Vernor v. Autodesk–Does the Right to Possession Distinguish Between Sales and Licenses?

By Venkat Balasubramani

[A big thanks to Professor Goldman for the guest blogging opportunity. I jokingly mentioned that asking me whether I was interested in guest blogging was the law blog industry equivalent of Oprah calling one of her viewers and asking if the viewer was interested in guest hosting the show. Seriously, it's exciting for me as a blogger and practitioner. From my standpoint, Professor Goldman's blog is probably one that I've come to view as indispensable.]

The Western District of Washington (Judge Jones) ruled last week that Autodesk could not prevent the resale of copies of its “AutoCAD packages” based on the theory that the sale was an unauthorized transfer under the terms of the AutoCAD license. (Vernor v. Autodesk, Inc., Case No. C07-1189RAJ (Sept. 30, 2009).) Congrats to Public Citizen for the win. Access the Public Citizen page which contains case documents here.

Background: Autodesk makes design software [link] which it licenses (or at least so it thought) to third parties. Autodesk licensed copies of its AutoCAD software to a Seattle architectural firm, Cardwell/Thomas Associates (CTA). Vernor acquired several copies of AutoCAD from CTA in an “office sale.” Vernor then attempted to sell the software on eBay – the actual versions Vernor acquired from CTA. Vernor did not use the software or even install it on his computer. He just acquired physical copies from CTA and tried to sell these copies, along with the jewel box, license key, etc.

Autodesk went down the eBay takedown route, issuing the eBay equivalent of DMCA takedown notices (VeRO notices, also called NOCIs). Autodesk’s takedown efforts delayed Vernor’s sales and resulted in a temporary suspension of Vernor’s eBay account. Vernor brought suit in the Western District of Washington alleging Autodesk wrongfully initiated the takedowns, that the takedowns constituted an unfair trade practice, and for declaratory relief that he had the right under the first sale doctrine to sell the copies of AutoCAD which he acquired from CTA.

In May 2008, the court rejected Autodesk’s Motion to Dismiss, largely agreeing with Vernor’s position. After oral argument last week on cross motions for summary judgment, the court issued an order granting in relevant part the relief sought by Vernor, and closing the case.

Discussion: The critical question for the court centered on the nature of the original Autodesk/CTA transaction: “whether Autodesk transferred ownership of the AutoCAD packages to CTA”?

What did the license agreements say?: The court first looked to the underlying documentation between Autodesk and CTA. Although the agreement(s) were styled as “licenses,” prohibited transfers to third parties, and contained numerous other restrictions, none of this was determinative. In the court’s view, the key fact was that CTA was entitled to perpetual possession of the AutoCAD copies. CTA was required to return or destroy these copies if CTA upgraded, but the fact that CTA could choose to upgrade rendered the return/destruction entirely optional from CTA’s standpoint. The court beats up on the Autodesk licensing agreements, calling them a “hodgepodge of terms that, standing alone, support both a transfer of ownership and a mere license.”

Autodesk sought to put forth evidence that CTA was not permitted to sell the copies of AutoCAD in the first place to Vernor because CTA was required to destroy the software, but the court was less than impressed with this evidence. The fact that the court references CTA’s obligation to destroy certain version of AutoCAD upon upgrade as “evidence” (in quotes) is telling. Autodesk was involved in a proceeding with CTA in the Northern District of California in 2009 and CTA agreed to a consent judgment. Autodesk pointed to the provisions of the 2009 consent judgment, provisions of an earlier settlement between Autodesk and CTA, and a 2002 license agreement to support its theory that CTA was obligated to destroy the copies of AutoCAD which it transferred to Vernor, but none of these documents carried the day. Let’s just say the documentation around CTA’s receipt of AutoCAD seemed murky.

9th Circuit cases: As far as applicable Ninth Circuit precedent, the court found an answer favorable to Vernor in United States v. Wise, a case from the seventies. Wise was a criminal case where Wise was accused of “willfully and for profit vending copyright feature-length motion pictures” which he had purchased from certain licensees. The Ninth Circuit looked to the underlying agreements between the film studios and the licensees, and focused (somewhat erratically it seemed to me) on a variety of different factors in determining whether a particular transaction constituted a sale or license. While the court in Vernor conceded that Wise didn’t really provide clear guidance on determining whether a transaction constituted a license or a sale, Vernor looked to Wise and focused on the right to perpetual physical possession as a key determining characteristic of a non-license transaction.

Later Ninth Circuit precedent takes a more copyright owner-favorable view, rejecting attempts by licensees to rely on certain rights as “owners” in defense to claims of unauthorized copying. These cases, starting with MAI and Triad, were decided under section 117, which allows the owner of a copy to make archival and back-up copies, and to reproduce the program, if reproduction is an “essential step in the utilization of the…program.” The court acknowledges the conflict between Wise and this line of cases and concludes that the court is required to follow the earlier precedent on point. Autodesk made a valiant but unsuccessful attempt to point out salient differences between these sets of cases and why MAI was more analogous than Wise.

Autodesk also relied on the expert testimony of Nimmer. Predictably, the court noted it wasn’t bound by Nimmer’s opinion on the core legal question. Along the way, the court pointed out that Nimmer’s views have “proven malleable” over time. Ouch.

I wonder if Autodesk will appeal this one. On the one hand, it would be nice to clear up the confusion among the various cases discussed in the opinion. On the other hand, it seems like the record isn’t the cleanest from the standpoint of the details of the Autodesk/CTA transactions. One thing is for certain: Wise is far from a model of clarity.

***

I typically fall on the consumer side in these cases, but I have to admit the decision struck a chord with me. There’s obviously a spectrum of transactions that range from license to sale, with a big fuzzy line dividing the two. You buy a CD at the store and that’s clearly a sale. No reasonable consumer expects to not be able to freely transfer the particular copy of the CD acquired at the store. Autodesk offers – relatively speaking – expensive software used by professionals and businesses. An Autodesk customer may or may not have the opportunity to negotiate the agreement, but we’re certainly not talking about software you decide to pick up at Office Depot while you are out for lunch. (On a related note, check out the EFF’s page collecting documents in UMG v. Augusto, a case which is currently on appeal, where the Central District of California found that UMG can’t bar sale of “promotional copies” of CDs.)

The court’s focus on perpetual possession as opposed to restrictions on transfer also seemed arbitrary, although this obviously has some support in Ninth Circuit precedent. At the end of the day, if you draft in a restriction on transfer or assignment in a license agreement, most users probably expect these restrictions to be enforceable. Drafters of these agreements certainly do. The dispute is really about whether a piece of software acquired by one person can be freely used by another person or entity. In the eyes of most reasonably sophisticated consumers I think the answer is “only if it’s not barred by the license.” Courts at the other end of the spectrum from Vernor are willing to hold that a licensee violated a no-transfer clause in a license as a result of undergoing a series of mergers and corporate restructuring. (See [pdf] Cincom Systems, Inc. v. Novelis Corp., Case No. 07-4142 (6th Cir. Sept. 25, 2009).) This result seems particularly draconian in light of Vernor. Along these lines, it seems like possession is becoming much less important in the context of software. The court almost seemed to chastise Autodesk for not having a mechanism by which it could assure destruction of the copies which it shipped to CTA. Obviously, these types of attempts raise another set of issues.

Ultimately, the court’s opinion seemed like a pretty serious incursion into the contractual relationship between the parties. Granted, Autodesk’s documentation was less than clear on the issue of whether CTA was required to destroy CTA’s copies of AutoCAD, but the decision seemed to set a pretty high bar for when a transaction will be considered a license.

[A sidenote: about that copy of 1984 you just picked up on your Kindle. Is that a sale or a license? Since Amazon retains the right to zap it under limited circumstances, it's probably a license.]

Other coverage:

Cyberlaw cases: “Court Rules (Again) That Vernor Can Sell Autodesk Software

Bill Patry: “First Sale Victory in Vernor” (discussing the 2008 order on motion to dismiss, with an interesting note from Peter Brantley on ownership of books)

EFF: “It’s Still A Duck: Court Re-Affirms That First Sale Doctrine Can Apply to ‘Licensed’ Software

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