Adobe Sys. Inc. v. Christenson

• Decision Date: 30 December 2015
• Docket Number: No. 12–17371.,12–17371.
• Citation: 809 F.3d 1071
• Parties: ADOBE SYSTEMS INC., Plaintiff–Counter–Defendant–Appellant, v. Joshua CHRISTENSON, an individual, DBA www.softwaresurplus.com; Software Surplus, Inc., Defendants–Counter–Claimants–Appellees, v. Software Publishers Association, dba Software Information Industry Association, Third–Party–Defendant.
• Court: U.S. Court of Appeals — Ninth Circuit

809 F.3d 1071

ADOBE SYSTEMS INC., Plaintiff–Counter–Defendant–Appellant,

v.Joshua CHRISTENSON, an individual, DBA www.softwaresurplus.com; Software Surplus, Inc., Defendants–Counter–Claimants–Appellees,

v.Software Publishers Association, dba Software Information Industry Association, Third–Party–Defendant.

No. 12–17371.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Jan. 29, 2015.

Filed Dec. 30, 2015.

J. Andrew Coombs (argued) and Annie S. Wang, Glendale, CA, for Plaintiff–Counter–Defendant–Appellant.

Lisa A. Rasmussen (argued), Las Vegas, NV, for Defendants–Counter–Claimants–Appellees.

Appeal from the United States District Court for the District of Nevada, Larry R. Hicks, District Judge, Presiding. D.C. No. 2:10–cv–00422–LRH–GWF.

Before: A. WALLACE TASHIMA, M. MARGARET McKEOWN, and MARSHA S. BERZON, Circuit Judges.

OPINION

McKEOWN, Circuit Judge:

This appeal, which arises in the context of software licenses, requires us to address the burden of proof applicable to the first sale defense to a copyright infringement claim. Although a copyright holder enjoys broad privileges protecting the exclusive right to distribute a work, the first sale doctrine serves as an important exception to that right. Under this doctrine, once a copy of a work is lawfully sold or transferred, the new owner has the right "to sell or otherwise dispose of" that copy without the copyright owner's permission. 17 U.S.C. § 109(a). Of course, the defense is contingent on rightful ownership. The old adage "possession is nine-tenths of the law" has no traction under § 109(a).¹

This appeal stems from a messy copyright dispute between Adobe Systems, Inc. and Joshua Christenson and his software company, Software Surplus, Inc. ("SSI" or "Software Surplus").² In the district court, litigation of this case was punctuated by discovery disputes, sanctions, and multiple rulings on the admissibility and exclusion of evidence. The importance of these factors, which the parties emphasize on appeal, is diminished by the central issue—who bears the burden of proving the first sale defense in a software licensing dispute. While the copyright holder bears the ultimate burden of establishing copyright infringement, the party raising a first sale defense bears an initial burden with respect to the defense. At the summary judgment stage, this burden is discharged by producing evidence sufficient for a jury to find that the alleged infringer lawfully acquired ownership of genuine copies of the copyrighted software. Once this initial burden is satisfied, the burden shifts back to the copyright owner to establish the absence of a first sale, because of a licensing or other non-ownership-transferring arrangement when the copy first changed hands.

The district court correctly held that Adobe established its registered copyrights in the disputed software and that Christenson carried his burden of showing that he lawfully acquired genuine copies of Adobe's software, but that Adobe failed to produce the purported license agreements or other evidence to document that it retained title to the software when the copies were first transferred. We affirm the district court's dismissal of both the copyright and trademark claims.

BACKGROUND

In October 2009, Adobe filed this lawsuit against Christenson. The factual basis for Adobe's claims was simple: on his website, Christenson sold Adobe software—which he purchased from a third-party distributor—without Adobe's authorization, allegedly infringing Adobe's copyrights and trademarks in the process. Christenson asserted numerous defenses, including the first sale defense to the copyright claim. He also filed a counterclaim against Adobe and a third-party complaint against the Software Information Industry Association ("SIIA") for defamation, disparagement, and more, on the basis that SIIA issued a press release about this case stating that Christenson and his company "sold infringing copies, including counterfeit versions" and "swindled" consumers.

The following chronology helps explain why neither party completely closed the loop on proof. The case began as many do: The district court referred the case to a magistrate judge to set discovery and dispositive motions deadlines. A protracted series of discovery exchanges and disputes eventually overlapped with briefing on cross-motions for summary judgment, and the case then departed somewhat from the expected course.

Adobe, with SIIA, moved for partial summary judgment on liability for the copyright and trademark claims and for summary judgment on the counterclaims and third-party claims pertaining to the press release. On the copyright claim, Adobe argued that the first sale defense did not apply because Adobe only licenses and does not sell its software. For support, Adobe relied on a declaration to that effect by its Anti–Piracy Enforcement Manager, Chris Stickle. Stickle generally described different ways that Adobe licenses software, such as by limiting copies to academic users or distributing copies bundled with hardware under restrictive terms, the latter being known as Original Equipment Manufacturer ("OEM") products. Other evidence submitted by Adobe included a list of specific copyrights, a list of Adobe product licenses that had been produced by Christenson, excerpts of Christenson's deposition in which he acknowledged that he sold academic and OEM software, screenshots of the Software Surplus website stating that it sold academic and OEM software, and customer returns and complaints in which customers complained that they had received software licensed for academic use from Christenson despite having understood that they had purchased software appropriate for non-academic users. Regarding the trademark claim, Adobe also argued that Christenson should be liable for false advertising, although as the district court later pointed out, Adobe's complaint did not include this claim.

Christenson, in turn, moved for summary judgment on the copyright and trademark claims. In response to the copyright claim, Christenson argued that only Adobe had access to the terms of its contracts with the original recipients of the copies at issue; Christenson, as a downstream distributor, did not have this information. He thus urged the court to place the burden on Adobe "to disprove the first sale doctrine." With this burden in mind, Christenson asserted that Adobe could not disprove that a first sale occurred because Adobe was unable to point to the terms of any actual contract. Christenson also offered evidence of his purchase of copies of Adobe software from third parties. Christenson raised a nominative fair use defense to the trademark claim, arguing that he used Adobe's trademark only to refer to Adobe's genuine goods.

The scope of what the court could consider in deciding the cross-motions for summary judgment proved a persistent point of dispute between the parties. After the parties filed their summary judgment motions, Christenson filed a motion to preclude Adobe from relying on contracts, licenses, or agreements that Adobe failed to disclose under Rule 26(a). Fed.R.Civ.P. 26(a). The magistrate judge granted this request and precluded Adobe from using or introducing such documents—except for those that had been produced by Christenson. Christenson then asked the district court to strike any excluded documents and related assertions from Adobe's already ripe motion for summary judgment.

The district court decided the motion to strike and motions for summary judgment in one order. Ruling for Christenson on the copyright claim, the court stated that it was "uncontroverted that Defendants lawfully purchased genuine copies of Adobe software from third-party suppliers before reselling those copies." Reasoning that the burden shifted to Adobe to produce evidence that "it merely licenses and does not sell" the relevant software, the court noted that Adobe would be unable to do so because it was precluded from offering any licenses—the actual terms of which were central to summary judgment.

The court granted Christenson's motion to strike a license template because the document had not been disclosed by Adobe or produced by Christenson. Other evidence was precluded because the court determined that an actual contract was required to prove whether Adobe's transactions resulted in a license as opposed to a sale. "[I]n the absence of those writings," the court foreclosed Adobe's declarants from testifying "to prove the terms and legal effect of Adobe's licensing agreements."

Christenson also prevailed on the trademark claim. The court credited his nominative fair use defense because he used the trademarks to refer to the trademarked goods themselves. The court rejected Adobe's false advertising theory because it was not included in the complaint.

Finally, the court denied Adobe's motion for summary judgment on the counterclaims related to the press release. The court then stayed the surviving counterclaims and entered judgment in Christenson's favor on the copyright and trademark infringement claims pursuant to Federal Rule of Civil Procedure 54(b), resulting in a final, appealable order.

ANALYSIS

I. COPYRIGHT CLAIM

A. PRIMA FACIE CASE OF COPYRIGHT INFRINGEMENT

To prevail on a claim of copyright infringement, Adobe must prove ownership of a valid copyright and violation by Christenson, the alleged infringer, of at least one of the exclusive rights conferred by the Copyright Act. UMG Recordings, Inc. v. Augusto, 628 F.3d 1175, 1178 (9th Cir.2011).

Adobe claims that it holds copyrights in a long list of different versions of familiar software titles, such as "Adobe Photoshop CS3 for Windows and Macintosh," "Adobe Photoshop CS3 Extended for Windows and Macintosh," "Adobe Photoshop CS4," and "Adobe Photoshop CS4 Extended." Each new version reflects the result of revisions and additions to the underlying source code of the initial program. As proof of ownership, Adobe submitted the...