The First-Sale Doctrine, Software and Future Implications

With the year 2010 behind us, it seems that one of the more popular aspects of copyright law to arise in courts was 17 U.S.C. § 109: the first-sale doctrine. As mentioned in our previous post just a few weeks ago, the Supreme Court heard arguments in Costco Wholesale Corporation v. Omega, S.A. on the doctrine’s applicability to lawfully sold international goods imported into the United States. As Mr. Eisnach mentioned, the Court affirmed the Ninth Circuit’s holding which allows copyright holders to prohibit the sale of their copyrighted works lawfully obtained abroad and then imported into the United States. Some have stated that this could be the beginning of the end for the first-sale doctrine.

If this is true, then the beginning of the end might have started prior to the Supreme Court’s concise affirmation of Costco’s holding. Approximately six months earlier, another case out of the Ninth Circuit attacked the doctrine’s applicability to domestic goods lawfully acquired and resold. Vernor v. Autodesk, Inc. involved a buyer’s right to resell his lawfully acquired copy of software. The 9th Circuit held 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 facts of the case are relatively simple. A customer purchased AutoCAD Release 14, which is software released by Autodesk, Inc. The customer, then sold the copy to Timothy Vernor—the plaintiff in this case. Vernor then resold the software on eBay and filed for declaratory judgment seeking protection under both the first-sale doctrine and the essential step defense. The first-sale doctrine was designed to curb a copyright owner’s exclusive distribution right by allowing the “owner of a particular copy” of a copyrighted work to sell or dispose of his copy without the copyright owner’s authorization. Section 109(d) of the Copyright Act, however, excludes persons who possess a copy of the copyrighted work without owning it.

As software development continues to grow as a market in America, creators of software have included more and more complex End User License Agreements (EULAs). In the above case, Autodesk stated that the license is nontransferable, the software could not be transferred or leased without Autodesk’s written consent, and the software could not be transferred outside the Western Hemisphere. Therefore, Vernor could not claim protection under the First-Sale Doctrine as he was only in possession and did not own the software.

This holding could have huge implications on copyrighted works as society slowly converts to an all-digital world. This decision also has the potential to kill the already growing used video game market. For example, Bethesda Softworks’ EULA for its video game, Fallout New Vegas, states “You agree and understand that You are provided with LICENSED RIGHTS; nothing herein shall be deemed to be a transfer of ownership of any software or proprietary materials of Licensor or its licensors.” Under Vernor, the owner of a lawfully obtained copy of a videogame may not sell it to a used videogame store, such as GameStop, without the permission of the software developer. As the music, movies, television and book industries move to selling digital products what is to prevent them from including this type of language and effectively destroying any remaining power the first-sale doctrine possesses?