Supreme Court Won't Hear Case Saying That You Have No First Sale Rights With Software

from the too-bad dept

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.

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Companies: autodesk

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Comments on “Supreme Court Won't Hear Case Saying That You Have No First Sale Rights With Software”

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Yakko Warner (profile) says:

Re: Games

I believe they already have, although it is an interesting question why they haven’t bothered to try suing used game marketers.

Didn’t Netflix (or was it Redbox?) win a ruling that the First Sale Doctrine gave them the right to rent out DVDs that they purchased? I’m curious how the digital bits on a DVD movie disc are supposed to be subject to different rules than the digital bits on a DVD software disc…

WysiWyg (profile) says:

Re: Re: Games

1. Because it’s not the marketers that agreed to the license, it’s the original customer. I have a feeling that it would be hard to lay the blame on the resellers.

But mostly it’s because they (EA and so on) still thinks that the “brick and mortar” stores are the most important ones, and don’t want to screw with them to much.

(Obviously I’m just guessing)

2. I believe it was Redbox.

Chosen Reject (profile) says:

Bah, Mazburglar and his FUD

I’m so sick of Mazburglar and his FUD. The Supreme Court didn’t let this stand, they just refused to listen to hear the case, which means they aren’t letting the ruling stand, which means that Vernor won.

Wait…Uhm, let me try again after I remove the logic portion of my brain with some heavy blunt trauma.

Anonymous Coward says:

From now on I'm only licensing my money.....

When I ‘buy’ something that I’m not really buying, I’m only going to license the use of my money for a reasonable period of time… I think 3 seconds after transaction is completed is a reasonable time period.

The licensing terms for my money will be printed in micro print on a small band wrapped around the bills (hereafter referred to as a EUMPLA, End User Monetary Purchasing Licensing Agreement, which defines that accepting the stack of bills with the wrapper binds the company accepting the cash to my licensing terms for use of said cash…

I’m not greedy, I mean I’ll let them hold and look at it for a whole 3 seconds, after which time the additional fee clause will kick in, which assesses a fee of 10% of the amount of cash for each additional second that they hold onto the cash before returning it to me…. I mean it is MY money, I’m only licensing them to look at it while I make off with their goods, sounds fair to me 😉

Of course the terms will include a clause stating that I can change the terms at any time without any prior notice….

out_of_the_blue says:

Well, THANKS, Vernor, for ruining "first-sale" for everyone.

Here’s my prescient comment from the prior thread:
“So, he sued Autodesk…”
out_of_the_blue, Sep 13th, 2010 @ 10:02am

Why exactly was that done? I suppose out of pique, but since courts are always a crap-shoot, he should have gone as high up in Ebay as possible to point out that he’s already answered DMCA notices in exact same circumstances three times without response, so it’s SETTLED, and Ebay should ignore Autodesk in future.

This Vernor — whose only known interest was in re-selling some copies of Autodesk on Ebay — rolled the dice UNNECESSARILY and LOST a big one for ALL of us. Who financed this guy, anyway? He couldn’t have hoped to recoup losses either way. Everyone else, as I’ve several times cautioned: DON’T MAKE COURTS EXPLICITLY DECIDE THESE MATTERS.

Duke (profile) says:

Ownership of information

From what I understand of US copyright law the original Vernor ruling does make sense, and is an unfortunate (if unsurprising) consequence of thinking about/allowing ownership (in a property-sense) of stuff covered by copyright (i.e. information).

Iirc the court found that the software could be bought *or* it could be licensed, but not both. If it was bought, then the first-sale doctrine and essential steps defence apply and everything is fine, but if it is merely licensed, the licensee is not the “owner” of the software and so these don’t apply. This seems to have come from a failure, by whoever was drafting the defences, to spot the difference between software and a CD containing software, and making first-sale /essential steps only apply to “owners”, rather than licensees. In this case, there was a licence agreement, and so the software must have been licensed – although it’s possible the CDs/DVDs were sold (I can’t remember the precise details).

Interestingly, this sort of thing is already how the law works in the UK (and probably much of the EU). Copyright covers the software, which means you can’t copy it onto a computer or adapt it (by installing) or share it (unless a specific defence applies). When you buy a CD with software on it, you physically own the CD (so can wipe it and sell it on) but you may need a licence to install the software (unless the CDPA 50C defence applies, which covers “necessary steps” for “lawful use” – basically the “essential steps defence”). You then also need a licence to “issue copies to the public”, which includes selling on the original – but like the US, we have an equivalent to the first-sale doctrine, but it is much broader and only refers to “putting into circulation” once, rather than requiring ownership. Renting and lending to the public are still covered by copyright, as in the US, but here those *aren’t* covered by the exceptions (which is why Netflix couldn’t start up in Europe).

It’s interesting to note that this is a great example of how, far from being about protecting property, copyright law tends to fundamentally break large chunks of traditional property law.

velox says:

EULA's are a national joke. When

The courts have held that EULA’s are reasonable because EULA’s are contracts. The process of establishing a contract is supposed to imply that both parties agree to the terms. We all know however that the legal mumbo-jumbo in software licenses doesn’t accurately represent what actually happens in real life, where people click through without reading or understanding what they have “agreed” to.

The terms of licensing not only are not negotiated, they are intentionally designed so that for practical purposes they CANNOT be negotiated. Everyone knows its a take it or leave it proposition.
It is an inequitable charade designed by lawyers one side of a transaction to restrict the rights of the party on the other side of the transaction.

Why the courts seem to think this national joke is just fine is hard to understand.
As has been pointed out many times on Techdirt, when a law or legal practice is widely perceived to be ridiculous, unfair, or both, continuing this practice gradually erodes respect for law.

If this unilaterally imposed, non-negotiable, not really agreed to click “contract” is a viable contract, then is there any reason why I can’t just send a registered letter to a company (lets take Adobe for example), which states the items in the software contract which I have decided to unilaterally negate. Of course it would be written in fine print and obtuse language designed to obscure the real purpose of the letter. If they do not respond, how am I any more bound by the EULA than they are by the terms of my “contract amendment”

velox says:

Re: Re: EULA's are a national joke. When

“So leave it then”

That’s fine, so long as the product is optional.
But recall that the lawsuit in question here involved Autodesk. Autodesk software is essential to many engineering companies. Autodesk has worked hard to buy up competitors so the competitive market in CAD has shrunk drastically. You might try another product, but it’s owned by Autodesk as well, and you’ll just find the same EULA on that product. It’s tough to negotiate with monopoly.

Andrew D. Todd (user link) says:

The Case Is About Something Quite Different.

Vernor vs. Autodesk has only very limited application to most first-sale cases. The key issue of Vernor was that there really was a contract. The initial purchaser had entered into a contract with AutoDesk to get upgrades for only $495 each, instead of $3,750 each (on four copies), in exchange for surrendering his first sale rights, and agreeing to physically destroy the disks containing the original program. The disks were therefore not his to sell. The contract was not created by the shrink-wrap license, but by the transfer of valuable considerations, to wit, a new version of AutoCAD, with various improvements.

The existence of a contract is practically related to the price of the software, $15,000 or more. It was worth someone’s trouble to go through certain legalities to get better terms, and worth someone else’s time to make sure all the paperwork was in order. I’m pretty sure that AutoCAD is about the most expensive program which is sold as package software. Most high-end varieties of CAD/CAM software are sold under straight licenses, with negotiated terms and arrangements. There are only a relative handful of organizations which need to use that kind of software, because it is effectively cognate to machine tools, and suchlike. Big companies like General Motors buy CAD/CAM software for the whole company, commissioning what features they need. In short, AutoCAD is a kind of borderline case between package software and semi-custom software. It is mostly used by architects.

Incidentally, the real threat to AutoDesk is not pirates. It is the United States Army, specifically the Ballistics Research Laboratory at the Aberdeen Proving Grounds, Herman Goldstine’s old outfit, and institutional sponsor of the ENIAC. The United States Army has come to believe in Open Source, and their reserves are virtually limitless.

The underlying facts of Vernor have little or no application to things like popular books, music CD’s, movies, or video games, which do not cost a fortune. For such purchases, there never was a bona fide side-contract, because it is not economically feasible to meet the necessary conditions. A store in the mall sells things to unknown members of the public. Can you imagine what would happen if people in the checkout line at Wal-Mart started trying to read ten different sets of terms and conditions each? They would ask the checkout girl questions, and if Wal-Mart allows the girl to answer the questions, she becomes, ipso facto, their recognized bargaining agent, and a judge can take cognizance of whatever she is telling customers, and force Wal-Mart to make good on her promises. Alternatively, they can call the store manager every time someone has a legal question about the contract, and the cash register line backs up for miles…

Any time children are a large portion of the market, that presents a major disconnect. Children cannot, in general, form contracts, and in the limited circumstances where they can contract, there are all kinds of restrictions to prevent them from being taken advantage of. Judges get involved, sooner or later. There are some interesting legal cases which have arisen when doctors have hard decisions to make involving juvenile patients, with no assurance of success either way. So the doctors wanted judges to certify that they were doing the best they could.

Movie theaters let teenagers into R-rated films when accompanies by an adult (what the industry calls an adult guardian) but they do not check the paperwork to establish that the adult really is the teenager’s legal guardian, and not, say, a noncustodial divorced parent, and that taking the teenager to that movie is consistent with the terms of the order of custody resulting from said divorce. Obviously, that kind of checking would cost much more than they could hope to make on a movie admission. The theater only goes through the motions.

Scooters (profile) says:

Re: The Case Is About Something Quite Different.

“The key issue of Vernor was that there really was a contract.”
Agreed. CTA was the original owners of the software and they could not legally sell their copies having upgraded the software as per the agreement signed with AutoCAD. In effect, these copies were “dead” by definition.

However, Vernor was given some bad advice to sue, most likely because the advising parties were not aware of the contract stipulation.

When I first heard of this case, I was also unaware of the contract between software versions. Once I saw this, the case pretty much became a non-issue.

It’s unfortunate people will mistake what this case is really about. Now, I’m sure we’ll see an increase in bogus lawsuits of other software companies telling people they’re leasing, not buying, product.

Some courts will agree and others will not, making for a horrendous situation for everyone.

Throw in patent software, and well, life in these United States just gets more fun by the day for business owners.

No wonder so many businesses are leaving. It’s too expensive to remain here.

Dmytry (user link) says:

I’m yet to see a mentally competent person who believes that by paying $20 or $200 or even $20000 they are actually buying ‘the software’ in question (a game, Photoshop, or graphics suite in question), aka product that did cost many million dollars to develop (and cost of development of which the company in question – Autodesk – is trying to recover by licensing).

Of course it is a purchase of license and even the dumbest customers do understand that they are each paying a microscopic fraction of the multimillion dollar price of actual product that a software company makes.

But of course customers being what they are… wouldn’t it be fun if you could buy a plane ticket then get ownership on the entire plane via clever lawsuit? That’d be fucking awesome, you’d have a personal jet!
Customers want to be paying for the no-resale-rights license, which is cheaper than a license with resale rights would have been – and they want to screw over the licensor and resell it afterwards. And whine in court, then whine when the court makes the most obvious ruling and higher court ignores the stupid whining.

There’s where it gets really stupid though – you guys think you’ll be actually getting more value if you have a right to resell the software set by court. The software won’t be cheaper to make and the development costs will still have to be recovered.
No you won’t. You won’t be able to obtain software cheaper by waiving the ability to resell, that’s all!

Jason (profile) says:

Re: Re: Re:

While I agree with the original, I also see your point.

I look at it this way and again this is NOT perfect but:

You buy a single song online – you have no right to resell it.
You buy a CD Album in the store – you have the right to resell.

The original poster is correct in saying you are NOT buying a product when you buy say Microsoft office. You are buying a cd that facilitates access via a code to use the software. Sure can you pass the cd to a friend, and get 2 for 1 – well you used to. But this is stealing, plain and simple and most of us are OK with thi type of theft, but it does not make it right. But you cannot resell your office CD to someone.

Software is not a physical product, like a song file, it is simply access to something. In the example, you access music. But ony the artist et al has the right to sell the music.

The same is true for the NFL broacasts. You can watch it, invite friends over and watch it but the right to sell “the product” is for the NFL only. You cannot charge entry into your home under the pretense of watching the super bowl. You do not have the rights.

Peronsonally I think items like software and music files are infinite goods and thus should not carry much value. However software is challenging. How do you make anything off software if your business model is sell it once, and then let the world use it for free. Every software shop in the world would close if that were the case because it would be economically impossible to sustain a business.

Steve R. (profile) says:

Re: Re: Re: Re:

Jason you make a point that is overlooked in this whole copyright as property debate. You wrote: “Personally I think items like software and music files are infinite goods and thus should not carry much value.” The usual argument is that a property right evolves out of scarcity. If there is no scarcity then the property right should vaporize.

However, I disagree with: “How do you make anything off software if your business model is sell it once, and then let the world use it for free.” The answer is you need to adapt, not use the power of the State to create a special right for the content producer that deprives the consumer of their rights. The creator of a product is NOT entitled to a profit, he/she needs to come-up with an approach that will allow them to make money. Oh, by the way, there is nothing wrong with creating products were you don’t expect to make money.

Anonymous Coward says:

Re: Re: Re: Re:

You ever notice how when someone says ‘plain and simple’ what they actually mean is ‘pretty please buy this obvious conflation.’ Infringing copyright is not stealing and it’s not theft, not linguistically and certainly not legally.

Selling physical property, like a CD, is actually a right the property owner has. Why anyone would think statutory rights, like copyrights over what’s written on the CD, should take precedence over natural rights, like actual property rights, is beyond me.

“How do you make anything off software if your business model is sell it once, and then let the world use it for free.”

That’s not what is at issue here, you seem smart enough to realize that, and you’re being intellectually dishonest. It’s not an all or nothing proposition, you can maintain copyrights over the software without creating a legal fiction where software is licensed not sold. Books, for example, certainly don’t have any trouble selling more than one copy without restricting first sale. This is a false dichotomy, the choice isn’t ‘shrink wrap license or no more software’ like you are hyperbolically making it out to be. There’s a third option: software and first sale rights can co-exist.

Steve R. (profile) says:

Re: Don't Sell the Product if You Can't Make Money

If a company chooses to sell a product; that for a variety of reasons will not pay for itself, don’t sell the product.

The assertion that companies are entitled to deprive buyer of their rights to a product in order to cover R&D costs is absurd. When someone buys a product they acquire a property right to that product, which includes the ability to re-sell it. (I also do not subscribe to the notion that legal gimmicks, such as licensing, EULA, or TOS can deprive the buyer of their rights.)

Fundamentally, if we live in a free-market system, companies should not be able to employ the power of the State to recover their R&D costs. Can’t make money. Your marketing research was defective. Too bad, you loose.

Anonymous Coward says:

Re: Response to: Dmytry on Oct 5th, 2011 @ 4:29am

You’re conflating buying a free and clear copy with buying the copyrigts themselves in an attempt to make a point but it is failing because it is so hyperbolic. I mean under your logic buying a $6.99 trade paperback book must just be a liscense because the book cost more than $6.99 to write and edit. This is obviously false.

Steve R. (profile) says:

Re: Product Control

In the old days once a product was in the possession of the buyer, there was little that the seller could do. With modern day electronic devices the seller has a degree of CONTROL over what is supposed to be your device. Witness’s Kindle and the Sony Playstation. The seller can now reach into your electronic device at will and do whatever mischief they desire.

The big issue, in terms of our legal process – Why should the seller (out of thin air) be able to claim that they have a right to trespass onto your equipment? Just because a new technology becomes available it should not entitle the seller to claim some new right that deprives the consumer of their rights.

Hans says:

Deceptive Trade Practice?

If they’re going to take the position that one is only licensing the product, while making all their sales materials clearly suggest that one is buying, then it seems time to go after them with a law suit for deceptive trade practices. Maybe a class-action would get their attention?

Isn’t the US FTC interested in such things?

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