Under the U.S. Supreme Court: Software is like beer -- you just rent it

The Apple flag flies over the corporate campus in Cupertino, California on April 23, 2010. A rise in Apple share prices has the company looking to pass Microsoft and become the second largest corporation in the US. UPI/Mohammad Kheirkhah | <a href="/News_Photos/lp/46485dedfdd244e6d13aa09ecafc2661/" target="_blank">License Photo</a>
The Apple flag flies over the corporate campus in Cupertino, California on April 23, 2010. A rise in Apple share prices has the company looking to pass Microsoft and become the second largest corporation in the US. UPI/Mohammad Kheirkhah | License Photo

WASHINGTON, Sept. 19 (UPI) -- Think you own that expensive piece of software you just bought? Think again.

A U.S. appeals court panel in San Francisco has ruled that software makers can ban the resale of their products when they contain "software licensing agreements" -- an almost universal element that customers must agree to before installing software.


It's that lengthy statement that customers are supposed to read before clicking on the box that says "I agree" during installation.

While the ruling threatens a thriving software resale market -- businesses sometimes sell their old software as they upgrade to new versions -- critics such as the American Library Association say if the decision survives U.S. Supreme Court review its implications could spread to other markets, such as books, movies and music.

The case decided in San Francisco began in Seattle. Public Citizen's Greg Beck, the attorney for an eBay seller in the court dispute with software maker Autodesk, wrote on the Public Citizen blog, "If standard fine-print license terms like Autodesk's are enough to withhold ownership, it is safe to assume that most people do not own the software they believe they have bought. And, unfortunately, there is no obvious reason why other publishing industries couldn't begin imposing the same terms. If they do, it may be the end of ownership of books and music."


Beck said he will ask the full 9th U.S. Court of Appeals, with its 11 judges, to rehear the case decided by a three-judge appeals court panel.

Beck's client, the eBay seller Timothy Vernor, told AuctionBytes if he is unsuccessful at the full 9th Circuit, he will take the case to the U.S. Supreme Court.

MOG, a social networking Web site and blog network for users who listen to their music primarily on their computers or iPods, said the appeals court ruling "could lead to the end of used CD/record stores, Blockbuster, Netflix ... "

Software licensing agreements may not even come into play.

The site said "some companies (cough Micro$oft cough) are likely to claim this applies to software purchased through normal retail channels with 'shrinkwrap licenses' -- licenses that say much the same things as the Autodesk license, which (according to the written terms of the license) you agree to by breaking the shrinkwrap of the package. Of course, you can't read the license form without breaking the shrinkwrap.".

Wired News pointed out the American Library Association and eBay argued against the eventual outcome of the appeals court hearing.

"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," Wired News reported.


AuctionBytes, which describes itself as the independent trade publication for online merchants, said on its blog the appeals court decision endangers the 102-year-old "first sale doctrine" articulated by the Supreme Court.

In 1908's Bobbs-Merill Co. vs. Straus, the justices heard a New York case in which a publisher sold its book with a printed notice announcing that any retailer who sold the book for less than $1 was responsible for copyright infringement.

Writing for the unanimous court, Justice William Rufus Day said an exclusive distribution right applied only to first sales of a copy of work. After that point, a copyright owner had no right to dictate that subsequent sales of the work be sold above a certain price.

"In our view the (federal) copyright statutes, while protecting the owner of the copyright in his right to multiply and sell his production, do not create the right to impose, by notice ... a limitation at which the book shall be sold at retail by future purchasers, with whom there is no privity of contract," Day wrote.

But as the appeals court pointed out, Day said the decision applied only to the rights of a copyright owner that distributed its work without a license agreement -- a relevant consideration even in the new age of e-books and MP3s.


The case that resulted in the modern appeals court verdict involves Autodesk Inc., headquartered in San Rafael, Calif. Autodesk makes "computer-aided design software used by architects, engineers and manufacturers," the appeals court said. "It has more than 9 million customers."

Autodesk offers AutoCAD software to customers with an accompanying software license agreement. The agreement, which carries different terms for commercial, educational and student users, must be accepted before installation.

The software license agreement for AutoCAD Release 14 first says Autodesk retains title to all copies, and the customer has a non-exclusive and non-transferable license to use Release 14, along with other restrictions.

Those other restrictions include an obligation that if the software is an upgrade of a previous version, the customer destroy the previously licensed software, including any copies on a hard disk.

Vernor, who had sold more than 10,000 items on eBay, purchased several copies of Release 14 from one of Autodesk's direct customers (Autodesk ended up settling with the direct customer), then resold the copies on eBay.

When Autodesk objected and filed take-down notices with the Web site claiming copyright infringement, eBay terminated Vernor's account.

Vernor went to court and a U.S. District Court judge gave him summary judgment in part because of the 1908 first sale doctrine. Earlier this month, the federal appeals court panel unanimously "vacated," or threw out, the judge's ruling and sent the case back down for a new hearing based on its opinion.


Writing for the panel, U.S. Circuit Judge Consuelo Maria Callahan acknowledged the American Library Association, as a friend of the court supporting Vernor, "contends that the first sale doctrine facilitates the availability of copyrighted works after their commercial lifespan, by (among other things) 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 ... 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," Callahan said. The ALA "contends that Autodesk's position (1) undermines (federal law), 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."

But she said court precedent compelled the panel to rule as it did.

Friends of the court supporting Autodesk included the Software & Information Industry Association and the Motion Picture Association of America.

If the case goes to the U.S. Supreme Court after a stop at the full 9th Circuit, the justices could decide whether to hear it in 2011.


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