First Sale Doctrine: Copyright & Patent

PatentLawPic307In some ways, the Supreme Court case of Quanta v. LGE is a symbol of the ongoing struggle between property law and contract law.  With concepts like the first sale doctrine (and the rule against perpetuities), property law has typically operated to limit dead hand and downstream control over property rights.  These limiting doctrines are largely ignored in a freedom of contract regime.

Vernor v. Autodesk (W.D. WA 2008)

A federal copyright case last week landed on the side of property & the first sale doctrine.  The court denied summary judgment to Autodesk — finding instead that Vernor may well have a legitimate right to re-sell his copies of AutoCAD. Autodesk argues that he only holds a contractual license to use the software (via shrink-wrap license) and does not actually hold full property interests in the programs.

“[T]he transfer of AutoCAD packages from Autodesk to CTA was a sale with contractual restrictions on use and transfer of the software. Mr. Vernor may thus invoke the first sale doctrine, and his resale of the AutoCAD packages is not a copyright violation.”

In copyright law, the first sale doctrine is codified in statute — allowing the owner of a particular copy to resell that copy even if the owner had contractually agreed not to do so. 

“[T]he owner of a particular copy or phonorecord lawfully made under this title … is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.” 17 USC 109.

In patent law, the first sale doctrine – also known as patent exhaustion – has no statutory support. Rather, like the doctrine of equivalents, patent exhaustion is grounded in common law principles.  The Quanta case is fairly technical and could result in a narrow low-impact opinion. However, it is also quite possible that the Supreme Court will re-solidify the property concepts.  Expect a decision within the next few weeks.

Notes:

  • Patry and InternetCases have more details on the Autodesk case.
  • More on Quanta v. LGE.
  • Comment on Chain of Title: M. Slonecker: “For the sake of factual accuracy, AutoDesk “sold” the software to CTA. At a later date CTA auctioned off its assets, and Mr. Vernor was the winning bidder for the software program discs. With copies in hand, Mr. Vernor placed the discs he purchased at the auction on sale at eBay. Apparently AutoDesk is not pleased with this state of affairs and has been engaged in a running battle with Mr. Vernor about his eBay activities.”

27 thoughts on “First Sale Doctrine: Copyright & Patent

  1. “imo you would need congressional action to block the new rules rather than the pto needing congressional action to enact the new rules”

    Thankfully, your opinion is worth diddly squat. It’s also tainted by your notorious biases. Or are they nefarious biases? I can’t remember the Word of the Day after dinner.

  2. 6K … yet again, you show your ignorance. The RCE is just a different version of a CPA, which followed the FWC. You can find the differences between RCE’s and CPA’s here:

    link to uspto.gov

    Like CPAs then, RCEs now are intended to do what most people use them for … which is to continue prosecution. You’ll notice that a major difference between CPAs and RCEs is that a CPA created a new application, whereas a RCE continued the old application. This is relevant in that certain rules are only applicable to new applications.

    BTW: Why did you even post this on this thread????

  3. OK E6k, I’ll play.

    Under your interpretation of 35 USC 132(b), the PTO’s authority to prescribe regulations to provide for RCEs can have unlimited substantive effect, as long as such regulations speak to office procedures.

    In real life, you defend the proposed ban on RCEs by saying it is merely a procedural requirement to make a petition. The fact that such petitions will not be granted is irrelevant in your view.

    For an amusing hypothetical scenario, suppose the following “rules” were proposed for RCE practice by the office:

    1) The RCE fee is $100,000.

    2) RCEs must be requested by the entire inventive entity in a personal appearance at PTO headquarters.

    3) Appointments for such appearances will be made by lottery, with one drawing to be held every 3 months. The fee of item #1 above suffices for one lottery ticket.

    4) In the personal appearance at PTO headquarters, applicants will be required to make an on-record affirmative case for patentability by oral argument while riding unicycles.

    Now, the interesting point is the following — the position you have staked out with respect to the PTO’s rulemaking authority inevitably leads to the conclusion that the amusing procedure of 1-4 above could properly be implemented by the PTO, absent an explicit Congressional ban.

    Very interesting things happen when one focuses myopically on procedure as opposed to substance.

  4. Claims and Con rules: Those who lurk these forums may be intereted to note that e6k has read and understands

    link to patentdocs.net

    particularly relating to the points on what 120 supposedly is and is intended to encompass. A pity that the judge didn’t go as in depth as this chap did.

    In any event, intention or no intention, can change what the actual words of what the (nearly brand new) 135 statute say. I understand your position on the matter better, but imo you would need congressional action to block the new rules rather than the pto needing congressional action to enact the new rules. Especially since this guy, just like the judge, seems to just gloss right over 135b as if it doesn’t exist because of what a says. Lets remember, what were RCE’s created for? To stop unnecessary appeals, presumably because the appeal system was being overworked. But all that 135 did was move the “appeal” to the examiner and now the general corps is getting overworked with “unnecessary” RCE’s.

    Good little declaration though.

    Yes I just attempted to hold up this train and derail it.

  5. SWLs/EULs are outside my area of expertise, as a mere European Patent Attorney, but very much inside my area of interest as a consumer. Every day millions of people are clicking “I accept” to ridiculously complex/onerous/hopelessly unenforceable terms on all sorts of trivial things. There’s a clear public interest in clarifying the law in these areas and conflicting rulings from courts all over the USA and ROW (you should see the case law from various members of the EU on these things…) are no help at all. If WIPO has any relevance at all – stop sniggering at the back there – it needs to push for a global diplomatic conference on digital/online IP. The OSS movement stand as hopelessly marginalised extremists right now, but they have a genuine constituency and also need to engage with this debate in a meaningful way.

    All of which looks like a sideshow given the credit crunch/energy crisis/global warming, but if the globalised capitalist machine is to serve a useful on-going purpose – rather than accelerating us all into oblivion – then it seriously needs to get its act together and IP issues are a central part of that. In this context, arguing these fine points of judicial precedent looks less like top-end professionalism and more like obsessive-compulsive denial syndrome.

    Thanks for listening. Here’s Neil Young with “Revolution Blues”…

  6. Re: Mooney’s point – My impression was this was the resale of unopened software, which means no aspect of the shrinkwrap license should apply.

  7. RE: ProCD v. Zeidenberg

    At the time this case an anomaly as many circuit courts had not upheld shrinkwrap licenses. Ihave no idea what subsequent case law has been like in this area.

    I forget whether ProCD involved a shrinkwrap or clickwrap, which I believe is an arguable distinction, seeing as how an affirmative claim of acceptance must be made.

  8. Way upthread Eurodisnae mentioned this case as one that would challenge shrinkwrap licenses. My understanding of the facts is that none of the relevant “licenses” are shrinkwrap licenses. The copies of the software that Vernor is selling are still in their original shrinkwrap, as far as I can tell.

  9. The opinion cites a number of cases at least some of which involve shrinkwrap. In particular, in the two Adobe cases cited, two different CA district courts reached opposite conclusions regarding the enforceability of no-resale provisions in a shrink wrap license. Nimmer suggests that the trend is towards making such provisions enforceable. A couple of states have adopted UCITA which makes such provisions enforceable.

    “Does this mean … the DVD producer cannot prevent me from publicly exhibiting movies that I own”

    I don’t think so.

    For copyright, first sale is statutory under 17 USC 109. The statute doesn’t reach all of the copyright holder’s rights. Selling, renting, lending are covered but you cannot rely on the statute to cover public performance even if you own the copy.

  10. “Does this mean that regardless of the warning to the contrary, the DVD producer cannot prevent me from publicly exhibiting movies that I own, although the screen tries to scare me into accepting that I am only ‘licensed’ to show it at home in a non-public way.”

    No, it does not. This is no different than the much older situation with audio recordings, which have traditionally been “sold” and not “licensed.” The public performance right for an artistic work is separate from the reproduction and distribution rights. The public performance right is not conveyed with the recording. In all likelihood, the maker of the recording doesn’t have the right to convey the public performance right, even if he wanted to.

  11. Re “As far as I know, this is NOT the first time shrink wrap licenses have faced a serious legal challenge.

    See, e.g., ProCD v. Zeidenberg, 86 F.2d 1447 (7th Cir. 1996)”

    I stand corrected. From a quick look, that case involved outright commercial abuse of the data supplied on a CD-ROM product, so make that: I can’t believe this is the first time this aspect of a shrink-wrap license has faced a serious legal challenge. Maybe it isn’t…

    And you can take my mint vinyl copy of On the Beach when you pry it from my cold dead hands…

  12. As far as I know, this is NOT the first time shrink wrap licenses have faced a serious legal challenge.

    See, e.g., ProCD v. Zeidenberg, 86 F.2d 1447 (7th Cir. 1996)

  13. It has been a few years since law school, and I do not often deal with copyright issues. Any comments from others is appreciated with respect to the following.

    My understanding is, in this case, the attempted license was in fact a sale, evidenced by (among other things) the retention of the copy and the payment of a single, up front fee. Thus, the copyright holder’s rights with respect to this copy were exhausted.

    Does this mean that regardless of the warning to the contrary, the DVD producer cannot prevent me from publicly exhibiting movies that I own, although the screen tries to scare me into accepting that I am only “licensed” to show it at home in a non-public way.

  14. “He is selling “that copy” as you say in violation of a contract limitation prohibiting resale.”

    You can’t sell something to someone and tell them that they can’t sell it to anyone else. That’s ridiculous.

    If you want to loan something out for a fee, of course, go right ahead. I think it’s pretty clear how to write “that” sort of contract. I think they call those contracts… “loans” or something. Does the word “loan” appear in the sale “agreement” to Mr. Vernon?

    Go, Vernon, go!!!

  15. “that doesn’t mean that I can legally copy the recording to CD and sell it on eBay”

    Mr. Vernor is not being accused of making new copies and selling them. He is selling “that copy” as you say in violation of a contract limitation prohibiting resale.

    The accusation about copying has to do with whether the copies made by Vernor’s customers while installing the software (those copies normally excused under 35 USC 117) are infringing.

  16. “[T]he owner of a particular copy or phonorecord lawfully made under this title … is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.”

    The key word here is “that”, as in “that copy.”

    If I buy the assets of a used vinyl store going out of business and the assets include a mint vinyl copy of Neil Young’s “On the Beach”, that doesn’t mean that I can legally copy the recording to CD and sell it on eBay (note for the fans: the vinyl mix is superior to the official remastered CD release).

    I think Vernor is in a bit of doo-doo here.

  17. Sean F.,

    I was merely addressing TMP’s comment, which I (perhaps incorrectly) assumed had a patent flavor as it seemed to dovetail with Dennis’ final paragraph.

    To a hammer, every problem is a nail.

    IIRC, CR’s FSD is split across the circuits & states when it comes to software–some say you can’t license the use of CRed software, only sell it.

  18. Anon E. Mouse: I’m not sure I follow your reasoning. Yes, it is true that you can’t sell what you don’t own. Seems like you’re claiming that applies to CTA – Vernon should have checked title before buying the software. But, doesn’t it also apply to AutoDesk?

    Autodesk says they sold CTA only the right to use the software, with the limitation that the right could not be transferred. However, with respect to copyright, under 17 U.S.C. 109, Autodesk had no power to impose that limitation. Under patent law (assuming Autodesk had a patent) the application of the first sale doctrine would similarly strip Autodesk of the power to impose any such limitation. Autodesk never had the right to limit resale in the first place.

  19. Is it no wonder that the open source movement seems to gaining so much currency? It is only a matter of time that open source software like Open Office will replace Microsoft Office and many other mainstream applications. Once the individual effort level becomes small, defections will become a landslide.

  20. More seriously, I can’t believe that it has taken this long for shrink-wrap licenses to face a serious legal challenge. Mr Vernor, I salute you.

  21. Perhaps my concern is more with the prevalance of such onerous contracts of adhesion. Licensing a patented invention under the terms you proposed somehow seems more fair, as it seems (perhaps incorrectly) that there will be some real negotation, not a just take or it leave it with no real alternative.

    At the same time, it seems unfair for a pair of sunglasses that I “purchased” to really be licensed under a design patent for my use for one summer season.

  22. If AutoDesk thinks that someone who buys 2nd hand software off eBay is a lost sale, they’re nuts.

    They’d make more money if they stopped being confrontational and simply charged for technical support and updates on 2nd hand copies.

  23. Not even remotely on-topic I know, but I just wanted to share with you the fact that I’m going to see Tom Waits, from row H of the stalls of the 3,000 seat Playhouse Theatre, Edinburgh, Scotland, on Monday, July 28, and you my friends, almost certainly aren’t!

    Oh, yes, copyrights, patents, jolly serious and important…

    TOM WAITS!!

  24. For the sake of factual accuracy, AutoDesk “sold” the software to CTA. At a later date CTA auctioned off its assets, and Mr. Vernor was the winning bidder for the software program discs. With copies in hand, Mr. Vernor placed the discs he purchased at the auction on sale at eBay. Apparently AutoDesk is not pleased with this state of affairs and has been engaged in a running battle with Mr. Vernor about his eBay activities.

    I have not read the District Court opinion in any significant detail, so I have no opinion as to its treatment of the copyright issues.

  25. The Mad Prosecutor wrote:

    “It is not inconceivable that future software licenses could require purchasing upgrades when new versions are released (by preventing continued usage of the old version), only allow usage for a fixed period of time, etc.”

    How is that any different than a fixed-term license to use any patented invention? e.g., you have the right to use my patented widget for one year. Granted, that’s a contractual restriction, but surely you agree that use outside the terms of the license (e.g., after one year) is patent infringement.

    In a more extreme case, why can’t the patentee grant a license to make, use, sell, and grant sublicenses for a patented machine (e.g. a hat felting machine) which expires on a certain date (e.g., May 3rd, 1867)? See Mitchell v. Hawley, 83 U.S. 544 (1873).

    As an aside, note that in Mitchell v. Hawley, conveyances mde by the licensee before the expiration of the license purporting to grant the right to use after the expiration of the license were not valid. No notice to the purchaser was required “as the law imposes the risk upon the purchaser, as against the real owner, whether the title of the seller is such that he can make a valid conveyance.”

    You can’t sell what you don’t own. Property law, not contract law. And more on point to Quanta v. LG.

  26. As a policy matter, at first impression, I prefer the property model to the contract model. It is ridiculous how much “power” is given to software companies. It is not inconceivable that future software licenses could require purchasing upgrades when new versions are released (by preventing continued usage of the old version), only allow usage for a fixed period of time, etc. Most of us have no idea what we are giving up (and may be required to give up in the future) when the “shrink wrap” is removed.

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