Ninth Circuit Appeals Court Decision On Fair Use And Right Of First Sale Fails To Budge The Needle On Either Issue

from the we-hold-that-Adobe-litigated-itself-into-defeat dept

A ruling on fair use, the right of first sale and the limits of trademark protection has been handed down by the Ninth Circuit Court of Appeals panel. Normally, I'd proceed the word "ruling" with an adjective like "important," or "terrible," or "wonderful." But this ruling is none of those. It's a ruling, and I suppose it does set some sort of precedent, but thanks mainly to Adobe's inept handling of the case, it does very little to clarify any of the above issues.

What it does do, however, is at least reaffirm burden-shifting for companies who insist they haven't sold software, but "licenses." This is the preferred method of undermining the right of first sale: tying up purchasers with legal language that claims they're not making purchases, but rather "renting" the goods until the manufacturer says otherwise. This allows companies to stipulate all sorts of restrictions on purchased goods, including the resale of software.

Adobe tried to claim Joshua Christenson had never "purchased" any of its software, and therefore could not resell it. Christenson had in fact purchased software, but from third parties rather than directly from Adobe. Adobe didn't like being cut out of the loop, so it took him to court for alleged copyright and trademark infringement.

Six years later, very little of it has stuck. (Christenson was sued in 2009.) The appeals court notes that Christenson successfully managed to shift the burden of proof on the licenses v. sales issue back on Adobe -- which then failed to produce evidence that the reseller possessed only worthless licenses rather than resellable goods.

Noting that if construed broadly enough, software licenses could "swallow the statutory right of first sale defense," the panel says that the burden of proof must be shifted back to the plaintiffs when alleging copyright infringement of licensed software. The reseller only has to prove he or she acquired the software legally. Adobe -- being the manufacturer -- is in a "superior" position to demonstrate whether or not the software in question was merely licensed.

As the district court held, it was uncontroverted that Christenson “lawfully purchased genuine copies of Adobe software from third-party suppliers before reselling those copies.” Christenson offered invoices to document his purchases of legitimate Adobe software from various suppliers. Nothing on those invoices suggests that he was other than a legitimate purchaser of the software. According to Christenson’s sworn statement, “[n]either [he] nor SSI have a contract with any of the suppliers that supplied SSI with software... SSI asked them if they could supply SSI with a product at an acceptable price, and if they could, payment was negotiated.” This claim is consistent with Christenson’s inability to produce something more than invoices from his suppliers: He cannot produce records that do not exist. Christenson discharged his burden with respect to the first sale defense.
Adobe countered that it never sold software. It only licensed it. Burden of proof shifted to Adobe, which came up empty.
Adobe’s problem is that it did not produce those licenses or document the terms of contracts with specific parties. Because of the state of discovery at the time of the summary judgment motions, the district court excluded virtually all of Adobe’s late-offered evidence of licenses. Adobe challenges this ruling in its appeal. The district court and magistrate judge had a long history with the parties and their discovery efforts. After a careful examination of the rather tortured discovery process, we conclude that the district court did not abuse its discretion in granting Christenson’s motion to strike and excluding evidence purporting to document the licenses...

Adobe’s effort to substitute general testimony and generic licensing templates in lieu of the actual licensing agreements does not withstand scrutiny under Vernor. Under Vernor, the precise terms of any agreement matter as to whether it is an agreement to license or to sell; the title of the agreement is not dispositive. And here, in the end, there is no admissible evidence that Adobe “significantly restrict[ed] the user’s ability to transfer the software” at issue here.
So, there's not much in the way of a "win" for the right of first sale. While it's heartening that the burden shifts to the "licensing" party to prove infringement, all this really does is encourage companies like Adobe to write more restrictive licenses. It does almost nothing at all to treat licenses as actual purchases, which can be resold without the manufacturer's permission.

Other claims raised were similarly bungled by Adobe. The trademark infringement allegations were dead in the water because Christenson never used Adobe's logos for anything else than selling actual Adobe products.

While it does appear there may have been some shady software sales by Christenson (purchasers complained about received academic versions rather than the full OEM versions they were expecting), Adobe failed to raise its false advertising claims until the case was already in the appeals court -- far too late for them to be addressed.

In the end, we have a decision on fair use and the right of first sale that does nothing to push either issue forward. Fortunately, this stasis also does nothing to damage either of these defenses, something the Ninth Circuit Appeals Court has done in the past. One gets the disheartening feeling that if Adobe had managed its case better, the right of first sale would be worse off, rather than bolstered by the Appeals Court's final opinion.

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Filed Under: copyright, fair use, first sale, joshua christenson, licensing, ninth circuit, sale, software
Companies: adobe

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  1. identicon
    Andrew D. Todd, 7 Jan 2016 @ 9:29am

    Law vs. Facts.

    The law hasn't shifted, but the facts have. In Verner vs. Autodesk, there was a valid contract, signed by a firm of architects in exchange for a $15,000 discount. When it sued Verner, AutoDesk had all its ducks in a row. It had got an agent to purchase the software from Verner, for $600; looked up the serial number; identified the original purchaser; and retrieved the relevant signed contract.

    However, in the present case, it seems that Adobe is relying on OEM copies and student copies, and is apparently having difficulty producing actual contracts with actual purchasers. As the value of each copy becomes less, the legalities inevitably become more sketchy. Lawyers and legal procedures cost money. I think you will find that Adobe did not make a representative available to negotiate with students purchasing the student edition, nor were the students legally advised. Obviously, a "click-wrap" license, which manifests itself only after sale, is worthless as a contract. The purchaser is within his rights to treat a click-wrap license as attempted fraud, and set his own price for accepting a refund. A refund from a company, which in many cases can only obtain credit at loan-shark rates, is an enforced loan. Beyond that, there is the whole concept of "contracts of adhesion." A judge can go over a contract of adhesion, and strike out terms which seem inequitable to him. Likewise, there is the question of whether students in public institutions were sold software under duress or coercion, and the extent to which Adobe might have conspired in this.

    Another relevant fact is that GIMP is very good, and will become better. Open-Source represents a greater and more immediate threat to Adobe than it does to AutoDesk. Graphics is not as much of a niche market as architecture. The final output of a graphics program is usually a JPEG or PNG file, or a piece of paper. The compatibility issues are much less complicated than those applying to architectural CAD/CAM.

    The next road block is children. The law is very solicitous to prevent children from being exploited. Suppose it becomes the case that all persons who are disposed to learn to use graphics software do so at the age of eight. Obviously, they have access to GIMP, and if Adobe just does nothing, the children will grow up knowing how to use GIMP. The only way Adobe can keep pace is to simply give away vast numbers of no-strings-attached full versions of its software.

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