Copyright Case Briefs – Adobe Systems Inc. v. One Stop Micro, Inc., 84 F. Supp. 2d 1086 (N.D. Cal. 2000).  Software licensing agreement or a true sale?

SUMMARY:

This case comes from the United States District Court, Northern District of California.  Adobe Systems Inc (“Adobe”) sued One Stop Micro Inc. (“One Stop”) for copyright and trademark infringement based on One Stop's sale of copies of software (intended for educational end users) to general customers.

FACTS:

Adobe is a software development and publishing company. It's software products are among the most successful graphics and desktop publishing software tools on the market. Adobe makes educational versions of this software which is made available to students and educators at a significant discount. Unlike the full retail versions of the software, the educational versions do not include upgrades and technical support. In addition, some educational versions lack certain program features and functions.

Adobe distributed the educational versions to an Adobe-authorized educational distributor, who then transferred the software to an Adobe-authorized educational reseller. The education reseller's relationship with Adobe was governed by the “Off Campus Reseller Agreement” or the “On Campus Reseller Agreement” (“OCRA”). Under the OCRA, an educational reseller was “to make the Educational Software Products available to certain of Reseller's customers who are Educational End Users.”

Defendant One Stop bought and sold computer hardware and software on the open market. Adobe alleged that One Stop improperly acquired educational versions, which it then adulterated and sold as full retail versions to non-educational end users.

One Stop admitted that it adulterated approximately one-half of the Adobe educational versions it acquired in 1996 and 1997 by doing the following:

(1) cutting open and removing Adobe's shrink-wrap;

(2) peeling off and destroying the “EDUCATION VERSION—Academic ID Required” stickers, as well as the UPC bar code label and the serial number label which further identify the packages as educational versions;

and,

(3) re-shrink-wrapping the boxes. One Stop then distributed these adulterated versions.

PROCEDURAL HISTORY:

On February 2, 1999, Defendant One Stop Micro, Inc. (“One Stop”) filed a motion for summary judgment and noticed it for hearing on March 8, 1999. The Court ordered Plaintiff Adobe Systems, Inc. (“Adobe”) to file a cross motion for partial summary judgement on April 12, 1999. The Court conducted a hearing on cross motions on November 8, 1999.

On March 31, 1999, the Court issued an order granting Adobe summary adjudication on violations of the following statutes:

(1) Lanham Act § 32(a), 15 U.S.C. § 1114(1)(a);

(2) Lanham Act § 43(a), 15 U.S.C. § 1125(a);

and,

(3) California Business and Professions Code §§ 17200 et seq.

In its present motion, One Stop moves for summary judgment of the copyright infringement claim and the remaining trademark infringement claims on the grounds that they are barred by the first sale doctrine.  

One Stop argued that the first sale doctrine was applicable because the OCRA constituted a sales agreement. In its cross motion, Adobe argued that it was entitled to summary adjudication of its copyright infringement claim and the remainder of its federal trademark infringement claims because the OCRA was a licensing agreement.

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ISSUE:

Does the first sale doctrine apply where the purported “owner” of a copy of software purchased the software from a distributor that is subject to a license agreement?

RULE OF LAW:

Section 106 of the Copyright Act:

Owners have 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.”

Under the first sale doctrine, Section 109(a), an exception is when “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.” 

ANALYSIS:

1. The OCRA –Sale or License

The Court noted that the first sale doctrine is only triggered by an actual sale and that an owner does not forfeit his right of distribution by entering into a licensing agreement. One Stop asserted the first sale doctrine as a defense to Adobe's copyright infringement claims. One Stop obtained educational versions of Adobe software from educational resellers who in turn obtained the software from Adobe through the OCRA. Adobe responded that the first sale doctrine was irrelevant because the OCRA is a licensing agreement.

The Court used the language of the OCRA to determine the intent of the parties. One Stop argued that the language of the OCRA was clear and explicit and that no extrinsic evidence was needed to interpret it. One Stop pointed to the following language in support of its argument:

• Reseller shall have the right to purchase Educational Software Products.
• Reseller shall submit to Adobe within ten (10) days after the effective date of termination a summary of the number of the respective Educational Software Products owned by Reseller as of the effective date of the termination.

The Court noted that the OCRA contained additional language which indicated that it only conferred a license. The Court points to restrictions in the OCRA that indicated a license rather than a sale because the interfere with the reseller's ability to further distribute the software.

The Court also noted an area of ambiguity where extrinsic evidence was required to interpret the agreement due to its use of sales terminology. The Court references a declaration submitted by Adobe's Vice President and General Manager of North America stating that “Adobe's intent in drafting and signing these documents [was] to create a license, rather than a sale of our software.” The Court agreed and held that Adobe's intent was to enter into a licensing agreement.

The Court also cited evidence from Adobe resellers indicating that they intended to enter into a licensing agreement and experts who explained why licensing was the preferred method of distributing software.

The Court noted that while One Stop was not a signatory to an Adobe licensing agreement, it was still subject to the restrictions of the agreements. Since One Stop bought software from a party to an Adobe licensing agreement, One Stop was bound by any restrictions imposed by that agreement.

The Court also noted that the OCRA specifically permitted the reseller to distribute “solely to Educational End Users at Reseller's Outlet or through reseller's direct sales force.” Adobe argues that One Stop violated § 1114 by distributing unadulterated educational versions in violation of its quality control standards. To support this contention, Adobe cited Shell Oil Co. v. Commercial Petroleum, Inc., 928 F.2d 104, 107 (4th Cir. 1991).

The Court distinguished Shell Oil from the case at bar. The Court held that Adobe failed to identify any comparable measures it imposed upon distributors to guarantee the quality of its software. They also failed to present evidence of how One Stop's activities affected the quality of its software. The Court thus denied Adobe's motion for summary adjudication of the § 1114(1) claim with respect to the unadulterated Adobe software purchased and distributed by One Stop.

CONCLUSION:

In this case, the Court held that a party buying software that is subject to a license agreement will be similarly bound to the terms of the agreement. Since the buyers of the educational software were subject to Adobe's license agreement, the buyers could not argue that the first sale doctrine applied.

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