Adobe Systems Inc. v. Kornrumpf is a 2011 order of the United States District Court for the Northern District of California in a copyright and trademark suit brought by Adobe against two sellers of Adobe software on the eBay auction site. The court ruled on Adobe’s motion to dismiss the sellers’ counterclaims and on the sellers’ motion for a preliminary injunction. It declined to hear a counterclaim for a declaration of copyright misuse, let an unfair competition counterclaim go forward, and denied the injunction because, on the record then before it, the sellers did not appear entitled to invoke the first sale doctrine.[1]
The order decides interim motions, not the merits of Adobe’s claims.
Background
Adobe, a California corporation, filed the suit on 24 June 2010. It alleged that the defendants, Tennessee residents, used the eBay auction site, among other services, to offer and sell Adobe software, that it had not licensed them to make or distribute copies, and that they used images identical or similar to Adobe trademarks without a licence.[1]
The defendants counterclaimed for a declaration of copyright misuse and under California’s Unfair Competition Law. They also pleaded copyright misuse and the first sale doctrine as defences. Their account was that Adobe gives copies to hardware manufacturers who sell hardware with Adobe software as a package, that the manufacturers can resell the software without limit and that purchasers who do not want the bundled software sell it to independent resellers such as Hoops. The court had dismissed the defendants’ original counterclaims against Adobe and the Software and Information Industry Association in January 2011.[1]
The dispute
The central question was whether the copies the defendants sold had been the subject of a first sale. The defendants said Adobe’s hardware-bundling channel passed title to the manufacturers, who then sold on without Adobe’s control, and that Adobe misused its copyrights by asserting them against resales protected by 17 U.S.C. § 109. Adobe said the defendants had no licence to distribute its software.[1]
Decision or outcome
Copyright misuse counterclaim
The court declined to exercise its discretion to hear the counterclaim for declaratory relief of copyright misuse. Unlike the manufacturer in Apple v. Psystar, the defendants did not show that a declaration would clarify rights beyond what their misuse defence would decide, because the case concerned only their sale of copies that were part of a hardware package.[1]
Unfair competition counterclaim
The court refused to dismiss the Unfair Competition Law counterclaim as preempted. The claim concerned the limits of the first sale doctrine under section 109, the defendants did not assert rights under section 106 as copyright owners, and the court applied the presumption against preemption.[1]
Preliminary injunction denied
The defendants sought an order stopping Adobe from interfering with their eBay sales. The court recalled the Ninth Circuit’s Vernor v. Autodesk test: a software user is a licensee rather than an owner of a copy where the copyright owner specifies that the user is granted a licence, significantly restricts transfer and imposes notable use restrictions. A licensee cannot invoke the first sale doctrine.[1]
The defendants submitted Adobe’s contract with hardware manufacturers. It stated that Adobe provided only licences and that the manufacturer “shall not at any stage have title” to the software or the intellectual property in it. The court said that this suggested that title did not pass to the defendants. The defendants did not allege that the use restrictions described in Vernor were absent, their allegations that the manufacturers acquired title were conclusory and contradicted by the evidence, and their belief that their conduct was lawful did not justify an injunction. They had not shown a likelihood of success, so the motion was denied.[1]
Significance for software licensing and SAM practice
The order applies the Vernor v. Autodesk test to a second-hand channel for OEM-bundled creative software, showing that the vendor’s upstream channel contract can decide whether a downstream seller owns the copy it sells.[1] An earlier district court order, SoftMan v. Adobe, reached a different view of Adobe’s distribution chain before the Ninth Circuit adopted the Vernor test. Both are cited here for what the courts said, not as a rule that applies outside their facts.
For organisations that buy or sell licences, the facts point to records that matter:
- Origin of the licence. The OEM contract with the hardware manufacturer, not the end buyer’s receipt, was the evidence on title.[1]
- Transfer restrictions. Whether a copy may be transferred depends on the terms that accompany it, and the court looked for restrictions on transfer and use.[1]
Lessons learned
- Resellers of OEM-bundled software cannot count on the first sale doctrine where the channel contract says only licences pass. The court relied on Adobe’s manufacturer contract, which stated that no title passed, in finding that the resellers did not appear entitled to invoke the doctrine.[1]
- A stated licence, transfer limits and use restrictions point to a licensee under the Vernor test. The defendants did not allege that those restrictions were missing.[1]
- A belief that a resale is lawful does not support an injunction against the vendor. The court said that the defendants’ beliefs about legality were not enough on their own.[1]
- Keep the upstream contract or proof of title for each transferred licence. Whether the seller owned the copy decided the first sale question, and the court looked to the contract under which the copies were originally distributed.[1]