Copyright First Sale Doctrine and Burdens of Proof

Adobe, having been precluded from relying on license agreements that it failed to produce during discovery, has lost a summary judgment motion on its claim for copyright infringement against a defendant who asserted the first sale doctrine as a defense.  Adobe Systems, Inc. v. Christenson, No. 2:10-CV-00422-LRH-GWF (D. Nev. 2012).

Defendants sold software over the Internet.  Although not authorized Adobe distributors, they resold Adobe software, purchased from third parties, through their website.  Adobe brought claims for copyright infringement under the Copyright Act of 1976, and for trademark infringement under the Lanham Act (not relevant to this post).  In addition to the first sale doctrine defense, the defendants responded with counterclaims and a third-party complaint (also not relevant to this post).  Following discovery, the parties brought motions for summary judgment, and the defendants also brought a motion to strike certain evidence relied upon by Adobe.

During discovery, the court found that Adobe had “failed to identify contracts or license agreements in its Rule 26(a) disclosures.”  Based on this finding, the court ordered that Adobe “is precluded from using or introducing license agreements in support of its motion for summary judgment or at trial.”  However, the court explicitly did not preclude Adobe “from using contracts, license agreements or other documents produced by Defendants in Defendants’ disclosures or responses to discovery requests.”  Based on this history, the court granted the defendants’ motion to strike accompanying the summary judgment motions, and stated that it would “disregard the stricken materials for purposes of resolving the parties’ cross-motions for summary judgment.”

The first sale doctrine is codified at 17 U.S.C. § 109(a), which states that “the owner of a particular copy or phonorecord 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 or phonorecord.”  However, the court noted “two important limitations” of the first sale doctrine.  First, it applies only to the owner, and not to the licensee, of the copy of a copyrighted work.  Second, the first sale doctrine “applies only to copies that were lawfully made or sold in the United States, not to foreign-made copies not authorized for sale within the United States.”

Adobe contended that the defendants bore the burden of proof with respect to their first sale doctrine defense, and, moreover, that the defense was inapplicable because Adobe licenses, and does not sell, its products.  The court noted that the Ninth Circuit had not explicitly addressed the burden of proof question, but that “[t]he legislative history suggests that the defendant bears the burden of at least proving ‘whether a particular copy was lawfully made or acquired.’”  Placing the initial burden on the defendant made sense, because the defendant has particular knowledge about how it acquired its copy of the work.  However, the defendant’s showing that it lawfully acquired its copy, or that the plaintiff made first sales, “can shift the burden of production to the plaintiff to trace title backward to an illegitimate acquisition.”

In this case, it was “uncontroverted that Defendants lawfully purchased genuine copies of Adobe software from third-party suppliers before reselling those copies.”  Therefore, the only question was “whether Defendants’ distribution of the particular copies of Adobe software that it lawfully purchased was not protected by the first sale doctrine under either the licensing or origin exceptions.”

Here, the court thought that Adobe had the burden of showing that its software was licensed, not sold.  The court explained that “the copyright holder should bear the burden of producing evidence to establish that it retains title in and only licenses the copies it sells because any restrictions on ownership, transfer and use affirmatively imposed by the copyright holder in its dealings with its distributors are particularly within the copyright holder’s knowledge.”  However, Adobe could not make this showing because the above-discussed discovery sanctions precluded it from relying on its license agreements.

The court also rejected Adobe’s argument that some of its products were sold outside the United States and that the second limitation on the first sale doctrine defense therefore applied.  Adobe alleged only that “some” software had been sold outside of the United States, but could not specify any specific software falling into this category.  Accordingly, the court granted summary judgment in favor of the defendants on Adobe’s claim of copyright infringement.

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