First Sale Doctrine vs. The DMCA

Last week a federal district judge in the 9th circuit (Seattle) handed down an important decision on shrink-wrap license agreements and whether software is sold or licensed. The case involved eBay merchant Timothy Vernor who repeatedly re-sold used versions of Autodesk software. Autodesk argued that it only licenses copies of its software to end-users, rather than actually selling them. This specific detail is very important in identifying how the First Sale Doctrine applies to software publishers and their products. Since the court ruled that Autodesk actually sold it software during the initial transaction, Vernor has the right to re-sell the product as opposed to Autodesk’s claims of copyright infringement under the DMCA.

Judge Richard A. Jones rejected Autodesk’s argument stating that Vernor has the right to sell used copies of Autodesk’s software. First Sale Doctrine, which ensures the right to re-sell used copies of copyrighted works as well as allowing libraries to exist, was held to apply to Autodesk software thus allowing Vernor to continue selling Autodesk’s products via eBay.

Jones’ ruling, which will certainly continue to be appealed, has significant implications for how software publishers sell and protect their product. Previous rulings regarding licensing vs. sale have been leveraged by software publishers to prevent reverse engineering of their product and prevent large scale resale via channels such as eBay. This ruling also has a direct impact on organizations such as GameFly as it seems to reinforce their ability to resell games, a multi-billion dollar operation.

This ruling further reinforces the necessity for software copy management, code security and supports the device locked model as being the only fair balance between software publisher rights and consumer rights. Device locking enables the software publisher to limit the number of times software can be installed, but does so by also allowing the customer to uninstall, and return seat. The threat created by allowing software to be legally resold is that publishers have no recourse to ensure the original owners removed the software.

If a specific piece of software is bought and resold 5 times, what is the likely hood that those 5 users completely removed the software? Since software is truly digital and although resale does not conclusively prove that copies have been created, it creates a huge hole by which illegal copies can rapidly be created with original product. Software publishers have relied on devices such as dongles and protection mechanisms such as media present to prevent this threat for years. Relying on the presence of a physical object is rapidly being phased out as it prevents online distribution and overly burdens the end customer.

The Uniloc method of physical device recognition coupled with self-service options allows users to securely uninstall a product and return its state back to that of the original sale. In the case of a subsequent product resale, the software would be limited to the number of devices it can be installed on, but previous installations could be securely removed. This mechanism allows the publisher to maintain the value for the software by limiting the number of digital copies, but also allows the customer to resell the product.