Vernor v. Autodesk

Citation: Vernor v. Autodesk, Inc., 2010 WL 3516435 (9th Cir. Sept. 10, 2010) (full-text).

Factual Background
Autodesk makes “computer-aided design software used by architects, engineers, and manufacturers.” Since at least 1986, Autodesk has offered its “AutoCAD” software to customers through a software license agreement, which customers must accept before installing. This license requires users to agree that (1) Autodesk retains title to all copies, (2) the user has a nonexclusive and nontransferable license, (3) renting, leasing, or transferring the software without Autodesk’s prior consent is prohibited, and (4) the user may not modify, translate, reverse-engineer, decompile, or disassemble the Software, remove any proprietary notices or labels, or utilize any computer software or hardware to defeat copy-protection. Among other restrictions, the license also states that a user in violation loses its right to continued use and that if the software is upgraded all previous versions must be destroyed.

Timothy Vernor, a seemingly frequent purchaser of copies of AutoCAD from unauthorized sources, brought a declaratory judgment action against Autodesk to establish that his subsequent resale of these copies were lawful because of the right sale doctrine and essential step defense to copyright infringement. While the district court granted summary judgment in Vernor’s favor, the Court of Appeals reversed and remanded holding that because AutoCAD was only licensed and never sold, neither of Vernor’s affirmative defenses applied.

Factual Background
Vernor first acquired a copy of AutoCAD from a garage sale, which he listed on eBay having never opened or installed the software. Autodesk filed a Digital Millennium Copyright Act (“DMCA”) takedown notice with eBay claiming that Vernor’s sale was infringing its copyright. Vernor filed a counter-notice as prescribed by the DMCA, which Autodesk did not respond to and Vernor’s eBay listing was reinstated. Vernor later purchased four used copies from a company office sale. Following a software upgrade, the company decided to sell the old versions rather than destroy them as required by the license it had agreed to. Vernor again listed the copies on eBay, Autodesk filed a DMCA notice, Vernor responded with a counter-notice, and Autodesk did not respond. However, due to Autodesk’s repeated complains, eBay decided to suspend Vernor’s account. Vernor wrote to Autodesk regarding his claimed right to sell the copies and Autodesk’s counsel responded by telling Vernor to stop selling their software.

At the time of these proceedings, Vernor had two copies of AutoCAD that he wanted to sell on eBay. Following cross motions for summary judgment, the district court granted Vernor’s declaratory action based on his two affirmative defenses of the first sale doctrine and the essential step defense. The first sale doctrine allows owners of copies of copyrighted works to resell those copies. Under the essential step defense, a software user who is the “owner of a copy” of a copyrighted software program does not infringe by making a copy of the program if the new copy is “created as an essential step in the utilization of the computer program in conjunction with a machine and. . . is used in no other manner.” 17 U.S.C. §117(a)(1). Accordingly, under both defenses, the determinative issue is whether Vernor was the “owner” of his copies as he alleges, or whether he improperly purchased them from licensees in violation of Autodesk’s software license. Ninth Circuit’s Analysis

In United States v. Wise, 550 F.2d 1180 (9th Cir. 1977), a criminal copyright infringement case, the court determined whether a first sale of copies of a motion picture had occurred pursuant to written distribution agreements based on whether the agreement:

(a) was labeled a license, (b) provided that the copyright owner retained title to the prints, (c) required the return or destructions of the prints, (d) forbade duplication of prints, or (e) required the transferee to maintain possession of the prints for the agreement’s duration. Id. at 1190-92.

The court against visited the issue of “owner” vs. “licensee” in the “MAI trio” of cases. See MAI Sys. Corp. v. Peak Computer, Inc., 991 F.2d 511 (9th Cir. 1993); Triad Sys. Corp. v. Se. Express Co., 64 F.3d 1330 (9th Cir. 1995); Wall Data, Inc. v. Los Angeles County Sheriff’s Dep’t, 447 F.3d 769 (9th Cir. 2006). In MAI and Triad, the defendants maintained computers that ran the plaintiff’s operating system software. When the defendants ran the computers the computers automatically loaded plaintiffs’ software into RAM. Because the software sold by both plaintiffs had been sold subject to restrictive license agreements, the court held that the customers were licensees who were not entitled to the essential step defense and that the defendants had therefore infringed on the plaintiffs’ copyrights by loading the software into RAM.

In Wall Data, plaintiff sold 3,663 licenses to the defendant subject to a non-exclusive license that permitted use of the software on a single computer, and that restricted transfers of the software to once per month, and then only if the software were also removed from the original computer. The defendant subsequently installed the software on 6,007 computers and the plaintiff sued for copyright infringement. Citing MAI, the court held that the essential step defense was unavailable where the copyright owner merely granted the user a license that significantly restricted the user’s ability to transfer the software.

Considering Wise and the MAI trio, three considerations emerge to determine whether a software user is a licensee or an owner: (1) whether the copyright owner specifies that a user is granted a license, (2) whether the copyright owner significantly restricts the user’s ability to transfer the software, and (3) whether the copyright owner imposes notable use restrictions. The district court, however, concluded that Wise and the MAI trio were irreconcilable and followed Wise as the first-decided case. While admitting that under the MAI trio Autodesk’s transfer was a license, under Wise, the district court held that because Autodesk did not require its customers to return copies of old software, that the transfer was more correctly classified as a sale.

The Court of Appeals ultimately ruled that a software user is a licensee rather than an owner of a copy where the copyright owner (1) specifies that the user is granted a license; (2) significantly restricts the user’s ability to transfer the software; and (3) imposes notable restrictions. Applying these factors it was clear to the Court that Autodesk’s transfers to the original purchasers were mere licenses and that Vernor’s subsequent purchases were improper. Therefore, Vernor was unable to raise his affirmative defenses and was not privileged to sell his copies.