Genie Out of the Bottle (Tech Trends Feature)

Ruling in software resale case rubs developers the wrong way.

Editor's note: We invite you to share your thoughts on this issue. To discuss it, please visit the CAD Manager's Perspective on Software Resale (or) Piracy thread of the CAD Managers Discussion Forum at www.cadalyst.com/forums.

In 2005, when Timothy Vernor, owner of Happy Hour Comics, stumbled on a copy of AutoCAD R14 at a garage sale priced at just a few dollars, he quickly snatched it up. He didn't know much about AutoCAD, or CAD, for that matter. But based on his eBay trading experience, he judged he should be able to resell the venerable software for a reasonable profit.

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When his attempts to unload the software met with countermeasures from Autodesk, he filed a lawsuit with the U.S. District Court in Seattle. A little less than a year after Vernor vs. Autodesk entered the docket system, the presiding judge, the Honorable Richard Jones, issued an order. The crux of his 21-page document was this: Vernor can sell or otherwise dispose of the AutoCAD software in his possession as he sees fit.

The outcome of the case has become the talk of the town. It's the focus not only of the CAD community but the legal community and the software industry at large. One of the thorny issues is this question: Can you protect the software developer's intellectual property (IP) without infringing on the consumer's rights?

Vernor vs. Autodesk

On August 1, 2007, Vernor filed his complaint against Autodesk in a simple four-page document. He alleged Autodesk had repeatedly disrupted his trading activities on eBay. "On at least five separate occasions starting in May 2005," he wrote, "Autodesk Inc. has used the digital millennium copyright act to have my items for sale removed from the eBay site." According to Vernor, he experienced temporary suspension of his eBay account lasting approximately 30 days.

Autodesk attorney Andrew MacKey insisted his client had nothing to do with the suspension of Vernor's account. "Perhaps the action with respect to eBay resulted from other auctions you have placed," he suggested in a letter to Vernor.

In Vernor's view, the copy of AutoCAD he was reselling was "a genuine retail version of the software," which he purchased from "the original purchaser." Therefore, he believed the First Sale doctrine allowed him to copy, lend, resell, or give away the copyrighted item lawfully.

MacKey held a different view. In another letter to Vernor, he wrote, "Autodesk software is licensed, not sold." Furthermore, he pointed out the software came with an "Autodesk Software License Agreement (ASLA) that prohibits transfer of the software license."

Eventually, the case caught the attention of the consumer advocacy group Public Citizen. Taking up Vernor's cause, Gregory Beck, a lawyer representing the group, amended Vernor's original complaint. Beck asked for, among other things, "A declaratory judgment that (a) Vernor's resale of authentic, used copies of AutoCAD software is lawful . . . (b) Autodesk's 'Software License Agreement' is unenforceable . . . (c) Autodesk has no right to interfere with Vernor's sale of authentic, used copies of Autodesk software. . . . "

Judge Jones' recent ruling in favor of Vernor marks the conclusion of a chapter in the legal drama, but not necessarily the end of it. Autodesk plans to appeal the decision.

Sales vs. License

Autodesk declined to be interviewed for this article. But the company, which belongs to the Business Software Alliance (BSA), pointed to BSA's policy as a reflection of its position. In BSA's view, "What a lot of people don't realize or don't think about is that when you purchase software, you are actually purchasing a license to use it, not the actual software. . . . If you make more copies of the software than the license permits, you are pirating."

Autodesk's rival SolidWorks, also a BSA member, shares this view. Jeff Ray, SolidWorks CEO, said, "This is a sound policy. Most people have no problem abiding by it, except the few who want to make a profit at the expense of others who abide by the law." He believes Autodesk has every right to appeal and "a higher court will make a more rational, intelligent decision."

Software resale doesn't pose a significant threat to enterprise software providers such as Arena Solutions. The Arena Solutions software code configured for GM's operations, for example, cannot be reused by Toyota without significant rework. Nevertheless, Arena Solutions vice-president of marketing, Douglass Bell, admits he too is troubled by the recent court ruling.

"The software economy depends so much on IP protection," he said. "My guess is a higher court would overturn [Judge Jones'] decision." But, he added, Arena Solutions' model of licensing enterprise software for use by subscription rather than sale protects it from issues related to software resale.

In his blog, William Patry, Google's senior copyright counsel, explained, "As a license, the First Sale doctrine doesn't apply, meaning copyright owners can prevent further distribution of the copy." He added that the claim by some software companies that the transaction is not a sale "is an absurd position to me. . . . Having made a sale at full value, there is no reason to let copyright owners preclude a rightful possessor of a copy from disposing of that copy, and no reason to force the rest of us to buy only new copies."

On Cadalyst's CAD Managers Discussion Forum (www.cadalyst.com/forums), Ian Carnow from Neil Carnow AIA Architect reasoned, "IP needs to be treated more like regular property. It's unfair to the original purchasers of the software [if you] limit their ability to use the software and their options for resale and upgrade. Most businesses and people aren't pirates. They don't want several illegal copies of software; they just want fair prices and the ability to reuse or resell their seats."

eBay's Role

Ironically, software sales seem to constitute merely a fraction of Vernor's eBay business. On July 2, his virtual storefront listed 4,098 auction items. Most of them were vintage comics: plastic-sealed copies of The Incredible Hulk or Captain America from the 1960s and 1970s (going for $250–$350 each). With the exception of 150 computer games, the only thing remotely resembling software in his list was a PC-based tool for learning French. Nevertheless, he considered his time and effort on the case well spent.

Vernor said, "I felt I had to take a stand somewhere. I just decided this case was where it would be." He had a similar encounter with Microsoft over a previous auction item. "Several years ago, they were a lot more aggressive, but they've pretty much backed down on it," he recalled.

An eBay search by product names on July 2 also revealed 122 items listed for AutoCAD (figure 1) and 28 for SolidWorks awaiting final bids. In the mix are training CDs and unregistered versions of the software. These items present a headache for the developers who feel the unsanctioned transactions are depriving them of their dues. According to eBay policy, if you want to list a digital item for sale, you must be "the owner of the underlying IP or authorized to distribute it by the IP owner."

Figure 1. Is it legal to resell old software, such as these AutoCAD 2009 and R14 copies listed on eBay? Most software vendors argue it isn t — or shouldn t be. But a recent court ruling in Vernor vs. Autodesk challenges this notion.

SolidWorks' Ray revealed he has a full-time employee dedicated to monitoring and preventing the trading of his company's software on eBay. "We have to watch it all the time because eBay doesn't watch itself," he said.

Genie Unleashed

Vernor added, "Autodesk and eBay are both industry leaders. Because there're lots of competing products and newer products, people are going to resell their old software. So vendors like Autodesk really need to look at how they treat software users."

Arena Solutions' Bell thinks open-source software might emerge as one outcome of the tug of war between IP protection and consumer rights. "But people are still trying to figure out the right business model for open-source software," he observed.

New York architect Carnow said, "Technology is blurring the lines of traditional marketing and sales models. Now that property is digital, it is potentially unlimited — and you can't put that genie back in the bottle."

You can place a bid over the wire at eBay with a single click, but when the auctioneer's virtual gavel drops, do you know exactly what you've bought? Bits and bytes are quickly replacing the more tangible — and the less easily duplicated — books and tapes, so our commerce practices and legal principles may be overdue for an upgrade too.