Copyright Law Updates | New Judicial Opinions
June 2, 2008
Federal Judge Approves eBay Auction of Copyrighted Autodesk AutoCAD Design Software
Vernor v. Autodesk, Inc.
Case No. C07-1189RAJ, U.S. District Court for the Western District of Washington at Seattle, 5/20/2008
The U.S. District Court for the Western District of Washington held that the plaintiff second buyer of defendant Autodesk’s (“Autodesk”) copyrighted AutoCAD design software could legally auction such product on eBay, thus overruling Autodesk’s objection that its copyright prohibited resale. In particular, the District Court declared the transfer of the software packages from Autodesk to a first buyer was a sale with contractual restrictions only on the product’s use and transfer. The first sale doctrine, codified in statute, allows a buyer to resell the product even if he had contractually agreed not to do so. According to the District Court, subsequent sales do not constitute copyright violation, contractual prohibitions against succeeding transfers notwithstanding. In the second buyer’s action for declaratory relief to prevent the restraint of his business by Autodesk, the District Court denied Autodesk’s motion to dismiss the action.
Plaintiff Timothy S. Vernor (“Vernor”) was engaged in the business of selling goods on eBay, a popular Internet auction site. Among the goods he sold were packages of defendant Autodesk, Inc.’s copyrighted AutoCAD design software. Vernor instituted this action for declaratory relief in the U.S. District Court for Western District of Washington on the ground that Autodesk’s past actions gave him a basis to believe it would restrain his sales.
In 2005 and 2007, Vernor bought authenthic, used AutoCAD packages for sale on eBay. On four occasions during those years, he received Digital Millennium Copyright Act (“DMCA”) notices from Autodesk to inform him that his intended sale infringed its copyright. Each time, eBay suspended the auction. Vernor followed with counter-notices claiming that his sale was lawful, to which Autodesk would not respond. eBay reinstated the auctions eventually, and the sales proceeded without any interference from Autodesk.
This action arose from Vernor’s intention to sell two AutoCAD packages on eBay. Autodesk determined that both packages were originally transferred from Autodesk to Cardwell/Thomas Associates (“CTA”), a Seattle-based architecture firm, as part of a Settlement Agreement (“SA”) made in an unrelated dispute. In particular, the SA stipulated that CTA agreed to “adhere to all terms of the (attached) Autodesk Software License Agreement.” Opinion, p.3, citing LaHaie Decl., Ex. A, ¶ 4. The License Agreement (“License”) granted a “nonexclusive, nontransferable license to use the enclosed program . . . according to the terms and conditions herein.” The License imposed various restrictions on users of the software. Id. It also imposed several “Restrictions,” including a prohibition on the “rent, lease, or transfer (of) all or part of the Software, Documentation, or any rights granted hereunder to any other person without Autodesk’s prior written consent.” Id.
As a result, Vernor sought a declaration that his resale of AutoCAD was lawful, and also claimed unfair competition under either California or Washington law. In response, Autodesk files motions to dismiss Vernor’s claims for failure to state a claim, or alternatively, to enter summary judgment. Autodesk specifically asserted in its motions that Vernor only held a contractual license to use the software and did not actually hold full property interests in the programs.
In denying Autodesk’s motions, the District Court held that Vernor was entitled to protection under the first sale doctrine. The first sale doctrine permits a person who owns a lawfully-made copy of a copyrighted work to sell or otherwise dispose of the copy. The first sale doctrine is a narrow limitation on a copyright holder’s rights. This doctrine is stated in the following statutory provisions: “Notwithstanding the provisions of section 106(3) [17 USCS § 106(3)], 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.” 17 U.S.C. § 109(a). Because a first sale exhausts the copyright holder’s distribution right, future distributions of the copy do not implicate the Copyright Act. Opinion, p.7, citing United States v. Wise, 550 F.2d 1180, 1187 (9th Cir. 1977). A first sale does not, however, exhaust other rights, such as the copyright holder’s right to prohibit copying of the copy he sells. Id. For example, the first sale doctrine permits a consumer who buys a lawfully made DVD copy of “Gone With the Wind” to resell the copy, but not to duplicate the copy. Id.
Here, there was no dispute that the copy of Autodesk software contained in each AutoCAD package was lawfully made. Taking a cue from Wise, the District Court held that the License allowed CTA to retain possession of the software copies in exchange for a single up-front payment. Because the Settlement Agreement and License imposed onerous restrictions on transfer of the AutoCAD copies, such as that CTA was required to destroy the software in the event that it purchased a software upgrade, the District Court held this was a “sale with restrictions on use,” and was a” sufficient basis to invoke the first sale doctrine.” Opinion, pp.10-11. Therefore, the District Court concluded that Vernor’s resale of the AutoCAD packages was not a copyright violation. Opinion, p. 16.
On the basis of the foregoing, the District Court denied Autodesk’s motions to dismiss or for summary judgment.
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