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Courts Nix Reselling Digital Content -- It Really Isn't Yours

If you're in the digital media business, your world has just been sent for a spin as the U.S. Court of Appeals for the Ninth Circuit upheld end-user license agreements and spiked reselling many software packages and, presumably, a whole lot of music, video, and e-books.

According to the court opinion published today, Timothy Vernor had purchased several used copies of AutoCAD 14 from one of the direct customers of Autodesk (ADSK), the software's publisher, along with the valid installation codes and assurances that the copies were no longer installed. Vernor then tried to sell the software on eBay (EBAY). However, Autodesk had only licensed use, not sold copies of the software, and required them to be destroyed when the original user was done with them. Autodesk repeatedly accused Vernor of copyright infringement. Eventually, eBay suspended the man's account for a month.

Vernor took Autodesk to court, arguing that the so-called first sale doctrine under copyright law meant that the direct customer of Autodesk had the right to sell him the copy and he, in turn, had the right to sell it on eBay. Think of it as an argument for the electronic equivalent of the used book trade. A district court took his side, but the Court of Appeals overturned that decision:

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.
Because Autodesk explicitly retained ownership of the program and forbade transfer to another party, Vernor couldn't legally buy or sell the software.

However, this isn't about AutoCAD. It's about all manner of electronic media. As Nate Anderson points out on Ars Technica, Amazon's (AMZN) MP3 music store strongly restricts transfer of songs and offers a right to use music, not an outright sale:

Except as set forth in Section 2.1 above, you agree that you will not redistribute, transmit, assign, sell, broadcast, rent, share, lend, modify, adapt, edit, license or otherwise transfer or use the Digital Content. You are not granted any synchronization, public performance, promotional use, commercial sale, resale, reproduction or distribution rights for the Digital Content. You acknowledge that the Digital Content embodies the intellectual property of a third party and is protected by law.
I found the Kindle digital content terms, which were even more restrictive:
Upon your payment of the applicable fees set by Amazon, Amazon grants you the non-exclusive right to keep a permanent copy of the applicable Digital Content and to view, use, and display such Digital Content an unlimited number of times, solely on the Device or as authorized by Amazon as part of the Service and solely for your personal, non-commercial use. Digital Content will be deemed licensed to you by Amazon under this Agreement unless otherwise expressly provided by Amazon.
A brief check at the Apple iTunes terms don't show similar restrictions for music and videos, which are either sold or rented, but the App Store has additional wording: "The software products made available through the App Store (the "App Store Products") are licensed, not sold, to you."

This raises some interesting business questions. Is there a competitive advantage to selling copies of files rather than licensing them because customers will perceive greater value? Will the entire industry continue to gravitate toward walled garden models? Not just Apple, but Amazon, wireless carriers selling handsets, and others. Most importantly, how long can the industry make use of licensing rather than outright sales and keep customers from getting irate?

Granted, software companies have used licensing language for decades. However, apps, music, video, ebooks, and digital magazines have a different sense to them and consumers are more likely to want to sell and trade them, just as they sell old books, music CDs, and DVDs. It may be a case where companies will have to give up restrictions if only to keep their customers placated.


Image: Flickr user Arasmus Photo, CC 2.0.
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