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The Copy Ownership Cases

Cases and Courts:

  • UMG Recordings, Inc. v. Augusto (C.D. Cal.), appealed to (9th Cir.).
  • MDY Indus. LLC v. Blizzard Entm’t, Inc. (D. Ariz.), appealed to (9th Cir.).
  • Vernor v. Autodesk, Inc. (W.D. Wash.).

Background

The so-called “license versus sale” distinction that arises with respect to copies of software or music will confront the Ninth Circuit in three upcoming cases. In UMG Recordings, Inc. v. Augusto,1 the district court found that, notwithstanding “not for resale” labels, the initial recipients of “promo CDs” owned them and were thus entitled to sell the CDs to others.

In MDY Indus. LLC v. Blizzard Entm’t, Inc.,2 the district court held that purchasers of Blizzard’s World of Warcraft software are not owners of their copies of the software, and hence are not entitled to a Section 117 defense that would allow the owner of a copy of a computer program to make a copy of the program, provided such copy is created as an essential step in the utilization of the program.

Finally, in Vernor v. Autodesk, Inc.,3 the district court found that the transfer of Autodesk’s AutoCAD software to a third-party was a sale, and that Vernor, having acquired AutoCAD from the third-party, could invoke the first sale doctrine in order to resell his copies of AutoCAD on eBay without liability for direct or indirect copyright infringement.

These cases present the Ninth Circuit with multiple opportunities to revisit its decisions in the license versus sale context. The Vernor court wrote that these precedents are in irreconcilable conflict, which it could only resolve by following the earliest precedent.

What’s at Stake?

In a forthcoming article that I presented at the Ninth Annual IP Scholars Conference, I argue that that the Augusto and Vernor courts reached the correct outcomes and that the Blizzard court erred. The Augusto and Vernor decisions, through a faithful adherence to precedent, also represent an interpretive breakthrough in an area of law fraught with misguided approaches. By recognizing what is right in these decisions and what has gone so wrong in other cases, we can see not only how to reach the correct result in Blizzard, but how best to resolve the recurring question of when title to a copy passes to a transferee, giving rise to first sale and § 117 rights. Those rights are an essential part of the balance Congress struck between the users of copyrighted works and copyright owners.

Copy Ownership

It is critical to understand that the question before these courts has nothing to do with ownership of the underlying copyrights. Rather, the issue is whether Augusto, Vernor, or retail purchasers of World of Warcraft are “owners of” or “have title to” the physical DVD-Roms and/or CDs that they rightfully possess. Yes, we are talking about the ownership of shiny circles of plastic.

If you are shocked to learn that it takes a federal court to sort out who owns a copy of a DVD, you should be more shocked to learn that federal courts typically cannot figure it out either. In my extensive review of these cases, I have come across between four and six different approaches to the question (depending on how you count) taken by various courts. Shouldn’t there be a single straight-forward way to answer the question of who owns a tangible thing like a CD?

I argue that the correct approach to determining copy ownership:

  1. must be logically correct;
  2. must respect precedent;
  3. must respect congressional choices; and
  4. would hopefully make sense.

That is, courts must not equivocate with respect to the word “license,” must recognize the possibility of ownership of a copy independent from ownership of the copyright, must respect Supreme Court precedent, and should seek to harmonize Circuit Court precedents. Courts should also heed the warning of the Supreme Court’s recent Quanta Computer4 decision, must recognize the limiting role played by §§ 107-122 and examine whether contrary contractual provisions are federally preempted, and should preserve as far as possible the national uniformity copyright law seeks.

Well-reasoned Opinions to the Rescue

To make a long story short, the Augusto and Vernor opinions were breaths of fresh air in an area of law that had succumbed to a stench of inconsistent and illogical opinions. They achieved this breakthrough by relying on, and carefully understanding, the two key precedents on copy ownership in the Ninth Circuit: United States v. Wise5 and Microsoft Corp. v. DAK Indus.6

Particularly with respect to Wise, the Augusto and Vernor courts realized that the Wise court had placed special emphasis on the critical factor of perpetual possession. Of course, this is something that every teenager that shops at a Blockbuster Video store understands too: If I have to give it back, then I don’t own it, but if I don’t have to give it back, then I do.

When looking to the critical factor of perpetual possession, the Augusto and Vernor courts found that the record companies and Autodesk had parted with possession of the tangible discs forever, leaving the rightful possessors of those discs with the ability to use and keep them forever, or if so disposed, to throw them in the trash. Individuals with such rights must also be considered “owners” of these copies for purposes of the first sale doctrine.

Why MDY Indus. LLC v. Blizzard Entm’t, Inc. should be reversed

Blizzard distributes copies of World of Warcraft (“WoW”), a multiplayer online game, at most software and video game retailers for a one-time fee. Players also pay a monthly fee for online access. MDY sold “Glider” a software program called a “bot” that automated play of WoW. WoW is
governed by a EULA and TOU that players must agree to before playing. These agreements forbid, among other things, the use of bots. Blizzard alleged that users of WoW are licensees who are permitted to copy the copyrighted game client software only in conformance with the EULA and TOU, and that when users launch WoW using Glider, they exceed the license in the EULA and TOU and create infringing copies of the game client software.

Nothing about Glider enables copying of the software that was not already possible. Instead Blizzard’s theory is that Glider users make a copy of the software in RAM when they run WoW and that RAM copy is only permissible if the EULA and TOU are followed. But, the EULA and TOU are violated by Glider users, because those agreements forbid the use of bots. Under Blizzard’s view, if the EULA/TOU are violated, then any use of WoW (that creates a RAM copy)—even by the individual that purchased it—is an unauthorized infringement.

However, this argument falls apart if Blizzard users are owners of their copies of WoW, because Congress already gave owners of copies of software the right to make RAM copies in § 117 and no license from Blizzard is required. The district court held (without a serious discussion of the Wise or DAK Indus. precedents) that WoW purchasers were not owners of their DVD-ROMs. This was an error.

Purchasers of Blizzard’s WoW pay a single amount up front for the client software and nothing in Blizzard’s EULA or TOU reflect a requirement that WoW purchasers return the software to Blizzard after any specified period. It is theirs to keep, destroy, or give away for as long as they like. Under the approach demanded by controlling Ninth Circuit precedent, this leads to the conclusion that WoW purchasers are owners of their copies. As owners of copies, they are entitled, under § 117(a)(1), to make another copy of WoW, provided that such a new copy is created as an essential step in the utilization of WoW in conjunction with a machine and that it is used in no other manner. When an owner of a copy of WoW runs WoW in conjunction with Glider, a RAM copy of WoW is created as an essential step in the utilization of WoW in conjunction with their computer and that RAM copy is used in no other manner. The creation of the RAM copy is an essential step in the utilization of WoW in conjunction with their computer, because the creation of RAM copies is an automated process that necessarily occurs in the utilization of any program. WoW simply could not be utilized at all in conjunction with a computer without the creation of a RAM copy, thus the creation of RAM copies are an “essential step” in the utilization of WoW in conjunction with a computer. The RAM copy is used in “no other manner” because using the RAM copy is the only way to use WoW in any manner in conjunction with a computer. The “no other manner” requirement seems motivated by an interest in preventing the creation of infringing copies and Glider is not a cracking or copying tool that enables infringement.

Thus, if WoW users were entitled to make RAM copies of WoW under § 117, then even if such users breached their agreement with Blizzard with respect to using bots, they were not direct infringers of Blizzard’s copyright, and hence MDY Indus. is not liable for secondary infringement. This result is reasonable because it is profoundly odd that assisting someone to break the rules of a game would constitute secondary copyright infringement. No one likes cheaters, but that doesn’t mean they are copyright infringers.

Conclusion

The Augusto and Vernor opinions are such an improvement over other cases in this space that it will be truly disheartening if the Ninth Circuit disturbs the progress made in these cases. They should affirm these decisions and direct future courts to look to the critical factor of perpetual possession when asked to determine copy ownership. The Blizzard case is complex, and I actually will be surprised if the Ninth Circuit is able to cut through the numerous issues and see that the fatal error in the district court’s opinion was in its resolution of copy ownership. But, I’ll have my fingers crossed.

See also:

Footnotes

  1. UMG Recordings, Inc. v. Augusto, 558 F. Supp. 2d 1055 (C.D. Cal. 2008). []
  2. MDY Indus. LLC v. Blizzard Entm’t, Inc., 89 U.S.P.Q.2d 1015 (D. Ariz. 2008). []
  3. Vernor v. Autodesk, Inc., 555 F. Supp. 2d 1164 (W.D. Wash. 2008). []
  4. Quanta Computer, Inc. v. LG Elecs., Inc., 128 S. Ct. 2109 (2008). []
  5. United States v. Wise, 550 F.2d 1180 (9th Cir. 1977). []
  6. Microsoft Corp. v. DAK Indus., 66 F.3d 1091 (9th Cir. 1995). []

Categories: Contract, Copyright Limitations and Exceptions.

Comment Feed

9 Responses

  1. The Copyright Office is likely to engage in analysis of “ownership” in the context of Section 117 in the pending DMCA rulemaking proceeding dealing with jailbreaking the iPhone. The main bone of legal contention between proponent (EFF) and opponent (Apple) in that proceeding has turned on whether iPhone owners “own” the firmware on the iPhone.

  2. Fred

    As you know, I’m sympathetic to your arguments in the rulemaking, but two thoughts occur to me. First, does it or should it make a difference that iPhone firmware is subject to update or revision? Does it matter whether permission from the user is required as a legal or practical matter before the old firmware is replaced with something new? The service-based model looks a little less like ownership that the physical media cases, I think.
    Second, outside of the rulemaking context, how much weight, if any, do you think the Copyright Office’s pronouncements carry? I’d argue very little, and not solely because of some of their more troubling statements in 2000 and 2003.

  3. Typically someone installing a piece of software has to agree to a license agreement during the software installation process for the installation to proceeed (so-called “click wrap”.) Is there any law in the US that might make the license agreement binding in some way because of that?

  4. Yes. There are numerous decisions in U.S. cases enforcing various provisions in click wrap agreements and there are numerous decisions in U.S. cases refusing to enforce various provisions in click wrap agreements. It’s not an all-or-nothing issue that is always decided in the same way in all circumstances. Autodesk, Blizzard, and others can put all manner of nonsense in a click wrap agreement and it does not necessarily mean that a court will find it enforceable. Of note here is that Vernor never agreed to any click wrap agreement. He bought the copies of the software second-hand, never installed them, and then sought to resell them. The case of MDY may also be distinguishable as they are accused of secondary copyright liability, not direct infringement. So, it’s not even clear that looking to an agreement that one party may have never seen or consented to will make sense in trying to resolve this copy ownership issue.

  5. More generally, we should be concerned about courts looking to EULAs to decide questions of copy ownership. The trap too many courts fall into, as Brian and others have pointed out, is conflating restrictions on the use of the copyrighted work with limitations on the ownership of the copy.

    A license might say you are forbidden from making copies of the work on Tuesdays and Fridays, or you may do so only within the territorial borders of the United States, excluding Arkansas, but those restrictions are limitations on the exploitation of the exclusive rights of the copyright. They tell us next to nothing about ownership of the copy, the physical artifact.

  6. I’m not a lawyer, but I would think the courts should also consider the fact that 48 states refused to ratify UCITA precisely because it would have recognized these “clickwrap licenses.” And since they did not, the UCC language stating that a sale not involving a written contract is over (no new terms can be added afterward) when the money and goods change hands, is still in effect.

    In which case the next question is, why haven’t there been any class-action suits for fraud or bullying filed against publishers who continue to include “clickwrap licenses” in their packages?

    John David GaltDecember 31, 2009 @ 8:49 PM
  7. If they call it a license, enforce the license! i.e. For those who have had their account banned, I want to see an employee of Blizzard go to each person’s house and demand the CD/DVD, documentation and key-code returned and a forced deletion of the program from the computer. Same goes with ANY other software. Same goes with audio and video optical discs.

    If a license of any kind is revoked, I want to see the copyright owner or an employee of the company that owns the copyright to track down each user and confiscate their “licensed” copy of software, audio or video. I doubt any company would have the balls to do that. That would be public relations suicide.

    As for EULAs, none should have the authority to trump our Bill of Rights. There are many that say you cannot express or announce a negative opinion of the product. That’s a freedom of speech violation.

    Congress passed these laws to balance the force between Jedis (consumers) and the Sith (Publishers). So the publishers come up with these things called EULAs and Licenses to reverse/nullify those laws without any congressional debate.

    neghvarJanuary 1, 2010 @ 2:21 AM

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Continuing the Discussion

  1. [...] Today the Ninth Circuit gave a mixed result to both parties. We have previously discussed this case as part of the three copy ownership cases before the Ninth Circuit. [...]

  2. […] was a recent ruling (2) that would seem to indicate you may be an owner of a copy which would allow you to resell your […]