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No. 09-15932

In the

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

MDY INDUSTRIES LLC AND MICHAEL DONNELLY,

Plaintiffs-Appellants,

v.

BLIZZARD ENTERTAINMENT, INC. AND VIVENDI GAMES,

Defendants-Appellees,

On Appeal from the United States District Court for the

District of Arizona

No. 06 CIV. 2555

Honorable Judge David G. Campbell

INTEREST OF AMICUS CURIAE

Amicus Public Knowledge is a non-profit public interest
501(c)(3) corporation, working to defend citizens’ rights in the
emerging digital culture. Its primary mission is to promote innovation,
protect the legal rights of all users of copyrighted works, and ensure
that any copyright legislation remains balanced and does not slow
technology innovation, unduly burden free speech, shrink the public
domain, or prevent fair use.

The decision below affects not just two companies and their customers,
but purchasers and users of all software. If successful, Blizzard’s
attempt to use a boilerplate “license” to sidestep
Congress’s carefully balanced consumer protections laid out in
17U.S.C. §117 will change a legal framework which protects lawful
owners of copyrighted software into one which lets software developers
subject users to copyright infringement penalties long after a lawful
purchase has occurred. Because copyright infringement carries severe
penalties, including minimum statutory damages of $750.
See 17U.S.C. §504(c)(1). Such a legal regime will do
tremendous harm to the innovation, creativity, and user rights that
Public Knowledge seeks to protect.

Amicus files this brief with the consent of all parties under
Federal Rule of Appellate Procedure 29(a).

INTRODUCTION

Blizzard, the maker of the popular fantasy computer game “World of
Warcraft” (“WoW”), espouses a legal theory that would
make potential copyright infringers of virtually every software user.
Blizzard’s claims of infringement hinge upon an accident of
computing technology—that using a computer program necessarily
requires the duplication of its contents within a computer’s
short-term random-access memory (RAM). This is the sole foundation for
Blizzard’s secondary copyright claims against Defendant
MDY—the users of MDY’s Glider software make no derivative
works, public performances, public displays, or distributions of
Blizzard’s WoW software, and the only reproduction made is the same
one necessary for any WoW user to play the game. Fortunately for software
users, 17U.S.C. §117 removes this automatic and necessary
duplication from the scope of the copyright holder’s exclusive
rights, and defeats Blizzard’s claims.

Blizzard, however, disregards §117, insisting that none of the
millions of purchasers of WoW software are owners of the DVDs on which
that software is delivered. According to Blizzard, the millions of
purchasers are mere lessees, and the “End User License
Agreement” (“EULA”) that accompanies the DVDs is the
only thing shielding the purchasers from copyright liability each time
they launch the WoW software. In doing so, Blizzard is attempting to
“license” rights it does not have, and is thus demanding
copyright relief for activities that can, at most, only be breaches of
contract.

The central question posed in this appeal is one that is of critical
importance not only to MDY and to purchasers of WoW software, but also to
consumers who purchase all manner of copyrighted works. Blizzard’s
effort, through the use of boilerplate in a license agreement, to trump
§117, would upset the careful statutory balance that Congress struck
between the exclusive rights of copyright owners, on the one hand, and
the statutory privileges accorded owners of the tangible property, on the
other. Blizzard attempts to sidestep §117’s safeguard against
runaway copyright liability by artfully manipulating the wording of its
EULA, which claims that the copies of the game that users purchase on
DVD-ROM or store on their personal computers’ hard drives do not
actually belong to them. Because §117 states that its protection
applies to “the owner of a copy of a computer program,”
Blizzard contends that none of its millions of customers own their copies
of WoW, according to the authority of the EULA Blizzard attaches to the
game.

For purposes of §117, the question reduces to a simple one: who owns
the DVDs on which the WoW software is delivered? The district court erred
in allowing Blizzard’s license boilerplate to control that
question. Instead, Ninth Circuit precedent requires that a court to look
to the “economic realities”^[1] of the transaction and “the general tenor
of the entire agreement”^[2] and to “analyze the arrangement at
issue and decide whether it should be considered a first
sale[,]”^[3]
something the lower court here failed to do.

ARGUMENT

I. Copyright Law Grants Important Rights to Owners of Copies

The Copyright Act draws a clear line of demarcation between ownership of
a copyright and ownership of a material object (“copy or
phonorecord” in the parlance of the Copyright Act) in which a
copyrighted work is embodied. 17U.S.C. §202. Although the Act grants
broad exclusive rights to the copyright owner, it also constrains the
scope of those rights in order to preserve important rights for those who
own copies of copyrighted works, limiting the restrictions that copyright
holders might otherwise place upon ordinary use and commerce. These
limits on a copyright owner’s exclusive rights reflect
long-established common law principles, such as the disfavor shown to
restraints on alienation for personal property and equitable servitudes
imposed on chattel.^[4]

For instance, the first sale doctrine provides that the owner of a
particular copy of a work may distribute, sell, or otherwise dispose of a
work without the authorization of the copyright holder. 17U.S.C.
§109. This separation of copyright ownership from copy ownership
allows the functioning of libraries, used book and record stores, video
rental establishments, and the simple act of loaning a book to a
friend.^[5]

Similarly, the right to copy software into RAM as an essential step in
using the software is provided by §117(a), which limits the scope of
a copyright owner’s exclusive right to reproduce and adapt
copyrighted software. Specifically, it states:

Notwithstanding the provisions of section 106, it is not an infringement
for the owner of a copy of a computer program to make or authorize the
making of another copy or adaptation of that computer program provided:

(1) that such a new copy or adaptation is created as an essential step
in the utilization of the computer program in conjunction with a machine
and that it is used in no other manner ...

17 U.S.C. §117(a).^[6]

Section 117’s limits on the scope of exclusive rights are critical
to the use of any software, due to the nature of computers and computer
programs. In order for any program to be used at all, copies of it (or
more precisely, portions of it) must be made within the temporary storage
of a computer’s RAM so that it may be readily
accessed.^[7]
Congress enacted §117 in order to dispel any suggestion that the
mere use of software could be viewed as copyright infringement, and
thereby prevent copyright owners from using copyright law to impose
arbitrary post-sale use restrictions on software:

Obviously, creators, lessors, licensors, and vendors of copies of
programs intend that they be used by their customers, so that rightful
users would but rarely need a legal shield against potential copyright
problems. It is easy to imagine, however, a situation in which the
copyright owner might desire, for good reason or none at all, to coerce
a lawful owner or possessor of a copy to stop using a particular
program. One who rightfully possesses a copy of a program, therefore,
should be provided with a legal right to copy it to that extent which
will permit its use by that possessor.

Final Report, Commission on New Technological Uses of
Copyrighted Works (1978) at 13, available at http://digital-law-online.info/CONTU/PDF/index.html.
^[8] In other words,
the rightful owner of a copy of a computer program needs no
“license” in order to make copies of the software on a
computer insofar as necessary to use the software.

II. WoW Players Are the Owners of Their Copies of the Software

Blizzard attempts to subvert the Congressional objectives in enacting
§117 through bald assertions that, contrary to the realities of the
transactions, no purchasers of WoW ever own the DVD on which the game
software is delivered. Instead, in its view, every DVD sold eternally
remains the property of Blizzard. According to this theory, a copyright
holder need merely include a document with the work stating that the
recipient and user of the work is not in fact its owner and that any uses
of the work—even those uses not limited by the exclusive rights of
a copyright owner—are only permitted by the grace of the copyright
holder. This recitation would then subject users to any number of
conditions whose violation would immediately result in copyright
infringement, with its attendant statutory damages, injunctive relief,
and potential criminal penalties.

Such an interpretation reads §117 out of the statute, contrary to
legislative intent and applicable case law. Instead of allowing
self-serving boilerplate to trump §117,^[9] the proper inquiry looks to the totality
of the circumstances to decide whether the purchaser enjoys sufficient
incidents of ownership to qualify as an owner of a copy. Furthermore, in
the words of the leading treatise on copyright law:

For these purposes, whether the software vendor calls its subject
contract a ‘license’ or a ‘bill of sale’ is
immaterial. What matters is whether the erstwhile ‘licensee’
owns a copy of the computer program. If so, then Section 117
comes into play.

2 Nimmer on Copyright §8.08[B][1][c].

A. Courts Agree that Ownership is Determined by
Examining the Economic Realities, not Simply the “License”
Label

This Court, among others, has long held that the ownership of a copy does
not depend purely upon the say-so of a purported license agreement.
See, e.g., United States v. Wise, 550 F.2d 1180, 1190-92 (9th
Cir. 1977); United States v. Atherton, 561 F.2d 747, 750 (9th
Cir. 1977). Accord Krause, 402 F.3d at 124; 2 Nimmer
§8.12[B][1][d][i]. Instead, courts examine the “economic
realities” of the transaction, paying particular attention to
whether the purchaser obtains perpetual possession of the physical copy
in question.

i. Courts look to perpetual possession as the
primary indicator of ownership.

In United States v. Wise, movie studios transferred copies of
films under a variety of different agreements to users, with varying
restrictions on how the films could be subsequently distributed and used.
Wise, 550 F.2d at 1190. In analyzing whether these transferees
could be characterized as “owners,” this Court carefully
analyzed the terms of the contracts, regardless of how studiously the
agreements avoided the use of the word “sale” or
characterized themselves as “license” agreements, paying
particular attention to whether the agreement required return of the
copy—the hallmark of a rental or lease.

Most notably, in a contract between Warner Brothers and actress Vanessa
Redgrave, the studio gave the actress a copy of the movie
Camelot in exchange for the cost of the print and an agreement
to use the print solely for personal use. Wise, 550 F.2d at
1192. The copy was to be “retained in [Redgrave’s] possession
at all times.” Id. Further terms purported to prevent Ms.
Redgrave from redistributing the print, reproducing it, or exhibiting it
publicly. Id. Despite these restrictions, this Court
ruled the transaction a sale, not a “license” or lease.
Id. By contrast, another agreement between Paramount
Pictures and Peter Bogdonavich that this Court found not to be a sale
contained provisions requiring the print of the movie be returned upon
the request of the studio. Id.

Finally, an agreement between ABC and Screen Gems that granted ABC the
right to televise “Funny Girl” had a clause that required ABC
to offer the prints back to Screen Gems or destroy them after the film
aired. Id. at 1191-92. This Court expressed a willingness to
view such an arrangement as a “sale-and-buy-back” but held
that a sale could not be ruled out for a simpler reason: another clause
gave ABC the right to elect to retain a copy. Id. at 1191. In
each transaction the critical factor was not whether the studio used
language expressly reserving title but whether the possessor was entitled
to perpetual possession of the copy, and if so, this Court consistently
found a sale.

In a leading case on §117, Krause v. Titleserv, the Second
Circuit looked to Wise, concluding:

[C]ourts should inquire into whether the [user] exercises sufficient
incidents of ownership over a copy of the program to be sensibly
considered the owner of the copy for purposes of §117(a). The
presence of absence of formal title may of course be a factor in this
inquiry, but the absence of formal title may be outweighed by evidence
that the possessor of the copy enjoys sufficiently broad rights over it
to be sensibly considered its owner.

Krause, 402 F.3d at 124 (emphasis added). In its ruling, the
court refused to “contradict the Copyright Act’s
‘express objective of creating national, uniform copyright law. . .
‘“ by looking to varying state laws to determine formal
title. Id. at 123 (quoting Comm. for Creative
Non-Violence v. Reid, 490 U.S. 730 (1989)). Instead, the court
emphasized the importance of perpetual possession: “it seems
anomalous for a user whose degree of ownership in a copy is so complete
that he may lawfully use and keep it forever, or if so disposed, throw it
in the trash. . . “ to not be considered its owner.
Id.

Numerous district courts have also followed Wise in assessing
ownership determinations under the first sale doctrine. In Softman
Prods Co. v. Adobe Sys., Inc., the court permitted
distribution of certain computer programs despite a contrary
“license agreement,” because it found the copies had been the
subject of a first sale. Softman, 171 F. Supp. 2d 1075 (C.D.
Cal. 2001). Adobe, which held the copyrights to several software works,
distributed them in a bundle with an agreement that purported to prohibit
the recipient from unbundling them. Id. at 1080. In a
transparent effort to thwart the first sale doctrine, Adobe argued that
it did “not sell or authorize any sale of its software,”
calling the transfer of the copies a mere “license” instead
and arguing that unbundling and redistributing the software constituted
copyright infringement. Id. at 1083. The court rejected
Adobe’s argument, writing that

[Adobe’s] assertion is not accurate because copyright law in fact
provides certain rights to owners of a particular copy. This grant of
rights is independent from any purported grant of rights from Adobe.

Id.

In making this determination, the court followed this Circuit’s
test in Wise and DAK, observing that “[i]t is
well-settled that in determining whether a transaction is a sale, a
lease, or a license, courts must look to the economic realities of the
exchange.” Id. at 1084 (citing DAK, 66
F.3d 1091; Wise 550 F.2d 1180). Applying this test and examining
“the circumstances surrounding the transaction,” the court
found that they “strongly suggest[] that the transaction is in fact
a sale rather than a license.” Id. at 1085. The
determinative facts were again integrally tied to the user’s right
to perpetual possession, as the court noted that “the license runs
for an indefinite term without provisions for renewal,” that Adobe
had received “full value for the product,” and that Adobe had
passed on to the recipients all “risk that the product may be lost
or damaged.” Id. The court concluded, “a
single payment for a perpetual transfer of possession is, in reality, a
sale of personal property and therefore transfers ownership of that
property, the copy of the software.” Id. at 1086.

Two more recent cases have followed the Wise precedent and have
rightly emphasized the critical role of perpetual possession. In UMG
Recordings, Inc. v. Augusto, the court addressed the
defendant’s ownership of promotional music CDs that he sold on
eBay. The court recognized the primacy of perpetual possession when it
wrote,

The right to perpetual possession is a critical incident of ownership...
Accordingly, the distributor of a copyrighted product’s intent to
regain possession is strong evidence that the product was licensed, not
sold, to the recipient. The absence of this intent is strong evidence
that the product was sold.

Augusto, 558 F. Supp. 2d 1055, 1060 (C.D. Cal. 2008) (citation
and footnote omitted).

The Augusto court recognized that perpetual possession was
critical to this Court’s holdings in Wise and discussed
how that factor featured so prominently in distinguishing the various
film agreements. Id. at 1061. Then, in applying this key factor
to its facts, the Augusto court wrote,

Here, UMG gives the Promo CDs to music industry insiders, never to be
returned. The recipients are free to keep the Promo CDs forever. Nothing
on the packaging of the Promo CDs or in the licensing label requires
that the recipient return the Promo CDs to UMG. There are no
consequences for the recipient should she lose or destroy the Promo CDs
-- which UMG allegedly considers its property. UMG does not request that
any recipients return the Promo CDs and does not otherwise make any
affirmative effort to recover possession of the Promo CDs. Further, it
appears that UMG could not take these actions; UMG does not keep
permanent records identifying who received which Promo CDs. Accordingly,
the music industry insiders’ ability to indefinitely possess the
Promo CDs is a strong incident of ownership through a gift or sale.

Id. (citations and footnote omitted).

The Augusto court also noted that UMG’s argument that it
retained title to the copies was a transparent effort to restrain trade
to prevent the transfer of its music. However, the court explained that,
“This purpose was rejected 100 years ago by the Supreme Court.
See Bobbs-Merrill Co. v. Straus, 210 U.S. 339 (1908) (rejecting
a book publisher’s attempt to restrict resale of a book through a
label that prohibited sales for less than one dollar).”
Id.

In perhaps the most careful and thoughtful opinion to apply the
Wise precedent, the court in Vernor v. Autodesk, Inc.
addressed whether Vernor was an owner of copies of Autodesk software he
acquired from third parties and sought to resell on eBay. 555 F. Supp. 2d
1164 (W.D. Wash. 2008). After a thorough review of the facts, rationale,
and holdings in Wise, the Vernor court wrote that
“the critical factor is whether the transferee kept the copy
acquired from the copyright holder. When the film studios required that
prints be returned; the court found no sale. When the studios did not
require the transferee to return the prints, the court found a
sale.” Id. at 1170.^[10] The Vernor court thus added to the chorus
of courts understanding that the Wise decision rightly
emphasized perpetual possession as “the critical factor” in
determining copy ownership.

ii. Sufficient incidents of ownership may also
be shown by other factors typically associated with sales.

While the critical and often dispositive factor is a transferee’s
right to perpetual possession, additional factors may also be useful
indicators for the court, such as whether the purchaser obtains a single
copy for a single price, enjoys the right to destroy or discard, and
stores the software on her own computer hardware.

“If a transaction involves a single payment giving the buyer an
unlimited period in which it has a right to possession, the transaction
is a sale.” Softman, 171 F.Supp.2d at 1086. Thus,
where the purchaser obtains a single copy of the software for a single
price, which the purchaser pays at the time of the transaction, and which
constitutes the entire payment for the “license;” and the
license runs for an indefinite term without provisions for renewal, the
transaction is a sale and the purchaser an owner. Softman, 171
F.Supp. 2d at 1085; DSC, 160 F.3d at 1362 (“the fact
that…the possessor’s rights were obtained through a single
payment, is certainly relevant to whether the possessor is an
owner”); Telecomm Tech. Svcs., Inc. v. Siemens Rolm Comms.,
Inc., 66 F.Supp.2d 1306, 1325 (N.D. Ga. 1997).

The right to dispose of a copy (as opposed to an obligation to return)
implies that the parties intended the buyer to have permanent possession
of the copy. Krause, 402 F.3d at 124. If so, that fact would
tend to favor ownership. See also Unicom, 2004 WL 1839119 at *9
(holding that a requirement that software be returned at conclusion of
license term militated against finding of ownership).

Krause also relies upon the fact that the software at issue was
stored on the buyer’s hardware. 402 F.3d at 124. See also
Stuart Weitzman, LLC v. MicroComputer Resources, Inc., 510 F.Supp.2d
1098, 1108 (S.D. Fla. 2007), vacated on other grounds, 542 F.3d
859 (11th Cir. 2008). Because the “ownership of a copy”
inquiry is always directed at who owns the physical media in which the
software is embodies, this factor reflects a practical consideration that
if the software is delivered or stored on computer hardware owned by the
purchaser, then by definition the purchaser owns the media (i.e., the
hardware in which the software is delivered). It would be bizarre to
assume, absent strong contrary evidence, that the software vendor somehow
retained an ownership interest in the portions of the computer hard drive
on which the software was recorded.

In contrast to these factors, the district court below erroneously
focused on the ways in which Blizzard’s license agreements restrict
certain uses of the WoW software. Restrictions on post-sale uses
of software are generally relevant to copyright permissions,
rather than copy ownership. While these use restrictions may
answer questions about a purchaser’s authority to do acts that
might otherwise infringe the copyright (e.g., Is the making of copies
beyond those that are essential for use limited or forbidden? Is the
preparation of derivatives limited or forbidden? Is public performance
forbidden?), they generally shed little light on the question of who owns
the physical medium on which the software was delivered. See Amer.
Int’l Pictures, Inc. v. Foreman, 576 F.2d 661, 664 (5th Cir.
1978) (“Even if the copyright holder places restrictions on the
purchaser in a first sale (such as specifying the permissible uses of
the article), the buyer’s disregard of the restrictions on
resale does not make the buyer or the person who buys in the secondary
market liable for infringement.”) (emphasis added).

Consideration of the foregoing factors makes it clear that the purchasers
own the DVDs on which WoW software is delivered. Blizzard sells single
copies on DVDs for a single price. Purchasers are entitled to perpetual
possession of the DVD, suffer no penalty for discarding the DVD, and
store the software at all times on computer hardware that they
undisputedly own. They are also entitled to transfer the software to
another user without prior permission from Blizzard, subject only to the
obligation to delete existing copies.^[11]

B. The District Court Erred by Declining to
Follow Controlling Precedent, Misreading Precedent, and Misquoting
Precedent

Rather than considering the “economic realities” of the
transaction and evaluating all of the relevant “incidents of
ownership,” the lower court misread dicta and ambiguous language in
three of this Court’s prior rulings. The Court should take this
opportunity to clarify those rulings in light of its prior binding
holding in Wise.

i. The district court declined to follow
Wise, which is controlling precedent in the Ninth Circuit on the
issue of copy ownership.

As an initial matter, the district court committed reversible error in
declining to follow Wise. The court wrote that it declined to
follow Wise because it involved §109 instead of §117
and because it believed that following Wise would require it to
disregard Wall Data v. Los Angeles County Sherriff’s
Dept., 447 F.3d 769 (9th Cir. 2006). MDY Indus., LLC v. Blizzard
Ent., Inc., 2008 WL 2757357, *10 (D. Ariz. Jul. 14, 2008). However,
as discussed above, there is no basis on which to distinguish questions
of copy ownership under §109 and §117. Accordingly, as cogently
explained by the district court in Vernor v. Autodesk, the
appropriate holding would have been to follow Wise, as the
earlier precedent. See supra note 10.

The district court also attempts to justify its departure from
Wise by asserting in a footnote that, had it followed the
Wise rule, the result would be the same. This, however, was
based on a cursory misreading of the Wise opinion. The district
court wrote that, “Under Wise, a transaction is a license
where the recipient is required to the return the copy to the copyright
owner or the copyright owner retains title to the copy.”
MDY, 2008 WL 2757357 at *110 n.7. Thus the district court
attempted to reduce Wise to a disjunctive test where a mere
assertion of retention of title by the copyright owner could satisfy the
test, notwithstanding any of the other terms or economic realities of the
transaction. This is not the Wise holding. Instead, as has
already been discussed, the Wise court looked to the
“general tenor of the entire agreement” and said that courts
must “analyze the arrangement at issue” to determine whether
a first sale occurred. If a single assertion by the copyright owner could
instead be dispositive, then the Wise court would not have
analyzed the agreements so thoroughly.

ii. The district court’s reliance on
Wall Data is based on dicta as well as a misquotation that led
it to consider irrelevant restrictions on use.

The district court’s reliance on Wall Data is further
misplaced because that case’s discussion of copy ownership is
effectively dicta. The Wall Data court went out of its way to
indicate that “a more fundamental reason” for its decision
was that the Sheriff’s Department’s actions would not
constitute an “essential step” as required by §117, so
deciding whether the Department owned its copies was not necessary for
the Court’s decision. Wall Data, 447 F.3d at 786 n.9. The
Court could have phrased these as “alternate” holdings but
chose instead to call one “more fundamental.”

In another instance of error, the district court here misread Wall
Data, erroneously concluding that use restrictions were
dispositive on the question of ownership. In relying on Wall
Data, the district court stated that Wall Data looked to
“significant restrictions on the use or transfer of the
copy” whereas Wall Data had spoken of “significant
restrictions on the purchaser’s ability to redistribute or
transfer that copy.” Cf. MDY, 2008 WL 2757357 at
*9 (emphasis added) and Wall Data, 447 F.3d at 785 (emphasis
added). This misquoting potentially opens up for investigation an overly
broad set of factors not relevant to the question of copy ownership.
See Appellant’s Opening Br. at 17-18.

iii. The district court’s reliance on
MAI and Triad is based on a misreading of the scope of
their holdings.

The district court also relied on two other Ninth Circuit cases, MAI
Sys. Corp. v. Peak Computer, Inc., 991 F.2d 511 (9th Cir. 1993) and
Triad Sys. Corp. v. Se. Express Co., 64 F.3d 1330 (9th Cir.
1995) in concluding that “licensees of a computer program do not
own their copy of the program.” MDY, 2008 WL 2757357 at
*8. Those cases, however, shed little light on the “economic
realities” surrounding the transactions in question and thus do not
support such a broad a per se rule.

The bulk of MAI’s copyright discussion is devoted to the
question of whether temporary copies stored in RAM may be considered
“copies” under the Copyright Act. By contrast,
MAI’s discussion and analysis of ownership under §117
is markedly cursory. In its entirety, that discussion reads, “Since
MAI licensed its software, the Peak customers do not qualify as
‘owners’ of the software and are not eligible for protection
under §117.” MAI, 991 F.2d at 519n.5. As commentators
have pointed out, the opinion provides no details regarding the facts
that underlay the court’s conclusion as to ownership. See
David Nimmer, Brains and Other Paraphernalia of the Digital Age,
10 Harv. J. L. & Tech. 1, 21-22 (1996), available at

http://jolt.law.harvard.edu/articles/pdf/v10/10HarvJLTech001.pdf
(“Which facts actually pertained in MAI v. Peak? It is
impossible to say, given the court’s failure to advert to the
crucial distinction between ownership of physical copies and ownership of
copyright interest.”). Accordingly, the district court over-reads
MAI v. Peak when it suggests that MAI establishes a
per se rule denying all “licensees” the benefits of
§117. In addition, as discussed above, such a reading would directly
contradict this Court’s prior ruling in Wise. See
Vernor v. Autodesk, 555 F. Supp. 2d at 1172-73 (discussing
inconsistency between MAI and Wise and concluding that
Wise is binding authority). Finally, to the extent MAI
can be read to establish a per se rule that a purported
“licensee” cannot be an owner,—it has been thoroughly
discredited by courts and commentators alike. See,
e.g., Wall Data, 447 F.3d at 786 n.9 (“We
recognize that our decision in MAI has been criticized.);
DSC, 170 F.3d at 1360 (citing 2 Nimmer on Copyright
§8.08[B][1], at 8-119 to 1-121 (3d ed.1997)); Vernor, 555
F. Supp. 2d at 1171; David Nimmer, Brains and Other
Paraphernalia of the Digital Age, 10 Harv. J. L. & Tech 1, 21-25
(1996); 4 William Patry, Patry on Copyright § 11.34 (2009)
(footnotes omitted).

Triad provides even less analysis of its determination of copy
ownership. As it discussed the various regimes under which software users
paid the copyright holder, the opinion cites §117 to
exclude from potential infringement users who were clearly and
explicitly owners of their software. Triad, 64 F.3d at 1333.
Although the opinion continues to analyze the other users as though they
were not owners of their copies, it, like MAI, provides no
rationale for its determination of ownership. Instead, the copyright
analysis in Triad focused nearly exclusively on determining
whether the user’s RAM copies fell within the scope of fair use.
Id.

In short, the district court over-read the ambiguous language and dicta
contained in Wall Data, Triad, and MAI in a manner that
set those rulings at odds with this Court’s prior ruling in
Wise, as well as the reasoned view of the Second Circuit in
Krause v. Titleserv and copyright law’s leading
commentators. This Court should take this opportunity to clarify its
prior holdings, reaffirm that Wise represents the earliest, and
thus binding, holding, and embrace the “economic realities”
approach utilized by the Second Circuit and numerous district courts.

C. Blizzard’s Section 1201 Claims Fail Due
to the Lack of Any Nexus between Circumvention and Infringement.

If this court concludes that WoW players own the WoW DVDs that they
purchase, that conclusion would also call into question Blizzard’s
§1201 claims against MDY insofar as it would eliminate any
“nexus” between a WoW player’s use of Glider and any
copyright infringement.

In order to prove a violation of the anti-circumvention provisions of
17U.S.C. §1201, Blizzard must prove:

(1) ownership of a valid copyright on a work, (2) effectively controlled
by a technological measure, which has been circumvented, (3) that third
parties can now access (4) without authorization, in a manner that (5)
infringes or facilitates infringing a right protected by the Copyright
Act…

Chamberlain Group, Inc. v. Skylink Techs., Inc., 381 F.3d 1178,
1203 (Fed. Cir. 2004).

In Chamberlain, the Federal Circuit held that Chamberlain had
failed to show “the necessary fifth element of its claim, the
critical nexus between access and protection.” Id.
Chamberlain’s case failed, in part, due to a failure to allege or
explain how the alleged circumvention facilitated infringement of any
right that the Copyright Act protects.

Blizzard faces the same problem here. If the purchasers of its software
own the DVDs on which the software is delivered, they also have a
§117 right to make essential RAM copies. Accordingly, there is no
possibility that their making of RAM copies can result in infringement.
Any circumvention facilitated by Glider fails to have the necessary nexus
with infringement required for liability under §1201.^[12]

CONCLUSION

In enacting §117, Congress struck a careful balance between the
exclusive rights of copyright owners, on the one hand, and the statutory
privileges accorded owners of the tangible property embodying those
works, on the other. Blizzard cannot, through the expedient of
boilerplate “license” recitations, unilaterally frustrate the
purposes and objectives of Congress. By reaffirming the importance of
evaluating ownership in light of the economic realities of the
transactions, this Court can protect the prerogatives of consumers and
restore the statutory balance struck by Congress.

Brian W. Carver

California State Bar No. 244878

University of California, Berkeley

School of Information

102 South Hall

Berkeley, CA 94720-4600

(510) 643-1469

Counsel for Amicus Public Knowledge

Sherwin Siy

Jef Pearlman

Public Knowledge

1875 Connecticut Ave. NW

Suite 650

Washington, DC 20009 (202) 518-0020

September 23, 2009

^[1] Microsoft
Corp. v. DAK Indus., Inc., 66 F.3d 1091, 1095 (9th Cir. 1995). The
district court below did not cite to DAK Indus. at all. See
also Novell, Inc. v. Unicom Sales, Inc., No. C-03-2785,
2004 WL 1839117, at *9 (N.D. Cal. 17, 2004) (“In determining
whether a transaction is a sale or a license, the Court reviews the
substance of the transaction, rather than simply relying on the
plaintiff’s characterization of the transaction”);
Applied Info. Mgt. Inc. v. Icart, 976 F. Supp. 149, 154
(E.D.N.Y. 1997) (“Ownership of a copy should be determined based on
the actual character, rather than the label, of the transaction by which
the user obtained possession.”

^[2] United
States v. Wise, 550 F.2d 1180, 1191 (9th Cir. 1977).

^[3] Wise,
550 F.2d at 1188-89 (emphasis added). Discussion of the lower
court’s misreading of Wise follows.

^[4] See
Bobbs-Merill Co. v. Straus, 210 U.S. 339 (1908) (creating
the first sale doctrine); Quanta Computer, Inc. v. LG Elecs.,
Inc., 128 S. Ct. 2109, 2115-17 (2008) (describing the pedigree of
similar exhaustion doctrine in patent law); Molly Shaffer Van Houweling,
The New Servitudes, 69 Geo. L.J. 885 (2008).

^[5] Given their
nearly identical statutory language, courts routinely look to cases
applying Section 109 when interpreting “ownership of a copy”
for purposes of Section 117, and vice-versa. See DSC Commc’ns
Corp. v. Pulse Commc’ns, Inc., 170 F.3d 1354, 1361 (Fed. Cir.
1999) (§117 case looking to §109); Vernor v. Autodesk,
Inc., 555 F. Supp. 2d 1164, 1173 (W.D. Wash. 2008) (concluding that
“identical phrases” used in §§109 and 117 have
“identical meaning”); 2 Nimmer & Nimmer, Nimmer on
Copyright §8.12[B][1][d][i] (discussing both §117 and
§109 precedents regarding “ownership of a copy”).
Accordingly, this Court’s ruling will have repercussions for the
first sale doctrine. At least one appeal raising similar issues in that
context is currently pending before the Court, see UMG
Recordings, Inc. v. Augusto, No. 08-55998.

^[6] The copying of
portions of WoW into RAM is clearly an essential step in its utilization,
and that it is used in no other manner. As in Krause, the
creation of RAM copies is an automated process that necessarily occurs in
the utilization of any program. WoW simply could not be utilized at all
in conjunction with a computer without the creation of a RAM copy, thus
the creation of RAM copies are an “essential step” in the
utilization of WoW in conjunction with a computer. The RAM copies created
automatically are used “in no other manner” because using the
RAM copy is the only way to use WoW in any manner in conjunction
with a computer. The “no other manner” requirement appears
motivated by an interest in preventing the creation of illicit copies for
separate use or distribution, and Glider is not a cracking or copying
tool that enables infringement. The interpretation of each of the
elements of §117 are adeptly addressed at length in Krause v.
Titleserv, Inc., 402 F.3d 119, 125-30 (2d Cir. 2005).

^[7] Sony
Computer Ent., Inc. v. Connectix Corp., 203 F.3d 506, 600 n.1 (9th
Cir. 2000).

^[8] The CONTU report
serves as the only relevant legislative history explaining the genesis of
§117. See Krause, 402 F.3d at 122-23.

^[9] This Court need
not address whether users waive statutory copyright privileges by
acceding to the agreement, as the central question is who owns
the DVDs on which the WoW software is delivered, rather than whether the
purchaser has waived any copyright privileges for which she might
otherwise qualify. If WoW purchasers own the DVDs on which the WoW
software is delivered, then their “essential step” copying of
that software falls outside the scope of the exclusive rights enjoyed by
Blizzard. Accordingly, no contractual “waiver” can
transmogrify those reproductions into copyright infringements, any more
than private agreements could turn the resale of a lawfully purchased
book into an infringing distribution

^[10] The
Vernor court also addressed those precedents that appear to
focus on the restrictive terms in agreements accompanying copyrighted
works and that find that more restrictive or draconian terms tend to
suggest title to the copy remains with the transferee. 555 F. Supp. 2d at
1171-72. The Vernor court resolved what it deemed an
“irreconcilable conflict” between these cases and
Wise, guided by the principle that a subsequent panel of the
Ninth Circuit cannot overrule an earlier panel absent intervening Supreme
Court precedent or en banc authority. See Miller v.
Gammie, 335 F.3d 889, 900 (9th Cir. 2003); Chisolm v. TranSouth
Fin. Corp., 95 F.3d 331, 337 n.7 (4th Cir. 1996);Grabowski v.
Jackson County Pub. Defenders Office, 47 F.3d 1386, 1400 (5th Cir.
1995) (Smith, J., concurring in part and dissenting in part). With no
such intervening authority, the Vernor court correctly concluded
that it, like this Court, was bound to follow Wise.
Id. at 1172-75. Notably, this includes not just the
Wise holdings, but its mode of analysis that focused on
perpetual possession. See County of Allegheny v. ACLU
Greater Pittsburgh Chapter, 492 U.S. 573, 668 (1989) (“As a
general rule, the principle of stare decisis directs us to
adhere not only to the holdings of our prior cases, but also to their
explications of the governing rules of law.”) (Kennedy, J.,
concurring in part and dissenting in part); Antonin Scalia, The Rule
of Law as a Law of Rules, 56 U. Chi. L. Rev. 1175, 1177 (1989).

^[11] See
MDY ER at P3 (WoW EULA from Feb. 2, 2007), §3(B); MDY ER at S3 (WoW
EULA from Nov. 2004), §3(B).

^[12] At a
minimum, the Court should vacate and remand the lower court ruling in
order to afford the district court an opportunity to consider whether any
infringements remain after the operation of §117 is considered.