United States: Copyright Infringement Case Is Blocked By First Sale Defense When Copyright Holder Failed To Show Its Software Was Merely Licensed

Abstract

Facing what the Ninth Circuit called "an otherwise slam dunk" copyright violation, an unauthorized seller of copyrighted software successfully asserted the "first sale" defense, and was therefore not liable for copyright infringement. According to the Court, if an accused copyright infringer asserts the first sale defense and produces evidence that it lawfully acquired title of genuine copies of copyrighted software, the burden shifts to the copyright holder to establish that the software was never sold, for example, by showing that the software was merely licensed. Although, the copyright holder argued it always licenses and does not sell copies of its software, it failed to produce the terms of the alleged licenses governing the specific copies at issue, and was found to fall short of its burden to counter the first sale defense.

A copyright grants the owner a set of exclusive rights, including the right to reproduce, distribute, display, and perform the protected work. However, under the first sale doctrine, once the copyright owner sells a copy of a copyrighted work, the new owner has the right to resell or otherwise dispose of that copy without the copyright owner's permission. For digital software a key issue for the first sale defense is whether the copyright holder sold or licensed the software, because the first sale defense only applies to sales and not licenses.

Recently, in Adobe Systems, Inc. v. Christenson,1 the U.S. Court of Appeals for the Ninth Circuit found Christenson's unauthorized sales of certain physical copies of Adobe's software protected under the first sale doctrine, in part because Adobe failed to produce contract terms showing that it licensed, rather than sold, the software.

Background

Adobe Systems, Inc. sued Joshua Christenson and his company for infringing its copyrighted Adobe Photoshop software. Christenson purchased physical copies of the Adobe software from a third-party distributor and operated a website where he resold those copies without Adobe's authorization.

Christenson asserted the first sale defense, arguing that by legally purchasing genuine physical copies of software from third-party distributors, he could resell those copies without permission.

Adobe responded that the first sale defense is unavailable because Adobe only licenses, and does not sell, copies of its software. For support, Adobe relied on a declaration by one of its employees, who described the different ways Adobe licenses its software.

However, because Adobe did not produce to Christenson license agreements covering the software at issue, the district court prohibited Adobe from relying on any such contracts to support its argument that it licensed, not sold, the software and concluded that Adobe could not prove whether its transactions resulted in a license as opposed to a sale. On appeal to the Ninth Circuit, the parties disputed the relative burdens of proving the first sale defense.

The Adobe Decision

The Ninth Circuit addressed the proper burden shifting between the parties to establish copyright infringement and the first sale defense.

First, because the burden of proving copyright infringement rests with the copyright holder, Adobe was required to prove ownership of a valid copyright and a violation by Christenson.

Next, the court explained that to succeed under the first sale defense, Christenson had the initial burden of producing evidence that he lawfully acquired copies of the copyrighted software. Upon that showing, the burden shifted back to Adobe to show that it licensed, not sold, the software. According to the Court, this burden shifting back to the copyright holder is logical because the holder is in the best position to produce documentation of any license agreements.

It was undisputed that Adobe holds copyrights in the software at issue and that Christenson sold and shipped the software without permission. But, under the first sale defense, the Court found that Christenson met his initial burden of showing that he lawfully acquired Adobe's software through third-party distributors, thereby shifting the burden to Adobe to prove the existence and terms of a license, as opposed to a sale. On this point, the Ninth Circuit agreed with the district court that Adobe could not rely on any license agreements that it did not produce to Christenson during discovery. In particular, the Court emphasized that "the precise terms of any agreement matter as to whether it is an agreement to license or to sell." Without this evidence, Adobe fell short of its burden to counter Christenson's first sale defense, and the Ninth Circuit affirmed the district court's ruling against Adobe.

Strategy and Conclusion

This case reviews the burdens of proving copyright infringement claims and defenses, and shows that a court may find general evidence, that a party always licenses rather than sells its software, insufficient to prove that the contested software rights were merely licensed and therefore not exhausted. The case also demonstrates the value of having appropriate software agreements in place and making them available for production in litigation as specific evidence as to whether the rights conveyed involved a license or a sale.

Footnote

1 The Adobe v. Christenson decision can be found at http://www.finnegan.com/files/upload/LES_Insights_Column/2016/AdobeSystemsvChristenson12-cv-17371.pdf.

Previously published by LES Insights

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