Vernor v. Autodesk Three-Pronged Ownership Test Is Fatally Flawed

On appeal in Vernor v. Autodesk, the court defined a new three-pronged test for determining whether a user of software is an "owner" or merely a "licensee" within the meaning of sections 109 and 117 of the Copyright Act. It is my opinion that this new three-pronged test is fatally flawed.

First, let's introduce the three-pronged test:

a software user is a licensee rather than an owner of a copy 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.

Now let's apply this new test to some hypothetical cases. In doing so we'll demonstrate how the test fails to correctly determine whether or not the user is the owner of the copy. I've chosen these particular hypothetical cases because it is otherwise quite clear from the facts of the cases whether the user is or is not the owner of the copy. The first hypothetical case shows that application of the three-pronged test can lead to the incorrect conclusion that a user is an owner of a particular copy:

Alice asks Bob if she can use a copy of a program Bob wrote. Bob copies the program to his own USB flash drive and loans it to Alice. A week later, Bob asks to have the flash drive back, but Alice says she sold the USB drive to Charlie. Bob sues Alice for infringing his exclusive right to distribute copies of his program. Alice asserts she had a right to sell the copy under the first-sale doctrine.

The court must now decide whether or not Alice was an "owner of a copy" in order to determine if she can claim protection under the first-sale doctrine. Applying the three-pronged test:

1. Bob did not grant a license to Alice;


2. Bob did not specifically restrict Alice's ability to transfer the program; and


3. Bob did not impose any use restrictions.

It is clear from the facts that Alice is not an "owner of a copy". The USB drive, which is Bob's property, is the copy. Bob merely loaned the USB drive to Alice; he never transferred ownership of it to her. However, according to the three-pronged test, Alice clearly was an "owner of a copy" and therefore had a right, under the first-sale doctrine, to sell the copy to Charlie. The test fails to recognize that Bob was always the owner of the USB drive. And since the USB drive is the copy, Bob was always the owner of the copy. The fact that Bob didn't extend any license to any of Bob's copyrights simply has no bearing on who owns the USB drive and, hence, who owns the copy. If we stick to the three-pronged test, we must somehow explain how ownership of the USB drive was implicitly transferred to Alice (even though Bob's and Alice's original agreement was that the USB drive was merely loaned to Alice).

In the next hypothetical case, we demonstrate that the opposite outcome is also possible. That is, application of the three-pronged test may lead to the incorrect conclusion that a user is not the owner of a particular copy. The facts in this case are similar to the first, but this time the program is copied to Alice's USB drive and Bob additionally grants Alice a limited license:

Alice asks Bob if she can use a copy of a program Bob wrote. Bob copies the program to Alice's USB flash drive. Bob tells Alice he grants her permission to make more copies of the program, provided she doesn't give any copies to anyone else and provided she promises to only use the program for working on a specific school project. Alice never makes any other copies of the program. Later, she sells her USB drive to Charlie. Bob finds out about the sale and sues Alice for contributory copyright infringement. Alice again claims she is protected by the first-sale doctrine.

Once again, the court must determine whether or not Alice was an "owner of a copy" in order to determine if she can claim protection under the first-sale doctrine. Applying the three-pronged test:

1. Bob granted Alice a license;


2. Bob's license restricts Alice's ability to transfer the software; and


3. Bob's license imposes significant use restrictions.

It is clear from the facts that Alice is the owner of the copy -- the USB drive belongs to her. However, according to the test, Alice was merely a "licensee" and not an "owner of a copy". The test fails to recognize that Alice was always the owner of the USB drive. And, again, since the USB drive is the copy, Alice was always the owner of the copy. It also fails to recognize that Alice was both an owner and a licensee. If we stick to the three-pronged test, we must somehow explain how ownership of the USB drive automatically transferred to Bob once his program was copied to it.

The reason the test fails is three-fold:

1. The test relies on a logical fallacy known as "begging the question": the premise of the test, that the terms in the license are valid and binding upon the user (i.e. "the user is merely a licensee"), depends on the truth of the very matter in question (i.e. "is the user merely a licensee?").


2. There is an implicit and incorrect assumption within the test that a user can be either an "owner" or a "licensee", but not both (if you are a "licensee", then you are not an "owner of a copy").


3. The test assumes that ownership of a material object can be determined solely by looking to the terms of a license of intangible rights which may be completely unrelated to the transaction in which the user obtained possession, and possibly ownership, of the material object.

Because ownership of a copy of software is inseparably tied to ownership of the material object in which the software is fixed (i.e. the media it is recorded on), the question of ownership of the copy must look at how the user came into possession of the material object and whether or not the transfer of possession also transferred ownership. Any licenses of copyrights are entirely orthogonal to the question of ownership of the material object. In our second hypothetical case, Alice clearly owns her USB drive; the terms of Bob's license agreement allowing her to make additional copies is simply irrelevant -- yet the Vernor court's test would have us rely solely on the content of Bob's irrelevant license agreement.

In summary, application of the Vernor v. Autodesk three-pronged ownership test can be shown to reach the wrong result. The test fails because:

• it is based on a logical fallacy;


• it doesn't recognize that licensees can simultaneously be owners of copies; and


• it confuses the act of licensing intangible rights with the transfer of ownership of material objects.