Appeals Court Holds Used Game Sales Are Illegal?: Light At The End of the Tunnel Edition

I am not going to go into again, I already did here, here and here, so take my word for it. Selling used games is harmful to game innovation. While publishers are engaged in a arms race against the ever growing number of used game sellers, the industry may be saved by the courts. In Vernor v. Autodesk The 9th Circuit Court of Appeals just ruled a properly worded EULA will preclude resale of software.

In the Vernor case, Vernor purchased copies of Autodesk software, did not open it, and resold it on ebay. Vernor contended he was protected by the first sale doctrine because he did not make copies, and did not open the box and become bound by the EULA. The court held otherwise and found Vernor a licensee of the software and therefore bound by the agreement which forbade resale.

Games and other software are legally resold under the first sale doctrine. In 1908, when contemplating the resale of printed, coyprighted works like books or music, the U.S. Supreme Court determined the rights of the copyright owner were exhausted after the first sale. The material's purchaser was allowed to resell the work, so long as they did not make or retain copies. The court did restrict the ruling to works which were sold, not licensed, hence the new ruling. Put simply, if a person is an owner, first sale applies. If they are a licensee, it does not. Without the protection of first sale, software cannot be resold.

The determination of ownership or license is made by the written agreement provided with the software. Specifically the Vernor court described the test as

where a transferee receives a particular copy of a copyrighted work pursuant to a written agreement, we consider all of the provisions of the agreement to determine whether the transferee became an owner of the copy or received a license. We may consider (1) whether the agreement was labeled a license and (2) whether the copyright owner retained title to the copy, required its return or destruction, forbade its duplication, or required the transferee to maintain possession of the copy for the agreement's duration.

The court tells us, if the right words are contained in the big mess we button through at the beginning of a game or other software installed on our computer, Gamestop cannot resell it. The binding part of the decision, the holding provides:

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.

The best way to ensure a place behind this shield is to exactly what the court said. The court ruled in Autodesk's favor because it's EULA reads:

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.

This all seems so clear. We are saved, right? Not really. This decision was made by the Court of Appeals for the 9th Circuit. While this Circuit hears many technology cases and the judge has a history of decisions not being overturned, the court is only one of 13 Circuits in the United States. Unless this case is raised to the Supreme Court for Appeal, it will be binding only on cases brought within the Circuit. It is only persuasive in other Circuits. If another Circuit rules the other way, it would be up to the Supreme Court to determine who prevails - if they are willing to do so. This may take a very long time. The actions giving rise to this case occurred in May of 2005. The first court ruling on the case found first sale applied and Vernor could resell. It was only after the appeal, five and a half years from the action, we know the outcome - unless there is another appeal. However, it gives us hope and as an industry we should embrace the decision and establish a standard license for out software.

If the EULA's do not include the Vernor court's magic language, change it. This will pave the way for The ESA, or individual publishers to bring an action against used game retailers to stop the practice once and for all.


Dan said…
The appeals court in Vernor v. Autodesk was simply wrong. The heart of the issue is identifying who is the "owner of the copy", because the owner of the copy has first-sale rights. It's absolutely critical to understand that the Copyright Act defines, in simple unambiguous terms, a "copy" as a "material object" in which a work is "fixed". So, the court needs to decide who owns the material object which is the copy; i.e. the physical discs.

We have Vernor on the one hand arguing that he owns the physical discs. Then we have Autodesk on the other arguing that they own the physical discs. This is not a difficult dispute to resolve, and it's absolutely amazing that some courts struggle so much with it.

Let's simply examine the "incidents of ownership" that each party to the dispute enjoys. First, lets look at Vernor. His possession of the discs is rightful (it's not unlawful, he didn't break any laws in order to obtain them and they are lawful, authentic copies) and his right to continue to possess them is perpetual. He can do as he chooses with the disc: keep them on his bookshelf, insert them into his computer, use them as drink coasters, or throw them in the trash. He can write his name on them with a magic marker, he can fry them in the microwave. He can do just about *anything* with them, short of making additional copies of them. (It's worth noting that CTA, the previous possessor of these copies, likewise could do all of these same things with the discs.)

Now, let's look at Autodesk's "incidents of ownership". They have no right to possess the discs because Vernor's possession is rightful and perpetual. And, well, that alone pretty well limits anything else they could legally do with them. They can't use them. They can't destroy them. They can't store them at their office. They can't even make copies of them (which they otherwise could do as the copyright owner) because making copies would necessitate possession in this instance. They cannot do any of the things that Vernor can do, and there isn't anything they *can* do that Vernor cannot.

So, who has more "incidents of ownership"? Vernor or Autodesk? It's a pretty easy question to answer.
Keith said…
Vernor owns the disk, Autodesk owns what's on it:

§ 202. Ownership of copyright as distinct from ownership of material object

Ownership of a copyright, or of any of the exclusive rights under a copyright, is distinct from ownership of any material object in which the work is embodied. Transfer of ownership of any material object, including the copy or phonorecord in which the work is first fixed, does not of itself convey any rights in the copyrighted work embodied in the object; nor, in the absence of an agreement, does transfer of ownership of a copyright or of any exclusive rights under a copyright convey property rights in any material object.
Dan said…
> Vernor owns the disk
That's absolutely right. But the thing we must understand is that § 101 says that the disk is the copy. And since ownership of the copy -- not ownership of the copyright -- is what gives rise to the first-sale right, Vernor, as owner of the disk, has the first-sale right.

> Autodesk owns what's on it:
Not exactly. Autodesk owns the copyright. The copyright isn't stored on the disc. The copyright is a set of intangible rights that have no physical embodiment. The copyrighted work, on the other hand, does have a physical embodiment and § 101 tells us that it is the disk itself, and Vernor owns that disk.

To properly analyze this case, it must be understood that the copy of the work is inseparably tied to the material object in which it is fixed. The Copyright Act specifically defines it this way.
Keith said…
To be more clear. Vernor owns the disk, Autodesk owns the copyright to the materials on the disk, thereby allowing the company to limit the licensees uses of the copyrighted material. Vernor's, and all of our use of software is a license, not a transfer of ownership.

If your measure of "right" by the court is consistency with a certain interpretation of the letter of the code, I guess you are right. But the point of the post was not to get into a granular argument about the nuances of copyright law. It was to highlight the 9th Circuit's decision to take a shot a bright line test which has the potential to kill used game sales.

In reality, neither one of us can say whether the court is right not. At this point, only the Supreme Court can, and until they say they are wrong, Vernor tells publishers what to put in license agreements if they want to challenge Gamestop within the 9th Circuit.
Dan said…
> But the point of the post was not
> to get into a granular argument
> about the nuances of copyright
> law. It was to highlight the 9th
> Circuit's decision to take a shot
> a bright line test which has the
> potential to kill used game sales.

Fair enough. Your post is accurate in terms of the Court's ruling and the ensuing implications.

> Autodesk owns the copyright to
> the materials on the disk,
> thereby allowing the company to
> limit the licensees uses of the
> copyrighted material

This couldn't be farther from the truth. Yes, Autodesk owns the copyright to the work, but the Copyright Act doesn't give them the ability to license "use". The only rights they can license are the exclusive rights the Copyright Act grants to the copyright holder (the right to make copies, right to distribute copies, etc). There is no exclusive right to "use" copies.
Anonymous said…
One problem I have with Vernor v. Autodesk: Where does it end? Will all the book publishers write EULAs for their books, purporting that the consumer only holds a license and not ownership of the words on the pages? Goodbye, used book stores. Why not cars; the Ford Motor Company can wrap up their cars in a shrinkwrapped EULA over the copyrightable elements of the car, and forbid a transfer. This is a bad direction to be going for the consumer.
wally2069 said…
Actually, this couldn't be further from the truth. The first-sale doctrine was made for exactly this reason.

But if you fell that this is true, then I would be more than happy to come collect your couch because the license only grants you permission to sit on it during Tuesday and only if my favorite sports team is winning.

Sarcasm aside, the implication here is terrible and puts unjust power in the wrong place.

Also, I predict this ruling being taken to a higher court where the appropriate ruling will be made. I not saying fight the power, it is about fighting the blatant injustice.
Keith said…
Thank you for the comment Wally. I believe the position is "true" because it is the position of the court. Until it is overturned, it remains the law in the jurisdiction and persuasive in others.

With regard to my couch, if I could make a copy of it and give it to someone else while retaining full value, it would be yours. Otherwise first sale does not apply.

Popular posts from this blog

The Timothy Plan: Hypocrisy Edition

VR/AR for Beginners

On Ownership: Game Objects Are Like Poison Mice Edition