        I understand that, but I'm wondering if faulty reasoning is grounds for overturn on appeal. I haven't seen anyone claim that the final ruling was wrong, only that the reasoning used to arrive at it was (maybe not wrong, but weak at least). Is that a criterion that an appeals court or the Supreme Court would use to hear an appeal?
      • RE: In Autodesk case, 9th Circuit missed better reason to bar resales

        @rapson It's not easy to reverse a decision on the grounds a "better" outcome was possible; they'd have to convince the court (the 9th Circuit en banc panel, or the Supreme Court) that the legal reasoning the court relied on was just wrong -- i.e., not consistent with existing law.
        Denise Howell
  • RE: In Autodesk case, 9th Circuit missed better reason to bar resales

    So, can I sell my laptop with the software that came installed on it or do I have to wipe it clean and sell it without an OS installed?
    • RE: In Autodesk case, 9th Circuit missed better reason to bar resales

      @duclod The former makes the most sense and I think most first sale cases would support it. The bad thing about this case, though, is if the OS EULA has transfer and other restrictions, a court following this decision might say you're out of luck. Wiping would only come into play if you had agreed to delete old versions after upgrading to new. As a practical matter the analogy doesn't work very well, since generally you don't wind up with multiple OS copies after an upgrade; you get replacement instead...unless you're running multiple versions on different partitions I suppose...
      Denise Howell
    • Answer: NO

      Technically (and legally), the OEM license you got with the laptop prohibits the transfer of any license to another person.

      To use the same logic in this article ... you gave away the right by paying an OEM license price instead of full retail.
  • The purchased upgrades have no bearing on this case

    The court didn't address the issue of the upgrades because it has no bearing on the case. Nothing in the upgrade agreement specifically transferred ownership of the R14 copies back to Autodesk. So, if it can be proved that CTA owned the R14 copies before the upgrade, they still owned them after the upgrade (in addition to the R15 copies). The requirement to destroy the copies by itself doesn't transfer ownership (this is consistent with precedent in United States v. Wise where transfer of copies strictly for the purpose of salvage or destruction still constitutes a sale or other transfer of ownership).

    This may seem unfair from Autodesk's point of view, but considering it from CTA's point of view, they may view the "upgrade" discount similar to a "frequent customer" discount. I often buy books from the bookstore at a similar type of discount for being a frequent buyer. But this doesn't mean that the bookstore gets my previously purchased books back in exchange for the discount.

    Software upgrade discounts and book discounts serve exactly the same purpose: to encourage future purchases by rewarding the customer for past purchases and brand loyalty.
    • RE: In Autodesk case, 9th Circuit missed better reason to bar resales

      To add one more point:<br><br>Although CTA would still be the owner of R14 (if they initially were owners), even after the upgrade, their failure to destroy the copy would possibly put them on the hook for breach of contract.
    • RE: In Autodesk case, 9th Circuit missed better reason to bar resales

      Adding a little more:

      On further consideration, I think that the fact that Autodesk authorized CTA to dispose of the R14 copies serves to *strengthen* the case that CTA was the owner of the R14 copies -- even if CTA was *not* originally considered the owner.

      In general, state laws concerning the ownership of property that has been disposed of consider such property to be abandoned. Some states consider the ownership of property that has been disposed to be transferred to the agent(s) rightfully responsible for the disposal.

      For instance, in most states, if you throw an old pair of shoes in the trash, it's considered that you've abandoned your property. Anyone who sees them in the trash may legally take claim to ownership of them; you'd no longer have any right to claim ownership. In Texas (and some other states), if you throw your shoes in the trash, the state considers ownership of the shoes to be transferred to the company responsible for picking up your trash.

      Given these facets of the law, it seems that Autodesk's request to destroy the R14 copies signals the abandonment of any claim of title they might have had. Either the property would be considered abandoned outright, or ownership would be considered to be transferred to CTA since they were specifically authorized to dispose of them.
      • RE: In Autodesk case, 9th Circuit missed better reason to bar resales

        @slcdb I'd say that implicit in a requirement that a software be destroyed is the termination of all the licensee's rights in it. Remember, Autodesk doesn't agree that customers purchase any ownership rights to begin with, but courts in different first sale doctrine cases have determined that sometimes a purchaser gets both a license and ownership.
        Denise Howell
  • What a pity the greedmasters win again!

    What the mental cripples at all large software peddling companies don't get and never have is you will sell more software if you make it affordable and it won't be as pirated.
    Sell 1 copy for a million or sell 100 million copies for $10 who wins? What a pity they aren't smart enough to ever understand what a 3 year old could get in 10 seconds.
    Reality Bites
  • Mission Impossible style!

    Why Autodesk does not invent something that their softwares burn as soon as you install an upgraded version for a discount price! What if you sell an un-upgraded version for a discount price for the sake of not using them, like selling your old dvds in a garage sales? You are basically transferring the use of license to a friend or a stranger! What's wrong with it 9th District?
  • Its clear that Autodesk wanted this to go to court

    Its clear that Autodesk was not interested in resolving the matter by their lack of getting back to Vernor after each take down notice and Mr Vernors attempt to resolve the issue with Autodesk. Logically this leads but to one reason, Autodesk wanted this to go to court and after 4 Take down notices they got their wish and were sued in court.

    Why would Autodesk do this? To setup a case of a specific scenario that could produce the outcome that the software and gaming industry so badly want, and that is to deny someone the ability to sell or resale their wares.

    What I find interesting is the bit about the court saying that it must rule within the law even if the result has a negative impact and that Congress may want to revisit the issue to correct this. Since when has the courts, especially the more open and aggressive courts like the 9th had an issue with flexing its judicial muscle and going beyond its defined bounds? Courts frequently change or create new laws thru their re-interpreting of existing laws or lack thereof. The difference here is that flexing that judicial muscle and stepping outside those bounds would have benefited the individual consumer and not big business and that?s a no-no in politics.

    There are 2 goals the gaming industry in specific and the software industry in general are pushing for; the unraveling of private property rights and removal of the right to sale or resale legally purchased material. By removing private property rights and the ability to sale or re-sale these 2 industry giants open the door to guaranteed recurring revenue by forcing all users to by new and never used. The removal of private property rights and private property helps to re-enforce the concept that used sales are illegal sales and so everything must be purchased new.

    When Back Ops hit the streets a few days back it set new sales records in the game industry by generating $360 Million the first day. This is clearly not the same gaming industry of the days of Pac Man or Super Mario Brothers and just like Microsoft, Apple and Autodesk, they are looking at how to restrict the consumers options for obtaining product and this ruling by the 9th has helped pave the path to more control for them and less for the consumer.