Adobe Systems v. Stargate Software

Citation: Adobe Sys., Inc. v. Stargate Software, Inc., 216 F.Supp.2d 1051 (N.D. Cal. 2002).

Factual Background
Plaintiff, Adobe Systems Inc., (“Adobe”), is the developer and publisher of various software products including Adobe Illustrator, Adobe Dreamweaver and Adobe Acrobat. As part of its practice, Adobe distributes its products under license agreements to a network of distributors and original equipment manufacturers. Each distributor is required to sign license agreements that allow limited re-distribution to individuals authorized by Adobe. In addition, all Adobe software products are subject to the shrink-wrap End User License Agreement (“EULA”) contained on every product, which prohibits copy and commercial redistribution.

In conjunction with releasing its software to the general public, Adobe produces “Educational” versions of its software packages at a discount. In order to procure Adobe’s Educational programs, each distributor must sign “Off or On Campus Educational Reseller Agreements” (“OCRA”). Once this agreement is signed, distributors receive Educational versions of Adobe software that are prominently labeled: “Education Version – Academic ID Required… Notice to users: Use of the enclosed software is subject to the license agreement contained in this package.”

Defendant, Stargate Systems Inc. (“Stargate”), is a discount distributor of software. In 1997, Stargate began acquiring Adobe Educational software from two companies, Dallas Computer and D.C. Micro. Stargate would then sell the Adobe software well below market prices to retail customers and unauthorized resellers.

Upon learning of Stargates activities, Adobe set up a “trap purchase” of Educational software from the company. Shortly after purchasing the unauthorized copy, Adobe filed suit against Stargate for infringing Adobe’s copyrights by obtaining and selling Educational versions of Adobe software without Adobe’s authorization.

Stargate contends that it is the rightful owner of Adobe software products and that Adobe’s claim for copyright infringement is erroneous. In support of this contention, Stargate points to the first sale doctrine, codified in 17 U.S.C. §109.

Both parties filed motions for summary judgment.

Trial Court Proceedings
At trial, the district court found that Stargate had, in fact, infringed Adobe’s copyright by distributing unauthorized copies. In arriving at this conclusion, the court determined that §109, which states: a “copyright owner’s rights under §106(3) [granting exclusive rights] cease with respect to the particular copy or phonorecord once he has parted with ownership of it” (emphasis added), was not satisfied. The facts illustrated that Adobe never gave an ownership interest in its products; rather it licensed them to distributors. As a result, the court granted Adobes motion for summary judgment and denied Stargate’s.

Much of the district courts reasoning was based on the case Adobe System, Inc. v. One Stop Micro, 84 F.Supp.2d 1086 (N.D. Cal. 2000). The court noted that, much like the defendant in One Stop, Stargate relied on language such as, “owned by reseller” and “Adobe may, at its option repurchase…” to illustrate Adobe’s intention of transferring ownership. However, the district court determined that Adobe’s Licensing Agreement was merely “evidence of trade usage demonstrat[ing] that it is commonplace for sales terminology to be used in connection with software licensing agreements.” In addition, the court found that the numerous restrictions imposed by Adobe, all of which undeniably interfered with the reseller’s ability to further distribute the software, were a better indicator of Adobe’s intent to license its software, rather than sell it.

As a result, the court determined that the language found in the various contracts and Licensing Agreement was both clear and unambiguous. This, coupled with the multiple restrictions on title placed on the resellers, characterized the transaction as a license, rather than a sale. Since conveyance of ownership is essential for a §109 defense to stand, the court was forced to dismiss Stargate’s motion for summary judgment and grant summary judgment for Adobe.