Adobe v. Christenson: Software distribution agreements need license language to avoid first-sale doctrine

If you negotiate software-distribution or -reseller agreements for “the channel,” you’ll want to know about the Ninth Circuit decision in Adobe Sys., Inc. v. Christenson, No. 12‑17371 (9th Cir. Dec. 30, 2015). In that case:

• One Joshua Christenson owned a now-defunct company that bought up unsold copies of Adobe Photoshop software from third-party distributors and offered the copies for sale to the public via a Web site.

• Adobe sued Christenson and his company, claiming that his sales infringed Adobe’s exclusive right, under 17 U.S.C. § 106(3), to distribute copies of its software.

• “In the face of an otherwise slam dunk copyright violation,” see Adobe, slip op. at 10, Christenson pled a first-sale defense, namely that he had lawfully acquired genuine copies of Adobe’s software from Adobe distributors, and therefore he had the right to resell those copies under 17 U.S.C § 109.

The first-sale doctrine is long-established; in an earlier case, the Supreme Court explained that “once the copyright owner places a copyrighted item in the stream of commerce by selling it, he has exhausted his exclusive statutory right to control its distribution.” Adobe, slip op. at 10 (citation and internal quotation marks omitted).

Here, said the Ninth Circuit, “Christenson offered invoices to document his purchases of legitimate Adobe software from various suppliers. Nothing on those invoices suggests that he was other than a legitimate purchaser of the software. … Christenson discharged his burden with respect to the first sale defense.” Id. at 16.

• Adobe, of course, objected to Christenson’s first-sale defense: It countered that it licensed its software, as opposed to selling copies of it, and therefore the first-sale defense did not apply.

As the Ninth Circuit explained, “[a]s early as 1908, the Supreme Court recognized that a sale creates a defense to a copyright claim while a license does not.” Id. (citation omitted).

The appeals court noted the prevalence of licenses, as opposed to sales, in software distribution: “In practice, because the first sale doctrine does not apply to a licensee, licensing arrangements enable software companies to restrict initial licensees of software from selling their licensed copies of the software to downstream users.” Id. at 13 (internal quotation marks and citations omitted).

• The problem for Adobe was that it did not show that it licensed its software as opposed to selling it.

The Ninth Circuit said that “[i]n an ordinary case, Adobe would [have] produce[d] specific license agreements and we would … determine … whether downstream customers were bound by a restrictive license agreement such that they [were] not entitled to the first sale doctrine.” Id. at 17 (citation and internal quotation marks omitted).

It’s not that Adobe didn’t try to introduce evidence of its license-agreement arrangements with its distributors: The district court excluded Adobe’s evidence on that point as a sanction for discovery violations. See id. at 17-18.

The appeals court affirmed summary judgment dismissing Adobe’s copyright claim against Christenson. (It also affirmed dismissal of a trademark-infringement claim on grounds of nominative fair use.)

Drafting lesson: This is a narrow, substantive lesson for those who draft sales-channel distribution agreements for software companies: Be sure to include appropriate license language (which I won’t go into here).