Resale on eBay o.k. under First Sale Doctrine?

Last week the U.S. District Court in Seattle denied Defendant Autodesk’s motion to dismiss Plaintiff Vernor’s case, and held that under the circumstances, the sale of AutoCAD on eBay was protected by the First Sale Doctrine.

Vernor makes a living reselling goods on eBay. He found himself in hot water after trying to sell four copies of Autodesk’s AutoCAD on eBay, and sought a declaratory judgment from the Court that he was entitled to sell these copies of AutoCAD.

In 2005, Vernor bought a copy of AutoCAD at a garage sale. He then listed it on an eBay auction. When Autodesk found out about Vernor’s eBay auction, it sent eBay a notice and takedown request alleging that copyright infringement would occur if Vernor were allowed to sell its product. Vernor filed a counter-notice claiming his proposed sale was lawful. eBay reinstated the auction, and the sale was completed. Fast forward to 2007 when Vernor bought four copies of AutoCAD for sale on eBay. He was able to sell three copies after going through similar notice and takedown / reply correspondence as in 2005. When he tried to sell the fourth copy, eBay suspended his account for one month for alleged “repeat infringement.” He sued for a declaration that his proposed sale was lawful, and that Autodesk’s actions were unfair competition.

Vernor acquired his copies of AutoCAD from CTA who had acquired them from Autodesk as part of a settlement. Each copy contained a Software License Agreement which contained a “nonexclusive, nontransferable license to use the enclosed program … [including prohibiting] transfer … to any other person without Autodesk’s prior written consent.”

Contrary to Autodesk’s assertion, the Court held that Vernor did make out a valid cause of action, and that there is an actual case / controversy between the parties per the Declaratory Judgment Act. Moreover, the Court also held that “If It Applies, the First Sale Doctrine Immunizes Mr. Vernor” since “[t]he first sale doctrine permits a person who owns a lawfully-made copy of a copyrighted work to sell or otherwise dispose of the copy.” The Court also cited with approval Quality King Distribs., Inc. v. L’Anza Research Int’l, Inc., 523 U.S. 135, 152 (1998) which noted that “[w]hen a copyright holder chooses to sell a copy of his work, however, he ‘exhaust[s] his exclusive statutory right to control its distribution’.” The Court noted by way of example that “the first sale doctrine permits a consumer who buys a lawfully made DVD …to resell the copy, but not to duplicate the copy.”

Autodesk claims (as would arguably all software companies) that since it licensed AutoCAD, there was no sale, and thus Vernor is not an “owner” and the First Sale Doctrine does not apply. The Court points out the key question: “whether Autodesk’s transfer of AutoCAD packages to CTA was a sale or a mere transfer of possession pursuant to a license.” If it was a sale, Autodesk would be limited to a breach of contract claim against CTA. The Court notes that there is no bright-line rule as to what constitutes a sale versus a transfer, but that “[i]n comparing the transactions found to be sales in Wise with those that were not, the critical factor is whether the transferee kept the copy acquired from the copyright holder.” (emphasis added). Thus in this case, since CTA, and subsequently Vernor kept the copies of AutoCAD, there was a sale. The Court noted in a footnote that: “[e]ven if Autodesk could revive its “exhausted” distribution rights by reclaiming title to software copies it sold, Autodesk did not reclaim title. It merely required CTA to destroy its copies.” This might mean that software vendors will amend license language to avoid this issue in the future, along with more aggressively policing possession of their software requiring licensees to return copies of software so as to avoid First Sale issues (or that they could provide limited-term renewable licenses which contain a DRM-type “auto-destroy” feature – similar to the way iTunes limits via license the number of machines its customers can upload a song to).

The Court does note a series of decisions which run counter to the reasoning in United States v. Wise, 550 F.2d 1180, 1187 (9th Cir. 1977), but ultimately follows Wise in finding that “the transfer of AutoCAD packages from Autodesk to CTA was a sale with contractual restrictions on use and transfer of the software. Mr. Vernor may thus invoke the first sale doctrine, and his resale of the AutoCAD packages is not a copyright violation.” The Court also notes that other jurisdictions may have reached a different conclusion. This case has important implications for consumers and the software industry, and given the noted Circuit split, might not ride off into the sunset just yet.

William Patry provides an informative commentary here.

Case is: CASE NO. C07-1189RAJ (U.S. Dist Court of Washington at Seattle)

Court upholds forum selection clause in YouTube’s terms of use

Bowen v. YouTube, Inc., No. 08-5050, 2008 WL 1757578 (W.D.Wash. April 15, 2008)

Plaintiff Bowen, a registered YouTube user, sued YouTube over some harassing comments others had posted about her on the site, as well as for some sort of dissatisfaction about misappropriation of her intellectual property rights. (The opinion is not clear about exactly what Bowen’s claims were.)

YouTube moved to dismiss the complaint for, among other things, improper venue, invoking a provision of the site’s Terms of Use which read:

You agree that: (i) the YouTube Website shall be deemed solely based in California; and (ii) the YouTube Website shall be deemed a passive website that does not give rise to personal jurisdiction over YouTube, either specific or general, in jurisdictions other than California. These Terms of Service shall be governed by the internal substantive laws of the State of California, without respect to its conflict of laws principles. Any claim or dispute between you and YouTube that arises in whole or in part from the YouTube Website shall be decided exclusively by a court of competent jurisdiction located in San Mateo County, California.

Looking to the cases of Pebble Beach Co. v. Caddy, 453 F.3d 1151 (9th Cir.2006), Rio Properties, Inc. v. Rio Int’l Interlink, 284 F.3d 1007, 1020 (9th Cir.2000) and Cybersell, Inc. v. Cybersell, Inc., 130 F.3d 414, 418-20 (9th Cir.1997), the court observed that “for the proposition that when a ‘website advertiser [does] nothing other than register a domain name and post an essentially passive website’ and nothing else is done ‘to encourage residents of the forum state,’ there is no personal jurisdiction.”

The court found that Bowen’s allegations arose from her use of YouTube, and no conduct was alleged to provide the “something more” necessary for rendering YouTube subject to jurisdiction in the Western District of Washington.

Network Solutions’s forum selection clause enforced

Doe v. Network Solutions, LLC, No. 07-5115, 2008 WL 191419 (N.D. Cal. January 22, 2008)

Plaintiff Doe alleged violations of the Electronic Communications Privacy Act and similar California statutes when he discovered that personal and financial information about him had allegedly been obtained from a webmail account he established with Network Solutions. Citing to the forum selection clause in the click-wrap agreement Doe had entered into several times, Network Solutions moved to dismiss the action under Fed. R. Civ. P. 12(b)(3) for improper venue.

The court granted the motion to dismiss, finding that the claims brought by plaintiff were within the scope of the clause, and that enforcement would not be unreasonable. The matter was dismissed without prejudice to refile in the Eastern District of Virginia.

The forum selection clause provided, in relevant part, that it governed “any disputes between [customer] and Network Solutions under, arising out of, or related in any way to this Agreement. . . .” In holding that the claims fell within the scope of the clause, the court observed that although there were no claims for breach of contract, the claims arose out of plaintiff’s status as a customer and related to the services, thus implicating the contractual relationship. Moreover, the language “under, arising out of, or related in any way to [the] agreement” led the court to conclude that the clause was to be construed broadly.

In determining that enforcement of the clause would not be unreasonable, the court rejected plaintiff’s argument that it would contravene public policy, as the choice of law provision (naming Virginia) would preclude recovery under various California statutes. The court noted that California law had not expressed any policy against enforcement of a forum selection clause in the context of the claims asserted, and that a clause providing a forum which permits different or less favorable remedies is not, alone, a basis for invalidating the clause.

Ownership of domain name grounds for civil contempt and award of attorney’s fees

But mere ownership of domain name, without “use,” was not enough to give rise to infringement.

Careylicensing, Inc. v. Erlich, No. 05-1194, 2007 WL 3146559 (E.D. Mo. October 25, 2007)

Plaintiff Carey International and defendant International Chauffeured Services are competitors in the limousine industry. Carey sued International back in 2005 for trademark infringement, and the parties settled the case. They entered into a consent judgment, which is, essentially, like a contract between the parties that was made an order of the court. The consent judgment prohibited, among other things, the defendant from owning any domain name containing the word “Carey.”

In February 2007, the plaintiff noticed that the defendant owned a domain name The plaintiff eventually went back into court, asking that the defendant be held in contempt for violating the consent judgment and, pursuant to the terms of the consent judgment, be awarded attorneys fees and “liquidated damages,” for breaching the agreement.

The court found that ownership of the domain name by the defendant warranted a contempt citation. It also found that that ownership was a breach that made an award of attorney’s fees proper. But the court declined to award liquidated damages.

The consent judgment provided that liquidated damages be awarded for any “infringement” of the plaintiff’s mark. But in this case, there was no infringement. The court found that merely owning the domain name, without having an active site there, was not a “use” in commerce as required by the Lanham Act. Without the requisite element of use, there could be no infringement.

Purported John Kerry ex-flame’s suit against Yahoo tossed

I’m going back in time a little bit to pick up on an unreported September 5, 2007 decision by a New York state trial court in the case of Whitnum v. Yahoo! [2007 WL 2609825].

Plaintiff Whitnum is the author of the book Hedge Fund Mistress, and also the owner of the website of the same name. Yahoo, who hosted the site, is alleged to have shut down the site for 8 hours on August 19, 2004, which was the same day that the book was mentioned on the front page of the Boston Herald.

Whitnum claimed that this caused her to lose out on $125,000 in revenue, so she sued Yahoo for that amount. Yahoo moved to dismiss, however, citing to its hosting terms of service which provided that it had the right “at any time and from time to time to modify or discontinue, temporarily or permanently, the [hosting] Service.” The terms of service also provided, among other things, that Yahoo would not be liable for any indirect or consequential damages resulting from a customer’s inability to use the service.

The court granted the motion to dismiss. It rejected Whitnum’s arguments that she should be allowed to file an amended complaint alleging intentional conduct or gross negligence, instead finding that her basis for saying that Yahoo may have shut down her account to silence her story about having dated John Kerry was mere speculation.

Internet marketer not fraudulent in predicting success of future advertising campaign

Hallmark Institute of Photography, Inc. v. CollegeBound Network, LLC, — F.Supp.2d —-, 2007 WL 3145433 (D. Mass. October 29, 2007).

CollegeBound LLC is an Internet marketing company that gathers “leads” for its customers. These “leads” are people who visit CollegeBound’s websites, express interest in the services provided by CollegeBound’s customers, and provide their contact information. CollegeBound then sells this lead information to its customers on a “cost per lead” basis. The customers then follow up with their own marketing efforts.

One of CollegeBound’s customers was Hallmark Institute of Photography. It signed written agreements with CollegeBound whereby it agreed to pay more than $30 for each lead that CollegeBound provided. When the parties were negotiating the deal, CollegeBound allegedly orally represented that between three and seven percent of the leads would enroll for Hallmark’s photography courses.

Although CollegeBound gathered leads and sent them on to Hallmark, less than one percent of them applied. Hallmark was disappointed in this result, and sued CollegeBound for breach of contract and for fraud and misrepresentation. CollegeBound moved to dismiss, and the court granted the motion.

On the breach of contract claim, the court held that the parol evidence rule precluded it from considering any extrinsic evidence. The alleged representations were made orally, and not included in the written agreement. Although the contract did not contain an “integration clause,” the court found that the agreement was fully integrated, where essentially all the important terms were included, and there was no indication the parties intended there be any additional terms. Since the agreement was not ambiguous, the court could not consider any evidence outside the document’s four corners.

As for the fraud and misrepresentation claims, the court held that CollegeBound’s statements were of a “fundamentally predictive nature,” and “concerned a matter of opinion, estimate or judgment which was not susceptible of actual knowledge at the time of [their] utterance.” For these reasons, the court found that Hallmark could not have reasonably relied on the statements. So the claims failed as a matter of law.

Court shuts down for violation of Web site terms of service

Southwest Airlines Co. v. BoardFirst, LLC, No. 06-0891 (N.D. Tex. September 12, 2007)

Southwest Airlines does not have differentiated seating — one cannot get a better seat by paying more. Passengers are allowed to board based on a group classification they are assigned on a first come, first served basis. Passengers in the “A” group get to board first, while passengers in the “C” group go last. One can check in to be assigned to a group up to 24 hours before a flight by visiting Southwest’s Web site. was a web-based company that Southwest passengers could pay to log in for them in hopes of obtaining “A” group passes. Southwest objected to this practice, however, and filed suit in a Texas federal court against Boardfirst alleging violation of the Southwest Web site’s terms of service. Southwest then moved for summary judgment on its breach of contract claim, and the court granted the motion.

The first issue before the court was whether the “browsewrap” terms of service on the Southwest Web site, visible upon clicking a hyperlink at the bottom of the home page, constituted a valid contract between Southwest and BoardFirst. Those terms of service, among other things, prohibited using the Southwest site for anything other than personal, non-commercial purposes.

The court held that a valid contract existed. Finding that the situation resembled the one in the case of v. Verio, Inc., 356 F.3d 393 (2d Cir. 2004), the court held that the evidence showed BoardFirst had actual knowledge of the terms, which expressly prohibited use of the site for commercial purposes.

Next the court determined that BoardFirst had breached the terms of service by using the site for commercial purposes. It rejected BoardFirst’s argument that BoardFirst was an agent of the ticket purchasers and therefore not a prohibited third party accessing the site. The court also rejected BoardFirst’s argument that prohibiting “commercial” use of the website would mean that every access of the site — ostensibly resulting in Southwest’s commercial advantage — would constitute a breach of the terms of service.

California court invalidates Alienware arbitration provision in online terms and conditions

Oestreicher v. Alienware Corp., —F.Supp.2d—-, 2007 WL 2302490 (N.D. Cal. Aug. 10, 2007)

Plaintiff Oestreicher bought a laptop on the Alienware website. Six months later the computer overheated and was irretrievably broken. Oestreicher filed a class action suit against Alienware in California state court, and Alienware removed the case to the U.S. District Court for the Northern District of California. Alienware then moved to compel arbitration, citing to the terms and conditions of purchase, which had been presented to Oestreicher in the form of a “click-wrap” agreement during check-out.

The court denied the motion to compel arbitration. The first two-thirds of the opinion addressed the question of whether California or Florida law should govern the enforceability of the arbitration provision. Disregarding the express provisions of the agreement providing for application of Florida law “without regard to conflicts of laws principles,” the court decided that California law should apply. It held that enforcement of the provision requiring arbitration (and the attendant waiver of the right to pursue a class action) violated a fundamental policy of the state of California. Furthermore, California had a materially greater interest in the litigation, based on the fact that California residents were invoking consumer protection laws to seek recovery for allegedly defective products shipped into California.

Applying California law, the court determined that the class action waiver was unconscionable and unenforceable. It was procedurally unconscionable because it was a take-it-or-leave-it contract of adhesion. It was substantively unconscionable because the dispute implicated by the class action waiver involved a small amount of damages and Oestreicher had alleged Alienware carried out a scheme to deliberately cheat large numbers of customers out of individually small sums of money.

View the opinion below, or click through if it’s not showing up in the RSS feed:

Court upholds limitation of liability clause in Internet services agreement

Asch Webhosting, Inc. v. Adelphia Business Solutions Inv., LLC, No. 04-2593, 2007 WL 2122044 (D.N.J. July 23, 2007).

Plaintiff Asch Webhosting entered into a three year contract with Adelphia Business Solutions for “internet services.” About two months after the agreement was finalized, Adelphia sent Asch a letter informing it that the services would be terminated because of alleged violations by Asch of the service’s acceptable use policy. The parties worked out an agreement whereby Asch had thirty days to find another provider. After those thirty days were over, Adelphia pulled the plug.

Asch filed suit alleging breach of contract, claiming $1.4 million in consequential damages due to the loss of business stemming from the termination of the agreement. Adelphia moved for summary judgment, citing to an “exculpatory clause” in the agreement which limited the amount of recovery for consequential damages to the amount paid by Asch for the services.

The court granted Adelphia’s motion for summary judgment. It held that the exculpatory clause was reasonable and that Asch demonstrated no conduct by Adelphia sufficient to overcome the expressed limitations on liability. The transaction at issue was made at arms length and was between two private commercial entities. Moreover, there were no public policy concerns implicated by the agreement. Given this scenario, the court refused to “engage in judicial revision of the parties’ [a]greement.”

Adelphia’s conduct in terminating the agreement, according to the court, did not render the exculpatory clause void. Adelphia had received complaints that Asch was using the service to spam other customers. Regardless of the “ultimate accuracy or veracity” of those complaints, the court found that Adelphia was entitled to rely on them so long as it did so in good faith.

New provisions in online terms of service of no effect without notice to customer

Questions remain, however, as to whether right to notice may be waived

Douglas v. U.S. Dist. Court for the Central Dist. of Ca, — F.3d —-, No. 06-75424, 2007 WL 2069542 (9th Cir. July 18, 2007)

Plaintiff Douglas signed up for long distance service with AOL. Some time later, Talk America acquired AOL’s rights under the contract, and changed the terms, which were posted online. Talk America added provisions relating to additional charges, a waiver of the right to class action suits, an arbitration clause, and a forum selection clause providing for suits to be brought in New York. Douglas claimed he was not provided with notice of the changed provisions when they purportedly became effective.

Douglas did not find out about the new charges until four years later, and when he finally did, he filed a federal class action suit against Talk America. Citing to the later-modified agreement, Talk America moved to compel arbitration. The district court granted the motion. Because the Federal Arbitration Act at 9 U.S.C. 16 does not authorize interlocutory appeals of a district court order compelling arbitration, Douglas sought a writ of mandamus from the Ninth Circuit. The court granted the writ, vacating the district court’s order compelling arbitration.

The Ninth Circuit applies a five-factor test, from Baughman v. U.S. Dist. Court, 557 F.2d 650 (9th Cir. 1977), to determine whether a writ of mandamus should be issued. The most important factor in this test is whether the district court’s order was “clearly erroneous as a matter of law.”

The appellate court held that the district court erred in holding that Douglas was bound by the terms of the revised contract, through a “fundamental misapplication[] of contract law,” going “to the heart of [Douglas’s] claim.” The court cited to cases holding that a party cannot unilaterally change the terms of a contract, but must obtain the other party’s consent before doing so, as a revised contract is merely an offer and does not bind the parties until it is accepted. Further, citing to Williston on Contracts, the court held that “an offeree cannot actually assent to an offer unless he knows of its existence.” In this case, “[e]ven if Douglas’s continued use of Talk America’s service could be considered assent, such assent [could] only be inferred after he received proper notice of the proposed changes.”

The case is silent on what might constitute proper notice. It is also not clear from the opinion (and the district court pleadings are not available on PACER), whether the original AOL terms of service included a provision stating that continued use of the service after changes had been posted would constitute acceptance of those changes. So although the case establishes that an e-commerce customer has the right to receive notice of changes to online terms of service, the question of whether that right can be waived is not answered in the opinion.

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