Software Companies Own Your Hard Drive: Ninth Circuit Rules for Formality Over Function

September 10, 2010

A recent decision by the Ninth Circuit Court of Appeals has cast a pall over the sale of used software. Apparently, software manufacturers just need a little bit of fine print to prevent people from reselling used copies of their software.

In Vernor v. Autodesk, the appeals court held that Autodesk could stop Vernor from selling copies of their software on eBay by claiming that those reslaes were an infringement of its copyrights. Ordinarily, a copyright holder can’t prevent someone from selling or otherwise distributing a lawfully made copy of the work, so long as that person owns the copy. Here, Autodesk argued that Vernor never owned the copies (which he bought used from a design firm) because Autodesk included in its sale to that firm a standardized agreement that said that the firm was only “licensing” the disks.

While it certainly makes sense that a copyright holder can license its copyrights, it’s a odd turn of phrase to say that you’re licensing the physical goods. Usually, when we hand a thing over to someone with the understanding that they aren’t going to take ownership of the thing, we call that “lending” or “renting” or “leasing.”

But because of a now-obsolete uncertainty about the copyrightability of software, software generally comes standard with a “license agreement” that in many cases will claim that you’re not buying the thing you just plunked down money for and that the copyright owner never expects to see again. That fine print, according to the rationale in Vernor, thus characterizes the nature of the transaction you just entered into, and not the circumstances under which you put down your money and walked away with that disk.

But there’s no particular reason why this should be limited to software. We’re increasingly seeing EULAs accompanying ebooks and digital music and movies. There’s similarly nothing preventing DVDs and paperbacks having EULAs printed in them noting that you’re not actually buying those things—only licensing them. And with that, you’re barred by copyright law (punishable by hefty fines) if you want to sell those DVDs or give away that book.

In fact, the original first sale case was about a book. In Bobbs-Merrill v. Strauss, the Supreme Court decided that a notice on the inside of a novel couldn’t serve to restrain the books from being resold. That notice claimed that reselling the book for under a dollar would be considered copyright infringement. The Court decided otherwise, saying that the right of a copyright holder to restrict distribution was limited once someone owned a copy. But if Vernor is to be belived, a simple change in the wording of the Bobbs-Merrill notice would convert that notice into a license, and the sale of those books into something else. So if Bobbs-Merrill had only been a little more careful in its drafting in 1908, we wouldn’t have to deal with this, because the doctrine of first sale would never have existed in the first place.

So why not take this doctrine and run with it? As I set these words you’re reading down onto my hard drive, I’m creating a copyrighted work. What would the Ninth Circuit panel say if we changed that Creative Commons license attached to our content on the PK site into a license agreement contending that you are only authorized to reproduce this content in your computer’s RAM (as you’re more than likely doing now) unless you agree to donate money to us? Or sign our petition? Or not quote us unfavorably? According to the Vernor decision, this is quite possible, and for every unique visitor who does not donate (just $35 for a big bag of swag) can get sued for a cool $750 minimum (that’s a lot of PK stickers and tote bags, folks!).

Obviously, this is not the way the world should work. While it’s nice and neat to assume that everybody can read all of the fine print documents they are purportedly bound by, this is clearly not the case. Every online service, piece of software, even countless consumer products and retail services are accompanied by fine print, and courts are ever more eager to assume (because it makes decision-making so easy) that you, by transacting with entities bearing reams of legalese, are agreeing to all of these things. We are all now bound by invisible webs of contracts we’ve never had the opportunity to read.

But isn’t that just our own laziness? Shouldn’t we, as conscientious consumers, simply take the time out of our lives to read all of these things? Perhaps it is simply a failure of moral fiber that I do not stand there at the counter of Best Buy or Electronics Boutique, carefully opening the boxes and reading the license agreements within as the line builds behind me. Or perhaps I should simply use my own time at home, whiling away the hours by finding online the EULAs for products I might want to buy.

The thing is, all that time spent isn’t just an inconvenience to me—investing in that time is economically unsound. A study out of Carnegie Mellon once estimated that reading all of the privacy policies we encounter daily would cost the economy $365 billion. I don’t doubt that the number of EULAs we come across would be similarly costly.

So what does this decision mean? Unchecked, it won’t soon lead to a world where I can’t donate my old T-shirts to Goodwill, or where PK can start raking in that sweet, sweet statutory damages cash. Those might be theoretical possibilities, but the first effects will likely be something we’ve already been seeing creeping at the margins. Say goodbye to used software and used games, for instance. That PC version of Bioshock 4 you might buy a few years from now? Don’t expect to be able to sell it once you’re done with it. Don’t even expect to be able to give it away. Game rental services could get litigated out of existence. And while licensing clothing might be beyond the pale, it’s not too hard to see the software model being applied to increasingly sold-by-the-bit media like movies and music. All because of fine print, which might be clear and convenient for a court, even if it’s exactly the opposite for a consumer.