A Budding Patent Lawyer's Perspective

Software (or computer program) transactions occur all the time and literally everywhere in our society. Such transactions can consist of downloading a program for free or it can involve going to the store and buying a particular program. The phrasing that I just used, you will note, gives an ordinary person the impression that there is an element of ownership in the computer program. More often than not, however, the transaction is not a sale of the digital good, but rather a license to use the software. On either opening the software packaging (shrink-wrap) or installing the program, there is undoubtedly an accompanying license that automatically enters you into. As previously noted, I purchased Microsoft Office last year and the license can be found here. Currently, there is a Circuit split on whether software should be considered a sale even though the software distributors want it to be a license. One side of the split has reclassified these licenses as sales. See Step-Saver Data Systems, Inc. v. Wyse Technology, 939 F.2d 91 (3d Cir. 1991); Vault Corp. v. Quaid Software Ltd., 847 F.2d 255 (5th Cir.1988). I am interested in how classifying software as licenses, rather than something to be owned, will affect the registration of Intellectual Property, especially as we are moving away from physical embodiments of digital property.

In a new article What Virtual Worlds Can Do for Property Law, Juliet M. Moringiello focuses on a couple recent virtual-property disputes in the computer game Second Life. 62 Fla. L. Rev. 159 (2010). One dispute involved a user who exploited a glitch and obtained land for a low cost. The owner of Second Life, Linden, said that the user breached the license and the virtual property was confiscated. The bottom line question that this case involved was who had rights to the virtual property in Second Life? Did the creator of the game merely grant the user a license to access the “proprietary server software, storage space, and computational power that enabled the experience of the ‘virtual land’ in Second Life”? or did the creator wrongfully take the virtual property that the user had acquired? This interesting question did not get resolved due to settlement. The author concludes that the limited amount of tangible property classifications should also apply to the virtual world. I wonder if the current classifications of tangible property are sufficient for intangible property.

Wherever you try and put digital property, it is an awkward fit. First, it is difficult to classify digital transactions as a sale. When we think of the sale of tangible goods, an owner gives up the actual good and transfers it to another. On the other hand, when a record company sells music, it can transfer an unlimited amount of music without diminishing its supply. Using a true sale perspective, when the record company sold its copy of an album, it would not possess that album anymore. In a Unix world, a true sale of a digital transaction would be the command “mv location/album.zip .” However, the command is instead “cp location/album.zip .” which means that the record company always has access to its original album.

Having said that digital property doesn’t fit perfectly in the category of a sale, the category of license doesn’t fit any better. Courts have used several factors to reclassify digital property from licenses to sales:

The intent on the licensor to regain possession

The absence of a recurring benefit

A reason for construing it as a license other than restraining trade

The pricing structure was more like a sale

The licensee could sell the property

In re DAK Industries, Inc., 66 F.3d 1091 (9th Cir. 1995); UMG Recordings, Inc. v. Augusto, 558 F. Supp. 2d 1055 (C.D. Cal. 2008).

Perhaps we are in need of another category to fit emerging digital property into. The license/sale debate will most likely not get any easier or less heated as we move away from physical embodiments of software and towards cloud computing.