Last week, the US Ninth Circuit appeals court overturned a district court decision in a case that could have broad ramifications for the rights that consumers get when they purchase digital content.

The lower court had decided, in Vernor v. Autodesk, that the sale of used software on CD-ROMs ought to be treated as the sale of any other used copyrighted work, such as a book or videotape, with respect to consumers’ rights to redistribute the content after the original sale. The decision cited the “economic reality” of the transaction, which the court found was similar to that of physical analog media.  The plaintiff in the case, Timothy Vernor, had asked the court for a declaratory judgment against computer aided design software maker Autodesk to allow him to sell used copies of the vendor’s AutoCAD software on eBay.

The question of whether sale of digital content ought to be covered under First Sale (section 109 of the Copyright Act) has not been settled law.  First Sale (known as “exhaustion” outside of the US) states that the publisher of a work has no further control over it after it’s sold — which means, for example, that libraries can buy books and lend them to the public, or a music store can sell used CDs or vinyl LPs.

In 2001, the US Copyright Office was asked to provide an opinion on digital First Sale; it stated in a report that digital First Sale may be possible to enforce via mandated technological measures (i.e., DRM), but that it was not reasonable to introduce such a mandate because the technology was too impractical to implement.

Libraries and advocacy groups have been hoping for a result along the lines of the lower court ruling in Vernor, which is sometimes known as the “duck test“: the “looks like a duck, swims like a duck, and quacks like a duck, therefore it must be a duck” theory.  In other words, if the sale of a digital content product resembles the sale of an analog physical content product, then it ought to be subject to First Sale.

The lower court opinion didn’t quite affirm the duck test for digital First Sale, but it went in that direction.  Yet in overturning the lower court, the Ninth Circuit didn’t quite do the opposite.  It offered a test for end-user license agreements (EULAs, a/k/a clickwrap agreements) that cover digital content: if the content is covered by a EULA, and the EULA contains usage conditions that are more restrictive than those granted under a normal sale of a copyrighted work, then it’s a license, not a sale, and therefore it’s not subject to First Sale.

For you logicians out there, the Ninth Circuit’s decision was the contrapositive of the duck test: “if it doesn’t walk like a duck, swim like a duck, or quack like a duck, then it can’t be a duck.”

In one sense, all the Ninth Circuit decided was that EULA terms are enforceable, which is fairly settled law — despite frequent attempts to characterize EULAs as “contracts of adhesion” that are legally unenforceable.

But on the other hand, this decision could lead to EULAs on all sorts of digital content imposed by copyright owners and retailers that might now have the guts to impose restrictions that relate to redistribution of content.  In fact, Ars Technica’s Nate Anderson points out that Amazon.com’s paid MP3 download service (just as one example) already imposes such restrictions.  Yet Anderson does not distinguish license restrictions on redistribution from restrictions on personal use.  For example, the Amazon.com EULA includes “modify, adapt, edit” as prohibited actions on MP3s sold on the site; these are personal usage restrictions that may relate to Fair Use but not First Sale.  The Vernor opinion does not affect any duck-quacking theories about Fair Use.

Otherwise, Anderson echoes the loud alarm bells sounded by the American Library Association and others about the Ninth Circuit’s decision, saying that it could well give content owners the encouragement they need to impose all sorts of distribution restrictions on unprotected content.   To put it another way: if you don’t like technology-based DRM, you’re gonna really hate what can only be called verbal DRM.

As Anderson points out, this court decision might embolden copyright owners and service providers to write distribution restrictions into their EULAs that could theoretically lead to the end of used music or video stores.

But let’s look at this realistically: if you think that DRM doesn’t do much to prevent copyright infringement, how are mere words in a clickwrap agreement going to do any better?  They aren’t, of course.  No one reads EULAs, and not much is generally done to enforce their terms.  The software industry knows this very well; otherwise they would not use elaborate “product activation” and other antipiracy technologies — as Autodesk certainly does.

It’s really more about consumer expectations — as it always has been.  Consumers are comfortable in their expectations about what they can do with unprotected content.  In some cases (such as pay TV, music subscription services, and library e-book lending) they also have largely made peace with technological restrictions on usage.

Consumer expectations arise out of actual functionality, not legalese — as anyone of the millions of people who drive above the speed limit will attest.  As a consumer, given the choice between verbal and technological DRM that impose similar restrictions — and all else being equal — I’d pick the latter any day.  I’d rather bump up against technologically imposed usage restrictions than have to slog through a pile of legal language or just hope I don’t do something wrong with the content I purchased — oops, I mean licensed.  (Ideally I’d rather have the technological restrictions and a clear, accurate, non-legalese explanation of those restrictions.)

So while I can see why the ALA and its fellow amici are concerned about the Ninth Circuit’s decision in Vernor, I don’t see much immediate practical impact.  But in the longer term, I am concerned about what I have called the trap door into the legal system, where lawyers and courts take time and expense to decide issues that could be decided immediately and automatically by technology.

Autodesk claims that its usage and distribution restrictions are necessary to enable it to offer different products for different markets, including free software for students.  It relies on technological means to differentiate those products, which sell for thousands of dollars.  Autodesk is hardly likely to take this court decision so much to heart that it jettisons its product activation scheme in favor of a series of EULAs, even though doing so would save development and support costs.  Nor are the producers of audiovisual content likely to do the same.

My hope is that this court decision does not end up encouraging copyright owners to rely on “verbal DRM,” because it just won’t work.