Appeals court ruling threatens used software sales

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Appeals court ruling threatens used software sales
By MICHAEL LIEDTKE, AP Technology Writer
Fri Sep 10, 7:42 pm ET

SAN FRANCISCO – A federal appeals court has sided with the computer software industry in its effort to squelch sales of second-hand programs covered by widely used licensing agreements.

Friday's ruling by the 9th Circuit of Appeals raised worries that it will embolden music labels, movie studios and book publishers to circumvent the so-called "first-sale" doctrine in an attempt to boost their sagging sales.

The doctrine refers to a 102-year-old decision by the U.S. Supreme Court that determined copyright holders can't prevent a buyer from reselling or renting a product after an initial sale, as long as additional copies aren't made.

It's a legal principle that allows used book and music stores to operate, as well as DVD subscription services such as Netflix Inc.

But a three-judge panel in the 9th Circuit concluded the first-sale doctrine didn't apply to used software programs that online merchant Timothy Vernor peddled in his store on eBay. Vernor had bought the unopened software, made by Autodesk Inc., at garage and office sales, without ever agreeing to the licensing agreement imposed on the original buyer.

That contract made it clear the rights to install Autodesk Inc.'s software were being licensed rather than sold, according to the 9th Circuit's interpretation.

Without a definitive sale, the first-sale doctrine is moot, the appeals court reasoned in its decision overturning a lower federal court in Washington state.

Autodesk, which is based in San Rafael, said it was pleased with the decision. The Software & Information Industry Association had filed documents supporting Autodesk's position in the case.

The ruling sets the stage for even more legal skirmishes over the definitions of a sale and a license, said Corynne McSherry, an attorney for the Electronic Frontier Foundation, a group fighting to set the boundaries of digital copyrights.

"I am sure there are going to be others (in the media) trying to find the magic words that prevent a buyer of intellectual property from being considered the owner," McSherry said.

Another round in the 3-year-old battle pitting Vernor against Autodesk seems assured. Vernor's attorney, Gregory Beck of Public Citizen, said he intends to ask a full panel of 11 judges in the 9th Circuit to review Friday's decision before considering a possible appeal to the U.S. Supreme Court.

For the moment, Beck and another attorney involved in the case, Sherwin Siy of Public Knowledge, said they expect the 9th Circuit's decision to have a chilling effect on the used software market.

That's something that eBay Inc. had hoped to avoid. The e-commerce company, based in San Jose, Calif., filed a brief in support of Vernor's legal arguments citing the protections under the first-sale doctrine.

Many other popular software programs already installed on home and office computers are covered by licensing agreements using similar language to Autodesk's programs, Beck said.

"That means the infrastructure already is in place for other software makers to say their customers don't really own those programs," he said.

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Guess What, You Don’t Own That Software You Bought
By David Kravets September 10, 2010 | 2:01 pm | Categories: Digital Millennium Copyright Act, intellectual property

A federal appeals court said Friday that software makers can use shrink-wrap and click-wrap licenses to forbid the transfer or resale of their wares, an apparent gutting of the so-called first-sale doctrine.

The first-sale doctrine is an affirmative defense to copyright infringement that allows legitimate owners of copies of copyrighted works to resell those copies. That defense, the court said, is “unavailable to those who are only licensed to use their copies of copyrighted works.” (.pdf)

The 3-0 decision by the 9th U.S. Circuit Court of Appeal, if it stands, means copyright owners may prohibit the resale of their wares by inserting clauses in their sales agreements.

“The terms of the software license in the case are not very different from the terms of most software licensing. So I think it’s safe to say that most people don’t own their software,” said Greg Beck, the defense attorney in the case who represented an eBay seller sued by Autodesk. “The other ramification, there is no reason a similar license could not be put into the cover of a book. It wouldn’t be difficult for everybody to implement this.”

Beck said he will ask the San Francisco-based appeals court to rehear the case with 11 judges.

The Software & Information Industry Association, whose members include Google, Adobe, McAfee, Oracle and dozens of others, urged the court to rule as it did. The Motion Picture Association of America also sided with Autodesk.

The American Library Association and eBay argued against the outcome. The library association said it feared that the software industry’s licensing practices could be adopted by other copyright owners, including book publishers, record labels and movie studios.

That assertion was not lost on the appeals court, saying Congress is free to modify copyright law “if it deems these or other policy considerations … require a different approach.”

It was believed to be the first appellate ruling directly addressing whether a user agreement could forbid resales of software, though the appellate courts have previously backed companies that have imposed terms on how software may be used. The decision covers the nine western states, including California.

The appeals court reversed a lower court judge that said the first-sale doctrine applied whenever the consumer is entitled to keep the copy of the work, entitling consumers to resell their purchased software at will.

The case concerns Autodesk’s AutoCAD Release 14, which was for sale on eBay. Autodesk, invoking the Digital Millennium Copyright Act, demanded eBay remove the item from the site, and it promptly did in 2007.

Timothy Vernor, the seller, who purchased at least four copies of the software from a company that was required to dispose of the software under a licensing agreement, re-posted the sale and his eBay account was terminated after Autodesk complained. Litigation ensued.

Autodesk, of San Rafael, California, imposed a significant number of transfer restrictions: it stated that the software could not be transferred or leased without Autodesk’s written consent, and the software could not be transferred outside the Western Hemisphere.

The first-sale doctrine of 1909, in its current form, allows the “owner of a particular copy” of a copyrighted work to sell or dispose of his copy without the copyright owner’s authorization. “The first sale doctrine does not apply to a person who possesses a copy of the copyrighted work without owning it, such as a licensee,” the court ruled.

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Video game industry to Supreme Court: Games, like movies, are art
September 10, 2010 | 5:42 pm

The video game industry on Friday filed its brief with the U.S. Supreme Court, outlining its best arguments against a 2005 California law banning the sale or rental of violent video games to minors.

The law, which has not gone into effect, was ruled unconstitutional by a lower federal circuit court but was appealed to the Supreme Court, which agreed to hear the case Nov. 2. The case pits the 1st Amendment rights of children against parents' rights, through the state, to regulate their kids' media diet.

The 78-page document can be boiled down to four main points:

1) Video games should be considered an art form, alongside movies, books and music. As such, it should enjoy the same 1st Amendment protections against censorship. Although the California law doesn't forbid companies from making violent content, it singles out certain games based on their content. "The Act restricts this protected speech based on its content," wrote the Entertainment Software Assn., which represents game companies, and the Entertainment Merchants Assn., representing game retailers.

2) The law is a solution in search of a problem. Parents have little trouble moderating what their kids can play, given that the vast majority of games have ratings that indicate whether they contain violence. Here's an excerpt: "The State ignores the industry's successful self-regulatory efforts, parents' level of involvement in game-purchasing decisions, and the availability of technological parental controls, all of which achieve the State’s purported goals without government interference."

3) Violent games are not necessarily harmful. The industry argues that the state has failed to prove video game violence is harmful to children. In addition, "offensive" violence can be found in all sorts of media, from "Harry Potter" movies to "Grimm's Fairy Tales," the brief argued. "California has not shown that the Act materially addresses a specific harm that the State has a legitimate interest in targeting," wrote the ESA and the EMA.

4) The law's definition of violence is vague. The law defines violence as "killing, maiming, dismembering, or sexually assaulting an image of a human being." This, argues the brief, is not straightforward when it comes to a "fanciful medium." "Games often include zombies, aliens, demi-gods, or cartoonish characters like Super Mario, all of whom may appear human but then transform into other beings," the brief noted.

The Supreme Court has set a hearing where both sides can defend their arguments Nov. 2, when no doubt there will be enough action for an epic game of legal chess.

-- Alex Pham

Photo: Luigi appears to maim Toad with a knife. Credit: somegeekintn via Flickr.