15.3  The court seemed here to confuse the program with the database. It is to be noted that the copyright in question is for the program, not for any database. The opinion has little or no discussion relating the program’s copyright to the notion of the selection, coordination and arrangement of a database.
15.4  Slip opin. p. 6.
15.5  Sega Enterprises Ltd. v. Accolade, Inc., 977 F.2d 1510, 1520–28 (9th Cir. 1992).
15.6  The court also cited in this regard Sony Computer Ent., Inc. v. Connectix Corp., 203 F.3d 596, 602–08 (9th Cir. 2000); Bateman v. Mnemonics, Inc., 79 F.3d 1532, 1539–40 n.18 (11th Cir. 1996); Atari Games Corp. v. Nintendo of America, Inc., 975 F.2d 832, 842–44 (Fed. Cir. 1992).
15.7  Slip. opin. at 8. The court stated this partly to dissuade plaintiff from reconfiguring the Market Drive program so that the municipalities would find it difficult or impossible to furnish raw data to requestors in any form other than that prescribed by that program. The court even suggested that, should plaintiff so reconfigure the program, such reconfiguration might give rise to copyright misuse.
16  Compaq Computer Corp. v. Procom Technology Inc., 37 U.S.P.Q.2d 1801 (S.D. Tex. 1995).
17  Too low a value would incur unnecessary expense; too high a value might also mean increased expense. Thus, the values embodied engineering and business judgment.
18  The court also found each of the five elements to be subject to copyright on its own.
19  Montgomery County Ass’n of Realtors, Inc. v. Realty Photo Master Corp., 878 F. Supp. 804 (D. Md. 1995).
20  “Specifically, many [of plaintiff’s] reports contain marketing puffery that cannot be characterized as factual (e.g., elegant updated home, close to DC line, gorgeous private back yard, lovely sunroom off LR’ ). Also, [plaintiff] employed a unique and elaborate system of abbreviations in organizing its database. That each MLS property report contains some purely factual information relating to the home (e.g., address, style, age, floor plan, asking price) does not negate the original presentation and arrangement of the information in the database.” 878 F. Supp. at 810.
21  Defendant also argued fair use. Because defendant offered evidence only on the fourth fair use criterion (effect on market value of the work), the court rejected that argument.
22  Offbeat, Inc. v. Cager, 1995 CCH Computer Cases ¶ 47,260 (E.D. La. 1995).
23  The opinion is devoid of discussion of whether the database was susceptible to copyright protection; the court seems to simply assume that it was.
24  Marshall & Swift v. BS&A Software, 1994 U.S. Dist. LEXIS 10956, Copyr. L. Rep. ¶ 27,318 (W.D. Mich. 1994).
25  The format of the tables was apparently dictated by Michigan law.
26  “Marshall’s cost tables are a far cry from the white page listings at issue in Feist.” See n.1 supra.
27  Victor Lalli Enters., Inc. v. Big Red Apple, Inc., 936 F.2d 671 (2d Cir. 1991).
28  Financial Info., Inc. v. Moody’s Investors Serv., Inc., 751 F.2d 501 (2d Cir. 1984), cert. denied, 484 U.S. 820, 108 S. Ct. 79, 98 L. Ed. 2d 42 (1987).
29  Sinai v. Calif. Bureau of Automotive Repair, 25 U.S.P.Q.2d 1809 (N.D. Cal. 1992).
30  Gates Rubber Co. v. Bando Chem. Indus., Ltd., 9 F.3d 823 (10th Cir. 1993).
31  CCC Info. Servs. Inc. v. Maclean Hunter Market Reports Inc., 44 F.3d 61, 33 U.S.P.Q.2d 1183 (2d Cir. 1994).
32  “To the contrary, the use of logic to solve the problems of how best to present the information being compiled is independent creation.” 33 U.S.P.Q.2d at 1188.
33  Among the aspects relied upon by the court for this ruling were dividing the nation into geographical regions; selection and manner of presentation of the chosen options; use of mileage increments of 5,000 miles; use of the concept of an ‘average ‘vehicle in each category; and the selection of the number of years’ cars to include.
34  The argument was the following: each entry expressed the authors’ idea of value; if there was expression, it was indispensable to statement of the idea and merged with it; because each value could be taken without infringing, all could be taken without infringing.
35  The court was apparently influenced not only by the type of idea embodied in the database, but also by the fact that CCC engaged in wholesale copying of the information.
36  The argument was that the public is entitled to free access to the content of laws. Where a work subject to copyright is embodied in a law, this need for access requires that copyright protection not apply.
37  NADA Servs. Corp. v. CCC Information Servs. Inc., 1991 U.S. Dist. LEXIS 18874 (N.D. Ill. 1991).
38  Warren Publ’g., Inc. v. Microdos Data Corp, 1992 C.C.H. Copyr. L. Rep. ¶ 26,928, 1992 U.S. Dist. Lexis 14551 (N.D. Ga. 1992).
39  Realty Info. Group, Inc. v. Stout, C.C.H. Computer L. Rep. ¶ 46,919 (D.C. 1993).
40  Wisconsin v. Corcoran, 5 CCH Computer Cases ¶ 47,108 (Wis. Dist. Ct. App. 1994).
41  These statutes are reproduced at Appendix 4A[36] of this Treatise.
42  The “destruction” was accomplished through use of the “delete” command. In some cases the data “destroyed” was recovered before it was overwritten, and, thus, was not lost. In other cases, the data “destroyed” was overwritten before it could be recovered, and was lost.
43  The State conceded that defendant owned the copyright in the programs he wrote.
44  Washington v. Corcoran, 5 CCH Computer Cases at 66,620.
45  The preemption aspects of this case are discussed at § 4B.15[2][b][ii] of this Treatise, in connection with the Wisconsin computer abuse criminal statute.
46  Allen-Myland, Inc. v. International Business Mach. Corp., 770 F. Supp. 1004 (E.D. Pa. 1991).
47  Dun & Dun & Bradstreet, Inc. v. Walter, 1991 U.S. Dist. LEXIS 6042 (N.D. Ill. 1991).
48  Apple Computer, Inc. v. Microsoft Corp., 779 F. Supp. 133 (N.D. Cal. 1991).
49  Kregos v. Associated Press, 937 F.2d 700 (2d Cir. 1991).
50  Victor Lalli Enters., Inc. v. Big Red Apple, Inc., 936 F.2d 671 (2d Cir. 1991).
51  Key Publications, Inc. v. Chinatown Today Publishing Enters., Inc., 945 F.2d 509 (2d Cir. 1991).
52  Selectivity was shown, e.g., by plaintiff’s discrimination in excluding businesses that plaintiff did not believe would survive. On the arrangement issue, while plaintiff’s format was a common one, many entries were unique to the Chinese-American community, and plaintiff exercised originality in determining categories and their names.
53  The court found probative of non-infringement that plaintiff had 260 categories as against defendant’s 18; that only three categories overlapped; that only 17% of the listings overlapped; that no substantial category in plaintiff’s directory was entirely duplicated by defendant; and that 25% of defendant’s listings were not in plaintiff’s directory.
54  U.S. Payphone, Inc. v. Executives Unlimited of Durham, Inc., 18 U.S.P.Q.2d 2049 (4th Cir. 1991) (unpublished opinion not subject to citation in 4th Cir.).
55  The format chosen by plaintiff utilized one page for each state, even though plaintiff could have arranged the work in any of many different ways. Selection was involved in reducing some 2,700 pages to 51 pages. The court did, however, make mention of the great amount of time required by plaintiff to create the format used.
56  Sem-Torq, Inc. v. K Mart Corp., 936 F.2d 851 (6th Cir. 1991).
57  Illinois Bell Tel. Co. v. Haines & Co., 932 F.2d 610 (7th Cir. 1991).
58  In the earlier ruling the court had determined that even reproduction of the included facts in a different arrangement infringed.
59  Bellsouth Advertising & Publishing Corp. v. Donnelley Information Publishing, Inc., 933 F.2d 952 (11th Cir. 1991).
60  Plaintiff had to determine the geographic scope of the directory; select categories; and determine the appropriate category for each listing.
61  The district court judgment in this case was affirmed by the 11th Circuit in a ruling subsequently vacated in a grant of a motion to rehear en banc, based on the intervening U.S. Supreme Court opinion in Feist. Bellsouth Advertising and Publishing Corp. v. Donnelley Info. Publishing, Inc., 719 F. Supp. 1551, aff’d, 933 F.2d 952 (11th Cir. 1991), vacated, 977 F.2d 1435 (11th Cir. 1992), rev’d, 999 F.2d 1436 (11th Cir. 1993).
62  Key Pubns., Inc. v. China Town Today Publishing Enter., Inc., 945 F.2d 509, 514 (2d Cir. 1991) (citations omitted).
63  The court held that the common errors in the two directories proved only that defendant copied the name, number, address and type of business. The presence of these common errors was not probative of whether defendant copied anything subject to copyright protection.
64  999 F.2d at 1471.
65  Cable News Network v. Video Monitoring Servs., 940 F.2d 1471 (11th Cir. 1991).
66  A not dissimilar result was reached in Georgia Tel. Co. v. TV News Clips of Atlanta, Inc., 718 F. Supp. 939, 9 U.S.P.Q.2d 2049 (N.D. Ga. 1991).
67  ProCD, Inc. v. Zeidenberg, 908 F. Supp. 640 (W.D. Wis. 1996), rev’d on other grounds, 86 F.3d 1447 (7th Cir. 1996). The issue of whether the database was subject to copyright was apparently not raised on appeal, but the Seventh Circuit stated in its opinion that the database was similar to that in Feist and not protected by copyright.
68  Mid-America Title Co. v. Kirk, 1991 U.S. Dist. LEXIS 11168 (N.D. Ill. 1991).
69  Bellsouth Advertising & Publ’g Corp. v. American Business Lists, Inc., 1992 U.S. Dist. LEXIS 17679, 1992 Copyright. L. Rep. (CCH) ¶ 27017 (N.D. Ill.).
70  Bellsouth Advertising & Publ’g Corp. v. Donnelley Info. Publ. Inc., 933 F.2d 952 (11th Cir. 1991).
70.1  Warren Publ. Inc. v. Microdos Data Corp., 43 U.S.P.Q.2d 1065 (11th Cir. 1997).
70.2  In this way, plaintiff avoided the necessity of printing information about the cable system for each of the other communities; that information was printed only once (under the lead community).
70.3  To be sure, plaintiff listed its entries in a different arrangement than did the FCC. However, plaintiff apparently conceded on appeal any originality in coordination or arrangement.
71  Coates-Freeman Assoc., Inc. v. Polaroid Corp., 792 F. Supp. 879, 24 U.S.P.Q.2d 1891 (D. Mass. 1992).
72  Lipton v. The Nature Co., 781 F. Supp. 1032 (S.D.N.Y. 1992).
73  Budish v. Gordon, 784 F. Supp. 1320 (N.D. Ohio 1992).
74  See, e.g., Broderbund Software, Inc. v. Unison World, Inc., 648 F. Supp. 1127, 231 U.S.P.Q. 700 (N.D. Cal. 1986); Digital Communications Associated, Inc. v. Softklone Distrib. Corp., 659 F. Supp. 449, 2 U.S.P.Q.2d 1385 (N.D. Ga. 1987).
75  Apple Computer Inc. v. Microsoft Corp., 779 F. Supp. 133 (N.D. Cal. 1991).
76  International News Service v. Associated Press, 248 U.S. 215 (1918).
77  17 U.S.C. § 301(a) provides: “… all legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright … are governed exclusively by this title… . no person is entitled to any such right or equivalent right under the common law or statutes of any State.”
78  H.R. Rep. 1476, 94th Cong., 2d Sess. 131 (1976), reprinted in 1976 U.S. Code Cong. & Admin. News 5659, 5747.
79  “Information” means “facts, data, works of authorship, or any other intangible material capable of being generated or gathered.” Section 2(8).
80  “… except that the fact that a collection of information includes or consists of online location designations shall not by itself be the basis for applying this clause.” Section 2(5)(B)(2).
81  Unless the authority takes steps to assure the integrity of the information and provides real-time searchable public access to it.
82  In considering whether time sensitivity was present, a court is to consider the temporal value of the information in the database in the context of the industry sector involved. Section 3(c)
83  “Inflicts an injury” means “serving as a functional equivalent in the same market as the database in a manner that causes the displacement, or the disruption of the sources, of sales, licenses, advertising, or other revenue.” Section 3(b).
84  In making its determination of reasonableness, the court is to consider customary practices associated with such uses of such database by such institutions and other factors the court deems relevant.
85  However, it does apply to a government educational institution in the course of engaging in education, research or scholarship.
86  But a database covered by the bill is not stripped of protection by virtue of residing in a program, so long as the collection of information functions as a database within the meaning of the bill.
87  Damages include compensatory damages, profits, and additional damages based on a number of factors.
88  H.R. 354, 106th Cong. (1999).
89  Id. § 1401(1).
90  Id. § 1401(2).
91  Id.
92  Sandburg, supra.
93  H.R. 1858, 106th Cong. (1999).
94  Id. § 101(1).
95  Id. § 101(2).
96  Harvey Berkman, Congress Tackles Database Law, The National Law Journal (July 22, 1999) ≪http://www.lawnewsnetwork.com/stories/A3661-1999Jul21.html ≫; Brenda Sandburg, Third Time May Be the Charm For Database Copyright Legislation, The Recorder/Cal Law (June 3, 1999) ≪http://www.lawnewsnet.com/stories/A2010-1999Jun3.html≫.
97  The US Supreme Court’s decision in Feist is discussed in some detail at section 4.10 of this Treatise.
98  Directive 96/9/EC of the European Parliament and of the Council of 11 March 1996 on the legal protection of databases, Official Journal L 077, 27/03/1996, p. 20–28. An EU Directive is a document released by the EU and setting out a general law on some particular topic, and requiring each member state of the EU by some specific date to adopt national legislation embodying a law consistent with the statement in the Directive.
99  Database Directive, Art. 1, par. 2.
100  The author of a database is the natural person or group of them who created it (or, if the law of the member state permits, the natural person designated by the legislation). Database Directive, Art. 4, par. 1.
101  Database Directive, Art. 3, par. 1.
102  Database Directive, Art. 6, par. 1. This right may not be bargained away by contract. Database Directive, Art. 15.
103  Database Directive, Art. 6, par. 2.
104  Database Directive, Art. 7, par. 1.
105  Database Directive, Art. 7, par. 2(a). “Re-utilization” is “any form of making available to the public all or a substantial part of the contents of a database by the distribution of copies, by renting, by on-line or other forms of transmission. The first sale of a copy of a database within the Community by the rightholder or with his consent shall exhaust the right to control resale of that copy within the Community; Public lending is not an act of extraction or reutilization.” Database Directive, Art. 7, par. 2(b).
106  Database Directive, Art. 7, par. 5.
107  Database Directive, Art. 8, par. 2. This right may not be bargained away by contract. Database Directive, Art. 15.
108  Database Directive, Art. 10, par. 9.
109  Database Directive, Art. 10, par. 1.
110  Database Directive, Art. 10, par. 2.
111  Database Directive, Art. 10, par. 3.
112  Database Directive Art. 11., par. 1.
113  Database Directive, Art. 11, par. 3.
114  See, e.g., Arden, “The Conflicting Treatment of Compilations of Facts Under the United States and British Copyright Laws,” 19 AIPLA Q. J. 267 (1991).
114.1  Innoweb BV v. Wegener ICT Media BV, Ct. of Justice of the EU Case C-202/12 (Dec. 19, 2013).
114.1.1  Directive Art. 7(5) provides: “The repeated and systematic extraction and/or re-utilization of insubstantial parts of the contents of the database implying acts which conflict with a normal exploitation of that database or which unreasonably prejudice the legitimate interests of the maker of the database shall not be permitted.”
114.1.2  Football Dataco Ltd. v. Stan James, [2013] EWCA Civ. 27 (Eng. & Wales Civ. Div. 6 Feb. 2013).
114.2  Football Dataco Ltd. v. Sportradar GmbH, ECJ (Case C 173/11 18 Oct. 2012).
114.3  Art. 7(1) provides: “Member States shall provide for a right for the maker of a database which shows that there has been qualitatively and or quantitatively a substantial investment in either the obtaining, verification or presentation of the contents to prevent extraction and/or re-utilization of the whole or of a substantial part, evaluated qualitatively and/or quantitatively, of the contents of that database.”
Art. 7(2(b) provides: “ ‘re-utilization’ shall mean any form of making available to the public all or a substantial part of the content of a database by the distribution of copies, by renting, by on-line or other forms of transmission. The first sale of a copy of a database within the Community by the rightholder or with his consent shall exhaust the right to control resale of that copy within the Community.”
114.4  Football Dataco Ltd. v. Stan James, [2013] EWCA Civ. 27 (Eng. & Wales Civ. Div. 6 Feb. 2013). In the referral to the CJEU, that court ruled that UK courts had jurisdiction over defendant Sportradar (whose servers where in Germany and Austria) because such jurisdiction exists where a party abroad has an intention to target members of the UK public, as did Sportradar.
114.5  BHB v. William Hill, Case C-203/02; Fixtures Marketing v. Oy Veikkaus, Case C-46/02; Fixtures Marketing v. Svenska Spel, Case C-338-02; Fixtures Marketing v. OPAP, Case C-442/02.
114.6  Art. 7(1).
114.7  Art. 7(2).
114.8  Art. 7(5).
114.9  Qualitative extraction is to be measured on the basis of investment.
115  The British Horseracing Board Ltd. v. William Hill Organization Ltd., [2004] ECR I-10415 (Euro. Ct. Justice Case C-203/02 9 Nov. 2004).
116  ECJ op., par. 10.
117  DirectMedia Publishing GmbH v. Universitaet Freiburg [2008] ECR I-0000 (Case C-304-07, 9 Oct. 2008).
118  British Horseracing Board v. Hill (FCJ, Case No. C-203/02).
119  Thus, manual copying was as culpable as, e.g., photocopying or downloading. The court noted that the method of making the second database might be relevant to whether it was a new protectable database.
120  Apis-Hristovich EOOD v. Lakorda AD, Euro. Ct. Justice (4th Chamber) Case C-545-07 5 March 2009.
121  Defendant asserted there was no need for an ECJ reference in the case. But he ECJ held that it is for the national court to make such a determination, and that the ECJ must accept the reference unless it is quite obvious that the interpretation requested bears no relation to the actual facts of the case or its purpose, where the problem I hypothetical, or the ECJ does not have before it the necessary factual or legal material; the DCJ stated that none of these exceptions was present here.
122  Danish Newspaper Publ’rs’ Ass’n v. Newsbooter.com ApS (Dan. Bailiff’s Ct. 5 July 2002).
123  Mainpresse Zeitungsgesellschaft GmbH& Co. v. Kohlschuetter, (Munich High Reg. Ct. No. 6 U 525901).
§ 4.11.  What Constitutes a “Sale”?
One issue on which there is still a good deal of dispute is whether (and under what circumstances) the licensee of a computer program is the “owner” of the program copy provided to it on behalf of the licensor. This issue is sometimes framed in terms of whether a “sale” of the copy has taken place, and is important in connection with (a) whether the licensee is entitled to certain rights to make copies under § 117 of the Copyright Act,1 (b) whether there was a “first sale” so as to provide the licensee with onward transfer and display rights pursuant to § 109 of the Copyright Act,2 and (c) whether the transaction is subject to Article 2 (“Sales”) of the Uniform Commercial Code so as to entitle the licensee, e.g., to certain warranties and other benefits provided in that Article.
The leading case is Vernor v. Autodesk,3 where plaintiff acquired copies of Autodesk’s AutoCAD software from one of Autodesk’s customers (CTA), and reconveyed them.4 He brought this declaratory judgment action to establish that these conveyances did not infringe. The district court issued the declaratory judgment, but the Ninth Circuit reversed, holding that Autodesk’s direct customers were licensees of copies rather than owners. Because Vernor did not purchase the copies from an owner, he could neither invoke the first sale doctrine, nor assert an “essential step” defense on behalf of his customers.
The Autodesk license agreement recited, inter alia:
The district court denied the motion to dismiss, holding that Vernor’s sales were non-infringing under the first sale doctrine and that his vendees had an essential step defense. On appeal, the Ninth Circuit explained that the exclusive distribution right5 is limited by the first sale doctrine, an affirmative defense to copyright infringement that allows owners of copies of copyrighted works to resell those copies.6 The exclusive reproduction right7 is limited within the software context by the essential step defense, another affirmative defense to copyright infringement.8 Both defenses are available only to owners of the copies in question. Thus, the court was called upon to decide whether Autodesk sold the copies of the software, or merely licensed them.
Under the first sale doctrine, a copyright owner’s exclusive distribution right is exhausted after the owner’s first sale of a particular copy. But the doctrine does not apply to a person, such as a licensee, who does not own the copy. In Wise,9 defendant was held to infringe for his sales of motion picture prints. The copyright owner distributed the prints under written agreements that restricted their use and transfer. Wise argued that the government failed to prove the absence of a first sale for each film.
To determine whether a first sale occurred, Wise considered multiple factors pertaining to each film distribution agreement: whether it (a) was labeled a license, (b) provided that the copyright owner retained title, (c) required the return or destruction, (d) forbade duplication, or (e) required the transferee to maintain possession for the agreement’s duration. Among the situations considered in Wise was plaintiff’s transfer of a print of Camelot to actress Vanessa Redgrave at cost. She had to retain possession of, and was not allowed to sell, license, reproduce, or publicly exhibit, it, and had no obligation to return it. Wise concluded, “While the provision for payment for the cost of the film, standing alone, does not establish a sale, when taken with the rest of the language of the agreement, it reveals a transaction strongly resembling a sale with restrictions on the use of the print.”
Thus, under Wise, where a transferee receives a particular copy pursuant to written agreement, the court must consider the agreement’s provisions to determine whether the transferee became an owner. Among those were whether (1) the agreement was labeled a license, and (2) the copyright owner retained title to the copy, required its return or destruction, forbade its duplication, or required the transferee to maintain possession for the agreement’s duration. No single factor was dispositive in Wise; in particular, Wise did not hold that the copyright owner’s retention of title itself established the absence of a first sale or that a transferee’s right to indefinite possession itself established a first sale.
The court noted that it had dealt, in the context of § 117, with the distinction between owners and licensees in three software copyright cases, MAI v. Peak,10 Triad Sys. v. Se. Express,11 and Wall Data v. L.A. Co. Sheriff.12 To use software, a user’s computer automatically copies it into random access memory (“RAM”), a form of storage. Congress enacted the essential step defense to codify that the “owner of a copy” does not infringe by making a copy, if “created as an essential step in the utilization of the computer program in conjunction with a machine and … is used in no other manner.”13 Thus, the “owner of a copy” of software may claim the essential step defense, and the “owner of a particular copy” may claim the first sale doctrine. The MAI trio construed the phrase “owner of a copy” for essential step defense purposes, and the court deemed that construction controlling in its analysis of whether CTA and Vernor became “owner[s] of a particular copy.”
In MAI and Triad, defendants maintained computers that ran plaintiff’s operating system. The computers automatically loaded plaintiff’s software into RAM. Defendants in both cases conveyed their software pursuant to restrictive license agreements, and the court held that their customers were licensees, and that the loading infringed. In Triad, plaintiff had earlier sold software outright to some third party customers. The court noted that these customers were owners, entitled to the essential step defense, and that they did not infringe by making RAM copies.
In Wall Data, plaintiff conveyed 3,663 software licenses to defendant. The licenses (1) were non-exclusive; (2) permitted use of the software on a single computer; and (3) permitted periodic transfer of the software, if the software was removed from the original computer. Defendant installed the software onto 6,007 computers. It claimed that only 3,663 users could simultaneously access the software. Plaintiff sued for copyright infringement, contending that defendant violated the license by “over-installing” the software. Defendant raised an essential step defense, arguing that its hard drive imaging was a necessary step of installation. The Ninth Circuit held in Wall Data that the district court did not abuse its discretion in denying defendant’s request for a jury instruction on the essential step defense.
Citing MAI, the Vernor court held that the essential step defense did not apply where the copyright owner grants the user a license and significantly restricts the user’s ability to transfer. Since plaintiff’s license imposed “significant restrictions” on defendant’s software rights, defendant was a licensee and not entitled to the essential step defense. The court read Wise and the MAI trio to prescribe three considerations for determining whether a software user is a licensee, rather than an owner: whether the copyright owner (1) specifies that a user is granted a license; (2) significantly restricts the user’s ability to transfer; and (3) imposes notable use restrictions. In response to MAI, Congress amended § 117 to permit a computer owner to copy software for maintenance or repair purposes, but did not disturb MAI’s holding that licensees are not entitled to the essential step defense.
Thus, CTA was a licensee and not entitled to invoke the first sale doctrine or the essential step defense. Autodesk retained title and imposed significant transfer restrictions: it stated that the license was nontransferable, the software could not be transferred or leased without Autodesk’s written consent, and could not be transferred outside the Western Hemisphere. The agreement also prohibited modifying, translating, or reverse-engineering the software, removing any proprietary marks from the software or documentation, or defeating any copy protection device. Furthermore, the agreement provided for termination of the license on licensee’s failure to comply with license restrictions. Because Autodesk reserved title to copies and imposed significant transfer and use restrictions, the court concluded that its customers were licensees of their copies rather than owners. Because CTA was a licensee,” it was not entitled to resell its copies to Vernor under the first sale doctrine. Therefore, Vernor did not receive title to the copies from CTA and accordingly could not pass ownership on to others. Both CTA’s and Vernor’s transfers infringed. Because Vernor was not an owner, his customers were not owners of copies. Therefore, when they installed the software, the copies they made infringed because they were not entitled to the benefit of the essential step defense.14
The court rejected four defenses posed by defendant:
(1) Wise held that a transferee entitled to indefinite possession is an owner—Wise held only the length of authorized possession was one factor, to be balanced against others.
(2) Reversing the district court will create a circuit split—In DSC,15 the Federal Circuit considered the essential step defense. Plaintiff there argued that downloading into RAM constituted infringement, and defendant countered that its customers owned copies of plaintiff’s software, entitling them to an essential step defense. The court rejected this, holding that plaintiff licensed its customers’ use of their copies. Although the Federal Circuit rejected MAI’s “characterization of all licensees as non-owners,” it deemed MAI “instructive” and determined that the agreements there were licenses. Although DSC is thus narrower than MAI, the Ninth Circuit stated it did not conflict with the Vernor holding that a software customer bound by a restrictive license agreement may be a licensee of a copy.
The Ninth Circuit distinguished the Krause,16 where plaintiff-copyright owner was a software developer who sued his former employer for making allegedly infringing modifications. The Second Circuit considered the totality of the parties’ agreement to determine that defendant had an essential step defense. In Krause, unlike here, the parties had no written license agreement, defendant-employer had paid plaintiff-employee significant consideration to develop the programs for its sole benefit, and plaintiff had agreed to allow defendant to use the programs “forever,” regardless of whether the parties’ relationship terminated. Thus, the Second Circuit found that defendant-employer owned its copies. The Krause analysis was not contrary to the determination that CTA was a licensee.
(3) Vernor contended that Bobbs-Merrill17 established his entitlement to a first sale defense. But the court held that Bobbs-Merrill held only that a copyright owner’s exclusive distribution right did not allow it to control sales of copies after the first sale.
(4) Finally, Vernor contended that “economic realities” demonstrated that Autodesk made “first sales” to its customers, because Autodesk allowed its customers to possess their copies indefinitely and did not require recurring license payments. The court had stated that neither of those factors was dispositive.
UMG v. Augusto, decided by the same Ninth Circuit panel as Vernor,18 reached a different result. Plaintiff copyright owner sent CDs containing sound recordings, without any prior agreement with or request by recipients. Defendant, although not a recipient, managed to obtain some and sold them at auction, which plaintiff contended infringed its right to distribute. Defendant contended that plaintiff’s distribution constituted a sale, while plaintiff maintained that the circumstances of the distribution merely gave rise to a license. The CDs bore the following statement: “This CD is the property of the record company and is licensed to the intended recipient for personal use only. Acceptance of this CD shall constitute an agreement to comply with the terms of the license. Resale or transfer of possession is not allowed and may be punishable under federal and state laws.” Some CDs also stated: “Promotional Use Only—Not for Sale.”
Defendant argued that he was entitled to sell under the first sale doctrine and that, alternatively, the original recipients were entitled to treat the CDs as gifts under the Unordered Merchandise Statute.19 The court acknowledged that not every transfer of possession transfers title. The court concluded that “under all the circumstances of the CDs’ distribution, the recipients were entitled to use or dispose of them in any manner they saw fit, and UMG did not enter a license agreement for the CDs with the recipients. Accordingly, UMG transferred title to the particular copies of its promotional CDs and cannot maintain an infringement action against Augusto for his subsequent sale of those copies.” The court so concluded because the promotional CDs were dispatched without prior arrangement, the CDs were not numbered, and no attempt was made to keep track of particular copies or what use was made of them. And although UMG placed written restrictions on the CDs, it was not established that those restrictions created a license agreement.
Moreover, the court held that under the Unordered Merchandise Statute, the CDs could be regarded as a gift by the original recipients, “who shall have the right to retain, use, discard, or dispose of it in any manner he sees fit without any obligation whatsoever to the sender … .” Under this statute, title was transferred to the original recipients, who had a right to dispose of them, as did their successors in interest.20 “UMG’s distribution of the promotional CDs under the circumstances effected a sale (transfer of title) of the CDs to the recipients. Further sale of those copies was therefore permissible without UMG’s authorization.”21
Footnotes — § 4.11:
1  17 U.S.C. § 117. Section 117 provides:
§ 117.   Limitations on exclusive rights: Computer programs
(a) Making of Additional Copy or Adaptation y Owner of Copy.—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, or
(2) that such new copy or adaptation is for archival purposes only and that all archival copies are destroyed in the event that continued possession of the computer program should cease to be rightful.
(b) Lease, Sale, or Other Transfer of Additional Copy or Adaptation.—Any exact copies prepared in accordance with the provisions of this section may be leased, sold, or otherwise transferred, along with the copy from which such copies were prepared, only as part of the lease, sale, or other transfer of all rights in the program. Adaptations so prepared may be transferred only with the authorization of the copyright owner.
(c) Machine Maintenance or Repair.—Notwithstanding the provisions of section 106, it is not an infringement for the owner or lessee of a machine to make or authorize the making of a copy of a computer program if such copy is made solely by virtue of the activation of a machine that lawfully contains an authorized copy of the computer program, for purposes only of maintenance or repair of that machine, if—
(1) such new copy is used in no other manner and is destroyed immediately after the maintenance or repair is completed; and
(2) with respect to any computer program or part thereof that is not necessary for that machine to be activated or used other than to make such new copy by virtue of the activation of the machine.
(d) Definitions.—For purposes of this section—
(1) the “maintenance” of a machine is the servicing of the machine in order to make it work in accordance with its original specifications and any changes to those specifications authorized for that machine; and
(2) the “repair” of a machine is the restoring of the machine to the state of working in accordance with its original specifications and any changes to those specifications authorized for that machine.
2  17 U.S.C. § 109. Section 109 provides in pertinent part:
§ 109.   Limitations on exclusive rights: Effect of transfer of particular copy or phonorecord
(a) Notwithstanding 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. …
(b) [Limitation on certain non-sale disposals of computer programs.]
(c) Notwithstanding the provisions of section 106(5), the owner of a particular copy lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to display that copy publicly, either directly or by the projection of no more than one image at a time, to viewers present at the place where the copy is located.
(d) The privileges prescribed by subsections (a) and (c) do not, unless authorized by the copyright owner, extend to any person who has acquired possession of a copy or phonorecord from the copyright owner, by rental, lease, loan, or otherwise, without acquiring ownership of it.
(e) Notwithstanding the provisions of sections 106(4) and 106(5), in the case of an electronic audiovisual game intended for use in coin-operated equipment, the owner of a particular copy of such a game lawfully made under this title, is entitled, without the authority of the copyright owner of the game, to publicly perform or display that game in coin-operated equipment, except that this subsection shall not apply to any work of authorship embodied in the audiovisual game if the copyright owner of the electronic audiovisual game is not also the copyright owner of the work of authorship.
3  Vernor v. Autodesk, Inc., 621 F.3d 1102 (9th Cir. 2010).
4  The court rather consistently characterized the transfers of copies as “sales,” a curious phenomenon in a case where (i) the critical issue was whether the copies were sold, as opposed to licensed, and (ii) the court found they were licensed.
5  17 U.S.C. § 106(3).
6  17 U.S.C. § 109(a).
7  17 U.S.C. § 106(1).
8  17 U.S.C. § 117(a).
9  United States v. Wise, 550 F.2d 1180 (9th Cir. 1077).
10  MAI Sys. Corp. V. Peak Computer, Inc., 992 F.2d 511 (9th Cir. 1993).
11  Triad Sys. Corp. v. Se. Express Co., 64 F.3d 1330 (9th Cir. 1995).
12  Wall Data, Inc., v. Los Angeles, Co. Sheriff’s Dep’t, 447 F.3d 769 (9th Cir. 2006).
13  17 U.S.C. § 117(a)(1).
14  The court found that the legislative history supported its interpretation with regard to both § 109 and § 117.
15  DSC Communs. Corp. v. Pulse Communs., Inc., 170 F.3d 1354 (Fed. Cir. 1999).
16  Krause v. Titleserv, Inc., 402 F.3d 119 (2d Cir. 2005).
17  Bobbs-Merrill Co. v. Straus, 210 U.S. 339 (1908).
18  UMG Recordings Inc. v. Augusto, 628 F.3d 1175 (9th Cir. 2011).
19  See 39 U.S.C. § 3009(a), (b) (2006); see also Postal Reorganization Act of 1970, Pub. L. No. 91-375, 84 Stat. 719 (codified at 39 U.S.C. § 101).
20  “This effect of the Unordered Merchandise Statute distinguishes this case from those involving computer software, where the software consumers clearly ordered and paid for the software licensed to them.” UMG at 1181.
As to the statement on the CD label, the court stated:
It is one thing to say, as the statement does, that ‘acceptance’ of the CD constitutes an agreement to a license and its restrictions, but it is quite another to maintain that ‘acceptance’ may be assumed when the recipient makes no response at all. This record reflects no responses. Even when the evidence is viewed in the light most favorable to UMG, it does not show that any recipients agreed to enter into a license agreement with UMG when they received the CDs.
Id. at 1182. The court was also doubtful “that a license contract could arise from the absence of response of the recipients. The general rule of contract law is that the ‘mere receipt of an unsolicited offer does not impair the offeree’s freedom of action or inaction or impose on him any duty to speak.’ ” Id. at 1182.
21  Id. at 1183.