We had just mentioned the infamous decision in the Vernor v. Autodesk case last week, in discussing the Psystar decision. If you don't recall, the court in the Vernor case effectively decimated the concept of "first sale" in software, making it questionable if you could ever resell software that you'd bought. To make that work, the court argued that software sales (even though it's "bought" in stores) are really "licenses," similar to rentals, rather than product sales and, thus, you can't resell. Of course, as someone noted in our comments, then why does Apple have a "How to Buy" page for its software, in which it is entirely described as a product you are purchasing.

In the Vernor case, the court gave a recipe for effectively destroying first sale. All anyone has to do is claim that they're licensing you something, even if it has every indication of being a full purchase. This seemed to contradict with the entire First Sale doctrine (and numerous other cases), but apparently the Supreme Court doesn't want to be bothered with this. It refused to hear Vernor's appeal, meaning the existing ruling sticks. This is one case where I could definitely see another appeals court coming to a different conclusion, meaning that, hopefully, the Supreme Court will revisit this issue at some point in the future. In the meantime, the first sale doctrine is severely limited to the point of near non-existence in software.

Earlier this year, we noted that the 9th Circuit appeals court was facing three separate important cases about the "first sale doctrine." We also warned that the 9th Circuit can be wacky at times, and its first ruling of the three confirms that, by effectively wiping out the first sale doctrine and stating that buying a piece of software is not really buying a piece of software -- and that, in many cases, you've merely licensed it and cannot resell it. The key point:

We hold today 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.

The full ruling is here: The case involved a regular eBay seller, who bought some copies of Autodesk at an "office sale" from a company who was no longer using them. He put four of the copies up on eBay for sale, and in each case, Autodesk sent a DMCA takedown notice. The guy, Timothy Vernor, counternoticed each time and Autodesk failed to reply each time, leading the auctions to be reinstated. However, despite all of this, when the 4th takedown came, eBay automatically suspended Vernor's account, and it took about a month to get it reinstated. So, he sued Autodesk, and claimed that he had the right to sell these copies that he had legally obtained.

Last year, the district court sided with Vernor, saying that Autodesk had no right to restrict his first sale rights (which allow you to resell a legally owned copyrighted product without first getting permission from the copyright holder), and that Autodesk's "license" was really a license in name only, since at no point did the possessor of the software have to return it. Instead, the court pointed out that when you bought AutoCAD, there really was a transfer of ownership.

Tragically, the appeals court disagrees with that, and effectively opens the door to effectively killing off the entire concept of the first sale doctrine, by highlighting the rather simple steps anyone needs to take to make sure any "sale" is really considered a "license," and thus removing the first sale rights. Basically, you just have to say there's a license and that "license" has to have a few rather simple things in it. You know all those stories about video game companies hating the used game market? Well, video game companies just got their "kill the secondary market free" card from the 9th Circuit. Of course, as we've pointed out, having a secondary market tends to increase the value of the primary market, so software companies (and others selling copyrighted works) may wish to think carefully before wiping out the secondary markets.

The court does note that this ruling could have quite a negative impact, but says that it's ruling based on what the law says, and suggests that perhaps Congress may wish to revisit this issue (fat chance of that happening, of course). While it is true that a court must rule within the law, even if it thinks the end result is bad, I think that the court here is using that as an excuse. The more you look at the details, the more you realize this is a license-in-name-only, and (as the lower court realized) the court could easily make that point and stay within the law, protecting these important first sale rights.

That said, this case is hardly over. Vernor's lawyer on the case, Greg Beck from Public Citizen has already announced plans to ask the court to reconsider the case en banc (i.e., with the full panel of judges, rather than just the three judge panel who heard the case), and even if that fails, this case will certainly be appealed to the Supreme Court. Given the two other first sale cases soon to be heard, combined with what appears to be (even if the court denies it) a circuit split with at least the 2nd Circuit on first sale issues, hopefully the Supreme Court will set the record straight and reinstate first sale rights for software. It would be great, of course, for Congress to just step in and fix things, but it's difficult to remember the last time Congress got something right when it came to copyright law... and with lobbying giants like the MPAA siding with Autodesk on this one, you can bet that no one in Congress will be able to secure enough votes to fix things.

This ruling is pretty depressing if you actually believe in property rights. It shows, once again, how copyright is not a property right, but often quite the opposite: restricting what people can do with their own property.

As we keep waiting for a Supreme Court ruling in the Bilski case (any day now...), Glyn Moody points us to the news of a lawsuit that has been filed against 26 different software companies for violating an incredibly broad patent (5,832,511) on "Workgroup network manager for controlling the operation of workstations within the computer network" (say that 10 times fast). The list of companies sued is a who's who in software:

Apple, Activision, Adobe, Autodesk, Capcom, Citrix, Corel, Dassault, Delcam, Square Enix, Electronic Arts, Frontrange Solutions, IBM, Intuit, Konami, Digital Entertainment, Maximizer Software, Nuance, Parametric Technology, Sage Software, Sega, Skype, SPSS, Teradata, THQ and Legacy Interactive

I'm sure none of those companies could have possibly come up with a system for controlling the operation of workstations within a computer network without this patent. At some point, isn't the fact that such a vast number of companies appear to have come up with the same basic thing independently a perfect prima facie case of obviousness?

JohnForDummies points us to the news that the latest attempt to stretch trademark law to ridiculous levels has been sorta maybe rejected -- though it appears to still be open for abuse. The case involved Autodesk and a competitor, Dassault Systemes Solidworks Corporation, who had released some software that was compatible with Autodesk's .dwg files used in AutoCAD. Dassault had apparently reverse engineered the file type (which, by itself, is perfectly legal). Some of Dassault's products (under the Solidworks brand) used "DWG" in the name, and Autodesk, overprotective as always, sued -- claiming that the use of DWG in product names infringed. What happened then goes back and forth a bit, but ends up with a court telling Autodesk that file extension names should not be considered trademarkable:

The court found that ownership of file extension designations cannot be appropriated under the Lanham Act -- file extensions are inherently functional, and functional uses cannot be trade-marked. It stated that computer programmers and computer users should be free to designate file extensions as they see fit, without the fear of infringing trade-marks.

The motions judge further opined that the purpose of the Lanham Act is to target unauthorized use of a trade-mark "in connection with a commercial transaction in which the trade-mark is being used to confuse potential consumers." In contrast, the purpose of file extensions is to indicate to a computer the type of file that is being handled. The court noted that "a computer is not a consumer," and its recognition of a file extension is not "in connection with a commercial transaction." In other words, the computer does not concern itself with the question of who made the file format. Therefore, whether on the grounds that a file extension connotes a "functional use" or a "non-trade-mark use," the court held that a file extension per se is not protectable under US trade-mark law.

In its decision, the court did recognize that computer users may associate a particular file extension with a specific vendor or manufacturer. However, the court found this association only incidental to the primary function of file extensions, namely to identify a file or file type.

Of course, it's not all good news. The court did suggest that Autodesk could have gotten away with this by disavowing any use of the mark in functional areas, but had limited it to just product names and such. Autodesk pushed back on this a bit, which resulted in the ruling above. And, actually, the transcript from this part of the court discussion is priceless:

THE COURT: I want -- you're skating by something that's very important to me. So I want to get a clear answer. All right? Will you disavow, from here to eternity and for the rest of the universe, that the world has a right to use .dwg as a file extension, and you're not going to try to assert, here or anywhere else, that that use as a file extension violates any law?

MR. SABRI: Your Honor, it may be the case it violates patent law. We're not addressing that today. I will state --

THE COURT: You will be in trouble if you don't give me -- listen. If you are trying to monopolize .dwg, you and your company are in big trouble.

MR. SABRI: We absolutely are not, your Honor.

THE COURT: Well, then disavow it.

MR. SABRI: Autodesk cannot --

THE COURT: You're not disavowing it?

MR. SABRI: I am disavowing it, your Honor. Autodesk cannot state claims against functional uses of .dwg, and the distinction between a word mark DWG and the functional uses I believe will be very clear by this presentation.

THE COURT: I want to hear you say we disavow it.

MR. SABRI: We disavow any claims against functional uses of the .dwg, your Honor.

THE COURT: Thank you.

But, still, all is not well. Before the case actually went to trial, Autodesk and Dassault "settled," with part of the settlement being that Dassault agreed that Autodesk had a legitimate trademark on DWG (of course, Dassault isn't the USPTO or a court, so Dassault's agreement on that point is somewhat meaningless). Also, the article notes that our neighbors up in Canada just allowed Autodesk to register a trademark on DWG. So despite the court's clear concern about Autodesk trying to monopolize DWG, don't be surprised if it keeps trying...

Zusha Elinson has noted that a trio of important cases concerning the "first sale doctrine" in copyright law will all be heard on appeal in the (at times wacky) 9th Circuit in early June. We've written about all three cases here before. There's UMG v. Augusto, which questions whether or not it's legal to resell "promo CDs" that record labels stamp "not for resale." In that case, the judge ruled that reselling was perfectly fine, and preventing such sales was a violation of the first sale doctrine (and would, effectively, give record labels a way of creating perpetual and all-controlling copyright, if the decision went the other way). Then there's Autodesk v. Vernor, similarly involving the right to resell software. Again, the district court ruled that this was allowed, noting that software is really sold, not (as Autodesk claimed) just licensed.

The third case is the troubling one. MDY v. Blizzard is the one case that went the other way, in a ruling that left many copyright experts scratching their heads, noting that it seemed to go against everything that the first sale doctrine stood for -- and that nothing the guy did (he made a bot that worked in World of Warcraft) actually violated copyright law.

Hopefully, the appeals court upholds the first two cases and reverses the third... but these days, you never know how courts are going to rule on these sorts of issues. And, the 9th Circuit is often notoriously... weird in some of its rulings. Either way, these are three cases worth watching, as they could have a pretty big impact on the question of whether or not you have the right to do what you want with products you bought.

Brian points us to the news of yet another questionable patent lawsuit filed by yet another shell company, yet again in Eastern Texas against a ton of software companies. The patent in question (5,222,134) is for a "secure system for activating personal computer software at remote locations," and was originally filed back in 1991 and granted in 1993 -- meaning that the patent is actually nearing end of life. Odd, then, that it was suddenly noticed that all these companies were infringing. The lawsuit is filed by a shell company called BetaNet, and no one seems willing to speak. The lawyers representing BetaNet won't say who is behind the company, or how they even got the patent. This is typical. Many of these types of lawsuits are filed by shell companies to hide who is actually behind them. As for the defendants, here's the list:

Adobe, Apple, Arial Software, Autodesk, Carbonite, Corel, Kodak, IBM, Intuit, Microsoft, McAfee, Online Holdings, Oracle, Rockwell, Rosetta Stone, SAP, Siemens, and Sony.

Obviously, none of those companies could have come up with ways to remotely activate software without this patent (yes, that's sarcasm). As the Register notes in the link above, even some of the software products listed as violating this patent don't seem to involve activation at all, raising serious questions about how they could possibly violate this patent. This sounds like yet another case of someone having read the book Rembrandt's in the Attic and deciding to go trolling for companies to sue with a meaningless patent.

Excellent news. In the ongoing case involving Autodesk and a guy, Timothy Vernor, who was trying to sell legally acquired used versions of AutoCAD on eBay, the district court judge has ruled that Autodesk has no right to restrict the sales of its used software. This wasn't a huge surprise, as the court indicated as much last year, when it refused to grant Autodesk's motion to dismiss the case. But this is an important ruling for a variety of reasons. Beyond just reiterating the well-established right of first sale on software, it also helps clarify that when you by a piece of software, you own it, rather than just license it. As the judge noted:

"The transfer of AutoCAD copies via the license is a transfer of ownership."

The judge also mocked Autodesk's claim that allowing such sales to go forward promoted piracy:

"Vernor's sale of AutoCAD packages promote piracy no more so than Autodesk's sales of the same packages."

Autodesk, of course, will likely appeal the ruling, so this isn't done yet. But, so far, this is definitely good news.

Last year, we wrote about a case filed by an eBay seller against Autodesk, claiming the company unfairly prevented him from reselling used copies of Autodesk software that he had legally purchased. Basically, every time the guy listed Autodesk software, the company would send a DMCA takedown to eBay who would take it down. Each time, the guy would send a counter claim, which Autodesk would ignore, allowing the software to go back on the site. However, with so many takedown notices, eBay banned his account for abuse -- even though he successfully responded to each claim as being false. For that, he sued Autodesk. Autodesk moved to have the court dismiss the case claiming that the seller had no right of first sale because the software was "licensed" rather than sold. If that sounds like weak semantics, you've got a point... and it appears the court agrees with you. In denying Autodesk's request to dismiss the case, the court indicates that, even though the case law covering this issue often varies, it believes that the software has been sold, not licensed, and therefore the right of first sale does exist on Autodesk's software. The case should now proceed if Autodesk doesn't quickly show up with an offer to settle the case quietly (which it might). Assuming the case does go forward, it's going to be worth watching closely, as it will have important ramifications for the right to resell software you purchased.

The folks over at Boing Boing are pointing us to a very interesting case where an eBay seller who was kicked off eBay is now suing software maker Autodesk for $10 million. The case raises some important issues that don't get nearly enough attention. In copyright, the right of first sale is designed to allow anyone who buys a copyrighted product the right to resell it without going through the copyright holder -- just as when you buy a chair, you can resell it without the manufacturer's permission. In fact, studies have shown that an active secondary sales market often helps boost the size of the primary market (if you'll be able to resell a product later, you're probably willing to pay more for it initially). However, short-sighted copyright holders don't always see things that way.

In this case, the guy had a legitimately purchased copy of AutoCAD and was trying to sell it on eBay. This should be perfectly legal. He had purchased a good and was trying to resell it. Assuming he had removed all copies on his own computer and wasn't using the software any more, there should be nothing to complain about here. However, instead, Autodesk sent eBay a DMCA takedown notice, claiming that the sale was a copyright violation. This would appear to be an abuse of the DMCA, sending a takedown notice on content that the seller has a legitimate right to put up for sale. Abusing the DMCA with false takedown notices can get you in a lot of legal hot water.

However, once again, the case takes a bit of a twist. Autodesk is claiming that the right of first sale doesn't apply in this case, because the guy did not purchase the software, but merely licensed it, thanks to the shrinkwrap license found inside the box, which the purchaser doesn't get to read until well after he or she has "purchased" the software (which appears like any normal purchase, rather than license). Unfortunately for Autodesk, some courts have already ruled that, despite mind-numbing EULAs that no one reads, if you purchase... er... license software, you still get certain ownership rights, which likely include the right to then sell the software. This case seems to have a little something for everyone interested in software and copyrights, between the questions on first sale doctrine, DMCA abuses and shrink wrap EULAs. It should be worth paying attention to as it moves forward.