The US Court of Appeals for the Ninth Circuit today ruled (PDF) on a long-standing case involving used software on eBay, and it came to an important decision: if a company says you don't have the right to resell a program, you don't have that right. Could this mean the end of the resale market for all digital content? Yup. But the court says it had no choice.

The case is Vernor v. Autodesk, in which Timothy Vernor made his living from selling items (including software) on eBay. Vernor had picked up some old copies of AutoCAD from an architect's office sale, complete with their serial numbers, and he put them up on eBay noting that they were not currently installed on any computer. Sounds legal, right?

But there's a catch. Autodesk, the software's developer, forced all users to accept an agreement before using AutoCAD. This agreement made clear that AutoCAD was merely licensed, never sold, and that one's license was non-transferable. Further, a licensee could not rent, lease, or sell the software to anyone else; you couldn't even physically transfer the discs out of the Western Hemisphere (!). Finally, if you upgraded to a new version, the old version had to be destroyed.

The copies Vernor picked up at the architect's sale were old copies that had not been destroyed as required. Vernor believed he was in the clear to resell them, as he had not agreed to any license. But after putting them on eBay, Autodesk repeatedly tried to shut down his sales. Vernor, on the verge of getting banned from eBay, sued Autodesk and asked the court to declare his sales legal.

A federal court did so in 2008, but Autodesk appealed, and today the appeals court reversed that earlier decision. In its view, US "first sale" protections don't apply to Vernor, because he didn't buy the software from a legitimate "owner." That, in turn, is because the architecture firm had only "licensed" the software, and that license could indeed allow a software company to prevent resale, lending, and even removal from the Western Hemisphere.

So how does one know when it's a "license" or a "sale"? (In other cases, courts have ruled that simply calling something a "license" doesn't make it so.) In today's ruling, the judges laid out a 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."

Major implications for digital media

This ruling has tremendous implications for most digital media, which is licensed rather than sold. For instance, music from Amazon's MP3 music store comes with these license terms: "You agree that you will not redistribute, transmit, assign, sell, broadcast, rent, share, lend, modify, adapt, edit, license or otherwise transfer or use the Digital Content. You are not granted any synchronization, public performance, promotional use, commercial sale, resale, reproduction or distribution rights for the Digital Content." Used music stores? Out of business in the digital age (a result we've worried about for some time).

Software is likewise at risk. Most is governed by some form of End User License Agreement (EULA); Electronic Arts's version goes out its way to note, "This Software is licensed to you, not sold" (though it covers on sublicensing and rental and says nothing explicit about resale).

Similar licenses govern most digital media, and it's therefore no surprise that the American Library Association would be so concerned about the case. Publishers can simply forbid rental or lending in their licenses unless libraries agree to more expensive licenses (something already seen for journals, though not generally for books). And those old software packages your library may loan out? (Mine does.) Forget about them, unless publishers approve.

The ALA filed an amicus brief in the case, which the judges showed some sympathy for. Ultimately, though, they concluded that they had to follow precedent, not rule based on desired outcome.

The ALA contends that the first sale doctrine facilitates the availability of copyrighted works after their commercial lifespan, by inter alia enabling the existence of libraries, used bookstores, and hand-to-hand exchanges of copyrighted materials. The ALA further contends that judicial enforcement of software license agreements, which are often contracts of adhesion, could eliminate the software resale market, require used computer sellers to delete legitimate software prior to sale, and increase prices for consumers by reducing price competition for software vendors. It contends that Autodesk’s position undermines 17 U.S.C. § 109(b)(2), which permits non-profit libraries to lend software for non-commercial purposes, and (2) would hamper efforts by non-profits to collect and preserve out-of-print software. The ALA fears that the software industry’s licensing practices could be adopted by other copyright owners, including book publishers, record labels, and movie studios. These are serious contentions on both sides, but they do not alter our conclusion that our precedent... requires the result we reach. Congress is free, of course, to modify the first sale doctrine and the essential step defense if it deems these or other policy considerations to require a different approach.

So, to recap: EULAs are binding, they can control just about everything you might dream up, and only Congress can change the situation.