Opinion ID: 3166404
Heading Depth: 3
Heading Rank: 2

Heading: the first sale defense

Text: In the face of an otherwise slam dunk copyright violation, Christenson asserts that his conduct fell within an exception to Adobe’s distribution rights under § 106—the first sale doctrine. Under the Copyright Act, this affirmative defense provides that “the owner of a particular copy . . . lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy . . . .” 17 U.S.C. § 109(a). The practical effect of this language is to significantly circumscribe a copyright owner’s exclusive distribution right “only to the first sale of the copyrighted work” because “once the copyright owner places a copyrighted item in the stream of commerce by selling it, he has exhausted his exclusive statutory right to control its distribution.” Quality King Distribs., Inc. v. L’anza Research Int’l, Inc., 523 U.S. 135, 141, 152 (1998); see also Vernor v. Autodesk, Inc., 621 F.3d 1102, 1107 (9th Cir. 2010) (“[A] copyright owner’s exclusive distribution right is exhausted after the owner’s first sale of a particular copy of the copyrighted work.”). Before answering the question left open in Augusto of who bears the burden of proof as to this defense, it is important to understand the contours of the term “sale.”3 See Augusto, 628 F.3d at 1178. 3 Augusto arose from a dispute over the distribution of compact discs which ultimately ended up on eBay. In addressing an infringement claim against the eBay seller, the court wrote: “While it is an open question as to whether the plaintiff or defendant bears the burden of proving the applicability of the first sale defense . . . we need not reach the issue in this case.” Augusto, 628 F.3d at 1175, 1178. ADOBE SYSTEMS, INC. V. CHRISTENSON 11 In digital copyright cases, the distinction between a “sale” and a “license” has become central. But this distinction did not arise with the advent of computer software. As early as 1908, the Supreme Court recognized that a sale creates a defense to a copyright claim while a license does not. See Bobbs-Merrill Co. v. Straus, 210 U.S. 339, 350 (1908).4 Bobbs-Merrill held the copyright to the novel The Castaway and sued Macy & Company for copyright infringement. Each copy of the book had a notice on the title page that the retail price was one dollar and “a sale at a less price will be treated as an infringement of the copyright.” Id. at 341. Macy purchased copies of the book at a discount and intended to sell them for less than a dollar. The Court held that BobbsMerrill did not have a right to control future sales of Macy’s copies because a copyright owner “who has sold a copyrighted article, without restriction, has parted with all right to control the sale of it.” Id. at 350 (emphasis added). Shortly after the Bobbs-Merrill decision, Congress codified the first sale doctrine in the Copyright Act of 1909. In this initial statutory iteration, the first sale rule did not explicitly require the defendant to own the copy at issue: That the copyright is distinct from the property in the material object copyrighted, and the sale or conveyance, by gift or otherwise, of the material object shall not of 4 Although the Supreme Court initially discussed the first sale doctrine in 1908, the doctrine can be traced to Pope v. Curll, an eighteenth-century English case. (1741) 2 Atk. 342. Pope centered on a dispute over letters written by Alexander Pope. The decision distinguished between ownership of the paper on which the letters were written and Pope’s exclusive right of publication. 12 ADOBE SYSTEMS, INC. V. CHRISTENSON itself constitute a transfer of the copyright, nor shall the assignment of the copyright constitute a transfer of the title to the material object; but nothing in this Act shall be deemed to forbid, prevent, or restrict the transfer of any copy of a copyrighted work the possession of which has been lawfully obtained. 17 U.S.C. § 41 (1909). Congress amended the Copyright Act in 1976 and revised the first sale defense. 17 U.S.C. § 109(a). Unlike its predecessor, the amended statute explicitly required that a defendant raising a first sale defense own the copy at issue. Id. (limiting the first sale defense to “the owner of a particular copy” (emphasis added)). The first sale defense did “not . . . extend to any person who has acquired possession of the copy . . . from the copyright owner, by rental, lease, loan, or otherwise, without acquiring ownership of it.” Id. at § 109(d). The legislative history confirms that Congress intended to “restate[] and confirm[] the principle that, where the copyright owner has transferred ownership of a particular copy . . . of a work, the person to whom the copy . . . is transferred is entitled to dispose of it by sale, rental, or any other means.” H.R. Rep. No. 94-1476, at 79 (1976) (emphasis added), reprinted in 1976 U.S.C.C.A.N. 5659, 5693. The Supreme Court first analyzed § 109(a) in Quality King. Distinguishing between the owner of a copy and a nonowner, such as a licensee, the Court emphasized that “because the protection afforded by § 109(a) is available only to the ‘owner’ of a lawfully made copy (or someone authorized by the owner), the first sale doctrine would not ADOBE SYSTEMS, INC. V. CHRISTENSON 13 provide a defense to . . . any nonowner such as a bailee, a licensee, a consignee, or one whose possession of the copy was unlawful.” 523 U.S. at 146–47. In other words, to claim the benefits of the first sale defense, the holder of the copy must actually hold title. Section 109(a)’s focus on ownership takes on a special significance in the digital context. In a world where licensing agreements are “ubiquitous,” “license agreements, rather than sales, have become the predominate form of the transfer of rights to use copyrighted software material.” Apple, Inc. v. Psystar Corp., 658 F.3d 1150, 1155 (9th Cir. 2011). In practice, because “the first sale doctrine does not apply to a licensee,” id., licensing arrangements enable software companies to restrict initial licensees of software from selling their licensed copies of the software to downstream users. Broadly construed, the licensing exception in the software context could swallow the statutory first sale defense. We have recognized, however, that some purported software licensing agreements may actually create a sale. See Vernor, 621 F.3d at 1111; Augusto, 628 F.3d at 1180. To determine whether there is a legitimate license, we examine whether “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.” Vernor, 621 F.3d at 1111. Where these factors aren’t satisfied, the upshot is that the copyright holder has sold its software to the user, and the user can assert the first sale defense. See Augusto, 628 F.3d at 1180–81. In the software copyright context, a dispute about the first sale defense raises several questions: First, which party—the copyright holder or the party asserting the defense—bears the 14 ADOBE SYSTEMS, INC. V. CHRISTENSON initial burden of showing ownership through lawful acquisition? Second, what does it take to discharge that burden? And finally, which party bears the burden of proving or disproving a license versus a sale? General principles of evidence, coupled with the statute and the legislative history, provide the answer. The burden of proof for an affirmative defense to a civil claim generally falls on the party asserting the defense. This same principle holds true in copyright. See 3 Melville B. Nimmer & David Nimmer, Nimmer on Copyright § 12.11[F] (2009) (“[A]s a matter of definition, the defendant bears the burden of proof as to all affirmative defenses . . . .”). For example, in claiming the fair use defense to copyright infringement, it is the proponent’s burden to come forward with favorable evidence about relevant markets to establish “the effect of the [challenged] use upon the potential market for or value of the copyrighted work.” Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 590–94 & n.20 (1994). Another key example is found in the Digital Millenium Copyright Act, also referred to as the DMCA, 17 U.S.C. § 512. The DMCA’s safe harbor provisions exempt Internet service providers from copyright liability under discrete statutory provisions; proponents who seek the safe harbor bear “the burden of establishing that [they] meet[] the statutory requirements.” Columbia Pictures Indus., Inc. v. Fung, 710 F.3d 1020, 1039 (9th Cir. 2013) (citing Balvage v. Ryderwood Improvement & Serv. Ass’n, Inc., 642 F.3d 765, 776 (9th Cir. 2011)). The rule is no different for the first sale defense. Under § 109(a), the party asserting the first sale defense bears the initial burden of satisfying the statutory requirements. Thus, that party must show ownership through lawful acquisition. ADOBE SYSTEMS, INC. V. CHRISTENSON 15 What does this mean in practical terms? In the context of a summary judgment motion in a software case, it simply means that the party asserting a first sale defense must come forward with evidence sufficient for a jury to find lawful acquisition of title, through purchase or otherwise, to genuine copies of the copyrighted software. To the extent that the copyright holder claims that the alleged infringer could not acquire title or ownership because the software was never sold, only licensed, the burden shifts back to the copyright holder to establish such a license or the absence of a sale. This burden-shifting construct makes sense. The copyright holder is in a superior position to produce documentation of any license and, without the burden shift, the first sale defense would require a proponent to prove a negative, i.e., that the software was not licensed. See 3 Nimmer § 12.11(E) (“It is submitted that in a civil action . . . the burden of proving the absence of a first sale should be on the plaintiff . . . . [T]he result . . . appears justified in that it involves ‘a matter uniquely within the knowledge of the plaintiff.’” (citing Bell v. Combined Registry Co., 397 F. Supp. 1241 (N.D. Ill. 1975))). This approach accords with the legislative history and with our general precedent that fairness dictates that a litigant ought not have the burden of proof with respect to facts particularly within the knowledge of the opposing party. Just as it would be unfair for a copyright holder to be burdened with proving that a downstream holder of a copy did not acquire the copy lawfully, so too it would be unfair to impose the burden of proving the lack of a sale on the proponent of the first sale defense. As the House Report acknowledges, it is an “established legal principle that the burden of proof should not be placed upon a litigant to establish facts 16 ADOBE SYSTEMS, INC. V. CHRISTENSON particularly within the knowledge of his adversary.” H.R. Rep. 94-1476, at 81; see United States v. N.Y., New Haven & Hartford R.R. Co., 355 U.S. 253, 256 n.5 (1957) (“The ordinary rule, based on considerations of fairness, does not place the burden upon a litigant of establishing facts peculiarly within the knowledge of his adversary.”); 2 McCormick on Evid. § 337 (7th ed.) (2013) (“A doctrine often repeated by the courts is that where the facts with regard to an issue lie peculiarly in the knowledge of a party, that party has the burden of proving the issue.”). Finally, we note that a downstream possessor, who may be many times removed from any initial claimed license, is hardly in a position to prove either a negative—the absence of a license—or the unknown—the terms of the multiple transfers of the software. With this framework in mind, we turn to the specifics of this case. As the district court held, it was uncontroverted that Christenson “lawfully purchased genuine copies of Adobe software from third-party suppliers before reselling those copies.” Christenson offered invoices to document his purchases of legitimate Adobe software from various suppliers. Nothing on those invoices suggests that he was other than a legitimate purchaser of the software. According to Christenson’s sworn statement, “[n]either [he] nor SSI have a contract with any of the suppliers that supplied SSI with software. . . . SSI asked them if they could supply SSI with a product at an acceptable price, and if they could, payment was negotiated.” This claim is consistent with Christenson’s inability to produce something more than invoices from his suppliers: He cannot produce records that do not exist. Christenson discharged his burden with respect to the first sale defense. ADOBE SYSTEMS, INC. V. CHRISTENSON 17 Adobe, of course, argues that Christenson could not have legitimately purchased the software because Adobe always licenses, and does not sell, copies of its software. On this point, the burden shifts back to Adobe to prove the existence and terms of a license. In an ordinary case, Adobe would produce specific license agreements and we would benchmark those agreements against the Vernor factors to determine whether there was a legitimate license at the outset, as well as whether downstream customers were “bound by a restrictive license agreement” such that they are “not entitled to the first sale doctrine.” Vernor, 621 F.3d at 1113. Asking Adobe to produce the license agreements, which would include any terms or restrictions, is not a difficult burden—Adobe is the original source of the software, claims to control distribution of the software, and holds the copyrights to the software. As Adobe noted in the district court: “Adobe and Adobe alone knows the parties with whom it contracts.” That categorical statement says it all—the license/ contract information is uniquely within Adobe’s knowledge. Adobe’s problem is that it did not produce those licenses or document the terms of contracts with specific parties. Because of the state of discovery at the time of the summary judgment motions, the district court excluded virtually all of Adobe’s late-offered evidence of licenses. Adobe challenges this ruling in its appeal. The district court and magistrate judge had a long history with the parties and their discovery efforts. After a careful examination of the rather tortured discovery process, we conclude that the district court did not abuse its discretion in granting Christenson’s motion to strike and excluding evidence purporting to document the licenses. See Wilkerson v. Wheeler, 772 F.3d 834, 838 (9th Cir. 2014) 18 ADOBE SYSTEMS, INC. V. CHRISTENSON (“Evidentiary rulings are reviewed for abuse of discretion.”); El Pollo Loco, Inc. v. Hashim, 316 F.3d 1032, 1038 (9th Cir. 2003) (“We review the district court’s ruling on a motion to strike for an abuse of discretion.”). Adobe’s effort to substitute general testimony and generic licensing templates in lieu of the actual licensing agreements does not withstand scrutiny under Vernor. Under Vernor, the precise terms of any agreement matter as to whether it is an agreement to license or to sell; the title of the agreement is not dispositive. And here, in the end, there is no admissible evidence that Adobe “significantly restrict[ed] the user’s ability to transfer the software” at issue here. Vernor, 621 F.3d at 1111. We thus affirm the district court’s order granting summary judgment in favor of Christenson and against Adobe on the copyright claim.5