[Editor’s Note: What follows is the text of the most recent brief filed by Timothy S. Vernor in his case against Autodesk. We have lightly edited this legal document for clarity and to remove most references to law or previously stated items of fact, but have made no changes to the key language of the original. Footnotes have been incorporated into the body of the text. Click the link for the summary article, "Vernor Legal Team Files Compelling Response to Autodesk, Requests Oral Arguments."]
Hon. Richard A. Jones
UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WASHINGTON
TIMOTHY S. VERNOR,
Plaintiff,
v.
AUTODESK, INC.,
Defendant.
PLAINTIFF’S BRIEF IN OPPOSITION TO DEFENDANT’S MOTION TO DISMISS OR FOR SUMMARY JUDGMENT
ORAL ARGUMENT REQUESTED
Plaintiff Timothy Vernor owns and runs a small, unincorporated business in Seattle selling used comic books, video games, software, and collectibles on eBay under the name Happy Hour Comics. Defendant Autodesk, Inc. sent several notices of claimed infringement to eBay under the Digital Millennium Copyright Act (“DMCA”), claiming that Vernor’s resale of authentic AutoCAD software infringed its copyright. These notices caused eBay to terminate Vernor’s pending sales and eventually to shut down his online business.
Although Autodesk claims that its right to interfere in Vernor’s business is “well established,” its position runs headlong into a century of copyright jurisprudence. Since 1908, the Supreme Court has held that copyright owners have no right to use restrictive licensing terms to prohibit downstream sales of their works. Moreover, Congress has since amended the Copyright Act to expressly guarantee the right to resell lawfully purchased software.
Autodesk argues that it can bypass these fundamental limits of copyright law by packaging with its software a piece of paper that purports to be a “license agreement.” This expediency, according to Autodesk, converts any subsequent resale of the software—or even the act of giving away the software—into copyright infringement that could subject the seller to statutory damages of up to $150,000 per copy and criminal penalties under the Copyright Act. Autodesk, however, cannot alter the scope of its federal rights by recharacterizing the nature of its software sales. Moreover, even if its license agreements could bind an initial purchaser of the software, it could not bind Vernor, who buys only used copies of the software at garage and office sales and has never agreed to Autodesk’s terms. Contrary to Autodesk’s assertions, license agreements do not “run with” products to bind subsequent purchasers who have never agreed to them. Finally, Autodesk has no right to invoke the DMCA—an extraordinary extra-judicial remedy designed to give copyright owners protection against online distribution of pirated works—to enforce ordinary contractual terms. For these reasons, Autodesk’s motion should be denied.
BACKGROUND
Vernor makes the bulk of his income by buying used items at garage sales, office sales, and flea markets and reselling them on eBay. During the eight years he has operated an eBay-based store, Vernor has built a reputation as a reliable seller, completing more than 10,000 transactions and accumulating a positive feedback rating of 99.4 percent. The events giving rise to this case began in May 2005, when Vernor purchased an authentic, used copy of Autodesk’s AutoCAD Release 14 software (a software package used by architects and engineers for design and drafting) at a garage sale and posted it for sale on eBay. When Autodesk discovered Vernor’s eBay auction, it sent, without warning, a notice of claimed infringement to eBay under the DMCA, claiming that Vernor’s listing infringed its copyright.
To take advantage of the DMCA’s safe harbor against claims of secondary liability for copyright infringement, eBay regularly complies with such notices of claimed infringement. Section 512 of the DMCA shields Internet Service Providers (“ISPs”) such as eBay from liability for infringing materials posted by their users if they act “expeditiously” to remove allegedly infringing content upon receiving a notice of claimed infringement from a copyright owner, and if they have a policy providing for termination of the accounts of repeat infringers. When eBay receives a notice of claimed infringement stating that a copyright owner has a good-faith belief that a particular auction on eBay’s system infringes its copyright, eBay automatically terminates the auction without any investigation into the validity of the claim. If the targeted eBay seller has a record of previous unresolved terminations, eBay also suspends the seller’s account.
As Autodesk intended, its notice of claimed infringement caused the automatic termination of Vernor’s auction. Believing that the software was authentic and that Autodesk must have made a mistake, Vernor called Autodesk’s counsel Andrew MacKay to complain. Vernor told MacKay that he was selling an authentic, used copy of the software and that he had never agreed to Autodesk’s licensing terms. MacKay nevertheless refused to withdraw the notice of claimed infringement, telling Vernor that Autodesk does not allow any resale of its software on eBay or otherwise. In a letter that followed, MacKay told Vernor that AutoCAD software is “licensed, not sold” and that AutoCAD licenses are “‘nontransferable,’ meaning that they cannot be sold or transferred by any other means.” MacKay’s letter asserted that a violation of Autodesk’s licensing agreements constituted copyright infringement.
Vernor then submitted a counter notice to eBay contesting the validity of Autodesk’s copyright claim. Under the DMCA, a subscriber who is targeted by a notice of claimed infringement can contest the notice with the ISP by submitting a counter notice stating that the subscriber has a good faith belief that the material was removed as a result of mistake or misidentification of infringing material. The ISP will continue to enjoy a safe harbor from liability if it notifies the party who filed the notice of claimed infringement that it will reinstate the removed material in ten business days unless it receives notice that there is a pending legal action to restrain the subscriber from continuing to post the allegedly infringing content. When Autodesk did not respond to Vernor’s counter-notice within the required period, eBay reinstated the auction and Vernor sold the software to another eBay user.
In April 2007, Vernor acquired four more copies of AutoCAD Release 14 at an office sale at Cardwell/Thomas & Associates, an architectural firm in Seattle. Soon after the purchase, Vernor put a copy up for sale on eBay. In response, Autodesk filed another notice of claimed infringement. Vernor then submitted a second counter notice, and, when Autodesk failed to respond, the listing was again reinstated. This pattern was repeated for the next two copies of the software. As to each, Autodesk filed a notice of claimed infringement and Vernor filed a counter notice. When Vernor listed his final copy in June 2007, Autodesk filed yet another notice of claimed infringement, and this time eBay suspended Vernor’s account for repeat infringement.
While his account was suspended, Vernor filed a final counter notice and sent a letter to Autodesk and MacKay contesting their interference with his business. Vernor told Autodesk that he was selling an authentic copy of AutoCAD and was entitled to resell it under Vernor also wrote that he had never installed the software or agreed to any license agreement, and demanded that Autodesk contact eBay to withdraw its notices of claimed infringement. MacKay responded by letter, writing: “Please refrain from any further attempts at the unauthorized sale of Autodesk software. If you do not, then I will have no choice but to advise my client to take further action regarding this matter.” When Autodesk again failed to respond to Vernor’s counter notice, eBay reinstated Vernor’s eBay account on July 5, 2007.
Vernor was unable to earn any income on eBay while his account was suspended between June 5, 2007, and July 5, 2007. Vernor then filed suit in this Court, seeking a declaratory judgment that the resale of authentic, used copies of Autodesk software does not infringe Autodesk’s copyright and injunctive relief against further interference with his business.
ARGUMENT
Although Autodesk primarily relies on copyright infringement as a basis for interfering with Vernor’s eBay sales, its brief at various points makes use of doctrines from both copyright and contract law. Only by improperly merging these concepts can Autodesk claim, on the one hand, that a purchaser’s consent to the terms of a license agreement overrides the Copyright Act’s explicit grant of the right to resell copyrighted works, and, on the other, that this rule applies even to those who have not consented to the terms of the agreement. Regardless of how Autodesk characterizes its claims, however, it has no right to cancel Vernor’s sale of authentic, lawfully purchased software.
I. Resale of Lawfully Obtained Copies of Autodesk’s Software Is Not Copyright Infringement.
Autodesk does not claim that Vernor made unauthorized copies of its AutoCAD software. The only right that Autodesk claims Vernor violated is its right to “distribute” its software under § 106(3) of the Copyright Act, 17 U.S.C. § 106(3). More specifically, Autodesk asserts that Vernor infringed its “right to control the downstream distribution of its copyrighted work.” However, as the Supreme Court has held, and as the plain language of the Copyright Act dictates, copyright law does not grant copyright owners the right to control downstream distribution. Moreover, the use of a “license agreement” cannot create liability for copyright infringement based on activities that do not violate the Copyright Act. At most, such an agreement can give rise to a claim for breach of contract.
A. Autodesk’s Claim of a Right to Control “Downstream Distribution” Runs Headlong Into Bobbs-Merrill and the First-Sale Doctrine.
Autodesk’s core argument—that it can limit the scope of a purchaser’s distribution of its software by granting only a limited license in that software—was considered and rejected by the Supreme Court in Bobbs-Merrill Co. v. Straus. In Bobbs-Merrill, a book publisher attempted to prop up the prices of its novels by limiting the price at which they could be resold. The publisher tried to accomplish that objective by printing a statement below the copyright notice that purported to limit the extent of the license granted, stating: “The price of this book at retail is $1 net. No dealer is licensed to sell it at a less price, and a sale at a less price will be treated as an infringement of the copyright.”
Admitting that it knew about the printed statement, Macy’s department store purchased the books from a wholesaler and sold them at retail for 89 cents per copy. The publisher then sued for copyright infringement, arguing that Macy’s had exceeded the scope of its granted license. The publisher argued that the copyright statute’s grant of the exclusive right to “vend” copyrighted works “vested the whole field of the right of exclusive sale in the copyright owner; that he can part with it to another to the extent that he sees fit, and may withhold to himself, by proper reservations, so much of the right as he pleases.” In other words, the publisher took the position that, because the copyright statute granted it the right to “vend” its books, it necessarily had the right to limit the grant of a license to prohibit or restrict the right of downstream purchasers to vend them.
The Supreme Court disagreed. The Court held that the right to “vend” under the copyright statute granted the right to sell each copy of a copyrighted work one time. It did not, however, “create the right to impose, by notice . . . a limitation at which the book shall be sold at retail by future purchasers, with whom there is no privity of contract.” The Court held that Congress did not intend to include in the right to “vend” the “the authority to control all future retail sales.” This rule, called the first-sale doctrine, was strengthened in 1976 when Congress granted an affirmative right to resell lawfully purchased copyrighted works. Today, more than a century of Supreme Court and lower court precedents have recognized the first-sale doctrine. )See Quality King Distribs. v. L’anza Rsch. Int’l., Inc., 523 U.S. 135 (1998).)
Although acknowledging the existence of the doctrine, Autodesk attempts to avoid its implication here by arguing that its grant of a limited “license” to use its software is not the same as a “sale,” and that, where there is no sale, there is no first-sale doctrine. The situation in Bobbs-Merrill, however, was no different. The publisher there purported to grant a license that excluded certain kinds of resale (“[n]o dealer is licensed to sell it at a less price, and a sale at a less price will be treated as an infringement of the copyright”) just as Autodesk purports to here (“Autodesk . . . grants you a nonexclusive, nontransferable license to use the enclosed program . . . .”). In Bobbs-Merrill, the Court rejected this attempt at creating a limited license, holding that “a copyright owner cannot, with a printed statement, qualify the title of a future purchaser” by reserving certain rights.
That is not to say that a copyright owner can never limit the scope of a copyright with a license agreement. A copyright owner may, for example, grant a limited license to make a certain number of copies, and, in that case, exceeding the number of authorized copies could give rise to a claim for infringement. Bobbs-Merrill acknowledged this distinction, noting that an owner’s copyright in a work allows it to prohibit a purchaser from making unauthorized copies, but not to prohibit resale of the original copy. For this reason, as Autodesk notes, a number of courts have held that making more copies than allowed by a license agreement constitutes copyright infringement. See, e.g., Wall Data Inc.
{Footnote: The current version of the Copyright Act replaces the right to “vend” with the right to “distribute.”}
“Like the exclusive right to ‘vend’ that was construed in Bobbs-Merrill, the exclusive right to distribute is a limited right.” But the difference between those cases and this one is that a copyright owner generally has a right to prohibit production of unauthorized copies, and thus has the right also to dictate the number of copies that can be made. As Bobbs-Merrill made clear, however, the copyright owner has no right to prohibit downstream sales, and thus has no right under the copyright law to set limits on the resale right.
Two examples are useful to illustrate this distinction. First, a software company could create a license agreement that allowed purchasers to make up to five copies of its software. In that case, if the purchaser instead made six copies of the software, the owner’s copyright would be implicated. Because the owner of the copyright in the software has the right under § 106 to deny the right to make any copies, it follows that it also has authority to give up a portion of this right to allow a limited number of copies to be made.
This was the situation in Wall Data. There, the court found infringement for exceeding the scope of a software license because, although the license authorized 3,663 copies, the software was installed on 6,007 computers. In contrast, a software company could include in its license agreement a prohibition against starting a competing company. If the licensee then opened such a company, the copyright owner—assuming the purchaser gave valid consent and the contract was not void as a restraint on trade or copyright misuse—could sue for breach of contract. It could not, however, also sue for copyright infringement. The reason is that copyright law gives the software company no right to prohibit competition, and therefore, the company owns no rights to grant in a license agreement. Regardless of what the license says, opening a software company is not copyright infringement.
The same concept has long been recognized in patent law. “[I]n the essential nature of things, when the patentee, or the person having his rights, sells a machine or instrument whose sole value is in its use, he receives the consideration for its use and he parts with the right to restrict that use.” Therefore, the company owns no rights to grant in a license agreement. Regardless of what the license says, opening a software company is not copyright infringement.
This second example is like the situation in National Car Rental, where a license agreement limited the ways in which the purchaser could use the software. The court held that, because the Copyright Act does not grant an exclusive right to the copyright owner to “use” a copyrighted work, the restrictions in the license agreement fell outside the copyright owner’s exclusive rights. The court distinguished cases holding that exceeding the terms of a license agreement is copyright infringement, noting that, in those cases, “the conduct claimed as infringing involved one of the exclusive copyright rights,” such as making copies or broadcasting a copyrighted work on television. Thus, “[r]ather than stating a rule that any use exceeding the license is infringing, these cases establish that engaging in one of the acts reserved to the copyright holder under § 106, without a license to do so, is infringing.”
National Car Rental also held that allegations that the licensed software had been leased in violation of the agreement did not state a claim for copyright infringement. As the court noted, the right to lease, as part of the right to distribute, covers only the right to distribute copies. Thus, allegations of a lease of the original copy, even if prohibited by the license agreement, did not state a claim for copyright infringement. National Car Rental presents essentially the same issue as this case. Just as National’s lease in violation of a license agreement was not infringement, Vernor’s sale in violation of an Autodesk’s license agreement was not either. The legislative history of § 109(a), the statutory first-sale provision, recognizes this point, noting that, even if parties could agree to limit resale by contract, that agreement “could not be enforced by an action for infringement of copyright.”
This distinction is also consistent with the usual meaning of the word “license.” Although the Copyright Act does not define the term, Black’s Law Dictionary defines it as a “revocable permission to commit some act that would otherwise be unlawful.”
Making copies of a copyrighted work, unless fair use or another exception applies, is typically unlawful, so a purchaser needs a license or other permission to make them. However, a purchaser needs no authorization to take advantage of the statutory right of fair use of a copyrighted work (for example, using excerpts from a copyrighted work for educational purposes or writing a negative review), and courts have held that a copyright owner could not convert fair use into copyright infringement by withholding permission to use a work in those ways.
Similarly, a copyright owner could not, in a license agreement, specify that copying its software after the term of its copyright had expired or copying uncopyrightable facts would constitute infringement. And, because Vernor’s act of selling an authentic copy of AutoCAD is also not unlawful, he needs no license or permission to do it.
B. Autodesk’s Argument Is Foreclosed by the Plain Language of the Copyright Act.
Autodesk bases its claim of a right to control downstream distribution of its software on the statutory language in § 109 of the Copyright Act, which grants a right to the “owner of a particular copy” of a copyrighted work to resell that work without permission.
Seizing on the word “owner,” Autodesk argues that since its software is “licensed” rather than sold, purchasers are not “owners” of the software and therefore the § 109 rights do not apply. The statutory right of resale granted by § 109, however, does not overrule Bobbs-Merrill’s recognition of the inherent limits on the distribution right as set forth in § 106(3). The statutory resale right in § 109 applies “[n]otwithstanding the provisions of section 106(3);” it does not expand the right of distribution to encompass restrictions on downstream sales. See Quality King, 523 U.S. at 152 (“There is no reason to assume that Congress intended either §109(a) or the earlier codifications of the doctrine to limit its broad scope”).
In any case, the statutory language cited by Autodesk, far from creating a right to control downstream distribution, actually mandates the opposite result here. Autodesk focuses on the word “owner” in § 109 in isolation, apparently believing that this word was meant to limit the right of resale to those who possess full ownership rights in a copyrighted work, including the right to resell that work. But the statute does not say “the owner of the right to resell,” it says “the owner of a particular copy.” A “copy,” as Autodesk may attempt to distinguish Bobbs-Merrill on the ground that it did not require the agreement of the original purchaser, while its license here states that the purchaser agrees to be bound by the license agreement “by opening the sealed software packet.” That argument, however, is relevant to breach of contract, not to copyright infringement. See Quality King, 523 U.S. at 143 (noting that Bobbs-Merrill recognized “the critical distinction between statutory rights and contract rights”) defined by the Copyright Act, is a “material object . . . in which a work is fixed.”
The “particular copy” of a book, for example, is the paper and binding that make up that copy of that book, along with the printed words inside. The purchaser of a book becomes the owner of that material copy, and thus has the right to read it, sell it, or destroy it without permission of the copyright owner. However, the purchaser does not become owner of the copyright in that book, and thus has no right to make additional copies of the book (at least if those copies do not constitute fair use). See 17 U.S.C. § 202: “Ownership of a copyright, or of any of the exclusive rights under a copyright, is distinct from ownership of any material object in which the work is embodied.”)
The Copyright Act makes clear that there is no difference between a book and software in this regard, providing that a “copy” includes fixation of a work not only by printing on paper, but “by any method now known or later developed,” and regardless of whether the purchaser can read the copyrighted material “directly or with the aid of a machine or device” such as a computer. Thus, when Vernor purchased a copy of AutoCAD at a garage sale, he became the owner of that “particular copy” of the software, including the compact disc on which the data is stored and the magnetic bits that make up that data. Like the owner of a book, Vernor’s ownership of the particular copy gave him the right to use it, sell it, or destroy it. Like the owner of the book, however, he does not own the copyright in the software, so he cannot make unauthorized copies unless a different statutory exception applies.
Autodesk would have the Court rewrite the statute’s “owner of a particular copy” language to mean, in essence, “owner of full rights in a particular copy.” Under Autodesk’s interpretation, the right to sell without permission would thus apply only to those who already have obtained permission to resell, either through an unrestricted sale or a license agreement’s grant of permission. That definition of “owner,” however, would reduce the important federal right granted by § 109 to a tautology. Congress could not have intended § 109 to mean that the owners of particular copies may resell those copies only if they already have the right to resell them. Moreover, Autodesk’s reading of § 109 flies in the face of the statute’s provision that software may be resold “without the permission of the copyright owner.” Because purchasers are not, in Autodesk’s view, “owners,” a purchaser of software pursuant to a license agreement would have no right to resell the software unless the right to do so was affirmatively granted by the copyright owner.
Therefore, a license that was silent on the subject of resale would prohibit it by default, and a purchaser could resell the software only by obtaining explicit permission from the copyright owner in the license agreement. The right granted by § 109 would not be a right at all, but merely the whim of the copyright owner.
{footnote: The court in Adobe Sys. Inc. v. Stargate Software Inc. erred by, among other things, misapplying this distinction between a copyright and a particular copy. The court thought that the “particular copy” at issue was just the software’s packaging and blank media, which the court characterized as “almost worthless.” “The true economic value of the product,” the court wrote, “is derived from the intellectual property embodied within it.” Stargate Software, however, was wrong to hold that the relevant “particular copy” for purposes of § 109 is only the blank media on which the copyrighted work is transcribed. If it were, the particular copy of a book would be a cover and blank pages, and a particular copy of a movie would be a blank roll of film. The § 109 right would be meaningless.}
C. Autodesk Cannot Change the Nature of a Transaction By Characterizing It As a “License.”
Even assuming that that Autodesk is correct that a “license” can create copyright liability where there otherwise would be none, a purchaser would not be liable for copyright infringement if the purported “license” was in fact a sale. As Autodesk seems to acknowledge, its characterization of its agreement as a license is just that—a characterization. When dealing with federal rights, however, merely labeling a sale as a “license” cannot change the nature of the underlying transaction. (In re DAK Industries, Inc., “[T]he fact that the agreement labels itself a license does not control [the] analysis.”.) Courts look beyond labels to “the economic realities of the agreement.” (“The ‘sale’ embodied in the first sale concept is a term of art. The sale is not limited to voluntary sales of a copyrighted work for a sale price that takes into account both the value of the materials upon which the copyrightable idea is affixed together with the idea itself.”); (noting that courts use a “functional” approach to determining whether a sale has occurred).
Courts have rejected similar efforts to redefine the nature of a transaction merely by attaching an inaccurate label. In Softman Prods. Co. v. Adobe Systems, Inc., for example, the defendant had purchased a packaged set of Adobe software, divided the set, and resold the individual software titles in violation of a “license agreement” specifying that the software must be resold together. The court nevertheless refused to accept Adobe’s characterization of the transaction as a “license,” noting that it more closely resembled a typical retail transaction.
Similarly, the Supreme Court has rejected the attempts of patent owners to expand their rights by characterizing a “sale” as a “license.” In Bauer & Cie. v. O’Donnell, a patent owner sold a patented product with the notice: “This [package] is licensed by us for sale and use at a price not less than one dollar ($1). Any sale in violation of this condition, or use when so sold, will constitute an infringement of our patent. . . . A purchase is an acceptance of this condition.” 229 U.S. 1, 8 (1913). The Court refused to accept the notice’s characterization, noting that the product was purchased for a one-time price and that the patent owner was entitled to no royalties or any other profit from subsequent use or sale of the product. The Court concluded: “[T]o call the sale a license to use is a mere play upon words.”
Like the software contract at issue in Softman, the “license agreement” here creates a sale, not a lease. Other than the purported restriction on resale rights, the relevant transaction bears all the hallmarks of a sale. AutoCAD software is sold in sealed boxes with the license agreement inside and no indication on the outside of the box that the software is not for sale.
In contrast, the court in MAI Systems Corp. v. Peak Computer, Inc. characterized as a license a strict contractual arrangement that allowed only three employees permission to access the software, which was installed and maintained on clients’ computers by the copyright owner.
The software can be purchased in a variety of stores, including online stores. The listing for the software on the website for computer-maker Dell, for example, advertises AutoCAD as a “retail box.” Shoppers add the software to a “shopping cart” and click “check out” when ready to purchase. There is no indication that the software is available only for lease. The page for AutoCAD on the website of computer-supply company CDW looks very similar, but includes an option, as an alternative to purchasing the software, to “lease” it for a monthly fee. Even Autodesk’s own website offers no indication that the software is not for sale, instead offering a menu of “purchase options” and a link to “buy online” from the Autodesk online store.
Unlike a typical lease, a purchaser of AutoCAD pays the full price up front, and the license agreement provides no obligation to make future payments. The software does not have to be returned to Autodesk at the end of a license period and there is no prohibition on destroying it. The license does not provide a limitation on the duration of use or a provision for eventual license renewal. AutoCAD’s license is thus indistinguishable from the license in Softman. As the court held there, “a single payment for a perpetual transfer of possession is, in reality, a sale of personal property and therefore transfers ownership of that property, the copy of the software.
Autodesk relies on a few district court cases in which the courts appear to have uncritically accepted a software company’s characterization of a sale as a “license.” These cases are inconsistent with Ninth Circuit precedent and unpersuasive in light of Softman. The court in Stargate Software, for example, distinguished Softman on the ground that it involved splitting packaged software and reselling individual pieces rather than reselling a complete package, but did not explain why this distinction was legally relevant. The court in Softman appeared to be concerned about the fact that the defendant there had purchased software intended for educational use and resold it to commercial users, thereby frustrating Adobe’s efforts to segment the market and charge different prices to different sorts of users, a concern that was also at issue in Adobe Systems, Inc. v. One Stop Micro.
Whether this kind of price discrimination is legitimate or economically valuable is has been debated, (see William F. Fisher, When Should We Permit Differential Pricing of Information?, 55 UCLA L. Rev. 1, 10-37 (2007)), but the court erred to the extent it overrode the statutory first-sale right with this sort of policy analysis. In any case, the concern about preserving price discrimination that appeared to drive the courts in those cases is absent here.
Vernor bought a full commercial version of the software, not one that was limited to educational use. And, to the extent these cases reject the holding in Softman, they are inconsistent with Ninth Circuit precedent holding that what matters is the substance, not the label, of a transaction.
II. Autodesk’s License Agreement Does Not Impose Liability for Breach of Contract on Vernor for Reselling Autodesk Software.
Although Autodesk characterizes its claims as copyright infringement, many of the cases it relies on are actually about the enforcement of license agreements as contracts. These cases cannot help Autodesk here. First, Autodesk’s anticompetitive attempt to restrict the secondary market with its license agreement is a form of copyright misuse that renders the agreement unenforceable. Even if Autodesk’s license could generally be enforced, however, it is not enforceable against Vernor, who never agreed to enter a contract with Autodesk. Finally, even if Autodesk did have a cause of action against Vernor for breach of contract, it has no right to invoke the Digital Millennium Copyright Act to enforce that claim.
A. The License Agreement Constitutes Copyright Misuse and Is Therefore Unenforceable.
Under the doctrine of copyright misuse, courts refuse to allow copyright owners to enforce their rights when the owners are exercising those rights to the detriment of the public interest. The Ninth Circuit and other courts have recognized that the use of “unduly restrictive licensing agreements” is one form of misuse.
A copyright owner commits misuse by using its copyright to “secure an exclusive right or limited monopoly not granted by the Copyright Office.” The Copyright Act represents a careful balance struck by Congress between the interests of copyright owners and the interests of the public in the free exchange of ideas. By granting a limited monopoly to copyright owners, the Act encourages those owners to create new works. At the same time, however, the Act imposes fundamental limitations on the copyright monopoly to ensure that the public interest will be protected. One of the most important of these limitations is the first-sale doctrine. The doctrine reflects Congress’s judgment that the right to control downstream sales is not a necessary incentive to promote the creation of new works and thus causes more harm to free expression than good. (See Brilliance Audio, Inc. v. Haights Cross Comms., Inc., “Once a copyright holder has consented to distribution of a copy of that work, [the copyright] monopoly is no longer needed because the owner has received the desired compensation for that copy.”). Here, by leveraging its AutoCAD software to impose restrictive license agreements that cut off the right of resale, Autodesk thus strikes at a core policy of copyright law.
Moreover, “misuse often exists where the patent or copyright holder has engaged in some form of anticompetitive behavior.” (Video Pipeline, Inc. v. Buena Vista Home Entm’t, Inc., 342 F.3d 191, 204 (3d Cir. 2003); see Practice Mgmt., 121 F.3d at 520-21 (holding that conditioning a license on a promise not to use competitors’ products constituted misuse); Lasercomb, 911 F.2d at 979 (holding that licensing agreements that included a provision prohibiting the development of competing goods constituted misuse). For this reason too, Autodesk’s prohibition of the secondary market constitutes misuse. A key interest behind the first-sale doctrine is the aversion to restraints on trade. See Parfums Givenchy, 832 F. Supp. at 1388-89; Rothchild, supra at 79-80. By creating a secondary market, the first-sale doctrine promotes both competition and the distribution of copyrighted works.
Conversely, by eliminating the right of resale, Autodesk also eliminates the need to compete with used versions of its own products, thus forcing consumers to buy new copies at higher prices. Many companies would undoubtedly like to achieve the effect that Autodesk believes it has achieved here. Book publishers, for example, would make more money if they could eliminate used bookstores by including a no-resale agreement in the front cover of books. No court, however, would countenance such an anticompetitive scheme. Nor should this Court countenance Autodesk’s attempt to “use[] its copyright . . . to control competition in an area outside the copyright.” (Lasercomb, 911 F.2d at 979.7)
B. Even if Autodesk’s License Agreement Is Binding on the Original Purchaser, It Does Not Justify Use of the DMCA to Terminate Vernor’s Auctions.
Autodesk stresses that Cardwell/Thomas & Associates, the initial purchaser of the software at issue, agreed to the terms of the license agreement. It does not contend, however, that Vernor ever agreed to those terms. Nor could it. The AutoCAD license agreement specifies that the purchaser agrees to be bound “by opening the sealed software packet.” Vernor, who purchased the software already used, did not and could not have unsealed the software packet. Nor did Vernor install the software on his computer or take any other action that could constitute consent. Moreover, the license agreement specifies that the licensee could reject the terms by returning the software within 15 days of purchase. Vernor, who purchased the software long after the 15 days had expired, could not possibly have taken advantage of this provision.
Although it is true that Vernor was aware of the license terms, mere awareness of contractual terms is not the same as agreement to those terms. In Softman, the defendant, like Vernor, had never installed the allegedly infringed software and therefore was never forced to agree to the license terms. The plaintiff argued that the purchaser had notice of the terms, which were printed on the outside of the software’s box. The court, however, disagreed, holding that “[r]eading a notice on a box is not equivalent to the degree of assent that occurs when the software is loaded onto the computer and the consumer is asked to agree to the terms of the license.” Because of this anticompetitive conduct, the complaint states a claim for unfair competition.
Autodesk is correct that it has an interest in enforcing its copyright, but it has no legitimate interest in leveraging that copyright to restrict the secondary market at the public’s expense. Autodesk has no right to control the secondary market.
Autodesk nevertheless argues that the restrictions of the license agreement run with its software, binding all future purchasers who come into possession of it. But as Autodesk’s own cases make clear, a party cannot be bound to a contract without giving assent. The requirement of privity ensures that only those who have notice of a contractual term and have agreed to that term are bound by it. In ProCD, for example, the court not did not suggest that privity was not needed, and devoted much of its opinion to determining whether the purchaser had given the required assent to the license terms. Similarly, in Bobbs-Merrill, the Supreme Court held that a contract between a publisher and the initial purchaser of a book was not binding on a downstream purchaser who never agreed to the contract.
Indeed, a system in which contractual obligations were binding regardless of whether the purchaser had agreed to those obligations would be unworkable. Because used copyrighted goods are not always accompanied by all the original packaging and licensing materials, anyone purchasing a piece of used software under Autodesk’s system would be forced to, in Autodesk’s words, “trace the chain of title” to ensure that each previous owner had the authority to sell it and to figure out what other sorts of contractual agreements might have attached to the product along the way. Unlike real property, for which transfer of titles are recorded, there is no practical way for a purchaser of consumer goods to obtain this information. Such costly burdens on the stream of commerce are the basis for the common law’s hostility to restrictions on the free alienation of property. (See Thomas F. Merrill & Henry E. Smith, Optimal Standardization in the Law of Property, the Numerous Clauses Principle, 110 Yale L.J. 1, 26-34 (2000); Zachariah Chafee, The Music Goes Round and Round, Equitable Servitudes and Chattels, 69 Harv. L. Rev. 1250, 1261 (1956)).
Finally, even assuming that Autodesk had a cause of action for breach of contract against Vernor, it had no right to invoke the takedown provisions of the Digital Millennium Copyright Act as a remedy. The DMCA’s takedown provisions, by their plain language, cover only claims of copyright infringement. 17 U.S.C. § 512. The DMCA provides an extraordinary remedy for copyright owners, giving them the power to achieve what in effect is equivalent to a temporary restraining order without the need to obtain approval of a judge. The DMCA was not designed, and cannot legally be used, to enforce other sorts of claims, such as breach of contract.
III. Vernor Has Standing to Bring this Claim.
Finally, Autodesk argues that Vernor lacks standing to bring this claim because he does not have a reasonable fear of being sued. Autodesk misunderstands the nature of Vernor’s claims. Autodesk did not merely threaten to interfere with Vernor’s online business using the DMCA; it actually did interfere, terminating five separate auctions and causing Vernor to lose his account for a month. Setting aside the question of whether he has a reasonable fear of being sued, Vernor has a reasonable fear that Autodesk will continue to invoke the DMCA to terminate his auctions. Because Autodesk has told Vernor that it does not allow any sales of its software on eBay, and because it has submitted notices of claimed infringement on all of Vernor’s past AutoCAD sales, Vernor has a reasonable fear that they will do so again.
Disclaiming responsibility for its actions, Autodesk asserts that any injury Vernor suffers from termination of his sales or his account would “be a result of eBay policies.” But Autodesk did not just invoke eBay’s policies to terminate Vernor’s auctions, it invoked the DMCA. The DMCA provides that, in order to take advantage of the statutory immunity, ISPs like eBay must act “expeditiously” to remove allegedly infringing content upon receiving a notice of claimed infringement. Autodesk had used the DMCA process before, and it understood the impact its actions would have on Vernor’s account. Given that Autodesk demanded termination of Vernor’s auctions, it cannot claim surprise that those demands were honored. Moreover, the DMCA also provides that, in order to take advantage of statutory immunity, an ISP must have a policy providing for termination of the accounts of repeat infringers. The DMCA gives Internet service providers like eBay a strong incentive to comply with these statutory terms to avoid the risk of vicarious liability for copyright infringement. And, as Autodesk has shown, by repeatedly sending notices of claimed infringement and ignoring counter notices, it can effectively shut down Vernor’s business. The termination of Vernor’s eBay auctions and the suspension of his account are therefore the direct result of Autodesk’s actions.
Finally, Autodesk argues that Vernor has not alleged how or where he will acquire future copies of the software. Vernor did allege, however, that he currently possesses two authentic, used copies of AutoCAD that he wishes to sell on eBay. These copies are not hypothetical and in themselves are enough to make the case ripe for a declaratory judgment. In addition, Vernor alleged that he occasionally finds other authentic copies of AutoCAD software at garage sales, which he intends to purchase for the purpose of resale. Vernor’s requested relief as to these copies is neither as broad nor as vague as Autodesk makes it out to be. Vernor asks only for declaratory and injunctive relief protecting his ability to sell authentic, used copies of Autodesk’s software without interference. Given Autodesk’s past actions regarding such authentic software, Vernor’s request is reasonable.
Respectfully submitted,
GREGORY A. BECK
PUBLIC CITIZEN LITIGATION GROUP
Attorney for plaintiff
MICHAEL WITHEY
Law Offices of Michael Withey