Thursday, December 13, 2007

The Basics: Start Here

Did you know that you don't own the software that you buy? Any software you've paid for and have in your possession is actually the property of the software company. Yes, that's right. The CDs and DVDs containing the software that you've bought belong to the software companies. They are just letting you use them. Virtually any copy of software you've ever bought is not really yours. They all belong to the software companies. At least this is what the software companies want you to believe.

The software companies call this whole scheme "licensing". Instead of selling you a copy of software, they grant you a license. A license is basically permission to do something that you otherwise would not be allowed to do. Because the copy belongs to the software company, you are not allowed to use it without their permission. So, before you can begin using that copy, you must first get their permission. You get this permission by accepting the license that the software company offers you. Part of that offer includes the "license agreement", sometimes referred to as an EULA (End-User License Agreement). The only way for you to accept the license is to agree to the terms laid out in the license agreement. If you do not agree to all of the terms in the agreement, you will not be granted the license and will not be allowed to use the software. At least, this is how the software companies see it. Not everyone agrees with this view.

The problem with this notion of "software licensing" is that, claims from the software companies aside, there are many indicators that show that you are the true owner of the software. One of the hallmarks of ownership is the exclusive right to possess property for an indefinite amount of time. When you buy software at the store, it is yours to keep until you decide you don't want it anymore. In other words, you have an exclusive, indefinite right to possession of the software. Already, that is starting to sound like ownership. If you live in a state that charges sales tax, then you probably pay sales tax on software that you buy at the store. If the software companies aren't actually selling the software to you, merely licensing it, then you shouldn't have to pay sales tax. But if you do pay sales tax, then this is another indicator that the software is actually being sold to you, not licensed to you. Because you never have to return the software to the software publisher, the transaction in which you obtained the software does not fit the definition of a lease, loan, or rental. The only other reasonably fitting type of transaction that's left is a sale. Under the law, ownership of the goods being sold transfers to the buyer once the transaction is complete. In fact, the law describes the kinds of transactions that constitute sales, and buying software at a store fits the law's description of a sale perfectly.

It doesn't end there. Even before you buy your copy of the software, there are indicators that the software company has already sold the software. In their accounting practices, software companies recognize revenue from retail software as soon as the software is shipped. If the software was truly licensed, then nobody has purchased the license yet and the software companies should be barred, by generally accepted accounting principles, from recognizing revenue until the license has actually been paid for. These revenue recognition practices indicate that the software companies sell the software to their distributors. If a distributor resells a copy of software, they don't need to notify the software company of the transfer. This shows that the software companies are not at all interested in their purported ownership rights over that copy. They are only interested in shipping software and getting money for it. Both of these examples show that the software companies themselves treat the transaction like a sale.

It would appear that the courts are in disagreement as to whether (retail) software is generally sold or licensed. There have been a number of cases that have gone both ways. One camp has opined that the economic and physical realities of the transaction should determine whether it is a license or a sale. The other camp says that if the software companies say it's a license, then it's a license. In my opinion the former are correct and have the stronger argument.

What should this mean then, if software is sold and not licensed? This should mean that buyers of software do not need a license to use the software they buy. If you are the owner of a particular copy of software, you have the legal right to use that software on a computer. There are, however, some things you cannot do with your copy. You can't make copies of it, unless the copies you make are for archival purposes, or if those copies are absolutely necessary in order for you to use the software with a computer. You also can't make any software that is a derivative of the copy you bought. You can't do these things because the software company holds the copyright to the software. The right to make copies and derivative works are exclusive rights given to the copyright holder. When the software company sells you a copy of software, they sell you that particular copy only, they don't sell you the copyright. Nevertheless, as the owner of the copy, you are granted by law the right to use the software with a computer.

So where do "software license agreements" or EULAs fit in to the picture? You have the legal right to use the software. You don't need permission from the software company. You don't need a license from the software company. You don't need to agree to the "license agreement". Herein lies the rub: the software companies continue to insist that you need to agree to the license agreement before you may use the software. In my view, this is illegal interference with your ownership rights. No law, not even copyright law, gives them the right to prevent you from using a copy of software that you own.

I believe that software companies continue to use license agreements because they know that consumers will generally just accept the license agreement, most of the time without even reading it. If you voluntarily accept the agreement without objection, it could very well become a legally binding contract upon you. There is a line of court cases where this has been decided. Nevertheless, if you reject the license agreement, then as the owner of the copy, you should still be allowed to use the software. The problem is that you can't. The software companies force you to accept the license agreement, or you will be unable to install or use the software. Added to this, the "license agreement" usually instructs you to return the software if you don't agree to it. I believe that most people don't understand their rights in this area. Due to this lack of understanding, when faced with this "accept our terms or lose your right to use the software" ultimatum, most people simply agree to the terms because they feel they have no choice. If they reject the terms, they believe they must return the software, and they suspect that they will find substantially similar terms on just about any other competing product.

Whether, as a matter of law, you have a right to use software that you buy, if you are presented with a "license agreement" is still an open question. Copyright law quite clearly states that the owner of a copy of computer software has the right to use that software. What isn't so clear is whether or not, if you reject the terms of a "license agreement", you may still use the software or whether you are obligated to return the software instead. I would argue that you become the owner of the software the instant it is given to you and you part with your money. This argument is backed by the Uniform Commercial Code which plainly states when and how ownership is transferred in a sale. As soon as you become the owner, you can exercise any of your ownership rights even if you never so much as read the "license agreement". There have been court cases where the right to exercise ownership rights over software, in the absence of reading the "license agreement", has been upheld. It seems clear that ownership of the software can't be contingent upon agreeing with the "license agreement". It follows then, that ownership of the software remains even if you reject the "license agreement". Finally, since you own it you should be able to use it despite the fact that you've rejected the "license agreement".

Finally, I would argue that, if it is established that software is sold, not licensed, the mere fact that these agreements are called "license agreements" makes them, at the very least, meaningless. Or maybe even misleading to the point of being fraudulent.

To sum it all up, when you buy software, you own the copy you purchased. As a result, you should be allowed to use that copy even if you reject the "license agreement" or any other contract that comes with the software. However, the legal system hasn't yet made it clear whether this is true, and that really bothers me. A wise old lawyer once told me:
Under the rule of law we are supposed to know what we can and can't do, not have to guess at what will happen after someone sues us and we spend a couple of hundred thousand dollars or more to find out.

-- Ray Beckerman
I, for one, think it's long overdue that we find out just exactly what we can and can't do with the software we buy.

(And Ray, if you ever read this, please forgive me for calling you "old" :)


Anonymous said...

A great article.

Anonymous said...

It really depends on how you bought the software. If you picked up a CD at Walmart then yeah, sure. What you say applies to some extent.

But I see nothing wrong with the following situation: you go online, you see a description of the software you like. You find out however that they don't sell copies. They can license you to use the software if you wish. And here's the text of the license you'll have to accept. Want it? Great, pay for the license and you've got it. The license, that is. Not the software itself.

I mean there's a serious conceptual problem with the concept of software ownership. The only deliverable is a chunk of data. An ephemeral thing, like a concert performance. You may not even make copies of it except as allowed by the copyright law. What exactly have you bought then? There is nothing "ownable" to speak of. The best way to describe this, IMO, is that you bought the right to use it a certain way: namely, the way described in the attached document titled "The EULA".

Dan said...

US copyright law speaks of ownership of copies. No conceptual problem exists with the concept of copy ownership. This is because copies are specifically and unambiguously defined as material objects by US law. Even for software, there is no conceptual problem with this. For every copy of software, there is a material object that is the copy. When you download software online, the copy is created on your hard drive or whatever media you choose to store it on. If you own the hard drive (or other media), then you own the copy. It's as simple as that.

Any copyrightable thing must exist in a tangible form. If a piece of software was truly an ephemeral thing then it would not even be copyrightable in the first place. A work must be fixed in a material object before it can obtain copyright protection.

The bottom line is that it should never be copyright infringement to simply use a copy of something for its intended purpose. Just as the act of reading a book (its intended purpose) is not copyright infringement, so too running software on a computer (its intended purpose) should not be copyright infringement. Yet many in the software industry believe that simply using software for its intended purpose should be copyright infringement, and that a user therefore must be licensed to use the software in order to avoid prosecution for copyright infringement. That is very wrong-headed. As a software developer myself, I find it morally repugnant and I would never do such a thing with the software that I create.

Note that not requiring a license isn't the same thing as "open source" or "free software". Proprietary software can do just fine by relying on copyright law alone rather than these so-called EULAs.