A friend of mine recently asked me about the First Sale Doctrine of Copyright Law, and more specifically about Vernor v. Autodesk. Being a good friend, I decided to exploit his question by reviewing the doctrine and its related cases in this post.
Of course, this should not be construed as legal advice, but rather as a historical perspective and analysis of the doctrine. Particular inquiries and application of the doctrine depend on specific facts, and an attorney should be consulted.
That said, our story starts in 1908 when books were selling for less than a dollar, and the Supreme Court decided Bobbs-Merril Co. v. Straus, 210 U.S. 339 (1908). Bobbs-Merril Co. owned the copyright of The Castaway and on the cover of the book, the company posted the following notice: “[t]he price of this book at retail is $1 net. No dealer is licensed to sell it at a reduced price, and a sale at a less price will be treated as an infringement of the copyright.” Nevertheless, the defendant, Straus, sold the book at its store, Macy & Company, for less than a dollar ($0.89), without Bobbs-Merril’s permission. The dispute was not whether a purchaser could resell a book. Rather it focused on the effect of the notice, written inside the book by Bobbs-Merril, that placed restrictions on the sale. At the time, there was no dispute that a purchaser could resell a book, but rather in this case what was the effect of the notice placing restrictions on sale that was placed inside the book by Bobbs-Merril.
In its analysis, the Court affirmed hat copyright law arises from legislation passed under Article 1, Section 8 of the U.S. Constitution. The Court continues,
[t]he copyright statutes ought to be reasonably construed, with a view to effecting the purposes intended by Congress. They ought not to be unduly extended by judicial construction to include privileges not intended to be conferred, nor so narrowly construed as to deprive those entitled to their benefit of the rights Congress intended to grant.
Id. After that significant discussion of statutory construction and judicial restraint, the Court held that the then existing copyright statute could not restrict remote and downstream purchasers in resale of the book where no privity of contract existed. Ultimately, once Bobbs-Merril sold the book to wholesale intermediaries, the one dollar notice had no effect on subsequent sales.
Skip forward to 1913, when the Supreme Court decided a similar case, Bauer & Cie v. O'Donnell, 229 U.S. 1 (1913). This was a similar case to Bobbs-Merril Co., however, it involved two factual differences: 1) it involved a patent; 2) the patent was “licensed,” not sold like the copyrighted book. The specific notice stated:
[t]his size package of Sanatogen is licensed by us for sale and use at a price not less than one dollar ($1). Any sale in violation of this condition, or use when so sold, will constitute an infringement of our patent No. 601,995. . .
Again the court decided in favor of the reseller and dismissed the patent owner’s argument that each purchase is an acceptance of the notice provisions cited above.
Now let’s fast-forward to 1976, when the latest version of Copyright Act was passed. Section 106 of the Copyright Act gives the author the exclusive right to distribute copies of the works. However, the Act also provides for exceptions to this right, such as the first sale doctrine.
In 17 U.S.C. section 109 is Congress’s most recent codification of the first sale doctrine defense or exception, which originated in Bobbs-Merril Co. The statute begins with the general rule in subsection a):
[n]otwithstanding the provisions of section 106 (3), the owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.
Again, this statute allows for the resale of specific copyrighted material without the owners consent. However, it is important to note that the subsequent purchaser cannot copy the material to resell, but only distribute the copy that originated with the copyright holder.
Finally, we must examine the declaratory judgment action of Timothy Vernor. Autodesk is the creator and registered copyright holder of certain software. Before a user can install the software, the user must agree to a software licensing agreement. If the user refuses, the product can be returned for a refund. If the user does agree, there are several important stipulations, e.g., Autodesk retains ownership of the software and the user is merely a licensee, prohibits transfers without consent, restricts use, and is allowed to terminate use if terms are violated.
Vernor, an experienced vendor on EBay, sold several copies of Autodesk’s software with the activation codes. None of the copies sold were purchased directly from Autodesk, and Vernor alleged that he never agreed to any of the terms of the SLA, i.e., there was no privity of contract. During each of Vernor’s sales, Autodesk objected to EBay and Vernor’s alleged infringement, As a result, Autodesk’s claims hampered Vernor’s business, e.g., the allegations led to suspension of his EBay account. Accordingly, Vernor commenced an action for declaratory judgment on the issue of whether the First Sale Doctrine and the essential step defense allowed him to conduct his business of reselling the software.
The Court framed the issue in terms of ownership. The 9th Circuit stated that the first sale doctrine and the essential step doctrine does not apply to mere licensees and is an exclusive defense of owners of copyrighted works. In determining ownership, the 9th Circuit used the following factors from an earlier 9th Circuit case: 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. The 9th Circuit held that all of these factors weighed in favor of Autodesk, whom it held to be the owner of the software. As a result, Vernor was merely a licensee and could not avail himself to the first sale doctrine.
