The Software Licensing Dilemma

Is software licensed or sold? Software licensing occupies a unique position at the intersection of contracts, intellectual property, and commercial law doctrines. The difficulty in analyzing software licensing issues directly results from the sui generis nature of software that leads to the construct of what I refer to as the "software licensing dilemma"-if software is sold and not licensed, the licensor's ability to control unauthorized uses of its product is significantly curtailed; on the other hand, if software is licensed and not sold, the licensee's rights under the agreement are unduly restricted. Currently, the use of contract law to evaluate software license agreements is problematic not because the doctrine is inadequate but because those who use the rhetoric of contracts have tended to impose an artificially static view of what contract law demands-a view that wholly ignores the philosophical objectives underlying contract law. In this Article, I propose adopting a "dynamic contracts" approach to resolving the software licensing dilemma. A dynamic contracts approach aims to effectuate the intent of the parties while balancing their intent against policy considerations. A determination of the parties' intent would include examining both the nature of the transaction and the terms of the written document or license agreement. This Article argues that the validity of a license grant should not be inextricably tied to the validity of the contract. Contrary to what is suggested by the first sentence of this Article-is software licensed or sold?-software transactions are not a binary proposition. While some transactions can clearly be identified as either licensing or sales deals, most entail both. The recognition of the independence of license grant provisions exposes the binary proposition of license versus sale as a false dichotomy. In applying a dynamic contracts approach, this Article also addresses several policy considerations relevant to interpreting two often disputed license provisions-the restriction on transferability and the restriction on commercial use. I. INTRODUCTION On several occasions, Tim Vernor listed Autodesk software products for sale on eBay, the Internet auction site.1 Each time, Autodesk sent a Digital Millennium Copyright Act ("DMCA") notice to eBay, claiming that a sale of the Autodesk product would infringe its copyright. In response, eBay suspended the auction and Vernor, in turn, filed a DMCA counter-notice to Autodesk claiming that the sale was lawful.2 Vernor, wishing to sell additional Autodesk software, eventually sought a declaration that his resale of Autodesk software was lawful.3 Vernor had obtained copies of the Autodesk software products from a third party, "CTA."4 Autodesk, in turn, had transferred the software products to CTA pursuant to a settlement agreement that required CTA to adhere to the terms of Autodesk's end-user license agreement. Autodesk claimed that its end-user license agreement stated that the product could not be resold or transferred.5 The court in Vernor faced an important question regarding software transactions - is software licensed or sold? The court acknowledged that the cases addressing the license versus sale issue, even within the Ninth Circuit, were in "unavoidable" and "irreconcilable conflict."6 The federal district court ultimately concluded that the transaction between Autodesk and CTA was a "sale with restrictions on use," which fell under the first sale doctrine.7 The court based its ruling upon the earliest Ninth Circuit case addressing the issue of license versus sale, even though that case did not involve software products.8 Unfortunately, the court's decision is inconsistent with the leading Ninth Circuit cases that specifically address the license versus sale issue as it pertains to software? In fact, the court noted that if it were to apply recent case precedent to the matter at hand, "it would conclude that Autodesk did not sell AutoCAD copies to CTA. …