Resale of Software Not Insulated By First Sale Doctrine

Resale of Software Not Insulated By First Sale Doctrine

^{September 10, 2010 | Intellectual Property News}

In a closely-watched case, the Ninth Circuit Court of Appeals has ruled that the resale of software may not be insulated by the first sale doctrine.

The case involved the sale of AutoCAD software that was originally sold by Autodesk, Inc. to one of its direct customers. That customer sold fourteen used copies of AutoCAD to Timothy Vernor, who then resold them on eBay. The court considered whether the Autodesk customer had rights sufficient to allow it to resell the programs to Vernor, and therefore whether Vernor could legally resell them on eBay.

As a general rule, most intellectual property rights are governed by a “first sale” defense. Once the owner of a copyrighted work sells it to another person or company, that person or company becomes the owner of the work and is free to resell it to others. The original owner has no right to pursue any subsequent downstream buyers because the original owner passed all rights in the work to the first buyer. The federal copyright laws codified the first sale doctrine with a provision stating that the owner of a particular copy of a copyrighted work can sell or dispose of the copy without first obtaining the original author’s permission. Vernor argued that his sale of the fourteen copies of AutoCAD was protected by the first sale doctrine, arguing that once Autodesk sold them to its initial customer Autodesk had no remaining rights that could prevent subsequent sales of the software.

The district court agreed with Vernor, but the Ninth Circuit Court of Appeals disagreed and reversed the decision. According to the Ninth Circuit, Autodesk licensed its AutoCAD software and did not originally sell it. The software was distributed with a license that expressly restricted the ability to transfer or resell it. Because the original customer was a licensee, not an owner, the first sale doctrine did not apply. Vernor could not legally buy the software from the first customer, and therefore Vernor did not own the software. The result for Vernor—and for his customers who bought the fourteen copies on eBay—was that the use and sale of the used AutoCAD software infringed Autodesk’s copyrights in the software.

This decision by the Ninth Circuit is not necessarily consistent with decisions from other federal courts of appeal. As such, the law remains unsettled and the issue may continue to the Supreme Court. It is also a decision that is primarily concerned with software because software, unlike most other goods, is commonly distributed under a license. Nonetheless, it allows original sellers of goods to take advantage of the possible use of a license to distribute their goods, and requires resellers of used goods to pay close attention to whether the goods were originally sold or licensed.

Read the full Ninth Circuit decision at http://www.ca9.uscourts.gov/datastore/opinions/2010/09/10/09-35969.pdf.