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Used Software Sales Threatened

September 12, 2010

The computer software industry won its battle in federal court on Friday in an effort to squash sales of second-hand programs covered by widely used licensing agreements.

The ruling by the 9th Circuit of Appeals raised concerns that it will encourage music labels, movie companies and book publishers to find ways around the so-called “first-sale” policy in an attempt to boost their slumping sales.

The policy – or doctrine – refers to a more-than-a-century-old decision by the US Supreme Court that determined copyright holders cannot prevent a buyer from reselling or renting a product after its initial sale, as long as additional copies aren’t remade.

It is a legal principle that allows many companies to continue to operate.

But the three-judge panel in the federal court concluded the first-sale doctrine did not apply to used software programs that an online merchant peddled in his store on eBay.

Timothy Vernor, the seller in question, had purchased unopened software, made by Autodesk Inc., at garage and office sales, without agreeing to license agreements imposed on the original buyer.

According to the court’s interpretation, the contract made it clear the rights to install Autodesk software were being licensed rather than sold. Without a definitive sale, the first-sale doctrine is unresolved, the court reasoned in the decision that overturned a lower federal court in Washington state.

Autodesk said it was pleased with the decision. The Software and Information Industry Association had filed documents supporting Autodesk’s position in the case.

The ruling sets the stage for other legal battles over the definitions of a sale and a license, said Corynne McSherry, an attorney for the Electronic Frontier Foundation, which fights to secure the boundaries of digital copyrights.

Vernor’s lawyer, Gregory Beck of Public Citizen, said he intends to ask a full panel of 11 judges in the 9th Circuit court to review Friday’s decision before considering a possible appeal to the US Supreme Court.

For now, Beck said he expects the 9th Circuit’s decision to have an unsettling effect on the used software market.

It’s something that eBay had hoped to avoid. The e-commerce company filed a brief in support of Vernor’s legal arguments citing the protections under the first-sale doctrine.

Many other software programs already installed on home and office computers are covered by licensing agreements using similar language to Autodesk’s programs, said Beck.

“That means the infrastructure already is in place for other software makers to say their customers don’t really own those programs,” he said.

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