So You Think You Own That Software?

Many of us have, at one point or another, found ourselves overwhelmed by the amount of stuff lying around our homes, and have taken the opportunity to clean up (and make a bit of spending money in the process) by selling used books, CDs, DVDs, or VHS tapes at a yard sale, or at a pawn shop, or on an Internet site like Ebay or Craigslist. Even though these items are typically subject to copyright protection, we are allowed to sell them — or otherwise dispose of them as we see fit — because of the “first sale doctrine,” a limitation on copyright articulated by the U.S. Supreme Court in the landmark decision of Bobbs-Merrill Co. v. Straus, 210 U.S. 339 (1908), and subsequently codified in the Copyright Act of 1976, 17 U.S.C. sec. 109. In short, the first sale doctrine allows a purchaser of a lawfully made copy of a work — for instance, a book — to sell that book without the permission of the copyright holder — in other words, the copyright holder’s rights to control that particular copy of the book end once that book is first sold. The first sale doctrine applies to all copyrighted works, though certain exclusions have been made for rental, lease and lending of computer software and phonorecords, which require authorization of the copyright owner.

Because the first-sale doctrine essentially creates a secondary market for copyrighted works (arguably resulting in fewer profits for some copyright owners), and because digital works are easily copied and manipulated, certain software and music publishers have attempted to sidestep the doctrine by attempting to control, via contract, the actions of purchasers. For instance, some copies of software contain so-called “shrink wrap” licenses, also called End-User License Agreements (EULAs), which purport to bind the purchaser upon opening the software package or installing the software. EULAs vary, but typically define the relationship between the end-user and the copyrighted work as a “license” arrangement — that is, the user has not purchased a copy of the software, but only purchased the license to use the software under certain conditions defined by the copyright owner. Of course, many EULAs prohibit the transfer of that “license” to third parties, among other various restrictions.

Three cases pending before the Ninth Circuit promise to shed some light on the enforceability of EULAs and similar contracts purporting to restrict the actions of end-users. The first, Autodesk v. Vernor, stems from a lawsuit by Vernor, a reseller of used copies of Autodesk’s Autocad software on Ebay, who sought declaratory relief based on Autodesk’s prior interference with his Ebay auctions. The United States District Court for the Western District of Washington held that the first sale doctrine trumped any contractual agreement to not resell the product, and that subsequent sales did not constitute copyright violations. Vernor v. Autodesk, Inc., No. C07-1189RAJ (W.D. Wash September 30, 2009) (PDF).

The second case, UMG v. Augusto, involves Ebay sales of promotional CDs of UMG musicians that were originally handed out to music reviewers and found by Augusto at record stores. The CDs were labeled “PROMOTIONAL USE ONLY — NOT FOR SALE,” which UMG claimed constituted “label licenses.” The court below, noting that the “only benefit to a license for UMG is to restrain transfer of its music,” held that the “label license” did not create an agreement between UMG and the original recipients of the CDs, and granted Augusto’s summary judgment motion as to UMG’s copyright claim, holding that Augusto’s sales of promotional CDs did not constitute copyright infringement.  UMG Recordings, Inc. v. Troy Augusto et al., No. CV-03106 SJO (AJWx) (C.D. Cal June 10, 2008) (PDF).

MDY v. Blizzard is a bit more complicated in that it doesn’t deal with resale of copyrighted goods, but rather the end user’s ability to interact with the software (and copy the software to a computer) in a manner ostensibly prohibited by the EULA. Blizzard is the creator of the well-known World of Warcraft computer program, a massively multiplayer online role-playing game (MMORPG) in which players, via player-created avatars, make friends, battle enemies, gain “experience points,” and earn in-game money to spend on equipment and items for their avatars. MDY created a software program called Glider that enables users to play World of Warcraft on “autopilot,” meaning that players could be away from their computers while their avatars would continue to operate in-game. Because the terms of the World of Warcraft EULA prohibited “bots,” as such programs are typically called, Blizzard claimed that MDY was tortiously interfering with the EULA between Blizzard and end users, and that MDY was vicariously liable and otherwise contributing to the copyright infringement (e.g., copying of the game program into computer system memory outside of the scope of the limited license). The U.S. District Court for the District of Arizona granted summary judgment for, among other claims, Blizzard’s claims of vicarious and contributory copyright infringement.  See MDY Industries, LLC v. Blizzard Entertainment, Inc. et al., No. CV-06-2555-PHX-DGC (D. Ariz. January 28, 2009) (PDF).

All three cases have been appealed to the Ninth Circuit.

So, who really owns “your” software, and to what extent are you allowed to modify it for personal use? What about “your” music CD? The Ninth Circuit’s treatment of these cases promises to provide some clarity on the enforceability of EULAs and shrink wrap licenses on original purchasers, as well as the effect of such contracts on downstream consumers. Both copyright owners and consumers should pay close attention.

Do you own that software?  You’ll just have to wait to find out.

One thought on “So You Think You Own That Software?

  1. Interesting. I hope you’ll update on these cases. Any thoughts about how other circuits might come out on shrinkwrap agreements and “licensed” software, particularly the First Circuit?
    I am a young IP associate at a Boston firm and am thoroughly enjoying this blog. Thank you all for starting it.

Leave a Reply

Your email address will not be published. Required fields are marked *