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Re: Psystar/Apple/First sale on Groklaw

From: Alexander Terekhov
Subject: Re: Psystar/Apple/First sale on Groklaw
Date: Tue, 13 Oct 2009 12:39:14 +0200

David Kastrup wrote:
> <URL:>
> Just for the record: I quite disagree with Pamela Jones on her
> assessment of the situation.  She basically thinks that "first sale"

For a change, you are in good company, dak. ;-)

To GNUtian Hyman Rosen: see comments below regarding the Blizzard case
that you've liked so much...

"The Copy Ownership Cases

Posted August 31st, 2009 by Brian and filed in Contract, Copyright
Limitations and Exceptions 

Cases and Courts:

 - UMG Recordings, Inc. v. Augusto (C.D. Cal.), appealed to (9th Cir.).

 - MDY Indus. LLC v. Blizzard Entm’t, Inc. (D. Ariz.), appealed to (9th

 - Vernor v. Autodesk, Inc. (W.D. Wash.).


The so-called “license versus sale” distinction that arises with respect
to copies of software or music will confront the Ninth Circuit in three
upcoming cases. In UMG Recordings, Inc. v. Augusto,1 the district court
found that, notwithstanding “not for resale” labels, the initial
recipients of “promo CDs” owned them and were thus entitled to sell the
CDs to others.

In MDY Indus. LLC v. Blizzard Entm’t, Inc.,2 the district court held
that purchasers of Blizzard’s World of Warcraft software are not owners
of their copies of the software, and hence are not entitled to a Section
117 defense that would allow the owner of a copy of a computer program
to make a copy of the program, provided such copy is created as an
essential step in the utilization of the program.

Finally, in Vernor v. Autodesk, Inc.,3 the district court found that the
transfer of Autodesk’s AutoCAD software to a third-party was a sale, and
that Vernor, having acquired AutoCAD from the third-party, could invoke
the first sale doctrine in order to resell his copies of AutoCAD on eBay
without liability for direct or indirect copyright infringement.

These cases present the Ninth Circuit with multiple opportunities to
revisit its decisions in the license versus sale context. The Vernor
court wrote that these precedents are in irreconcilable conflict, which
it could only resolve by following the earliest precedent.

What’s at Stake?

In a forthcoming article that I presented at the Ninth Annual IP
Scholars Conference, I argue that that the Augusto and Vernor courts
reached the correct outcomes and that the Blizzard court erred. The
Augusto and Vernor decisions, through a faithful adherence to precedent,
also represent an interpretive breakthrough in an area of law fraught
with misguided approaches. By recognizing what is right in these
decisions and what has gone so wrong in other cases, we can see not only
how to reach the correct result in Blizzard, but how best to resolve the
recurring question of when title to a copy passes to a transferee,
giving rise to first sale and § 117 rights. Those rights are an
essential part of the balance Congress struck between the users of
copyrighted works and copyright owners.

Copy Ownership

It is critical to understand that the question before these courts has
nothing to do with ownership of the underlying copyrights. Rather, the
issue is whether Augusto, Vernor, or retail purchasers of World of
Warcraft are “owners of” or “have title to” the physical DVD-Roms and/or
CDs that they rightfully possess. Yes, we are talking about the
ownership of shiny circles of plastic.

If you are shocked to learn that it takes a federal court to sort out
who owns a copy of a DVD, you should be more shocked to learn that
federal courts typically cannot figure it out either. In my extensive
review of these cases, I have come across between four and six different
approaches to the question (depending on how you count) taken by various
courts. Shouldn’t there be a single straight-forward way to answer the
question of who owns a tangible thing like a CD?

I argue that the correct approach to determining copy ownership: 

1.must be logically correct;
2.must respect precedent;
3.must respect congressional choices; and
4.would hopefully make sense.

That is, courts must not equivocate with respect to the word “license,”
must recognize the possibility of ownership of a copy independent from
ownership of the copyright, must respect Supreme Court precedent, and
should seek to harmonize Circuit Court precedents. Courts should also
heed the warning of the Supreme Court’s recent Quanta Computer4
decision, must recognize the limiting role played by §§ 107-122 and
examine whether contrary contractual provisions are federally preempted,
and should preserve as far as possible the national uniformity copyright
law seeks.

Well-reasoned Opinions to the Rescue

To make a long story short, the Augusto and Vernor opinions were breaths
of fresh air in an area of law that had succumbed to a stench of
inconsistent and illogical opinions. They achieved this breakthrough by
relying on, and carefully understanding, the two key precedents on copy
ownership in the Ninth Circuit: United States v. Wise5 and Microsoft
Corp. v. DAK Indus.6

Particularly with respect to Wise, the Augusto and Vernor courts
realized that the Wise court had placed special emphasis on the critical
factor of perpetual possession. Of course, this is something that every
teenager that shops at a Blockbuster Video store understands too: If I
have to give it back, then I don’t own it, but if I don’t have to give
it back, then I do.

When looking to the critical factor of perpetual possession, the Augusto
and Vernor courts found that the record companies and Autodesk had
parted with possession of the tangible discs forever, leaving the
rightful possessors of those discs with the ability to use and keep them
forever, or if so disposed, to throw them in the trash. Individuals with
such rights must also be considered “owners” of these copies for
purposes of the first sale doctrine.

Why MDY Indus. LLC v. Blizzard Entm’t, Inc. should be reversed

Blizzard distributes copies of World of Warcraft (”WoW”), a multiplayer
online game, at most software and video game retailers for a one-time
fee. Players also pay a monthly fee for online access. MDY sold “Glider”
a software program called a “bot” that automated play of WoW. WoW is
governed by a EULA and TOU that players must agree to before playing.
These agreements forbid, among other things, the use of bots. Blizzard
alleged that users of WoW are licensees who are permitted to copy the
copyrighted game client software only in conformance with the EULA and
TOU, and that when users launch WoW using Glider, they exceed the
license in the EULA and TOU and create infringing copies of the game
client software. 

Nothing about Glider enables copying of the software that was not
already possible. Instead Blizzard’s theory is that Glider users make a
copy of the software in RAM when they run WoW and that RAM copy is only
permissible if the EULA and TOU are followed. But, the EULA and TOU are
violated by Glider users, because those agreements forbid the use of
bots. Under Blizzard’s view, if the EULA/TOU are violated, then any use
of WoW (that creates a RAM copy)—even by the individual that purchased
it—is an unauthorized infringement.

However, this argument falls apart if Blizzard users are owners of their
copies of WoW, because Congress already gave owners of copies of
software the right to make RAM copies in § 117 and no license from
Blizzard is required. The district court held (without a serious
discussion of the Wise or DAK Indus. precedents) that WoW purchasers
were not owners of their DVD-ROMs. This was an error.

Purchasers of Blizzard’s WoW pay a single amount up front for the client
software and nothing in Blizzard’s EULA or TOU reflect a requirement
that WoW purchasers return the software to Blizzard after any specified
period. It is theirs to keep, destroy, or give away for as long as they
like. Under the approach demanded by controlling Ninth Circuit
precedent, this leads to the conclusion that WoW purchasers are owners
of their copies. As owners of copies, they are entitled, under §
117(a)(1), to make another copy of WoW, provided that such a new copy is
created as an essential step in the utilization of WoW in conjunction
with a machine and that it is used in no other manner. When an owner of
a copy of WoW runs WoW in conjunction with Glider, a RAM copy of WoW is
created as an essential step in the utilization of WoW in conjunction
with their computer and that RAM copy is used in no other manner. The
creation of the RAM copy is an essential step in the utilization of WoW
in conjunction with their computer, because the creation of RAM copies
is an automated process that necessarily occurs in the utilization of
any program. WoW simply could not be utilized at all in conjunction with
a computer without the creation of a RAM copy, thus the creation of RAM
copies are an “essential step” in the utilization of WoW in conjunction
with a computer. The RAM copy is used in “no other manner” because using
the RAM copy is the only way to use WoW in any manner in conjunction
with a computer. The “no other manner” requirement seems motivated by an
interest in preventing the creation of infringing copies and Glider is
not a cracking or copying tool that enables infringement.

Thus, if WoW users were entitled to make RAM copies of WoW under § 117,
then even if such users breached their agreement with Blizzard with
respect to using bots, they were not direct infringers of Blizzard’s
copyright, and hence MDY Indus. is not liable for secondary
infringement. This result is reasonable because it is profoundly odd
that assisting someone to break the rules of a game would constitute
secondary copyright infringement. No one likes cheaters, but that
doesn’t mean they are copyright infringers.


The Augusto and Vernor opinions are such an improvement over other cases
in this space that it will be truly disheartening if the Ninth Circuit
disturbs the progress made in these cases. They should affirm these
decisions and direct future courts to look to the critical factor of
perpetual possession when asked to determine copy ownership. The
Blizzard case is complex, and I actually will be surprised if the Ninth
Circuit is able to cut through the numerous issues and see that the
fatal error in the district court’s opinion was in its resolution of
copy ownership. But, I’ll have my fingers crossed.

See also:

 - Fred von Lohmann, Liberation Day for Promo CDs: Victory in UMG v.
Augusto, (Jun. 11, 2008).

 - William Patry, First Sale Victory in Vernor, The Patry Copyright Blog
(May 22, 2008).

 - Sherwin Siy, MDY v. Blizzard: Cheating at WoW may be bad, but it’s
not copyright infringement, Public Knowledge Policy Blog (May 5, 2008).


1.UMG Recordings, Inc. v. Augusto, 558 F. Supp. 2d 1055 (C.D. Cal.
2008). [?]

2.MDY Indus. LLC v. Blizzard Entm’t, Inc., 89 U.S.P.Q.2d 1015 (D. Ariz.
2008). [?]

3.Vernor v. Autodesk, Inc., 555 F. Supp. 2d 1164 (W.D. Wash. 2008). [?]

4.Quanta Computer, Inc. v. LG Elecs., Inc., 128 S. Ct. 2109 (2008). [?]

5.United States v. Wise, 550 F.2d 1180 (9th Cir. 1977). [?]

6.Microsoft Corp. v. DAK Indus., 66 F.3d 1091 (9th Cir. 1995). [?]

This work, unless otherwise expressly stated, is licensed under a
Creative Commons Attribution-Noncommercial-Share Alike 3.0 United States


(GNG is a derecursive recursive derecursion which pwns GNU since it can 
be infinitely looped as GNGNGNGNG...NGNGNG... and can be said backwards 
too, whereas GNU cannot.)

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