Ninth Circuit rules EULA licensing restrictions on digital content enforceable

The matter of first sale and imports I mentioned yesterday is not the only recent Ninth Circuit decision with unpleasant first-sale implications. Ars Technica reported yesterday that the Ninth Circuit ruled in a long-standing case concerning End-User Licensing Agreements on computer software—and from a consumer rights standpoint (and that includes e-book consumers), the ruling was not a good one.

The case is Vernor vs. Autodesk, and until yesterday a lower court ruling had been cited as a potential precedent in favor of users being able to resell computer software they had purchased. The case involved a man, Timothy Vernor, who had picked up some old copies of AutoCAD in an office sale, complete with legitimate serial numbers. Since they weren’t currently in use, he went to sell them on eBay, but Autodesk, the software’s publisher, shut him down. Vernor sued Autodesk in order to get his sales declared legal.

The AutoCAD EULA insisted that the software was not actually sold, but rather was licensed to end users, and the license was non-transferable—and it also required that older versions of the software (such as the ones Vernor bought) had to be destroyed on buying newer ones. A federal court ruling in 2008 favored Vernor, but the appeals court yesterday reversed the earlier ruling, finding that Vernor couldn’t resell the software because he hadn’t bought it from a legitimate “owner”.

The appeals court laid out a test for determining whether software could be considered “licensed”:

"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."

This ruling has fairly broad implications for not only software but all digital media, which are by and large “licensed” rather than sold. That includes mp3s bought from Amazon and iTunes, and also includes most e-books. The ruling means that content publishers could alter license terms to make it harder for libraries to lend out digital content (which also includes software packages), and it could also make it harder for non-profits to preserve out-of-print software.

Of course, there’s a fundamental difference between e-books and computer software in that most software comes embodied in a physical artifact whose single ownership can be transferred, whereas digital-only media can only be copied. An entire industry has grown up around the act of transferring those physical artifacts, in fact—Gamestop has been doing it for years, and other retailers such as Target have recently gotten into the act.

It’s no secret that the computer game industry really hates used sales, and has been trying various technological measures such as single-use codes to end them. Unless the Supreme Court reverses this ruling or Congress changes the laws, the Ninth Circuit may just have handed them all the ammunition they need to do it in the courts instead.

As for the notion of “used” e-book or e-music sales, those have always been pipe dreams, and almost nobody seriously expected publishers to allow them. This ruling certainly doesn’t make that any more likely.