Recent Cases Should Make Software Licensors Review Their Distribution Methods And License Terms (And They May Even Make Us Look At Open Source Licenses In A Different Way)

Three recent copyright cases from the Ninth Circuit Court of Appeals, Vernor v. Autodesk, Inc., 621 F.3d 1102 (9th Cir. 2010), UMG Recordings Inc. v. Augusto, 628 F.3d 1175 (9th Cir. 2010) and MDY Industries, LLC v. Blizzard Entertainment, Inc., 629 F.3d 928 (9th Cir. 2011), underscore how methods of distribution and license terms can be mutually reinforcing or, alternatively, mutually destructive. Software licensors should re-examine their methods for distributing their software and the terms of their licenses in light of these three important cases.

First Sale and Licenses. Let us take the first sale cases first. As a general rule, someone who becomes an owner of a copy of a copyrighted work may distribute that copy without infringing the copyright owner's distribution rights under the Copyright Act; owners of copies of computer programs have certain additional "first sale" rights, including the right to make copies essential to use. The owner of the copyright still retains ownership of the copyright and may enforce it. However, the owner of a particular copy (or any person "authorized by the owner") can re-sell that particular copy without infringing the copyright owner's exclusive right to distribute the copyright work. You can see why a software licensor would not want first sale to apply to its software: if the licensee were treated as owner of the copy, she could freely transfer that copy without infringing the licensor's copyright.

So who owns a copy? This question is relatively easy to answer when one is talking about a traditional medium of expression, such as a book purchased from Brazos Bookstore in Houston, our favorite bookstore (which just happens to be partly owned and addictively patronized by Jeff Dodd). This question is not so easily answered with respect to software that is subject to a license. Technically, by granting a license, the licensor unmistakably signals that limitations attach to the use. The courts have grappled with the circumstances in which a copy held under the auspices of a license could nonetheless be lawfully owned by the licensee so that the licensee could transfer the copy without regard to restrictions on distribution.

The most recent cases, exemplified by Vernor, examine the full range of rights reserved and granted in the license to determine whether ownership of the copy of the software passed. Vernor 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 court found that the license terms reserved title for Autodesk and imposed "significant" transfer and use restrictions, making the customers licensees, not owners, of the copies of software and preventing them (and their transferees) from transferring the copies under the shelter of first sale doctrines. Interestingly, the "significant" transfer and use restrictions (save, perhaps, the prohibitions on transfer or use outside the Western Hemisphere) were the unremarkable fare of standard forms: the license was not transferable (though that would be true as a matter of law); the software "could not be transferred or...