Appeals court holds that Autodesk software with EULA restrictions was not “sold” (so its resale on eBay was a copyright infringement)

Today the Ninth Circuit reversed a lower-court decision that could have been trouble for software companies: The appeals court held that Autodesk’s software license agreement imposed sufficient restrictions on customers’ use of their software copies, to avoid having the license be a “sale.” Vernor v. Autodesk, Inc., No. 09-35969 (9th Cir. Sept. 10, 2010) (vacating and remanding district court’s summary judgment).

Here’s what happened, according to the appeals court: An Autodesk customer had upgraded its installations of the software — then sold its copies of the earlier release, along with handwritten license codes, to one Gregory Vernor, who sold some of the copies on eBay at a fraction of the Autodesk price.

The district court had held that Autodesk was powerless to stop Vernor. Its rationale was that Autodesk had “sold” the earlier-release copies to their original customer — because it did not require customers to return their outdated copies after upgrading — and therefore (said the district court), under the first-sale doctrine in copyright law, the Autodesk customer was free to resell its outdated copies to Vernor, who in turn was free to resell them to others.

Nope, said the Ninth Circuit: The restrictions in the Autodesk EULA were sufficient to prevent the original customer’s transaction from being a “sale.” True, said the court, it was worthy of note that Autodesk did not require its customers to return copies, but that fact alone was not dispositive:

We hold today that a software user is a licensee rather than an owner of a copy where the copyright owner (1) specifies that the user is granted a license; (2) significantly restricts the user’s ability to transfer the software; and (3) imposes notable use restrictions. * * *

Autodesk retained title to the software and imposed significant transfer restrictions: it stated that the license is nontransferable, the software could not be transferred or leased without Autodesk’s written consent, and the software could not be transferred outside the Western Hemisphere.

The SLA also imposed use restrictions against the use of the software outside the Western Hemisphere and against modifying, translating, or reverse-engineering the software, removing any proprietary marks from the software or documentation, or defeating any copy protection device.

Furthermore, the SLA provided for termination of the license upon the licensee’s unauthorized copying or failure to comply with other license restrictions.

Thus, because Autodesk reserved title to Release 14 copies and imposed significant transfer and use restrictions, we conclude that its customers are licensees of their copies of Releas 14 rather than owners.

Autodesk, slip op. at 17-18 (extra paragraphing added).

I didn’t have the impression that a lot of software vendors were worried about this case. Still, it’s nice that the Ninth Circuit did the sensible thing — at least if you think vendors should have the right to con­trac­tu­ally prevent customers who get cut-rate upgrades from turning around and reselling their copies of the earlier version.

If the appellate court had gone the other way, I think we might well have to say goodbye to low-cost upgrades. At a minimum, vendors might start insisting that customers had to turn in their old copies in order to get an upgrade — which would be a pain for all concerned.