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Copyright First Sale Doctrine Does Not Apply Where OEM Software Was Licensed
Practical Law Legal Update 2-517-9096 (Approx. 4 pages)
Copyright First Sale Doctrine Does Not Apply Where OEM Software Was Licensed
by PLC Intellectual Property & Technology
| Published on 07 Feb 2012 • USA (National/Federal) |
In Adobe Systems Inc. v. Hoops Enterprise LLC, the US District Court for the Northern District of California held that Adobe's distribution of certain software to original equipment manufacturers (OEMs) was a license, not a sale of the software. Relying on Vernor v. Autodesk, the District Court found that the copyright first sale doctrine was unavailable as a defense to Adobe's claims of copyright infringement against third parties who subsequently resold the software without authorization.
Key Litigated Issue
In Adobe Systems Inc. v. Hoops Enterprise LLC, the key issue before the court was whether Adobe's distribution of certain software to original equipment manufacturers (OEMs) was a license or a sale. If the copies of the software were licensed, then the copyright first sale doctrine did not protect third parties who subsequently unbundled the software and resold it without Adobe's authorization from a claim of copyright infringement.
Background
The first sale doctrine allows the owner of a lawfully made copy of a copyrighted work to resell those copies (17 U.S.C. § 109 (2011)).
In Vernor v. Autodesk, the Ninth Circuit held that the first sale doctrine does not apply to the resale of software by users that are licensees of a copy, rather than owners. According to Vernor, a user is a licensee and not an owner where the copyright owner:
- Specifies that the user is only granted a license.
- Significantly restricts the user's ability to transfer the software.
- Imposes notable use restrictions.
For more information on Vernor, see GC Agenda: November 2010: Software Licenses.
In Adobe Systems Inc., the defendants obtained copies of Adobe's software by unbundling it from the hardware with which it was sold by OEMs. The defendants then sold the copies of the software on eBay and other similar sites.
Adobe sued the defendants for copyright infringement based on the defendants' sale of Adobe software without Adobe's authorization.
The defendants filed counterclaims against Adobe for a declaratory judgment claiming, among other things, copyright misuse by Adobe by asserting its copyrights in contravention of the first sale doctrine. The defendants also asserted copyright misuse and the first sale doctrine as affirmative defenses.
Adobe moved for summary judgment on the defendants' counterclaims.
Outcome
In its decision, the Northern District granted Adobe's motion for partial summary judgment regarding the claims based on the copyright first sale doctrine, holding that it did not apply to the Adobe software the defendants sold because Adobe's transfer of its software to certain OEMs was a license, not a sale. Relying on Vernor, the court found that Adobe's license agreement:
- Specifies that it grants a license and requires the OEMs to obtain a similar agreement with any third parties before authorizing or sublicensing the software to them.
- Imposes significant transfer restrictions.
- Imposes significant use restrictions.
Relying on Omega S.A. v. Costco Wholesale Corp., the court also held that the copyright first sale doctrine did not apply to Adobe OEM software manufactured abroad (541 F.3d 982, 985 (9th Cir. 2008)).
Practical Implications
The distinction between a sale and a license is important for software vendors and companies licensing third-party software because the Ninth Circuit has held that a resale of a licensed copy of the software is not protected by the copyright first sale doctrine.