Claypoole on How a License Becomes a Sale: Software Applications of the First Sale Doctrine
Even careful drafting of a software license can be stripped of its protections by a court. In some cases, United States courts have declared that standard software licenses must be interpreted as a sale of goods, granting the software users rights never intended by the software company. This commentary, written by software contracting attorney Ted Claypoole, examines a recent movement to apply the first sale doctrine to software licenses. He writes:
The court in Vernor v. Autodesk, Inc., No. 07-1189, 2008 U.S. Dist. LEXIS 43693 (W.D. Wash. 5/20/2008), held that Autodesk, an established manufacturer of commercial design software, sold its products for the purposes of the Copyright Act’s first sale doctrine, ignoring transfer restrictions from those products. The court interpreted the Autodesk license in a way that removed many of the restrictions on resale contained in the original contract.
The first sale doctrine states that a copyright holder loses the right to enforce a copyright over a copy of a product that has already been sold in commerce. For example, this doctrine prohibits a book publisher from suing to restrict a the [sic] transfer of a book already legitimately sold to a store or a customer. The first sale doctrine is codified in U.S. law at 17 U.S. Code 109(a), which provides that:
Notwithstanding the provisions of section 106(3), the owner of a particular copy . . . 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 . . . .
. . . .
Other courts also found that where a copyright holder allows a user of its copyrighted material to keep a copy of that material, then the transaction is likely to be viewed as a sale for purposes of the first sale doctrine. The logic of Vernor regarding the first sale doctrine has been subsequently followed within the Ninth Circuit in UMG Recordings, Inc. v. Augusto, 2008 U.S. Dist. LEXIS 48689 (C.D. Cal 6/10/2008), holding that the absence of a distributors intent to regain possession of a copyrighted product is strong evidence that the product was sold, not licensed, which would permit the sale or disposition of the product under [the] copyright law's first sale doctrine. The Augusto court held found [sic] the following facts to be influential, and possibly dispositive, for determining whether copyrighted products were sold or licensed:
. The copyright holder gives copies of its materials and does not ask that those materials are returned.
. There are no consequences for the recipient should she lose or destroy the copyrighted materials.
. The copyright holder does not make affirmative efforts to recover the copies.
. The copyright holder does not keep permanent records identifying who received copies of the materials.
. . . .
Practitioners who draft software license agreements, or first licenses to use copies of intellectual property like films and music, should be aware that allowing a licensee to keep a copy of the software or other copyrighted material may render transfer restrictions in the license agreement unenforceable, particularly against future holders of the copy. Drafters who represent software producers should consider including in every agreement a demand for return of the software immediately upon termination of the license, and the software producer should build a procedure for collecting this software.