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Vernor v. Autodesk copyright case brief

Oct 12th, 2014 | By | Category: Copyright Litigation

Autodesk software federal copyright infringement case brief

software license audit bsa autodesk copyrights

JUMP TO THE VERNON V. AUTODESK PODCAST

Intellectual Property counsel and parties filing Amicus Briefs:

Plaintiff:  Deepak Gupta of the Public Citizen Litigation Group, for plaintiff-appellee Timothy S. Vernor.

Defendant: Jerome B. Falk (argued), Clara J. Shin, and Blake J. Lawit of Howard Rice Nemerovski Canady Falk & Rabkin P.C., and Michael A. Jacobs and George C. Harris of Morrison & Foerster LLP, for defendant-appellant Autodesk, Inc.
Gregory A. Beck (argued).
Amicus briefs:  Randi W. Singer, Mark J. Fiore, and Lisa R. Eskow of Weil, Gotshal & Manges LLP, for amicus curiae eBay Inc.  Fred von Lohmann of the Electronic Frontier Foundation and Sherwin Siy and John Bergmayer of Public Knowledge, for amicus curiae American Library Association, Association of College and Research Libraries, Association of Research Libraries, Consumer Federation of America, Electronic Frontier Foundation, Public Knowledge, and U.S. PIRG.
Scott E. Bain, Keith Kupferschmid, and Mark Bohannon, for amicus curiae Software & Information Industry Association.
Robert H. Rotstein, Patricia H. Benson, and J. Matthew Williams of Mitchell Silberberg & Knupp LLP, for amicus curiae Motion Picture Association of America, Inc.
Case citationVernor v. Autodesk, Inc. (9th Cir. 2010) 621 F.3d 1102, 1103.

Basic facts of Vernon v. Autodesk:

Autodesk creates and offers to the public a highly popular AutoCAD software that is used by an estimated 9 million or more users (mostly architects, engineers and manufacturers).  Autodesk had previously alleged potential unauthorized use of software against a company called Cardwell/Thomas & Associates, Inc. (“CTA”), and following a dispute resolution process, a settlement was reached with CTA wherein CTA agreed to pay to license 10 copies of the Autodesk CAD software (called “Release 14”), and also agreed to destroy all old copies of the software.

Instead of destroying the copies, CTA “sold” copies of Autodesk software to Timothy Vernon.  Vernon had an eBay account, and had previously sold over 10,000 items on his eBay account.

The Software Licensing Agreement (“SLA”) that CTA had to agree to before installing the Autodesk Software, was a very restrictive end-user software license agreement which, as the Court described, recited:

“YOU MAY NOT: (1) modify, translate, reverse-engineer, decompile, or disassemble the Software (3) remove any proprietary notices, labels, or marks from the Software or Documentation; (4) use … the Software outside of the Western Hemisphere; (5) utilize any computer software or hardware designed to defeat any hardware copy-protection device, should the software you have licensed be equipped with such protection; or (6) use the Software for commercial or other revenue-generating purposes if the Software has been licensed or labeled for educational use only.”
See Vernor v. Autodesk, Inc. (9th Cir. 2010) 621 F.3d 1102, 1104.
It should be noted that CTA agreed to this license agreement when installing the software, but since Vernon never installed the software (he merely purchased his software copies and authorization codes from CTA at an “office sale”) he ever actually agreed to the SLA.  He used this as an argument that the SLA did not apply to him.  There was also other copies of the Autodesk software that he purchased from a garage sale.  He wanted to sell his copies on eBay, and apparently had sold two copies on eBay internet auction site for $600 each.   He was thus an online reseller of software.  He argued that he was authorized and permitted by law to sell his Autodesk software on eBay.  Autodesk disagreed and sent a DMCA (Digital Millennium Copyright Act) “take-down” notice to eBay.  eBay suspended the Vernon account.  But Vernon appealed with notice to eBay to which Autodesk failed to respond.  Vernon’s eBay seller account was reinstated and he brought action for Declaratory relief with the Federal Court seeking a determination that he did not infringe Autodesk’s copyrights.  The 9th circuit court of appeals reversed and held that Vernon could not rely on the “first sale doctrine” or “essential steps” defense to copyright infringement.

Legal issue:

Can a person buy copies of software at a garage sale or office sale (from the original party that licensed the software) and then sell copies of the copyrighted software on eBay (for profit) in an internet auction website, or does this constitute copyright infringement?

Holding:

No.  As to the Autodesk CAD software, a buyer of software cannot resell it on eBay without risking aDMCA take down notice (shutting down the eBay user account), and a federal copyright infringement lawsuit.

Rationale by 9th Circuit Court of Appeals:

The Court held 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 [and concluding that the defendant was a licensee not an owner of Autodesk’s software] and thus was not entitled to invoke the first sale doctrine or the essential step defense.

The Court reasoned that Autodesk licensed its software subject to significant transfer restrictions and use restrictions, which supported its conclusion that Vernor was a licensee rather than an owner of the software. As a licensee, rather than an owner, Vernor would violate copyright law by selling used software on eBay.

The Vernon Court discussed copyright law, and the potential defenses to infringement in the case:
“Copyright is a federal law protection provided to the authors of “original works of authorship,” including software programs. 17 U.S.C. §§ 101-103. The Copyright Act confers several exclusive rights on copyright owners, including the exclusive rights to reproduce their works and to distribute their works by sale or rental. Id. § 106(1), (3). The exclusive distribution right is limited by the first sale doctrine, an affirmative defense to copyright infringement that allows owners of copies of copyrighted works to resell those copies.
The exclusive reproduction right is limited within the software context by the essential step defense, another affirmative defense to copyright infringement……both of these affirmative defenses are unavailable to those who are only licensed to use their copies of copyrighted works.

What is the Copyright First Sale Defense?

The Vernon court discussed this defense to copyright infringement:

“The Supreme Court articulated the first sale doctrine in 1908, holding that a copyright owner’s exclusive distribution right is exhausted after the owner’s first sale of a particular copy of the copyrighted work…….in its current form, it allows the “owner of a particular copy” of a copyrighted work to sell or dispose of his copy without the copyright owner’s authorization. Id. § 109(a) (enacted 1976). The first sale doctrine does not apply to a person who possesses a copy of the copyrighted work without owning it, such as a licensee. See id. § 109(d); cf. Quality King Distribs., Inc. v. L’anza Research Int’l Inc., 523 U.S. 135, 146-47, 118 S.Ct. 1125, 140 L.Ed.2d 254 (1998).  Other 9th circuit copyright cases have discussed this concept:
“The “first sale” doctrine was first analyzed by the United States Supreme Court in Bobbs–Merrill Co. v. Straus, 210 U.S. 339, 28 S.Ct. 722, 52 L.Ed. 1086 (1908). The Court held that the exclusive right to “vend” under the copyright statute applied only to the first sale of the copyrighted work. The doctrine has been codified at 17 U.S.C. § 109(a). It states in relevant part: “the owner of a particular copy … lawfully made under this title … is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy…….one significant effect of § 109(a) is to limit the exclusive right to distribute copies to their first voluntary disposition, and thus negate copyright owner control over further or “downstream” transfer to a third party.  The first sale doctrine vests the copy owner with statutory privileges under the Act which operate as limits on the exclusive rights of the copyright owners.  See SoftMan Products Co., LLC v. Adobe Systems, Inc. (C.D. Cal. 2001) 171 F.Supp.2d 1075, 1082-83

What is the ‘Essential Steps’ defense to federal copyright infringement?

In MDY Industries, LLC v. Blizzard Entertainment, Inc. (9th Cir. 2010) 629 F.3d 928, 938 (9th Cir., Feb. 17, 2011, 09-15932)  the federal court discussed this copyright defense:

“As a copyright owner, Blizzard possesses the exclusive right to reproduce its work. 17 U.S.C. § 106(1). The parties agree that when playing WoW, a player’s computer creates a copy of the game’s software in the computer’s random access memory (“RAM”), a form of temporary memory used by computers to run software programs. This copy potentially infringes unless the player (1) is a licensee whose use of the software is within the scope of the license or (2) owns the copy of the software. See Sun Microsystems, Inc. v. Microsoft Corp., 188 F.3d 1115, 1121 (9th Cir.1999) (“Sun I ”); 17 U.S.C. § 117(a). As to the scope of the license, ToU § 4(B), “Limitations on Your Use of the Service,” provides:
You agree that you will not :
(ii) create or use cheats, bots, “mods,” and/or hacks, or any other third-party software designed to modify the World of Warcraft experience; or (note some kids create “cheats” and “Cheat videos” on youtube)
(iii) use any third-party software that intercepts, “mines,” or otherwise collects information from or through the Program or Service.
By contrast, if the player owns the copy of the software, the “essential stepdefense provides that the player does not infringe by making a copy of the computer program where the copy is created and used solely “as an essential step in the utilization of the computer program in conjunction with a machine.”  See U.S.C. § 117(a)(1).

What is the Copyright misuse affirmative defense?

The defense of “copyright misuse” was discussed in Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd. (C.D. Cal. 2003) 269 F.Supp.2d 1213, 1225;

Copyright misuse is a relatively recent addition to the corpus of judge-made copyright law. Historically, most courts to consider the question held that a copyright holder’s violation of the antitrust laws did not give rise to a defense in a copyright infringement action. See 4–13 Nimmer on Copyright § 13.09 & n. 6 (collecting cases). This contrasts with the long-recognized defense of patent misuse…..the Fourth Circuit became the first appellate court to recognize explicitly a defense of copyright misuse…….The Ninth Circuit later joined with the Fourth Circuit and adopted this defense.

 
In the 9th circuit, these cases are affirmative defenses only as discussed in the Ticketmaster case:

Ticketmaster argues that “copyright misuse” is an affirmative defense to a claim for copyright infringement, and does not support an independent claim for damages. The Court agrees. Altera Corp. v. Clear Logic, Inc., 424 F.3d 1079, 1090 (9th Cir.2005) (affirming district court’s refusal to “extend[ ] the doctrine of copyright misuse beyond ‘its logical place as a defense to a claim of copyright infringement………copyright misuse cannot found a claim for damages”). See Ticketmaster L.L.C. v. RMG Technologies, Inc. (C.D. Cal. 2008) 536 F.Supp.2d 1191, 1198

Software Law Resources

1.  Law review: When software is not ours (Northwestern Journal of technology and Intellectual Property)

2.  Vernon v. Autodesk Appelle’s brief (Vernon’s argument)

3.  United States Supreme Court oral argument on Copyright Misuse (Oyez)

Contact a Copyright Litigation Attorney

This intellectual property blog post was written by Attorney Steve Vondran.  Mr. Vondran is a litigation attorney handling business and real estate disputes including BSA and SIIA software defense cases.  He is former elected executive counsel member for the Arizona State bar section on Intellectual Property.  Mr. Vondran can be reached at (877) 276-5084 or you can fill out the form below to be contacted by a representative of the firm, usually within the hour.  We offer low flexible fee structures.

 

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