By Cheryl Beise, J.D.
A district court did not err in holding that an individual’s sales of lawfully acquired surplus Adobe software did not violate Adobe’s exclusive distribution rights because they were protected by the Copyright Act’s first sale doctrine, the U.S. Court of Appeals in San Francisco has decided. The district court also properly held that the doctrine of nominative fair use barred Adobe’s trademark infringement claims (Adobe Systems Inc. v. Christenson, December 30, 2015, McKeown, M.).
The dispute arose out of Joshua Christensen’s sales of surplus Adobe software on his website, softwaresurplus.com. In 2009, Adobe filed suit against Christenson and his now defunct company, Software Surplus, Inc., asserting that Christensen’s unauthorized sales of Adobe software violated Adobe’s exclusive distributions rights under the Copyright Act and its trademark rights under the Lanham Act. Christenson asserted numerous defenses and also filed counterclaims against Adobe and third-party tort claims against the Software Information Industry Association (SIIA), based on an SIIA press release stating that Christenson and his company “sold infringing copies, including counterfeit versions” and “swindled” consumers.
On September 12, 2012, the district court granted summary judgment to Christenson on Adobe’s claims. The court held that Christenson’s use of Adobe’s trademarks constituted nominative fair use and that Christenson’s software sales were protected by the first sale doctrine under the Copyright Act. The court also ruled that the Christenson could proceed with his counterclaims and third-party claims against Adobe and SIIA. In October 2012, the court stayed the case pending Adobe’s appeal.
First sale doctrine. The Ninth Circuit first considered the contours of the first sale doctrine as a defense to Adobe’s claim that Christenson violated its exclusive distribution rights. The first sale doctrine—first codified in the 1909 Copyright Act—creates an affirmative defense to a claim of copyright infringement. In the revised 1976 Copyright Act, Congress explicitly added the requirement that a defendant raising a first sale defense must own the copy at issue, a prerequisite that has been affirmed by the Supreme Court.
Section 109(a) of the Copyright Act currently provides that “the owner of a particular copy … lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy.”
In digital copyright cases, the distinction between a “sale” and a “license” has become central, the Ninth Circuit observed. “Broadly construed, the licensing exception in the software context could swallow the statutory first sale defense,” the court said. In recognition of this, the court previously has acknowledged that some purported software licensing agreements may actually create a sale. In Vernor v. Autodesk, Inc., 621 F.3d 1102, 1111 (2010), the Ninth Circuit held that legitimate license is established 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.”
Burden of proof. The appeals court next clarified that the party raising a first sale defense bears an initial burden with respect to the defense. “At the summary judgment stage, this burden is discharged by producing evidence sufficient for a jury to find that the alleged infringer lawfully acquired ownership of genuine copies of the copyrighted software,” the court said. The burden then shifts back to the copyright owner to establish “the absence of a first sale, by showing the existence of a licensing or other non-ownership-transferring arrangement when the copy first changed hands.” This approach accords with the legislative history of Section 109 and general principals of fairness, the court noted.
In this case, the district court correctly held that Adobe established it copyright ownership in the disputed software and that Christenson established that he lawfully acquired genuine copies of Adobe’s software from third-party suppliers.
The burden then shifted to Adobe to produce evidence that “it merely licenses and does not sell” the relevant software. At this point, the parties’ dispute became heated. After the parties filed their summary judgment motions, the district court granted Christenson’s motion to preclude Adobe from relying on contracts, licenses, agreements that Adobe failed to disclose under Fed. R. Civ. P. 26(a). Adobe nevertheless argued that Christenson could not have legitimately purchased the software because Adobe always licenses, and does not sell, copies of its software. Rejecting this argument, the district court found that Adobe could not prevail because it failed to produce the purported license agreements or other evidence to document that it retained title to the software when the copies were first transferred.
The Ninth Circuit saw no errors in any of district court’s findings. In particular, the court agreed that asking Adobe to produce the license agreements, which would include any terms or restrictions, was not a difficult burden. Adobe was the original source of the software, claimed to control distribution of the software, and held the copyrights to the software, the court said.
The district court also excluded all of Adobe’s late-offered evidence of licenses. “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,” the appellate court said. In addition, Adobe’s effort to substitute general testimony and generic licensing templates in lieu of the actual licensing agreements did not withstand scrutiny under Vernor. As Vernor made clear, the precise terms of any agreement matter as to whether it is an agreement to license or to sell, the court said. The court accordingly affirmed the district court’s order granting summary judgment in favor of Christenson and against Adobe on the copyright claim.
Trademark infringement. The Ninth Circuit agreed that the district court properly rejected Adobe’s trademark infringement claim based on Christenson’s nominative fair use defense. The defense may be invoked where a defendant uses the mark to refer to the trademarked good itself, rather than to inspire a mistaken belief that the speaker is sponsored or endorsed by the trademark holder. Adobe in this case did not argue that Christenson did not use the marks to truthfully label genuine Adobe products as such.
On appeal, and belatedly before the district court, Adobe argued that Christenson engaged in a “bait and switch” tactic of selling Adobe products licensed as academic or OEM products by describing them as “full” or “retail” versions, thereby misleading consumers as to which version they would receive. However, this argument was irrelevant to Adobe’s asserted claims of infringement of registered marks under Section 32 of the Lanham Act, the court noted. Adobe’s major gripe was with the sales themselves. “Adobe’s primary problem on the trademark claim is that it confuses the claim that it made—trademark infringement—with the claim it wishes it had made—unfair competition, or false advertising,” the court said. The district court’s grant of summary judgment to Christenson and against Adobe on the trademark infringement claim was also affirmed.
The case is No. 12-17371.
Attorneys: J. Andrew Coombs and Annie S. Wang (J. Andrew Coombs, PC) for Adobe Systems Inc. Lisa A. Rasmussen (Law Office of Lisa Rasmussen) for Joshua Christenson and Software Surplus, Inc.
Companies: Adobe Systems Inc.; Software Surplus, Inc.; Software Publishers Association d/b/a Software Information Industry Association
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