Is This Mine of Yours? the Effect of the Rulings in Vernor v. Autodesk and the Library of Congress on the Determination of Who Owns Software Copies

• Publication year: 2010

Cody Gillians⁰

In July of 2010, the Copyright Office issued a ruling that allowed owners of iPhones and other cell phones to reprogram their devices to allow the use of lawfully-obtained programs not approved by their phone manufacturers. Despite the ruling, however, the Copyright Office was unable to determine whether the copies of the programs loaded onto the phones were licensed to the users or owned by the users. In September of that year, the Ninth Circuit decided Vernor v. Autodesk, allowing copyright owners to simply add language to the license agreements in order to give users a license instead of ownership of the software copies. This recent development discusses that decision's impact on licensing agreements in light of the Copyright Office's iPhone ruling and why the test in the Vernor decision may be completely unnecessary in the future.

I. Introduction

In 1990, my parents bought me a video game system along with a few games. Over the next few months, I defeated all of the "bosses,"¹ collected all of the rewards, and completed all of the games. Once finished with a particular game, I traded it to one of my friends in exchange for one of their games. This routine allowed us to keep playing new games while reducing the need for our parents to buy new games. In our opinion, we owned each game our parents bought for us. Consequently, we believed that we could trade it for another game, lend it to a friend for a few days, or do anything else we chose with it. Over the next twenty years, many new avenues to trade and even resell software became popular. Stores such as GameStop² and websites such as eBay³ and Craigslist⁴ allowed owners of video games and other software to sell their copies of games and programs once they no longer wanted them. This process seemed to work harmoniously for a number of years. Two recent court decisions, however, are forcing consumers to re-evaluate what they actually own.

In 2010, two independent rulings addressed the issue of ownership of a computer program restricted by a license agreement. The first ruling came from the Copyright Office division of the Library of Congress. Every three years, the Librarian of Congress has the authority to determine whether there are uses of copyrighted works that should be exempted from the Digital Millennium Copyright Act's prohibition on the circumvention of technological protection measures.⁵ On July 26, 2010, the Librarian of Congress followed the recommendation of Marybeth Peters, the Register of Copyrights, and issued a ruling allowing users of iPhones and other cell phones to utilize lawfully-obtained third-party applications on their phones by circumventing access controls surrounding the phone's software.⁶ In the Register's recommendation to the Library of Congress regarding allowing this new class of uses, she noted that "the law relating to who is the owner of a copy of a computer program under Section 117 is in flux."⁷ Consequently, the Register concluded that when the law is unclear, the regulatory process should not be the preferred method to address uncertainties.⁸ Instead, the Register recommended that cell phone users be allowed to circumvent copyright protections to use legally obtained software under a fair use argument.⁹

In the Register's analysis of whether an iPhone user owned the copy of the iPhone software programmed into his phone, she noted that there is a conflict in the Ninth Circuit on the question of what criteria should be used to determine whether an iPhone owner is a licensee or an owner of the copy of the Apple operating system loaded onto the iPhone.¹⁰ This conflict was later resolved by the Ninth Circuit's ruling on an appeal from the Western District of Washington's decision in Vernor v. Autodesk, Inc.¹¹ There, the Ninth Circuit evaluated precedent within its jurisdiction to create a new test to determine whether the transfer of a copy of a computer program to a purchaser is a sale of the copy of the program or simply a license to use the copy.¹²

This Recent Development will first, in Parts II and III, discuss both the Librarian of Congress's initial inquiry into who owns the copy of a computer program followed by a brief discussion of the Ninth Circuit's ruling in Vernor v. Autodesk. In Part IV, the Ninth Circuit's new test will be applied to the recently released Apple iPhone 4 licensing agreement to show the ease with which a company can create licensing agreements that give users a license to use the copy of software instead of full ownership of the copy of the software. This recent development will propose that even though Apple has only licensed to the iPhone 4 user a copy of the software loaded on the phone under the test proposed by the Ninth Circuit, the court should consider adding an additional inquiry into whether the copyright owner has taken sufficient steps to enforce its software licensing. Finally, Part V discusses why the Vernor test may become obsolete given the current trends of software ownership.

II. The Librarian of Congress's Recommendation

The Digital Millennium Copyright Act ("DMCA") was enacted in 1998, in part, to shelter authors that employ protective measures to prevent their works from being unlawfully copied in the digital realm.¹³ Title I of the DMCA created two new prohibitions to protect owners of digital copyrighted materials: a prohibition on circumventing technological measures used by copyright owners to protect their works and a prohibition on tampering with copyright management information.¹⁴ Additionally, the DMCA allows the Copyright Office to perform a triennial review to exempt certain classes of users of copyrighted works from the prohibition on circumvention if the prohibition is likely to adversely affect users in their ability to make non-infringing uses of those particular classes of works.¹⁵ In October 2008, the Copyright Office began another inquiry to determine whether there were new classes of users that should be exempted from the prohibition described above.¹⁶ After this inquiry, the Copyright Office published proposed exemptions suggested by the public and held hearings to listen to arguments by proponents and opponents of these proposed exemptions.¹⁷ On June 11, the Register of Copyrights, Marybeth Peters, submitted her recommendation of the classes of users that should be exempted to the Librarian of Congress, James Billington.¹⁸ Subsequently, on July 26, 2010, he exempted six new classes of works from the prohibition on circumvention.¹⁹ One of the new exempted classes include users that use "computer programs that enable wireless telephone handsets to execute software applications, where circumvention is accomplished for the sole purpose of enabling interoperability of such applications, when they have been lawfully obtained, with computer programs on the telephone handset."²⁰ In short, the Library of Congress exempted from the prohibition on circumvention cellular phone users that re-program their phone to use legally-obtained applications and programs not approved by their cellular service provider. The process to re-program cell phones is commonly called "jailbreaking" in the cell phone community.²¹ Cell phone users desire to jailbreak their phones primarily to install applications or perform tasks not approved by their cell phone designer.²² One downfall to jailbreaking is its potential to disrupt the normal functions of the phone and to cause instability in the phone's operation, which cell phone designers might find undesirable because it can result in greater maintenance costs.²³ Also, phone manufactures desire to be the sole provider of software for their phones.

In ruling whether jailbreakers should be allowed to circumvent copyright protections on cell phone operating systems, the Register attempted to determine whether the various versions of the iPhone contracts constituted a sale or a license of a copy of the iPhone software.²⁴ The Register concluded that she could not determine "whether the various versions of the iPhone contracts with consumers constituted a sale or license of a copy of the computer programs contained on the iPhone."²⁵ In her attempt to resolve this question, the Copyright Office asked proponents and opponents of this exemption to provide responses to this question.²⁶ The proponents of this exemption, led by the Electronic Frontier Foundation ("EFF"), first noted that under Section 117 of Title 17 of the United States Code, the "owner of a copy of a computer program" is authorized to prepare "a new copy or adaptation . . . as an essential step in the utilization of the computer program in conjunction with a machine."²⁷ EFF then argued that the Section 117 adaptation privilege extends to jailbreaking but noted that the Librarian will have to determine whether an iPhone owner is the "owner of a copy" of the Apple firmware loaded onto iPhones in order for Section 117 to apply.²⁸ EFF believes that the owner of the iPhone is the owner of the copy of the iPhone software loaded onto the phone. EFF came to this conclusion by using the Second Circuit's test of "whether the party exercises sufficient incidents of ownership over a copy of the program to be sensibly considered the owner of the copy for purposes of Section 117."²⁹ Applying this test, EFF concluded that:

iPhone purchasers satisfy this test because they purchase a single copy for a single price, they have the right to possess the copy for an unlimited time, they have the right to discard or destroy copies as they wish, and there are no substantial restrictions on transfer of the copy along with the hardware.³⁰

Opponents of this exemption, led by Apple Inc., argued that Section 117 does not apply simply because the licensee is not the "owner" of the copy of the iPhone Software.³¹ Apple first evaluated the legislative history of Section 117 by examining the Final Report of the National Commission on New Technological Uses of Copyrighted Works ("CONTU")...