SoftMan Products Co. v. Adobe Systems Inc. is a 2001 decision of the United States District Court for the Central District of California on whether a software reseller could break up boxed Adobe “Collections” and sell the component programs separately. Ruling on Adobe’s application for a preliminary injunction, Judge Dean D. Pregerson found that the transfers of Adobe software copies through the distribution chain to SoftMan were sales of those copies, that SoftMan had not assented to Adobe’s end user license agreement (EULA) because it never installed the software, and that Adobe had not shown a likelihood of success on its copyright or trademark claims. The court denied the injunction and vacated an injunction it had entered earlier.[1]
The order was a ruling on interim relief, not a final judgment. The case caption lists SoftMan as plaintiff; the order was made on Adobe’s counterclaims.[1]
Background
SoftMan was a Los Angeles-based company that distributed software mainly through its website. The court noted that there was no direct contractual relationship between Adobe and SoftMan.[1]
Adobe distributed its products through signed agreements with distributors and resellers, and each product was accompanied by a EULA recorded on the disk, which customers were asked to accept during installation.[1] Adobe also sold “Collections”: sets of individual products in one retail box at a discount from the separate retail prices. The court’s example was the Adobe Publishing Collection (PageMaker, Acrobat, Photoshop and Illustrator) at $999, against separate retail prices totalling $1,756.[1] The EULA allowed an end user to transfer the software only if all the other software bundled with it was transferred as well.[1]
The court granted Adobe a temporary restraining order and seizure order against SoftMan on 27 August 2001 and a preliminary injunction on 10 September 2001, to remain in effect while it considered supplemental briefing.[1]
The dispute
Adobe alleged that since at least November 1997 SoftMan had distributed unauthorised Adobe software, including educational versions and unbundled Collections. Adobe alleged that distributing the individual pieces of Collections infringed its copyright, specifically its exclusive right to distribute under 17 U.S.C. § 106(3), and violated its licences.[1] Adobe’s position was that it did not sell its software at all: every transaction in the stream of commerce was a licence, so that SoftMan was bound by the restrictions in Adobe’s distribution agreements and EULA.[1]
Adobe also alleged trademark infringement. It alleged that unbundled copies might lack the registration information needed for customer support and technical services, so that customers could be confused about whether they had bought a full retail product.[1]
SoftMan agreed that it broke Collections apart and sold the components as single products. It argued that the first sale doctrine in 17 U.S.C. § 109(a) entitled it to resell copies it had lawfully acquired. On the trademark claim, it said that each program in a Collection had its own serial number and could be registered for support individually.[1]
Decision or outcome
Sale or licence
The court looked to “the economic realities of the exchange”, citing the Ninth Circuit’s decisions in Microsoft Corp. v. DAK Industries and United States v. Wise. It found that the circumstances “strongly suggest” a sale rather than a licence: the purchaser obtains a single copy for a single price paid at the time of the transaction, and the licence runs for an indefinite term without renewal.[1] It added that distributors paid full value for the merchandise and bore the risks of loss and of being unable to resell it, which suggested a transfer of title. The court agreed that “a single payment for a perpetual transfer of possession is, in reality, a sale”.[1]
The court distinguished two cases Adobe relied on, Microsoft v. Harmony Computers (which involved counterfeit products) and Adobe Systems v. One Stop Micro (which involved altered educational versions), and declined to adopt the analysis in One Stop to the extent that it treated the transaction as a licence.[1]
EULA assent
The court held that a consumer assents to the EULA, if at all, when loading the program and beginning installation. Because it was undisputed that SoftMan had never loaded the software it sold, SoftMan was not bound by the EULA.[1] A notice on the box that the product was offered subject to the enclosed licence was not enough to bind SoftMan. The court found it unnecessary to decide whether shrinkwrap licences are generally valid, noting that courts had divided on the question and citing ProCD v. Zeidenberg among the decisions enforcing them.[1]
The court also rejected Adobe’s argument, based on New York Times Co. v. Tasini, that distributing a component of a collective work infringes even after a first sale, because Tasini did not address the fate of an individual copy under the first sale doctrine.[1]
Trademark and injunction
On the trademark claim, the court said that software sold without the ability to register for support could be “materially different” from genuine Adobe software and could cause confusion. However, whether SoftMan’s customers could in fact obtain support was disputed, so Adobe had not shown a likelihood of success.[1] The court found no irreparable injury, noting that Adobe had known of SoftMan’s activities since 1997, treated the balance of hardships as neutral, and found that public interest considerations favoured SoftMan on the copyright claim. It denied the preliminary injunction and vacated the injunction of 10 September 2001.[1]
Later proceedings
The docket records that the case was terminated on 8 August 2003. The Federal Judicial Center’s Integrated Database records the disposition as “Other” with no judgment category; no final judgment on the merits appears in the public record reviewed for this article.[2] In August 2011 Adobe filed a separate copyright and trademark complaint in the Northern District of California naming Softman Products, LLC among the defendants (Adobe Systems Inc. v. Dracup); the FJC record shows that case as settled in July 2012. Its terms are not public.[4]
Significance for software licensing and SAM practice
The order’s two main conclusions were that a single payment for perpetual possession of a boxed copy is a sale of that copy whatever the transaction is called, and that a reseller that never installs the software has not accepted the EULA.[1] As an order on a preliminary injunction from a single district court, it is not binding precedent.
Nine years later, in Vernor v. Autodesk, the Ninth Circuit adopted a different test. It held that a software user is a licensee rather than an owner where the copyright owner specifies that the user is granted a license, significantly restricts transfer, and imposes notable use restrictions.[3] Vernor did not discuss SoftMan, but its test looks to the terms of the agreement, whereas the SoftMan court relied on the single payment and indefinite possession.[3][1]
The facts of the case touch on several points that software asset management records commonly capture:
- Bundle and suite terms. The Adobe EULA tied the transfer of any component to the transfer of the whole bundle, and SoftMan’s business consisted of selling the components separately.[1]
- Acquisition channel. Adobe’s claims depended on the chain from Adobe to its authorised distributors and resellers, with whom it had signed agreements, and on to a reseller with which it had none.[1]
- Support entitlement. The trademark analysis turned on whether an unbundled copy could still be registered for Adobe’s customer support and technical services.[1]
The decision concerned perpetual boxed products. Adobe’s current licensing models are covered in Adobe Named User licensing and Adobe Creative Cloud for teams and enterprise licensing.
Lessons learned
- A single payment for perpetual possession of a boxed copy may be treated as a sale of that copy, whatever the licence label says. The court looked to the economic realities of the exchange and found that a single payment for a perpetual transfer of possession is, in reality, a sale.[1]
- A reseller that never installs software may not be bound by the EULA. The court held that assent to the EULA, if any, occurs when the software is loaded and installed, so SoftMan, which never installed the copies it sold, was not bound by it. A notice on the box was not enough.[1]
- Bundle and suite transfer terms and support registration rights should be recorded for each acquired product. Adobe’s EULA tied the transfer of any component to the transfer of the whole Collection, and its trademark claim turned on whether unbundled copies could still be registered for support.[1]
- This interim district court order is not binding precedent and was followed by a different Ninth Circuit test. In Vernor v. Autodesk the Ninth Circuit later looked to the licence terms, including transfer and use restrictions, rather than to the single payment and indefinite possession relied on in SoftMan.[3][1]