Re: Utterly imbecile pinky communist Ninth Circuit 'judges' (Vernor scandalous ruling)

[Alexander Terekhov]

http://law.journalfeeds.com/uncategorized/vernor-v-autodesk-and-the-end-of-the-first-sale-doctrine/20101102/

(By Conrad Coutinho on November 2nd, 2010) 

(Conrad Coutinho is a 2L at Columbia Law School)

"Vernor v. Autodesk and the End of the First Sale Doctrine

The 9th Circuit’s Vernor v. Autodesk test demolishes the first sale
doctrine by making its application contingent solely on the licensing
agreement written by the copyright holder. Though the Vernor case
centers on the distribution of software, there is no limiting principle
that prevents the Vernor test from being applied broadly to all
copyrighted works. Thus, the Vernor test, if upheld, it could mean the
end of all markets for used copyrighted works.

The First Sale Doctrine

The first sale doctrine was established by the Supreme Court in
Bobbs-Merrill Co. v. Straus where a book publisher printed the following
note on its copyright page: “The price of this book at retail is $1 net.
No dealer is licensed to sell it at a less [sic] price and a sale at a
less [sic] price will be treated as an infringement of the copyright.”
The Supreme Court held that, under existing copyright law, copyright
holders have the exclusive right of distribution over the “first sale”
of their works, but further distributions are outside of their control. 
The first sale doctrine was later codified in the Copyright Act.

As a legal principle, first sale strikes a balance between the rights of
copyright holder and the rights of the owner of a copy of said material.
The doctrine also embodies the general principle in property law that
unreasonable constraints on alienation (gifting, selling, etc.) are
void.

First sale also promotes the value of free access to information by
making out of print copyrighted works widely available and lowering
prices through the existence of secondary markets.

Many copyright owners justifiably dislike the first sale doctrine
because it prevents them from maintaining a monopoly on their
copyrighted works, and it enables secondary markets which tend to drive
down prices.

The Vernor Decision and the Sale/License Distinction

The essential facts of Vernor are straightforward. Vernor purchased used
software at a garage sale and attempted to sell it on eBay. The
copyright holder, Autodesk, filed several DMCA take-down notices with
eBay. After some back and forth, Vernor brought a declaratory action in
Federal District Court to establish that his resale was protected by
first sale doctrine.

The primary legal issue was whether the transfer of Autodesk’s software
to the customer who had sold it to Vernor constituted a sale or a
licensing. This is the legal hook: if all that was transferred was
license, the “first sale” has not occurred and the doctrine does not
apply.

The licensee/owner distinction was not clear law prior to Vernor. The
District Court in Vernor, determining that there were conflicting
precedents on point, applied the 9th Circuit case United States v. Wise
and found that the critical factor in the sale/license distinction was
whether the purchaser had a right to possess the copyrighted work
perpetually or whether he was required to return it to the copyright
holder. The court found the right to perpetual possession and thus held
that Vernor was covered by the first-sale doctrine.

On appeal, the 9th Circuit held that the license/ownership distinction
depended on only three factors: 
(1) whether the copyright owner specifies that a user is granted a
license (2) whether the copyright owner significantly restricts the
user’s ability to transfer the software (3) whether the copyright owner
imposes notable use restrictions. Applying this test to Autodesk, the
court found that the transfer in question was a mere transfer of license
and, thus, that Vernor was not protected by the first sale doctrine.

Criticism of the Vernor Test

The problem with the Vernor test is clear: a copyright holder can
completely avoid the first sale doctrine by using the term “license”
coupled with the “significant” transfer and use restrictions. Thus,
under Vernor the application of first sale doctrine depends solely on
the discretion of the copyright holder and what “magic words” he chooses
to place in the license agreement.

The Vernor test completely undermines the first sale doctrine and all of
its underlying policies. First sale is meant to balance between the
rights of copyright owners and the rights of owners of copies; Vernor
undermines that balance by making its applicability contingent on a
copyright holder’s preference. Under the Vernor test, if Bobbs-Merrill
Co. had written its note slightly differently, referring to the
purchaser as a licensee, and imposing more use and transfer
restrictions, the case would have come out the other way—an absolutely
preposterous result.

And finally, Vernor effectively negates the principle against
unreasonable restrictions on alienation as they apply to copyrightable
works. A copyright holder only has to write the “magic words” in a
licensing agreement to prevent resale. Thus, there is little standing in
the way of copyright holders from unilaterally destroying secondary
markets—the used software, book, DVD, CD and videogame market—and
maintaining a monopoly on its work.

Currently, the plaintiffs in Vernor are petitioning for an en banc
rehearing in the 9th Circuit. If denied, they will likely take it to the
Supreme Court. Vernor as it stands today has the potential to
fundamentally change not only the legal relevance of the first sale
doctrine, but the entire economic, social and legal landscape for
copyrightable works.

ShareThis"

Someone called Dan commented:

"You've done a good job pointing out how the Vernor test undermines the
policy concerns behind the first sale doctrine. In addition to that
problem with the test, I see at least three other specific problems with
it.

First, it is logically flawed because the basic premise of the test is
that the terms in the license agreement are valid and binding on the
user. However, this premise itself depends entirely on the very question
the court is attempting to answer: is the user an "owner of a copy"? If
we assume the user *is* an owner of a copy, then terms in the license
agreement that purport to restrict a copy-owner's rights are simply
invalid. Yet the test plainly assumes that the terms are valid,
meaningful, and therefore useful for determining copy ownership. This is
known as "begging the question" and is a well-known logical fallacy.

Second, the test fails to recognize that an owner of a copy might also
happen to be a licensee. This is quite obvious, but the test doesn't
provide for this possibility. Under the test, a user is either an owner
or a licensee -- never both.

Third, the test conflates the act of licensing intangible rights with
transfer of ownership of personal property. It treats them as one and
the same, but in reality most software transactions involve two parts: a
transfer of possession (and possibly ownership!) of personal property,
*and* a grant of a license. To determine the ownership status of a
*copy*, which is by definition a piece of personal property, the court
must examine the former part. The test must address whether or not the
transaction that resulted in the transfer of possession was a sale or
other transfer of ownership. The terms of the license agreement are
completely irrelevant to this determination, because they are (usually)
not part of the transaction in which the user obtained possession.
Consider software sold at retail: the retail sale is a transaction
entirely separate from the grant of license; the copyright owner isn't
even a party to the retail transaction so it seems absurd to assert that
their license agreement controls this transaction."

regards,
alexander.

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