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Legal issues in BUYING or SELLING software online [First Sale Doctrine]

May 9th, 2016 | By | Category: Copyright Litigation

Copyright Law Basics  – The First Sale Doctrine Explained Best software lawyer

Introduction

When you buy a piece of software, do you OWN IT or are you just LICENSING IT?  This is an important question.  If you own it, you should have the legal title to it, and this would suggest that you can turn around and sell it online without having to call a software publisher and get their permission to sell it.

On the other hand, if you are licensing a software product, which happens in many cases dealing with software, then you are technically bound to follow and adhere to the terms of the licensing agreement to which you may have clicked on the “I agree” button.

This is a very important distinction because if you licensed the product, do you have the legal right to SELL it on websites such as Amazon.com, eBay, Etsy, Shopify, BigCommerce, CafePress, OpenSky.com, or Craigslist?  In other words, do you have good title to transfer? Many software companies say NO you do not and if you sell licensed software they will consider this to be an illegal sale.  If you are the buyer (especially if you pay TOO LOW OF A PRICE) they will try to argue you are a software pirate or copyright infringer.  This blog discusses the “first sale doctrine” and related issues.

What is the First Sale Doctrine?

In the case of Adobe Sys. Inc. v. Kornrumpf, 780 F. Supp. 2d 988, 993 (N.D. Cal. 2011) the Court discussed the first sale doctrine:

“A copyright holder has the exclusive right to “distribute copies of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending.” See 17 U.S.C. § 106(3). The first sale doctrine enables an ‘owner of a particular copy’ of a copyrighted work to sell or dispose of his copy without the copyright owner’s authorization.” See Vernor v. Autodesk, Inc., 621 F.3d 1102, 1107 (9th Cir.2010) (quoting 17 U.S.C. § 109(a)). The doctrine “does not apply to a person who possesses a copy of the copyrighted work without owning it, such as a licensee.Vernor, 621 F.3d at 1107 (citing 17 U.S.C. § 109(d)).

Thus, this means that if you own a copy of a copyrighted work (ex. a book you buy at Barnes and Noble), you have a right to resell it without getting the author’s permission.  However, as you might already know, most software is “licensed” as opposed to “sold” to the end user, and the person who licenses the software is a “licensee” and not an owner.

Under the First Sale Doctrine if your OWN the copyrighted work, you can resell it online without infringing the rights of the copyright holder.  If you only licensed the work, you have to look at the license and see what it allows, or does not allow (surprise many times the licensee is prohibited from reselling the software without the publishers consent.  Thus, the first sale doctrine can work as a defense to copyright infringement in the right case.

Case hypothetical

As a preliminary matter, you might want to click watch a video about a potential copyright horror story that you would want to avoid at all costs (selling software on Amazon.com to a secret undercover agent and getting a sample lawsuit served on you threatening a civil lawsuit in the Northern District of California, which is where many of the software companies are located, including in different areas of Marin, Contra Costa, San Francisco and Sonoma County).  We are working on this case now and the bullying is actually quite surprising.  We may be posting more on this story depending upon who things evolve.  Suffice it to say, the seller of software was deemed to be a copyright infringer because they did not OWN the software, and instead only LICENSED IT, with the licensing agreement allegedly preventing a sale.  Of course, when pressed, the intellectual property lawyer for the software company could not provide a copy of the license or provide any evidence that the seller was acting in violation of any licensing agreement.  In short, they were and are bullying without any proof.

Netgear, Belkin and Linksys letters to Amazon.com resellers

Here is another example of a product manufacturers threatening to sue online resellers of their products, which may be claimed to be a “counterfeit”  In this case we have Netgear raising the issues and sending “cease and desist” letters.  In another example, you have Belkin and Linksys also protecting their intellectual property from reselling.  As you can see from this last article, sometimes trademark infringement may be used in connection with or instead of copyright infringement allegations.  These letters have to be taken serious.  If you have received a demand letter, contact us at the number above to discuss.  There can also be issues (even if a seller is the legal owner of a product, such as a router or other electronics, or Hasbro products) selling it as “new” even when the product was never used.  Some people believe it is simply not worth the legal hassle to fight these kinds of legal battles and want to avoid threats to shut down their account which is often threatened where IP is at issue.

Other online sellers of software or other manufactured goods believe this to be a “fair use” but this often is not the proper way to analyze the issue since the seller is usually selling the product for a commercial purpose (i.e. to make money), but this defense to infringement may also be worth a look in the right case.

RESOURCE LINK:  If you are a holder of copyright and need to file a complaint with Amazon.com you can use this copyright infringement form.

A word about “shrinkwrap” and “clickwrap”

Some people will say “I did not see a license” or “I did not agree to those terms” or “nobody reads those licensing agreements online so they are not binding.  These may raise the so called “Click-wrap” (when buying software online usually by clicking on the “I agree” button), or the “shrink-wrap” license, which is what you might see if you purchased electronics or software IN A BOX.  Courts look at the facts of each case to determine whether or not these are enforceable.  Call us to review your case.

Here is a link from Eric Goldman’s site discussing “browse-wrap.”

If you own the software it is yours to sell

As we discussed above, your legal position is much better if you have evidence that you OWN the software or product at issue.  For legal authority, check out Kirtsaeng v. John Wiley & Sons which noted:

“One who has sold a copyrighted article … without restriction,” the Court explained, “has parted with all right to control the sale of it.” Id., at 350, 28 S.Ct. 722. Thus, “[t]he purchaser of a book, once sold by authority of the owner of the copyright, may sell it again, although he could not publish a new edition of it.”

If you LICENSE the software, BE CAREFUL you may not have the rights to sell it online

In summary, be careful when buying or selling products online.  To recap:

A.  See Vernor Autodesk Case (owner can sell, licensee cannot)

B.  See Adobe v. Hoops Enterprise (hardware plus software sold separately – selling separate software on eBay is illegal).

C.  See Softman Products Co. LLC v. Adobe Systems, Inc, 171 F.Supp.2d 1075, C.D. Cal. 2001.  According to Wikipedia:

“Judge Pregerson ruled that Adobe has sold its software instead of licensed the software. Thus under the first-sale doctrine, Adobe can not control how SoftMan resells those particular copies of Adobe software after the initial sale. The Court also found that SoftMan had not infringed on the EULA because SoftMan had never run the program and therefore never assented to the terms.”

D.  See Omega v. Costco Wholesale Corporation

This was a case dealing with a copyrighted globe on watches resold by Costco.  The Court held that “the first sale doctrine barred Omega’s claim because Omega’s copyright distribution and importation rights expired after an authorized first sale of the watches in a foreign jurisdiction. The panel also held that the district court did not abuse its discretion in awarding attorneys’ fees to Costco.”

E. Krause v. Titleserv, Inc.

“The agreements also limited the authority of the RBOCs to transfer copies of the software, even though the “first sale” doctrine would have protected certain transfers if the RBOCs had owned copies of the software.”

F.  DSC Commc’ns Corp. v. Pulse Commc’ns, Inc

Some online retailers and auction sites prohibit the sale of certain products

For example, a person or company in many cases cannot sell Academic, Beta, or OEM software on eBay or Amazon.  This is not an exclusive list, but something to check on before selling products online.  You should also check the online policies of the websites that you are selling on. They may have certain policies, procedures, MAP policies, etc. that you need to follow in order to keep your account active.

Contact a copyright lawyer

If you are facing a software audit, or received a cease and desist letter threatening copyright or trademark infringement we handle federal copyright law cases nationwide anywhere from Seattle to Boston, New York to California, Florida, Texas and in between.  We can also handle intellectual property arbitration, mediation and litigation cases that arise in the Northern District of California, Central District, or Southern or Eastern District of California.  We can help you examine the facts of your case, review potential defenses and seek to reach a common sense resolution.  We are able to represent both software publishers and those accused of infringement.

Some cases (such as those for copyright holders) can he handled on a full or partial contingency fee basis.  For cases we defend, we are a market leader in offering FLAT RATE FEES which offers a PREDICTABLE fee.  This beats the the law firm that may appoint two or three attorneys to your case and are going to DOUBLE OR TRIPLE BILL you charging a large up-front retainer fee, and having an incentive to BILL AS MANY HOURS AS POSSIBLE on your case.  This could result in a shocking legal bill.

For a free consultation contact us at (877) 276-5084.  We can help you settle your case confidentiality and avoid embarrassing press releases such as can be seen here – 12 companies that were busted by the BSA.

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We are a business and civil litigation firm with a focus on copyright infringement cases involving illegal movie downloads (torrent cases such as London Has Fallen and Malibu Media defense), software audits (ex. Microsoft audits, Autodesk licensing, Siemens PLM defense, SIIA, Adobe and Business Software Alliance defense) and other software vendors threatening piracy and infringement. We also handle cases involving internet law, anti-SLAPP, media law, right of publicity, trademarks & domain name infringement, and we have a niche practice area handling California BRE licensing disputes, accusations, subpoena response, statement of issues and investigations. We have offices in San Francisco, Beverly Hills, Newport Beach, San Diego & Phoenix, Arizona and accept federal copyright and trademark cases nationwide. All content on our website is general legal information only and not a substitute for legal advice, and should not be relied upon. Decisions to hire counsel should not be based on advertising alone. Blogs, videos and podcasts are authored by Steve Vondran, Esq. unless otherwise noted. We can be reached at (877) 276-5084.

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