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Are Consumers of Software the Owners or Licensees? Courts struggle with how to classify intellectual property.

October 20, 2009 by · Comments Off
Filed under: Business, Copyright Articles, Inventor & Entrepreneur Updates 

A recent Washington state case, Vernor v. Autodesk, Inc., has addressed the question of whether software is “licensed” or “sold”.  The case arose when Vernor, whose living is made reselling products on eBay, began to sell purchased copies of AutoCAD, an expensive technical drawing software.  Autodesk, the creator of the software, had Vernor’s eBay account shut down under claims of copyright infringement.

The First Sale Doctrine

Under copyright law there is something called the first sale doctrine, which allows people to sell, loan, or rent their copies of intellectual property that they purchased because they have become owners of that specific copy of the intellectual property.  Common examples of establishments that make use of this doctrine are video rental stores, used book stores, and libraries.

Circumventing the First Sale Doctrine

Autodesk claimed that consumers of its product become licensees, not owners.  If this was the case then the purchaser’s right to resell the product would be governed by the license/contract made between Autodesk and the purchaser, not by copyright law.

The judge in this case determined that the circumstances surrounding the purchase showed that Autodesk sells its product, it doesn’t license it.  The decision is expected to be appealed to the 9th Circuit, where there have been recent decisions favoring the idea of software licensing over that of purchasing.

Ownership in the Age of Intellectual Property

Intellectual property is by no means a new concept.  However, in an age where intellectual property is playing a greater and greater role in our lives we may have to rethink our ideas of ownership.  At the same time, it is important that copyright law balance the interests of the public in using the property with the rights of the creators of intellectual property.

On one side of the argument are advocates stating it is consumers’ right to resell software that they legally own.  On the other side are the advocates for the idea that the government should enforce contracts that people willingly agreed to (even if they didn’t necessarily read all the fine print).

This debate challenges traditional notions of property ownership.  When a consumer buys a product the customary assumption is the purchaser can use the product as she sees fit.  Of course, we know this isn’t absolutely true, like when a person buys a video and makes bootleg copies to sell on the street.  But what if the person doesn’t infringe on the copyright holder’s exclusive right to copying, and instead only wishes to sell the copy she originally purchased?  It would seem fair that they would have the right to do so, since they are not infringing the owner’s rights under copyright law.

From the copyright holders’ perspective, they have every right to restrict how purchasers of their product are allowed to use the product.  US law allows parties to create a contract that governs the sale (or licensing) of property.  This allows people to conduct their business affairs without interference from the government, a cornerstone of capitalism.  Taking advantage of contract law, intellectual property owners are putting terms with the sale or licensing of their intellectual property stating that the purchasers cannot resell the product.  The theory goes that if consumers don’t like the terms of the contract they can choose not to purchase the item.  From an economic perspective this makes sense as the contract terms will be reflected in the price (as a product you can resell will be more valuable than a product you cannot resell).  The fact that almost all consumers do not read these contracts only adds to the uncertainty in this area of the law.

Intellectual property owners base their argument on the right to contract.  Consumer advocates, alternatively, say this business model is too much of a distortion of the notion of ownership and that intellectual property owners are taking advantage of unsophisticated purchasers.  This latest case was a victory for the consumer advocates, but only time will tell which argument the courts eventually side with.