Ninth Circuit Appeals Court Decision On Fair Use And Right Of First Sale Fails To Budge The Needle On Either Issue

A ruling on fair use, the right of first sale and the limits of trademark protection has been handed down by the Ninth Circuit Court of Appeals panel. Normally, I'd proceed the word "ruling" with an adjective like "important," or "terrible," or "wonderful." But this ruling is none of those. It's a ruling, and I suppose it does set some sort of precedent, but thanks mainly to Adobe's inept handling of the case, it does very little to clarify any of the above issues. What it does do, however, is at least reaffirm burden-shifting for companies who insist they haven't sold software, but "licenses." This is the preferred method of undermining the right of first sale: tying up purchasers with legal language that claims they're not making purchases, but rather "renting" the goods until the manufacturer says otherwise. This allows companies to stipulate all sorts of restrictions on purchased goods, including the resale of software. Adobe tried to claim Joshua Christenson had never "purchased" any of its software, and therefore could not resell it. Christenson had in fact purchased software, but from third parties rather than directly from Adobe. Adobe didn't like being cut out of the loop, so it took him to court for alleged copyright and trademark infringement. Six years later, very little of it has stuck. (Christenson was sued in 2009.) The appeals court notes that Christenson successfully managed to shift the burden of proof on the licenses v. sales issue back on Adobe -- which then failed to produce evidence that the reseller possessed only worthless licenses rather than resellable goods. Noting that if construed broadly enough, software licenses could "swallow the statutory right of first sale defense," the panel says that the burden of proof must be shifted back to the plaintiffs when alleging copyright infringement of licensed software. The reseller only has to prove he or she acquired the software legally. Adobe -- being the manufacturer -- is in a "superior" position to demonstrate whether or not the software in question was merely licensed.

As the district court held, it was uncontroverted that Christenson “lawfully purchased genuine copies of Adobe software from third-party suppliers before reselling those copies.” Christenson offered invoices to document his purchases of legitimate Adobe software from various suppliers. Nothing on those invoices suggests that he was other than a legitimate purchaser of the software. According to Christenson’s sworn statement, “[n]either [he] nor SSI have a contract with any of the suppliers that supplied SSI with software... SSI asked them if they could supply SSI with a product at an acceptable price, and if they could, payment was negotiated.” This claim is consistent with Christenson’s inability to produce something more than invoices from his suppliers: He cannot produce records that do not exist. Christenson discharged his burden with respect to the first sale defense.

Adobe countered that it never sold software. It only licensed it. Burden of proof shifted to Adobe, which came up empty.

Adobe’s problem is that it did not produce those licenses or document the terms of contracts with specific parties. Because of the state of discovery at the time of the summary judgment motions, the district court excluded virtually all of Adobe’s late-offered evidence of licenses. Adobe challenges this ruling in its appeal. The district court and magistrate judge had a long history with the parties and their discovery efforts. After a careful examination of the rather tortured discovery process, we conclude that the district court did not abuse its discretion in granting Christenson’s motion to strike and excluding evidence purporting to document the licenses... Adobe’s effort to substitute general testimony and generic licensing templates in lieu of the actual licensing agreements does not withstand scrutiny under Vernor. Under Vernor, the precise terms of any agreement matter as to whether it is an agreement to license or to sell; the title of the agreement is not dispositive. And here, in the end, there is no admissible evidence that Adobe “significantly restrict[ed] the user’s ability to transfer the software” at issue here.

So, there's not much in the way of a "win" for the right of first sale. While it's heartening that the burden shifts to the "licensing" party to prove infringement, all this really does is encourage companies like Adobe to write more restrictive licenses. It does almost nothing at all to treat licenses as actual purchases, which can be resold wi