License Your Cake and Eat it Too: Creating a Uniform Licensing Test for Copyrighted Electronic Works

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In both America and Europe, a copyright holder’s exclusive distribution and reproduction rights are subject to certain limitations, including the American first-sale doctrine, the corresponding European exhaustion doctrine, and the American essential step defense. When a copy of a copyrighted work is sold to a user, thereby conveying ownership of the copy to the user, the first-sale doctrine and exhaustion doctrine allow the user to transfer the copy without the copyright holder’s authorization. When a copy of copyrighted software is sold to a user, the essential step defense allows the user to reproduce an additional copy that is essential to the use of the original copy, also without the copyright holder’s authorization. Ownership of a licensed copy is not transferred to the licensee; it is retained by the copyright owner. Thus, the first-sale doctrine, exhaustion doctrine, and essential step defense do not apply to copies of copyrighted works that are licensed. American and European courts have also held that the first-sale and exhaustion doctrines are generally inapplicable to digital copies of copyrighted works, regardless of whether these copies are licensed or sold. The one exception to this rule is software in Europe—the exhaustion doctrine applies to both physical and digital software copies. The essential step defense also applies to physical and digital software copies, but this defense is not applicable to any other type of copyrighted work.

There has been a recent push in the legal community to extend the first-sale and exhaustion doctrines to cover digital copies of all copyrighted electronic works. However, less attention has been given to the fact that these doctrines would only apply to digital copies that are sold, not licensed. As with software, digital copies of electronic works such as iTunes songs and e-books are almost always accompanied by terms and conditions purporting to effect a license rather than a sale. A licensing test for these digital terms and conditions is therefore needed. This article will analyze the current licensing tests for software terms and conditions employed by the United States Court of Appeals for the Ninth Circuit, United States Court of Appeals for the Federal Circuit, and Court of Justice of the European Union. This article will then critique these tests’ current formations and propose a new licensing test that can be uniformly applied to the terms and conditions accompanying physical software copies, digital software copies, and digital copies of other copyrighted electronic works.

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