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October 2010

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Right To Own Software Decision Reversed

by Glen Emerson Morris
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On September 10, 2010, a panel of three judges on the Ninth Circuit Court of Appeals ruled that software is licensed, not owned, and software owners are within their rights in preventing people from selling used copies of their software. The decision reversed a lower court's ruling in Vernor v. Autodesk that Autodesk could not prevent anyone from selling used copies of Autodesk software on eBay. If allowed to stand, this decision will have far reaching consequences on all forms of media, including books, music, movies and video games, and probably hardware as well. However, the most serious consequences could fall on small to mid-sized businesses.

Ever since software packages for Mac and MS systems hit the shelves back in the mid-eighties the terms of use agreements (aka End User License Agreement, or EULA for short) in nearly all commercial software packages have remained a source of contention. New digital technologies created situations no laws had been specifically crafted to cover, and many issues fell into undefined gray areas that have yet to be decided. In this state of relative lawlessness, the EULA became the equivalent of the land grab. Its sole purpose was to give the software publishers the best terms possible. The EULA terms didn't just ask for the moon, the terms asked for the the whole galaxy.

According to most EULAs, software is offered on an “as is” basis, meaning it's not guaranteed to work at all, and the software publisher is not liable for any damages if it works incorrectly, even if there is gross negligence on the software publisher's part. Why any business would buy a business critical spreadsheet or accounting application under theses terms is comprehensible only when you consider that they really don't have a choice. All the major commercial software applications come with these terms, and frequently many other terms equally disadvantageous, or worse.

Things kind of worked because, in practice, software publishers were frequently willing to compromise on the more extreme EULA terms, rather than risk a court decision against them. The fact was, no one was entirely sure what the court decision would be since there was no exact precedent for the issue. It was a matter of figuring out what precedent came the closest to the current case, and what standard to apply, and opinions differed.

In the original Vernor v. Autodesk trial the court ruled the software was owned, not licensed, because the buyer received a physical copy of the software and did not have to return it. An analogy would be that whether you leased or owned a car would be determined by whether you had to return the car or not. However, this standard was reversed on appeal. As the appellate court put it, “We hold today that 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. ”In other words, the software terms are whatever the software publisher says they are, and the implications are enormous.

If the Ninth Circuit Court panel is upheld on appeal, software publishers will be much less likely to compromise on terms with customers. Even worse, they will be more likely to include even more extreme terms in EULAs, and to expand the types of products EULAs cover. Where it would stop would be hard to imagine.

If software is leased, does this mean that hardware that includes software, like printers, is also subject to EULA licensing? This is an important point because a recent court decision held that a printer owner did not violate the Digital Millennium Copyright Act when they cracked the software copy protection designed to keep them from using third party (and much cheaper) ink cartridges in their printer because they owned the printer and the software it included. If the software built in to printers can be classified as leased and subject to restrictions, modifying your own printer to use third party ink cartridges could be a criminal act. If so, copyrights have trumped property rights, and that's not good.

The right to own property is one of the most basic rights an individual or business can have in a democracy. In fact, commercial business would be impossible without the right to own property. The reversal of Vernor v. Autodesk strikes at the heart of that right in a way that compromises the economic well being of nearly every SMB in America using commercial software.

When a business bought a typewriter, they owned the tool they needed to produce typed letters, and they had an asset they could sell if need arose. Now, when a business buys a word processing application they really own nothing, they have a set of conditions to meet to keep using the software they don't own, and they have no asset to sell. From a businesses perspective, owned software is an asset, leased software is a liability.

The saying, “It is better to teach a man how to fish than to give him a fish,” has been replaced by the wisdom, “It's OK to teach a man how to fish, but it's better to rent him the fishing equipment he needs, especially if you can deny him the opportunity to own the equipment himself.”

The Ninth Court judges said their hands are tied, and any solution to the contrary will have to come from Congress. Whether they're right about the first point is moot. Their second point is valid. Only pressure on Congress is likely to resolve the issue now. In Washington, the EULA issue has been seen as a business versus consumer issue which completely misses the consequences of the Vernor v. Autodesk decision. It's a special interest versus SMB property rights issue. The final outcome will be determined by how effectively SMB owners can pressure Congress into making software ownership part of the American dream again.

Glen Emerson Morris was recently a senior QA Consultant for SAP working on a new product to help automate compliance with the Sarbanes-Oxley law, an attempt to make large corporations at least somewhat accountable to stockholders and the law. He has worked as a technology consultant for Yahoo!, Ariba, WebMD, Inktomi, Adobe, Apple and Radius.

Copyright 1994 - 2010 by Glen Emerson Morris All Rights Reserved ' keywords: Internet advertising, Internet marketing, business, advertising, Internet, marketing. For more advertising and marketing help, news, resources and information visit our Home Page.

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