Re Supreme Court Rules Patent Laws Can't Be Used to Prevent Reselling

["Dave Farber" <farber () gmail com>]

Begin forwarded message:

> From: Fred Wilf <fred () wilftek com>
> Date: June 1, 2017 at 11:47:31 AM EDT
> To: "David J. Farber" <dave () farber net>
> Cc: Karl Auerbach <karl () cavebear com>
> Subject: Re: [IP] Re Supreme Court Rules Patent Laws Can't Be Used to Prevent Reselling
>
> Dave,
>
> For IP, if you wish.
>
> As usual, Karl asks very good questions that defy an easy answer.  Without turning this into a law review article, 
> here are several points from my view as a lawyer admitted in Pennsylvania and New Jersey:
>
> -- Although patent law and copyright law often share similar theories and approaches, they are still different "code 
> bases".  Patent law is at Title 35 US Code, and copyright law is at Title 17 US Code.  Exhaustion of rights is 
> different from one to the other.  With open source, copyright is the primary form of intellectual property 
> protection.  So, the recent Supreme Court case on exhaustion of rights in patents is interesting, but does not speak 
> directly to exhaustion of rights with respect to open source.
>
> -- The First Sale Doctrine in copyright law allows the purchaser of a copy of a copyright-protected work to re-sell 
> it, write on it, etc., but the copyright owner retains the right to prohibit the making of additional copies (subject 
> to several statutory exceptions, such as fair use).  A recent US Supreme Court case confirmed that the First Sale 
> Doctrine has extra-territorial effect, which means that a foreign student was permitted to import hard copy textbooks 
> into the US despite the objections of the US publisher. So, the First Sale Doctrine continues to be effective at 
> terminating post-sales restrictions on copyright-protected works, other than the statutory rights of copyright 
> holders to restrict the making and distribution of additional copies post-sale.
>
> -- There have been relatively few cases involving open source software that have led to published decisions.  This is 
> not a surprise given the high cost of litigation.  The few published decisions for the most part confirm that open 
> source licenses are enforceable, although some of the courts seemed a little confused by the model. 
>
> -- The use of licenses to restrict how buyers use products is probably older than most people realize.  100 years 
> ago, manufacturers tried to use licenses on the outside of packaging for agricultural products and record players.  
> The approach was more recently employed as "tear me open" and "shrinkwrap" agreements for off-the-shelf software.  
> This breaks down into several subsidiary issues, including whether the contract on its face is enforceable as a 
> "contract of adhesion", in which the user is given the option of adhering to a contract on a take-it-or-leave-it 
> basis.  So, an open source agreement is a contract of adhesion.  Another subsidiary issue is whether the user binds 
> herself to the contract of adhesion by an action other than signing a piece of paper with a pen, such as by tearing 
> open a package, or installing software on a machine.  There have been many cases on these issues.
>
> -- The underlying law regarding contracts of adhesion has not changed all that much in recent years.  To be 
> enforceable, among other things, the contract must be reasonable on its face, and the text of the contract must be 
> made available to the user both before and after the transaction so the user may conform to the requirements of the 
> contract.  They have been successfully attacked where the terms violate other applicable laws, such as consumer 
> protection laws, which change a bit from one state to another state.  For example, one or two cell phone contracts 
> have been upheld in one state, only to be knocked down in other states for violating the applicable state consumer 
> protection laws.  Currently, I don't see this as an issue for open source licenses as most of the open source 
> licenses are not extreme in any way, and the text of the licenses are available to the user before and after being 
> bound by the license.
>
> -- The signature aspect has changed in recent years.  The federal and state electronic signature laws (E-SIGN and 
> UETA) equate the taking of an action associated with a particular document equivalent to signing a hard copy version 
> of the same document.  Before the electronic signature laws, a user that did not want to be bound to the agreement 
> would have to argue that opening a package, clicking on a button labeled "I Agree", or installing software did not 
> equate to binding the user to the agreement.  Most of the open source licenses are triggered by use of the software, 
> so that should not be an issue.
>
> -- That still leaves open one important question, which is whether an open source transaction is properly 
> characterized as a sale or a license.  A license is an ongoing ("executory") transaction in which the licensor 
> retains and exercises rights.  A sale is a "closed" transaction in which the parties conclude the transaction, and 
> there is nothing more left for either party to do with respect to the other.  Note that the sale of a copy of a book 
> is still a sale under the First Sale Doctrine despite the copyright owner's continuing statutory rights in the copy. 
> To Karl's point, this is probably a greater risk to open source licenses over the long term, especially if the vendor 
> or provider of open source software does not take reasonable steps to monitor or enforce the terms of the license.  
> Another takeaway here is that most open source vendors and licensees take the restrictions in the license seriously, 
> which supports the argument that open source transactions are properly characterized as licenses precisely because 
> the parties work hard to enforce ongoing restrictions stated in the license.  In other words, the strength of the 
> open source community in its ongoing enforcement of open source licenses is good evidence that the open source 
> license terms are enforceable.  The logic may seem circular, but it's not; if the open source community disappears, 
> or becomes blase about enforcement, then it may be harder to enforce the open source license terms.
>
> -- Open source licenses may be challenged in several types of cases.  First, if the open source vendor sues a user 
> for failing to comply with the terms of the license, then the defendant may argue that the license is unenforceable 
> because the transaction is properly characterized as a sale, making the provisions of the license unenforceable. 
> Second, many states tax software sales and software licenses differently, although I have not seen many cases where a 
> state challenged a software license as a sale.  Of course, since most open source licenses are at no charge, there is 
> little incentive for a state's attorney general to sue on an open source license, but if open source software were 
> part of a larger, fairly expensive license, then a state's attorney general may have enough incentive to file a case 
> to re-characterize the transaction as a software sale that generates sales tax for the state, rather than a software 
> license that generates no sales tax for the state. Third, bankruptcy law in the US addresses software licenses and 
> software sales differently, so it is possible that a trustee of a bankrupt licensee of open source software may want 
> to characterize the transaction as a sale, and not a license, although I have not seen any cases making this argument 
> yet.
>
> So, my take is that open source licenses are likely to be enforceable in the current circumstances.  However, there 
> are current risks that will continue so long as software transactions may be characterized as sales transactions, not 
> license transactions.
>
> I hope this helps.  Other views are welcome.
>
> Thank you,
>
> Fred
>
> _____________________________________________
> Frederic M. Wilf, Managing Partner
> fred () wilftek com  |  215 205 0059
>
> ®
> Technology and Intellectual Property Law
>   
> Wilftek LLC  |  wilftek.com  
> PO Box 71, Worcester, PA 19490-0071, USA
> _____________________________________________
>
>
>
> > On Wed, May 31, 2017 at 4:35 PM, Dave Farber <farber () gmail com> wrote:
> >
> >
> >
> > Begin forwarded message:
> >
> > > From: Karl Auerbach <karl () cavebear com>
> > > Date: May 31, 2017 at 2:40:02 PM EDT
> > > To: dave () farber net, ip <ip () listbox com>
> > > Subject: Re: [IP] Supreme Court Rules Patent Laws Can't Be Used to Prevent Reselling
> > >
> > > Over the centuries our legal system has developed various policies that are generally lumped under the heading of 
> > > "anti dynastic".  These policies are intended to erode concentrations of wealth and control over a period of years 
> > > or generations.  Some examples are the banning of "entails" on real property, limits on the duration of copyright 
> > > and patent, and inheritance taxes.
> > >
> > > This new Supreme Court ruling could be seen as a step along that road - a step that says that there are limits on 
> > > how far a creator can control downstream uses.  In particular, are there clear markers on the trail of downstream 
> > > use that can be used as places to indicate where the creator's control is reduced and, the downstream user's 
> > > control increased?
> > >
> > > One such marker is a transfer of ownership, a sale.  For books there has long been the first sale doctrine.  (That 
> > > doctrine seems to be fading as electronic books are "licensed" rather than "sold" - but that's another story.)
> > >
> > > In the realm of copyrighted software there are similar events - transfers that we often don't call a "sale" but 
> > > which, nonetheless, are identifiable steps in the chain of control that forms use of that software as it moves 
> > > downstream from its original creators.  In the case of software, often those downstream users add their own gloss 
> > > or improvements.
> > >
> > > Which brings me to software licenses that impose downstream restrictions, particularly those that are "viral" in 
> > > the sense that they impose obligations even on those improvements or changes that a downstream user makes.  One 
> > > such license is the common GPL in its various versions.
> > >
> > > I am curious whether the rational of this new case might eventually be used to create new anti-dynastic style rules 
> > > that would cause provisions, such as seen in viral software license, to erode over time and downstream 
> > > dissemination?  To be a bit more concrete, could the logic of this case be a lever that could be used to weaken the 
> > > obligation in the GPL that a downstream user's own additions to a GPL'd work must themselves be disseminated under 
> > > the GPL?
> > >
> > >                --karl--
> > >
> > >
> > >
> > >
> > > -- 
> > > This message was sent to the list address and trashed, but can be found online.
> > > at https://www.listbox.com/login/messages/view/20170531144010:917D771A-4630-11E7-8B6B-91A30430DB90
> >
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