Posted by: Taylor Durbin
The software industry would undoubtedly lead you to believe that you have merely licensed a single copy of their software product. This conclusion may not be reality, it is possibly a legal fiction created by the software industry. This seemingly subtle distinction between whether you are an owner or mere licensee of software can have significant ramifications. The most significant of these ramifications and the focus of this blog revolves around the first-sale doctrine. This doctrine enables the owner of a copyrighted product to re-sell the product if they wish. The software industry for obvious business reasons wants to restrict the re-sale market of their software. To do this they claim to not sell their products, but instead they claim to lease a copy of the software to users who are then bound by the license agreement which will include a provision prohibiting the re-sale of the software. The first sale doctrine does not apply to licenses.
The Ninth Circuit has recently created a 3 factor test in determining whether software is sold or licensed. In Vernor v. Autodesk Inc., the court laid out that test, “We hold today 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 use restrictions.” This rather liberal test seems to allow software producers to unilaterally contract around the first sale doctrine. Vernor v. Autodesk Inc., 621 F.3d 1102, 1111 (9th Cir. 2010).
In my view, this test is flawed for two significant reasons. First, it is not setting any objective standard, rather the test turns on exactly the things the software industry is trying to accomplish anyways. Second, the test requires the person to be a copyright holder and in essence has expanded the exclusive rights given to copyright holders by the copyright act. This expansion of these rights through state law governed contractual agreements creates significant preemption issues with the federal copyright act.
I would propose a test that looks to the conduct and intent of the copyright holder in determining whether they have licensed or sold their product. The software industry has a lot to gain from labeling all software as being licensed. Since they are always going to label it as a license, I do not believe that should have any bearing on whether it actually is a license or not. This issue should instead be resolved by the finder of fact after looking at the conduct of the software dealer. Factors in favor of a sale of the software would be forever duration to use the software, one upfront fee with no reoccurring licensing fees, and the intentions of the software dealer. By intentions of the dealer, I mean if their only intent is to limit the re-sale market then it should not be deemed a license. The first-sale doctrine has been established by the Supreme Court and codified by Congress. Many industries would love to do away with it, until Congress decides to do so, I don’t believe the courts should allow an exception for the software industry.