Adobe v. One Stop Micro

Citation: Adobe Sys. Inc. v. One Stop Micro, Inc., 84 F.Supp.2d 1086 (N.D. Cal. 2000).

Factual Background
Plaintiff, Adobe Systems Inc., (“Adobe”), is the developer and publisher of various software products including Adobe Illustrator, Adobe Dreamweaver and Adobe Acrobat. In addition to selling retail versions of its software packages, Adobe distributes educational versions of its software packages that are available to educators and students at a significant discount. The educational versions, which do not include upgrades or technical support, are governed by two distribution agreements (the “Off Campus Reseller Agreement” and “On Campus Reseller Agreement” (“ORCA”)). Under these agreements, the educational reseller is “to make the Educational Software Products available to certain of Reseller’s customers who are Educational End Users.” Defendant, One Stop Micro, Inc. (“One Stop”), is in the business of buying and selling computer hardware and software. Between 1996 and 1997, One Stop admitted that it adulterated one half of the Adobe educational versions it purchased by cutting open and removing Adobe’s shrink wrap, peeling off and destroying the “EDUCATION VERSION – Academic ID Required” stickers, and re-shrink-wrapping the boxes. Additionally, One Stop admitted that it distributed to these adulterated versions as “Full Retail” versions of Adobe’s software.

Upon learning of One Stop’s actions, Adobe filed suit, alleging that One Stop infringed its copyright, diluted and infringed its trademark, interfered with contractual relations, and violated the Lanham Act.

Subsequently, Adobe filed a motion for summary judgment on these claims. One Stop responded by filing a cross-motion for summary judgment, claiming that it was immune from liability under the First Sale Doctrine.

Trial Court Proceedings
At trial, the district court granted Adobe’s motion for summary judgment in part and denied it in part. In addition, the court denied One Stop’s motion for summary judgment based on the First Sale Doctrine.

In denying One Stop’s motion, the district court was forced to examine whether Adobe’s ORCA agreements constitute a sale, or a license of software. One Stop alleged that language included in the agreement such as “purchase” and “own” clearly and unambiguously illustrated Adobe’s intent to sell the software in question. Further, since Once Stop believed that they acquired ownership rights to Adobe’s software, One Stop alleged that Adobe had “terminated its authority to interfere with subsequent sales or distribution of the software in question” under the First Sale Doctrine. Despite this defense, the court found One Stop’s argument to be without merit. In reaching this conclusion, the district court relied on “undisputed evidence regarding the intent of the parties in entering the agreement, trade usage, the unique nature of distributing the software and the express restrictive language of the contract”. In doing so, the court found that, despite the “sales” language, Adobe’s ORCA agreement was undoubtedly intended to be a Licensing Agreement. Since One Stop’s failure to trace its Adobe products to an actual sale, the First Sale Doctrine was inapplicable and subjected One Stop to liability under copyright law. Next, in granting Adobe’s motion for summary judgment based on the copyright infringement claim, the district court found that One Stop’s usage was “manifestly outside the scope of Adobe’s license and in violation of its right to distribute under §106(3).” In support of this, the court noted that Lawrence Firestone, One Stop’s president, admitted to adulterating educational versions of Adobe software and re-packaging them as a full retail version. Since One Stop was bound to the terms of Adobe’s licensing agreement through the ORCA licensed dealer it purchased the software from, it was clear that a violation of the Terms, which require “distribution solely to Educational End Users…”, had occurred. Consequently, One Stop was found to have committed copyright infringement as a matter of law.

Finally, in denying Adobe’s motion for summary judgment based on the trademark infringement claim, the court found that there was “insufficient evidence to establish that One Stop’s actives affected the quality of Adobe’s software. Despite Adobe’s contention that “a product is not truly ‘genuine’ unless it is manufactured and distributed under quality controls established by the manufacturer” (Shell Oil Co. v. Commercial Petroleum, Inc.), the court found that Adobe failed to identify any measures imposed upon distribution to guarantee the quality of its software. Since such measures are necessary under §1114(1), Adobe’s motion for summary judgment in regards to this claim was denied.