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Court Ruling Recasts Notion of Ownership of Books, Movies, Music, Software in Digital Age

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"YourSoft?" Maybe Not, If It Comes With A License

SAN FRANCISCO, September 10, 2010 -- A federal appeals court ruling on Friday could eventually end the huge secondary market that has bloomed online in used books, software, and other forms of media both physical and digital when it said a software company can use its licenses to control the re-sale of its products.

The panel of three judges for the 9th U.S. Circuit Court of Appeals unanimously decided that Autodesk's software license trumped the "first sale" doctrine encapsulated in federal law. This appears to give companies more leeway to license more of their products rather than simply selling them and giving up control.

“Autodesk retained title to the software and imposed significant transfer restrictions,” wrote the 9th Circuit's Judge Consuelo M. Callahan . “It stated that the license is nontransferable.”

A 1908 Supreme Court ruling blocked that kind of behavior when it ruled against a copyright owner who tried to include a license in a book that stipulated that book-sellers had to sell the book for a dollar -- anything under that amount would amount to copyright infringement. Congress codified the ruling as the "first sale doctrine" the following year.

"The first sale doctrine does not apply to a person who possesses a copy of the copyrighted work without owning it, such as a licensee," wrote Callahan, referring to previous case law and existing statutes.

The Friday decision was initiated by a man who runs a business on eBay. He had bought several second-hand copies of Autodesk software with the activation codes written on the boxes. When he resold the items on eBay, Autodesk repeatedly sent take-down notices, to which Timothy Vernor, the re-seller, sent counter-notices citing his right to sell the software under the first-sale doctrine.

Autodesk did not respond to these counter-notices. But after it sent out a fourth take-down notice, eBay suspended Vernor's account. Vernor sent another counter-notice to which Autodesk did not respond. eBay then re-instated Vernor's account. Vernor  followed up with a lawsuit against Autodesk looking for a declaratory judgment that his sales are legal, and that they do not violate Autodesk's copyright because he's protected by the First Sale Doctrine.

The court addressed the question of whether someone who buys a licensed product from the original licensee without signing the license themselves can be held to the terms of the original license. In Timothy S. Vernon v. Autodesk, Inc., the court found that they can.

Both eBay and the American Library Association filed briefs in the case arguing against Autodesk.

The Software & Information Industry Association an the Motion Picture Association of America filed arguments in favor of Autodesk.

Judicial precedents determined Friday's outcome, answered Judge Callahan in his opinion. If Congress decides that the First Sale doctrine needs to be changed, it's up to the legislators, she said.

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Sarah Lai Stirland was Contributing Editor for until April 2011. She has covered business, finance and legal affairs, telecommunications and tech policy for 15 years from New York, Washington and San Francisco. She has written for Red Herring, National Journal's Technology Daily, and She's a native of London and Hong Kong, and is currently based in San Francisco.

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