Plaintiff Adobe Systems Inc. filed suit in the district court for copyright and trademark infringement, alleging that defendants sold Adobe software through certain online services and that Adobe had not authorized defendants to make or distribute copies of its software. Defendants filed counterclaims for a declaratory judgment of copyright misuse, contending that Adobe misused its copyrights by asserting them in contravention of the first sale doctrine, as codified in 17 U.S.C. § 109. Defendants also asserted copyright misuse and the first sale doctrine as affirmative defenses. Adobe moved for partial summary judgment, seeking an order holding the first sale defense inapplicable and granting judgment in Adobe’s favor on defendants’ counterclaim.
Adobe distributes software products, including Original Equipment Manufacturer (OEM) products, which are bundled with approved hardware components and for which Adobe holds the copyright pursuant to restricted licensing agreements. In Adobe’s agreements with Dell and Hewlett Packard, Adobe (1) maintains the intellectual property rights in its software and grants the manufacturers a license to use the software, (2) restricts the use of the software, and (3) prohibits the manufacturers from promulgating the software through specified means and requires that the software is bundled with certain hardware.
The defendants acknowledged that they sold OEM copies of Adobe’s software—including software unbundled from Dell and Hewlett-Packard computers. The defendants packaged the OEM software with items that Adobe had not authorized for bundling. Defendants argued, however, that the first sale doctrine provided an affirmative defense. The district court rejected the argument. The district court noted that in Vernor v. Autodesk, Inc., 621 F.3d 1102 (9th Cir. 2010), the Ninth Circuit held that the first sale affirmative defense is unavailable to those who are only licensed to use their copies of copyrighted work, and a software user is a licensee and not an owner of a copy where the copyright owner (1) specifies that the user is granted a license, (2) specifically restricts the user’s ability to transfer the software, and (3) imposes notable use restrictions. The district court held that the record clearly established that Adobe transferred a license rather than title to its products, and that Adobe maintained control over the distribution of its software. Because Adobe licensed, rather than sold, its Adobe OEM software, the first sale doctrine did not apply, and the district court granted partial summary judgment to Adobe.
The Ninth Circuit affirmed, holding that the district court did not err in its application of Vernor, given that the OEM contracts specified that Dell and HP were granted licenses and that the licenses significantly restricted Dell’s and HP’s ability to transfer the software and imposed notable use restrictions. When software products are transferred under these circumstances, according to the panel, the transfer constitutes a license rather than a sale. The panel declined to consider arguments made by the defendants for the first time on appeal.