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.

Photo courtesy Steve Snodgrass/Flickr

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