Intellectual Property | Copyright Infringement | Technology | Software

Copyright Case Briefs – Adobe Systems Inc. v. Stargate Software Inc., 216 F. Supp. 2d 1051 (N.D. Cal. 2002)

Jan 15th, 2018 | By | Category: Software Litigation

Attorney Steve® Copyright Case Briefs – This case comes from the United States District Court, N.D. California, San Jose Division.

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SUMMARY:

Here is a case from the Northern District of California,  Plaintiff, Adobe Systems Inc. (“Adobe”) filed an action against defendant, Stargate Systems, Inc. (“Stargate”) for copyright infringement of Adobe’s educational software. The Court denied Stargate’s Motion for Summary Judgment and granted Adobe’s Motion for Summary Judgment.

FACTS:

Adobe is a software development and publishing company. Adobe distributed software products under license to a network of distributors and original equipment manufacturers. The distributors sign license agreements that permit them to engage in limited re-distribution to entities or individuals authorized by Adobe. All Adobe software products were allegedly subject to a shrink-wrap End User License Agreement (“EULA”) that prohibited copying or commercial re-distribution.

Adobe made discount “Educational” versions of its software packages available for license to students and educators. Distributors are licensed to transfer Educational versions of the software only to resellers who have signed Off or On Campus Educational Reseller Agreements (“OCRA”) with Adobe. The OCRA required that re-distribution of Educational software be limited to students and educators. Adobe claimed that the Educational versions are prominently marked “Education Version—Academic ID Required” and include the legend, “Notice to users: Use of the enclosed software is subject to the license agreement contained in the package.”

Stargate was a discount software distributor owned by Leonid Kelman. Neither Stargate nor Leonid were authorized distributors of Adobe products. In 1997, Stargate began acquiring software from two businesses, Dallas Computer and D.C. Micro, with the majority of the software being Adobe Educational software. Adobe contended that Stargate’s suppliers acquired Adobe Educational software from distributors with valid OCRAs. However, Stargate alleged that all of the Adobe software products that Stargate sold were purchased through different distributors.

Between March 1998 and April 1999, Stargate, purchased between 1795-2189 packages of “Educational” software produced by Adobe. Stargate distributed this Educational software at below-market prices to retail customers and unauthorized resellers through magazine advertisements, trade shows, action websites and its website www.stargatesoftware.com.

Adobe alleged that Stargate infringed Adobe’s copyrights by obtaining and selling Educational versions of Adobe software without Adobe’s authorization. Stargate contended that it was the rightful owner of the Adobe software products and therefore did not infringe Adobe’s copyright by reselling those products, pursuant to the “first sale” doctrine, codified at 17 U.S.C. § 109.

PROCEDURAL HISTORY:

Adobe filed suit in this Court against Stargate and Mr. Kelman (“Defendants”) in 1999.

ISSUE:

Whether Adobe, through its OCRA and EULA, transferred ownership of each copy of its software to its distributors. 

RULE OF LAW:

Section 106 of the Copyright Act gives owner the exclusive right “to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending.” 17 U.S.C. § 106(3). The copyright owner has the “right to control the first public distribution of an authorized copy or phonorecord of his work, whether by sale, gift, loan, or some rental or lease arrangement.” 17 U.S.C. § 106(3).

Pursuant to § 109(a) of the Copyright Act, “the owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.” 17 U.S.C. § 109(a). Under the first sale doctrine, “a sale of a lawfully made copy terminates a copyright holder’s authority to interfere with subsequent sales or distribution of that particular copy.” Parfums Givenchy, Inc. v. Drug Emporium, Inc., 38 F.3d 477, 480 (9th Cir.1994).

Section 202 of the Act recognizes a distinction between tangible property rights in copies of the work and intangible property rights in the creation itself. “Ownership of a copyright, or of any of the exclusive rights under a copyright, is distinct from ownership of any material object in which the work is embodied.” 17 U.S.C. § 202.

ANALYSIS:

  1. Sale or License

Stargate conceded that Adobe retained the title to the objective coded software of the intellectual property contained on the CD-ROM. Rather, Stargate contended that whenever there is a sale, Adobe has parted with title to that particular copy of its copyrighted intellectual property. Stargate also alleged that Adobe’s OCRA and EULA did not mention that Adobe intended to retain title to that particular copy of its software.

Adobe contended that software was commonly distributed through licensing agreements. It also contended that Mr. Kelman, was aware that Adobe’s software was distributed pursuant to licensing agreements. Furthermore, Adobe said that it was Adobe’s intent to license the software, in fact, it insisted that it never Copyright Act, the first sale doctrine did not turn on whether the copyright owner “received its reward” for a particular piece of software, but whether the software had been sold. Since multiple restrictions were placed on the title through the terms of the OCRA, Adobe argued that no sale occurred.

  • The Term “Software”

The issue here was who was the rightful owner of the package or physical manifestation of the intellectual property.

  • The OCRA

According to the OCRA, “Educational Software Products,” consisted of “the respective software program in object code (`Software’), supporting documentation (`Documentation’), and all other related material, if any, supplied to Reseller in a commercial package.”

  1. Terminology

The Court held as previous courts had, that the language in Adobe’s OCRA is evidence of a license rather than a sale.

  1. Content

The Court noted that it was clear that the agreement outlines numerous restrictions on title that are imposed upon the reseller regarding the distribution of its software. The Court notes that a previous case, One Stop, held that restrictions were an indication of a license rather than a sale.

The Court also noted that the EULA is a shrink-wrap license agreement which accompanied every Adobe software product. The EULA was previously addressed by another court in One Stop. The One Stop court concluded that the end user was only granted a license in the software. The Court here similarly held that Adobe’s specific incorporation of the EULA into the OCRA indicated that the reseller was granted only a license, not ownership of the products.

  1. Softman v. Adobe

The Court addressed Stargate’s citation to Softman Products Company v. Adobe Systems Inc. Stargate cited Softman for the proposition that the OCRA in this case constituted a sale rather than a license. In Softman, the court said that “If a transaction involves a single payment giving the buyer an unlimited period in which it has a right to possession, the transaction is a sale.” The Softman court held that the transaction between Adobe and its distributor in that case was a sale.

However, this Court declined to adopt the Softman analysis. The Court distinguished Softman by saying that the Softman court dealt with the question of whether the purchaser of a retail collection of Adobe software can re-distribute the collection’s constituent parts. In contrast, the present case involves the re-distribution of Adobe software, with no substantial evidence of adulteration or the illegal unbundling of software. The Court also notes that in this case, the true economic value of the CD-ROM lies in the intellectual property within it, not the CD-ROM itself. It also notes that software is unique from other forms of copyrighted information.

  • The EULA

The Court found that Adobe’s EULA contained significant restrictions on title that provided additional evidence that the relevant transaction between Adobe and its distributors was a license rather than a sale. The Court quotes the One Stop court, saying that Adobe’s specific incorporation of the EULA indicated that the reseller obtained a license and that it would be “incongruous” to say that the educational resellers were owners when the end users who the resellers distribute to are granted a mere license. Because the nature and terms of the EULA in controversy here and the EULA in One Stop were so similar, the Court adopted the same analysis in this case. The Court therefore concluded that the clear and unambiguous language of the relevant contracts led the court to believe that the transaction should be characterized as a license rather than a sale.

CONCLUSION:

In this case, the court engaged in contract interpretation to discern whether a piece of software was licensed or sold to its distributors for the purposes of the first sale doctrine. The Court concluded that the intent and actions of Adobe indicated that the software was licensed to the distributors and not sold.

For another case discussing the first sale doctrine see our Vernor v. Autodesk brief.

This blog was written by Ms. Claudia Lin, U.S.C. law student.

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