Softman Products Co., LLC v. Adobe Systems, Inc.
| Decision Date | 19 October 2001 |
| Docket Number | No. CV 00-04161DDP(AJWX).,CV 00-04161DDP(AJWX). |
| Parties | SOFTMAN PRODUCTS COMPANY, LLC, Plaintiff, v. ADOBE SYSTEMS INC.; et al., Defendants, And Related Counterclaims. |
| Court | U.S. District Court — Central District of California |
Martin L. Stanley, Martin L. Stanley Law Offices, Santa Monica, CA, John D. McCurdy, Michael Miretsky, McCurdy & Leibl, Sherman Oaks, CA, for Plaintiff.
Ian N. Feinberg, L. Scott Oliver, Kimberly N. Van Voorhis, Gray Cary Ware & Freidenrich, Palo Alto, CA, for Defendants.
This matter comes before the Court on the counter-claimant Adobe's application for a preliminary injunction. After reviewing and considering the materials submitted by the parties, and hearing oral argument, the Court adopts the following order.
The counter-claimant Adobe Systems Inc. ("Adobe") is a leading software development and publishing company. The counter-defendant SoftMan Products Company ("SoftMan") is a Los Angeles-based company that distributes computer software products primarily through its website www.buycheapsoftware.com. Adobe alleges that since at least November 1997, SoftMan has distributed unauthorized Adobe software, including Adobe Educational software1 and unbundled Adobe "Collections."2 By distributing the individual pieces of Adobe Collections, Adobe contends that SoftMan is infringing Adobe's copyright in these products and violating the terms of Adobe's licenses. While SoftMan agrees that it is breaking apart various Adobe Collections and distributing the individual pieces of them as single products, SoftMan claims that it is entitled to distribute Adobe software in this manner. There is no direct contractual relationship between Adobe and SoftMan.
Adobe distributes its products through "licensing" agreements with distributors.3 Each piece of Adobe software is also accompanied by an End User License Agreement ("EULA"), which sets forth the terms of the license between Adobe and the end user for that specific Adobe product. The EULA is electronically recorded on the computer disk and customers are asked to agree to its terms when they attempt to install the software. (SoftMan Opp. at 4.)
Adobe alleges, among other things, that SoftMan has infringed on Adobe's trademark by distributing incomplete versions of Adobe software. The central difference between these allegedly incomplete products and the genuine Adobe software is that when SoftMan unbundles a Collection and resells its component parts, such individual pieces of software may not be accompanied by the registration information which would entitle the bearer access to Adobe's customer support and technical services. Adobe alleges that customers may be confused about the connection between authentic Adobe software and the unauthorized versions distributed by SoftMan because a consumer may acquire a product from SoftMan as a "Retail" version when, in fact, it is a piece of an unbundled Adobe Collection.
On August 27, 2001, this Court granted a temporary restraining order and seizure order against SoftMan. On September 10, 2001, the Court entered a preliminary injunction, to be in effect for the duration of the Court's review of the supplemental briefing submitted by the parties following oral argument.
"A party seeking a preliminary injunction must show `either a likelihood of success on the merits and the possibility of irreparable injury, or that serious questions going to the merits were raised and the balance of hardships tips sharply in its favor.'" Micro Star v. Formgen Inc., 154 F.3d 1107, 1109 (9th Cir.1998) (quoting Johnson Controls, Inc. v. Phoenix Control Sys., Inc., 886 F.2d 1173, 1174 (9th Cir. 1989)). In granting a preliminary injunction, a district court must find that the movant demonstrated either: (1) a combination of probable success on the merits and the possibility of irreparable injury if relief is not granted, or (2) the existence of serious questions going to the merits and that the balance of hardships tips sharply in its favor. Brookfield Communications, Inc. v. West Coast Entm't Corp., 174 F.3d 1036, 1046 (9th Cir.1999). Irreparable injury may be presumed from a showing of likelihood of success on the merits of a trademark infringement claim. Id. at 1066 (citing Metro Publ'g v. San Jose Mercury News, 987 F.2d 637, 640 (9th Cir.1993)). The traditional test for granting preliminary injunctive relief also applies in the context of a trademark action. This test requires the plaintiff to demonstrate: (1) a likelihood of success on the merits; (2) a significant threat of irreparable injury; (3) that the balance of hardships favors the plaintiff; and (4) whether any public interest favors granting an injunction. Dollar Rent A Car v. Travelers Indem. Co., 774 F.2d 1371, 1374 (9th Cir.1985); see also Schwarzer, et al., Federal Civil Procedure Before Trial, § 13:44 (1999). The Ninth Circuit also uses an alternative test which requires the plaintiff to demonstrate "serious questions going to the merits and that the balance of hardships tips sharply in its favor." See First Brands Corp. v. Fred Meyer, Inc., 809 F.2d 1378, 1381 (9th Cir. 1987).
To prevail on its copyright infringement claim, Adobe must show (1) that it owns the copyright to the product at issue, and (2) that SoftMan infringed Adobe's copyrights in these products. Johnson Controls, 886 F.2d at 1175. With respect to the second element, Adobe may prove infringement by showing that SoftMan has violated one of Adobe's exclusive rights guaranteed to copyright holders under 17 U.S.C. § 106(3).4 Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 433, 104 S.Ct. 774, 78 L.Ed.2d 574 (1984).
Adobe's products consist of original material which is copyrightable subject matter under 17 U.S.C. § 102. There is no dispute that Adobe is the registered owner of the copyrights for all the products in question in this action.
Copyright infringement exists when any of the rights granted under 17 U.S.C. § 106 are violated. Buck v. Jewell-La Salle Realty, 283 U.S. 191, 51 S.Ct. 410, 75 L.Ed. 971 (1931). Title 17 U.S.C. § 106(3) grants a copyright holder the exclusive right to distribute, and to authorize distribution of, its copyrighted work. Adobe chooses to distribute copies of its products through licensing agreements with various distributors and dealers.5 It is not disputed that SoftMan has no licensing agreement with Adobe.
In addition, each piece of Adobe software is accompanied by the EULA.6 Once the products are distributed to the enduser, the EULA prohibits the individual distribution of software that was originally distributed as part of a Collection. Specifically, the Adobe EULA provides that the end user may "transfer all [his] rights to the Use of the Software to another person or legal entity provided that (a) [he] also transfer this Agreement, the Software and all other software or hardware bundled or pre-installed with the Software."7 (Palma Decl., Ex. 1.)
In this case, Adobe alleges that by distributing unbundled Collections, SoftMan has exceeded the scope of the EULA and has infringed Adobe's copyrights, specifically Adobe's § 106 right to distribute and control distribution. SoftMan contends that the first sale doctrine allows for the resale of Adobe's Collection software.
The "first sale" doctrine was first analyzed by the United States Supreme Court in Bobbs-Merrill Co. v. Straus, 210 U.S. 339, 28 S.Ct. 722, 52 L.Ed. 1086 (1908). The Court held that the exclusive right to "vend" under the copyright statute applied only to the first sale of the copyrighted work. The doctrine has been codified at 17 U.S.C. § 109(a). It states in relevant part: "the owner of a particular copy ... lawfully made under this title ... is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy." 17 U.S.C. § 109(a). One significant effect of § 109(a) is to limit the exclusive right to distribute copies to their first voluntary disposition, and thus negate copyright owner control over further or "downstream" transfer to a third party. Quality King Distrib. v. L'anza Research Int'l, Inc., 523 U.S. 135, 142-44, 118 S.Ct. 1125, 140 L.Ed.2d 254 (1998). (See Rice Decl. ¶ 11.) The first sale doctrine vests the copy owner with statutory privileges under the Act which operate as limits on the exclusive rights of the copyright owners.
Adobe argues that the first sale doctrine does not apply because Adobe does not sell or authorize any sale of its software. Adobe characterizes each transaction throughout the entire stream of commerce as a license.8 Adobe asserts that its license defines the relationship between Adobe and any third-party such that a breach of the license constitutes copyright infringement. This assertion is not accurate because copyright law in fact provides certain rights to owners of a particular copy. This grant of rights is independent from any purported grant of rights from Adobe. The Adobe license compels third-parties to relinquish rights that the third-parties enjoy under copyright law.9
In short, the terms of the Adobe EULA at issue prohibit licensees from transferring or assigning any individual Adobe product that was originally distributed as part of a Collection unless it is transferred with all the software in the original Collection. This license provision conflicts with the first sale doctrine in copyright law, which gives the owner of a particular copy of a copyrighted work the right to dispose of that copy without the permission of the copyright owner.
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