SOFTMAN PRODUCTS CO., LLC v. ADOBE SYSTEMS, INC.

1075
Cite as 171 F.Supp.2d 1075 (C.D.Cal. 2001)

only claims that remain in the action are pursuant to 28 U.S.C. § 1367(c)(3) without
state law causes of action for breach of prejudice to their refiling in state court.
contract, an accounting, conversion, breach
of fiduciary duty, breach of the covenant of
good faith and fair dealing, and fraud.43
Defendants assert that the court should
,
decline to exercise jurisdiction over these
claims because, with the federal claims
dismissed, state law causes of action sub-
stantially predominate. It is within a SOFTMAN PRODUCTS COMPANY,
court’s discretion to decline to exercise LLC, Plaintiff,
supplemental jurisdiction over state law v.
claims if it has dismissed all federal claims
ADOBE SYSTEMS INC.;
over which it had original jurisdiction. 28
et al., Defendants,
U.S.C. § 1367(c)(3); Carnegie–Mellon
University v. Cohill, 484 U.S. 343, 350, n. And Related Counterclaims.
7, 108 S.Ct. 614, 98 L.Ed.2d 720 (1988);
No. CV 00–04161DDP(AJWX).
Schultz v. Sundberg, 759 F.2d 714, 718 (9th
Cir.1985) (‘‘[g]enerally, dismissal of federal United States District Court,
claims before trial dictates that the pen- C.D. California.
dent state claims should also be dis-
Oct. 19, 2001.
missed’’). Such an outcome is appropriate
in this case. Because jurisdiction was
premised on the existence of federal Computer software distributor
claims, and because Warren lacks standing brought action against software develop-
to pursue those claims, the court declines ment and publishing company, and soft-
to exercise supplemental jurisdiction over ware company counterclaimed, alleging
the state law contract and tort claims and copyright and trademark infringement. On
they are dismissed without prejudice. development company’s motion for a pre-
liminary injunction, the District Court,
Pregerson, J., held that: (1) development
III. CONCLUSION
company failed to demonstrate likelihood
For the foregoing reasons, defendants’ of success on the merits in its copyright
motion to dismiss plaintiffs’ copyright infringement claim; (2) terms of software
claims is granted without leave to amend. developer’s end user license agreement
Plaintiffs’ remaining claims are dismissed (EULA) were unenforceable against dis-

43. While several of the remaining claims seek dewey, 698 F.2d 991, 993 (9th Cir.1983) (‘‘[a]
the payment of contractual royalties on copy- case does not arise under the federal copy-
righted materials, ‘‘the federal grant of a pat- right laws TTT merely because the subject
ent or copyright has not been thought to matter of the action involves or affects a copy-
infuse with any national interest a dispute as right’’). ‘‘Contract questions that depend on
to ownership or contractual enforcement common law or equitable principles belong in
turning on the facts or on ordinary principles state court.’’ Thus, ‘‘[t]he federal courts have
of contract law.’’ Dolch v. United California consistently dismissed complaints in copy-
Bank, 702 F.2d 178, 180 (9th Cir.1983) (quot- right cases that present only questions of con-
ing T.B. Harms, Co. v. Eliscu, 339 F.2d 823,
tract lawTTTT’’ Dolch, supra, 702 F.2d at 180.
826 (2d Cir.1964)). See also Topolos v. Cal-
1076 171 FEDERAL SUPPLEMENT, 2d SERIES

tributor; (3) distributor’s purchase of copy- 5. Trade Regulation O620

righted products constituted a sale, not a In addition to the traditional four-part
license; and (4) development company test that is used to determine whether
failed to demonstrate a likelihood of suc- preliminary injunctive relief should be
cess on the merits of its trademark in- granted in the context of a trademark
fringement claim since questions of fact action, the Ninth Circuit also uses an alter-
predominated. native test which requires the plaintiff to
Order granting injunction vacated. demonstrate serious questions going to the
merits and that the balance of hardships
1. Injunction O138.1 tips sharply in its favor.
A party seeking a preliminary injunc- 6. Copyrights and Intellectual Property
tion must show either a likelihood of suc- O85
cess on the merits and the possibility of
Copyright holder failed to demon-
irreparable injury, or that serious ques-
strate likelihood of success on the merits
tions going to the merits were raised and
of its copyright infringement claim that
the balance of hardships tips sharply in its
was based on unauthorized copying of a
favor.
protected work, in order that a prelimi-
2. Injunction O138.1 nary injunction might issue; although al-
In granting a preliminary injunction, a leged infringer distributed unbundled
district court must find that the movant collections of copyright holder’s software
demonstrated either: (1) a combination of allegedly in violation of copyright hold-
probable success on the merits and the er’s end user license agreement (EULA),
possibility of irreparable injury if relief is transfer of copies of copyright holder’s
not granted, or (2) the existence of serious software in distribution chain from copy-
questions going to the merits and that the right holder to alleged infringer were
balance of hardships tips sharply in its sales of particular copies, but not of
favor. copyright holder’s intellectual rights in
computer program itself. 17 U.S.C.A.
3. Trade Regulation O620
§ 106.
In the context of a trademark in-
fringement claim, when considering wheth- 7. Copyrights and Intellectual Property
er a preliminary injunction should be O51
granted, irreparable injury may be pre-
Copyright infringement exists when
sumed from a showing of likelihood of
any of the exclusive rights in copyrighted
success on the merits.
works are violated. 17 U.S.C.A. § 106.
4. Trade Regulation O620
The traditional test for granting pre- 8. Copyrights and Intellectual Property
liminary injunctive relief, that also applies O38.5
in the context of a trademark action, re- One significant effect of the first sale
quires the plaintiff to demonstrate: (1) a doctrine is to limit the exclusive right to
likelihood of success on the merits; (2) a distribute copies to their first voluntary
significant threat of irreparable injury; (3) disposition, and thus negate copyright
that the balance of hardships favors the owner’s control over further or ‘‘down-
plaintiff; and (4) whether any public inter- stream’’ transfer to a third party. 17
est favors granting an injunction. U.S.C.A. § 109(a).
 SOFTMAN PRODUCTS CO., LLC v. ADOBE SYSTEMS, INC. 1077
Cite as 171 F.Supp.2d 1075 (C.D.Cal. 2001)

9. Copyrights and Intellectual Property 13. Sales O3.1

O36 When determining whether a transac-
The first sale doctrine vests the copy tion is a sale, a lease, or a license, courts
owner with statutory privileges under the look to the economic realities of the ex-
Copyright Act which operate as limits on change.
the exclusive rights of the copyright own-
14. Sales O3.1
ers. 17 U.S.C.A. § 109(a).
The transfer of a product for consider-
10. Copyrights and Intellectual Property ation with a transfer of title and risk of
O38.5 loss generally constitutes a sale.
Terms of copyright holder’s end user
license agreement (EULA), which prohib- 15. Copyrights and Intellectual Property
ited licensees from transferring or assign- O107
ing any individual software product of Software development and publishing
copyright holder that was originally dis- company failed to establish that computer
tributed as part of a collection unless it software distributor assented to develop-
was transferred with all the software in ment company’s end user license agree-
original collection, were unenforceable ment (EULA), as required for agreement
against distributor, since that license pro- to be enforced against distributor, where
vision conflicted with first sale doctrine in assent to EULA could be attributed only
copyright law which gives owner of a par- during software installation process. 17
ticular copy of a copyrighted work the U.S.C.A. §§ 106, 109(a).
right to dispose of that copy without the
16. Injunction O138.6
permission of the copyright owner. 17
U.S.C.A. § 109(a). Parties seeking pretrial injunctive re-
lief must demonstrate they will be exposed
11. Copyrights and Intellectual Property to some significant risk of irreparable inju-
O107 ry if such relief is denied.
Computer software distributor’s pur-
chase of software development and pub- 17. Injunction O138.15
lishing company’s copyrighted products Before a preliminary injunction may
constituted a sale, not a license, for pur- issue, the court must identify the harm
pose of development company’s infringe- which a preliminary injunction might cause
ment claims against distributor on basis the defendant and balance it against plain-
that distributor unbundled and then sold tiff’s threatened injury.
development company’s copyrighted prod- 18. Copyrights and Intellectual Property
ucts in violation of end user license agree- O85
ment (EULA), since distributor’s single
Software development and publishing
payment for a perpetual transfer of pos-
company failed to establish irreparable in-
session was a sale of personal property
jury sufficient to obtain preliminary in-
and therefore transferred ownership of
junctive relief in its lawsuit alleging copy-
that property, the copy of the software.
right infringement; although development
17 U.S.C.A. §§ 106, 109(a).
company claimed dilution of customer
12. Sales O10 goodwill and direct loss of annual sales, it
The sale of software is the sale of a did not present any specific evidence relat-
good within the meaning of Uniform Com- ing to those claims and, additionally, it
mercial Code. discovered alleged infringer’s allegedly un-
1078 171 FEDERAL SUPPLEMENT, 2d SERIES

authorized distribution of its software sev- similarity of the marks; (4) evidence of
eral years before bringing suit. 17 actual confusion; (5) marketing channels
U.S.C.A. §§ 106, 109(a). used; (6) type of goods and the degree of
19. Injunction O138.21 care likely to be exercised by the purchas-
In the context of a preliminary injunc- er; (7) defendant’s intent in selecting the
tion, irreparable injury and probability of mark; and (8) likelihood of expansion of
success on the merits are not really two the product lines. Lanham Act, § 1 et
entirely separate tests, but that they are seq., 15 U.S.C.A. § 1051 et seq.
merely extremes of a single continuum.
25. Trade Regulation O335
20. Injunction O138.6
In the context of a trademark in-
In the context of a preliminary injunc-
fringement case, evidence of actual confu-
tion, there must be evidence of actual inju-
sion is not necessary in order to establish a
ry to support claims of irreparable injury;
likelihood of confusion. Lanham Act, § 1
speculative losses are insufficient.
et seq., 15 U.S.C.A. § 1051 et seq.
21. Injunction O138.15
When deciding whether to grant a 26. Trade Regulation O336
preliminary injunction, a court may bal- When assessing the likelihood of con-
ance the potential hardships that each par- fusion to the public in a trademark in-
ty may suffer if the court grants or denies
fringement case, the standard used by the
the motion.
courts is the typical buyer exercising ordi-
22. Trade Regulation O332, 334.1 nary caution. Lanham Act, § 1 et seq., 15
To prevail on a trademark infringe- U.S.C.A. § 1051 et seq.
ment claim under the Lanham Act, a plain-
tiff must prove: (1) that it is the owner of 27. Trade Regulation O368.1
a protectable trademark, and (2) a likeli- The resale of genuine trademarked
hood of consumer confusion as to the goods generally does not constitute in-
source, sponsorship, or origin of the goods. fringement. Lanham Act, § 1 et seq., 15
Lanham Act, § 1 et seq., 15 U.S.C.A. U.S.C.A. § 1051 et seq.
§ 1051 et seq.
23. Trade Regulation O256 28. Trade Regulation O368.1
Under the Lanham Act, registration Under the first sale doctrine, resale
of a trademark shifts the burden of proof by the first purchaser of the original arti-
from the plaintiff, who would have to es- cle under the producer’s trademark is gen-
tablish his right to exclusive use, to the erally neither trademark infringement nor
defendant, who must rebut the presump- unfair competition. Lanham Act, § 1 et
tion of the plaintiff’s right to protected use. seq., 15 U.S.C.A. § 1051 et seq.
Lanham Act, § 1 et seq., 15 U.S.C.A.
§ 1051 et seq. 29. Trade Regulation O368.1
24. Trade Regulation O333, 334.1, 340.1, In the context of trademark infringe-
345.1 ment, the first sale doctrine is not ren-
Courts apply an eight factor test when dered inapplicable merely because con-
determining whether a likelihood of confu- sumers erroneously believe the reseller is
sion exists between a plaintiff’s mark and affiliated with or authorized by the produc-
the allegedly infringing mark: (1) strength er. Lanham Act, § 1 et seq., 15 U.S.C.A.
of the mark; (2) proximity of the goods; (3) § 1051 et seq.
 SOFTMAN PRODUCTS CO., LLC v. ADOBE SYSTEMS, INC. 1079
Cite as 171 F.Supp.2d 1075 (C.D.Cal. 2001)

30. Trade Regulation O368.1 they fail to include access to the develop-
The first sale doctrine does not apply er’s technical support and customer ser-
when an alleged infringer sells trade- vice, and therefore could create customer
marked goods that are materially different confusion and infringe the developer’s
than those sold by the trademark owner; trademarks. Lanham Act, § 1 et seq., 15
when the reseller’s conduct goes beyond U.S.C.A. § 1051 et seq.
the mere resale of trademarked goods,
such conduct may be sufficient to support 34. Trade Regulation O870(2)
a cause of action for infringement because The use of any false designation of
a materially different product is not genu- origin which is likely to cause confusion as
ine, and therefore its unauthorized sale to the origin of the goods is prohibited
constitutes trademark infringement. Lan- under the Lanham Trademark Act. Lan-
ham Act, § 1 et seq., 15 U.S.C.A. § 1051 et ham Act, § 1 et seq., 15 U.S.C.A. § 1051 et
seq. seq.
31. Trade Regulation O620
Software development and publishing
company failed to demonstrate a likelihood
of success on the merits of its claim that Martin L. Stanley, Martin L. Stanley
computer software distributor’s unbun- Law Offices, Santa Monica, CA, John D.
dling of its products violated its trade- McCurdy, Michael Miretsky, McCurdy &
mark, in order that an injunction might Leibl, Sherman Oaks, CA, for Plaintiff.
issue against distributor, on basis that un-
Ian N. Feinberg, L. Scott Oliver, Kim-
bundled version lacked necessary registra-
berly N. Van Voorhis, Gray Cary Ware &
tion capabilities, since questions of fact
Freidenrich, Palo Alto, CA, for Defen-
predominated. Lanham Act, § 1 et seq.,
dants.
15 U.S.C.A. § 1051 et seq.
32. Trade Regulation O334.1 ORDER RE APPLICATION FOR
Not just any difference will cause con- PRELIMINARY INJUNCTION
sumer confusion in a trademark infringe-
ment case; a material difference is one that PREGERSON, District Judge.
consumers consider, on average, relevant This matter comes before the Court on
to a decision about whether to purchase a the counter-claimant Adobe’s application
product. Lanham Act, § 1 et seq., 15 for a preliminary injunction. After re-
U.S.C.A. § 1051 et seq. viewing and considering the materials sub-
33. Trade Regulation O370 mitted by the parties, and hearing oral
argument, the Court adopts the following
Customer support and technical ser-
vices are intertwined functions that may order.
be required to insure a ‘‘genuine’’ product
I. Background
of a software development and publishing
company; if a computer software distribu- The counter-claimant Adobe Systems
tor unbundles and re-shrinkwraps a devel- Inc. (‘‘Adobe’’) is a leading software devel-
opment company’s software and sells it opment and publishing company. The
without the capacity for registration, counter-defendant SoftMan Products Com-
where the bundled version did have that pany (‘‘SoftMan’’) is a Los Angeles-based
capacity, then the copies sold by the dis- company that distributes computer soft-
tributor would not be ‘‘genuine,’’ insofar as ware products primarily through its web-
1080 171 FEDERAL SUPPLEMENT, 2d SERIES

site, www.buycheapsoftware.com. Adobe between these allegedly incomplete prod-

alleges that since at least November 1997, ucts and the genuine Adobe software is
SoftMan has distributed unauthorized that when SoftMan unbundles a Collection
Adobe software, including Adobe Edu- and resells its component parts, such indi-
cational software 1 and unbundled Adobe vidual pieces of software may not be ac-
‘‘Collections.’’ 2 By distributing the indi- companied by the registration information
vidual pieces of Adobe Collections, Adobe which would entitle the bearer access to
contends that SoftMan is infringing Adobe’s customer support and technical
Adobe’s copyright in these products and services. Adobe alleges that customers
violating the terms of Adobe’s licenses. may be confused about the connection be-
While SoftMan agrees that it is breaking tween authentic Adobe software and the
apart various Adobe Collections and dis- unauthorized versions distributed by Soft-
tributing the individual pieces of them as
Man because a consumer may acquire a
single products, SoftMan claims that it is
product from SoftMan as a ‘‘Retail’’ ver-
entitled to distribute Adobe software in
sion when, in fact, it is a piece of an
this manner. There is no direct contractu-
unbundled Adobe Collection.
al relationship between Adobe and Soft-
Man. On August 27, 2001, this Court granted
Adobe distributes its products through a temporary restraining order and seizure
‘‘licensing’’ agreements with distributors.3 order against SoftMan. On September 10,
Each piece of Adobe software is also ac- 2001, the Court entered a preliminary in-
companied by an End User License Agree- junction, to be in effect for the duration of
ment (‘‘EULA’’), which sets forth the the Court’s review of the supplemental
terms of the license between Adobe and briefing submitted by the parties following
the end user for that specific Adobe prod- oral argument.
uct. The EULA is electronically recorded
on the computer disk and customers are II. Legal Standard
asked to agree to its terms when they [1–5] ‘‘A party seeking a preliminary
attempt to install the software. (SoftMan injunction must show ‘either a likelihood of
Opp. at 4.) success on the merits and the possibility of
Adobe alleges, among other things, that irreparable injury, or that serious ques-
SoftMan has infringed on Adobe’s trade- tions going to the merits were raised and
mark by distributing incomplete versions the balance of hardships tips sharply in its
of Adobe software. The central difference favor.’ ’’ Micro Star v. Formgen Inc., 154

1. SoftMan agrees that, at one point, it sold $999. Separately, these products retails as
Adobe Educational software, but disputes that follows: Pagemaker—$499, Acrobat—$249,
it has done so within the past year. (SoftMan Photoshop—$609 and Illustrator—$399.’’
Opp. at 6.) (Id.)

2. ‘‘Collections’’ are sets of individual Adobe 3. Specific agreements include the Adobe Au-
products, such as Adobe Photoshop or Illus- thorized Reseller Agreement (for distribution
trator on separate CD’s, that are sold together of full Retail versions of Adobe software), the
in a larger Adobe Retail Box. These Collec- Adobe Off–Campus Educational Reseller
tions are offered by Adobe at a discount from Agreement (‘‘OCRA’’) for distribution of Edu-
the individual retail products comprising the cational software, and the Original Equip-
Collection. (Adobe Mot. at 3.) ‘‘An example ment Manufacturer Agreements (‘‘OEM’’) (for
of an Adobe Collection is the Adobe Publish- distribution of Adobe software coupled to
ing Collection, comprised of Adobe PageMak- hardware such as a scanner). (Snyder Decl.
er, Acrobat, Photoshop and Illustrator, for ¶ 7, Ex. 2; Williams Decl. ¶ 3, Ex. 1.)
 SOFTMAN PRODUCTS CO., LLC v. ADOBE SYSTEMS, INC. 1081
Cite as 171 F.Supp.2d 1075 (C.D.Cal. 2001)

F.3d 1107, 1109 (9th Cir.1998) (quoting III. Discussion

Johnson Controls, Inc. v. Phoenix Control
A. Copyright Infringement Claim
Sys., Inc., 886 F.2d 1173, 1174 (9th Cir.
1989)). In granting a preliminary injunc- 1. Likelihood of Success on the Merits
tion, a district court must find that the [6] To prevail on its copyright infringe-
movant demonstrated either: (1) a combi- ment claim, Adobe must show (1) that it
nation of probable success on the merits owns the copyright to the product at issue,
and the possibility of irreparable injury if and (2) that SoftMan infringed Adobe’s
relief is not granted, or (2) the existence of copyrights in these products. Johnson
serious questions going to the merits and Controls, 886 F.2d at 1175. With respect
that the balance of hardships tips sharply to the second element, Adobe may prove
in its favor. Brookfield Communications, infringement by showing that SoftMan has
Inc. v. West Coast Entm’t Corp., 174 F.3d violated one of Adobe’s exclusive rights
1036, 1046 (9th Cir.1999). Irreparable in- guaranteed to copyright holders under 17
jury may be presumed from a showing of U.S.C. § 106(3).4 Sony Corp. of Am. v.
likelihood of success on the merits of a Universal City Studios, Inc., 464 U.S. 417,
trademark infringement claim. Id. at 1066 433, 104 S.Ct. 774, 78 L.Ed.2d 574 (1984).
(citing Metro Publ’g v. San Jose Mercury
News, 987 F.2d 637, 640 (9th Cir.1993)). a. Copyright Ownership
The traditional test for granting prelimi- Adobe’s products consist of original ma-
nary injunctive relief also applies in the terial which is copyrightable subject mat-
context of a trademark action. This test ter under 17 U.S.C. § 102. There is no
requires the plaintiff to demonstrate: (1) a dispute that Adobe is the registered owner
likelihood of success on the merits; (2) a of the copyrights for all the products in
significant threat of irreparable injury; (3) question in this action.
that the balance of hardships favors the
plaintiff; and (4) whether any public inter- b. Unauthorized Copying of a Protect-
est favors granting an injunction. Dollar ed Work
Rent A Car v. Travelers Indem. Co., 774 [7] Copyright infringement exists
F.2d 1371, 1374 (9th Cir.1985); see also when any of the rights granted under 17
Schwarzer, et al., Federal Civil Procedure U.S.C. § 106 are violated. Buck v. Jewell–
Before Trial, § 13:44 (1999). The Ninth La Salle Realty, 283 U.S. 191, 51 S.Ct. 410,
Circuit also uses an alternative test which 75 L.Ed. 971 (1931). Title 17 U.S.C.
requires the plaintiff to demonstrate ‘‘seri- § 106(3) grants a copyright holder the ex-
ous questions going to the merits and that clusive right to distribute, and to authorize
the balance of hardships tips sharply in its distribution of, its copyrighted work.
favor.’’ See First Brands Corp. v. Fred Adobe chooses to distribute copies of its
Meyer, Inc., 809 F.2d 1378, 1381 (9th Cir. products through licensing agreements
1987). with various distributors and dealers.5 It

4. Title 17 U.S.C. § 106(3) provides that the vides in part: ‘‘Distributor acknowledges that
owner of a copyright has ‘‘the exclusive rights the Software Products are to be licensed to
TTT to distribute copies or phonorecords of End Users in accordance with the terms and
the copyrighted work to the public by sale or conditions of the current End User License
other transfer of ownership, or by rental, AgreementTTTT Distributor shall distribute the
lease, or lending.’’ 17 U.S.C. § 106(3). Software Products solely in the form and
packaging in which they were obtained from
5. These agreements are signed licenses be- Adobe.’’ (Soriano Decl., Ex. 1 at p. 7.)
tween Adobe and the named distributor. Adobe’s Reseller Agreement states that: ‘‘Re-
Adobe’s general distribution agreement pro- seller acknowledges that the structure and
1082 171 FEDERAL SUPPLEMENT, 2d SERIES

is not disputed that SoftMan has no licens- (1) First Sale Doctrine
ing agreement with Adobe. [8–10] The ‘‘first sale’’ doctrine was
first analyzed by the United States Su-
In addition, each piece of Adobe soft-
preme Court in Bobbs–Merrill Co. v.
ware is accompanied by the EULA.6 Once Straus, 210 U.S. 339, 28 S.Ct. 722, 52
the products are distributed to the end- L.Ed. 1086 (1908). The Court held that
user, the EULA prohibits the individual the exclusive right to ‘‘vend’’ under the
distribution of software that was originally copyright statute applied only to the first
distributed as part of a Collection. Specif- sale of the copyrighted work. The doc-
ically, the Adobe EULA provides that the trine has been codified at 17 U.S.C.
end user may ‘‘transfer all [his] rights to § 109(a). It states in relevant part: ‘‘the
the Use of the Software to another person owner of a particular copy TTT lawfully
or legal entity provided that (a) [he] also made under this title TTT is entitled, with-
out the authority of the copyright owner,
transfer this Agreement, the Software and
to sell or otherwise dispose of the posses-
all other software or hardware bundled or
sion of that copy.’’ 17 U.S.C. § 109(a).
pre-installed with the Software.’’ 7 (Palma One significant effect of § 109(a) is to limit
Decl., Ex. 1.) the exclusive right to distribute copies to
In this case, Adobe alleges that by dis- their first voluntary disposition, and thus
negate copyright owner control over fur-
tributing unbundled Collections, SoftMan
ther or ‘‘downstream’’ transfer to a third
has exceeded the scope of the EULA and
party. Quality King Distrib. v. L’anza
has infringed Adobe’s copyrights, specifi- Research Int’l, Inc., 523 U.S. 135, 142–44,
cally Adobe’s § 106 right to distribute and 118 S.Ct. 1125, 140 L.Ed.2d 254 (1998).
control distribution. SoftMan contends (See Rice Decl. ¶ 11.) The first sale doc-
that the first sale doctrine allows for the trine vests the copy owner with statutory
resale of Adobe’s Collection software. privileges under the Act which operate as

organization of the Software is proprietary to Adobe’s EULA permits an end user, subject to
Adobe and that Adobe retains exclusive own- certain restrictions, to transfer the software,
ership of the Software and the Trademarks.’’ media, and documentation to another end
(Navarro Suppl. Decl., at p. 3, ¶ 9.) user. The restrictions relating to an end
Most computer program and database user’s ability to transfer include that the
product copies are distributed with standard EULA must also be transferred and that
form terms in a document characterized as a ‘‘[t]he Software and all other software or
‘‘license’’. The standard terms purport, hardware bundled or pre-installed with the
among other things: to specify permitted uses Software, including all copies, Updates, and
of a copy, e.g., consumer or personal versus prior verison, and all copies of font software
commercial; to prohibit certain uses of a
converted into other formats.’’ (Id.)
computer program copy, e.g., reverse engi-
neering of the computer program code; to
7. The parties have made much of the change
forbid any use that is not expressly autho-
rized, e.g., commercial processing of third to Adobe’s EULA that occurred in April 2000.
party data or business records; and to bar The Court finds that, under the current lan-
transfer of a copy and the ‘‘license’’ to anoth- guage of the EULA, Adobe’s clear intent is to
er person. (Rice Decl. ¶ 5.) prohibit the unbundling activity. Therefore,
assuming arguendo that the prior agreement
6. The EULA states in part: ‘‘The receiving did not prohibit the conduct at issue, the
party accepts the terms and conditions of this current EULA does clearly state that the ‘‘un-
Agreement (EULA) and any other terms and bundling activities’’ are barred. (See Maier
conditions upon which [the end user] legally
Decl. ¶ 3.)
purchased a license to the Software.’’ (Adobe
EULA ¶ 4, attached to Palma Decl., Ex. 1.)
 SOFTMAN PRODUCTS CO., LLC v. ADOBE SYSTEMS, INC. 1083
Cite as 171 F.Supp.2d 1075 (C.D.Cal. 2001)

limits on the exclusive rights of the copy- of a copyrighted work the right to dispose
right owners. of that copy without the permission of the
Adobe argues that the first sale doctrine copyright owner.
does not apply because Adobe does not sell (2) Sale v. License
or authorize any sale of its software. (a) Historical Background
Adobe characterizes each transaction
[11] Historically, the purpose of ‘‘li-
throughout the entire stream of commerce
censing’’ computer program copy use was
as a license.8 Adobe asserts that its li-
to employ contract terms to augment trade
cense defines the relationship between
secret protection in order to protect
Adobe and any third-party such that a
against unauthorized copying at a time
breach of the license constitutes copyright
when, first, the existence of a copyright in
infringement. This assertion is not accu-
computer programs was doubtful, and, la-
rate because copyright law in fact provides
ter, when the extent to which copyright
certain rights to owners of a particular
provided protection was uncertain. (See
copy. This grant of rights is independent
Rice Decl. ¶ 6.) Computer program copy
from any purported grant of rights from
use ‘‘licensing’’ continued after federal
Adobe. The Adobe license compels third-
courts interpreted the Copyright Act to
parties to relinquish rights that the third-
provide substantial protection for comput-
parties enjoy under copyright law.9
er programs as literary works. (Id. at
In short, the terms of the Adobe EULA ¶ 7.) In Step–Saver Data Systems, Inc. v.
at issue prohibit licensees from transfer- Wyse Technology, the Third Circuit exam-
ring or assigning any individual Adobe ined the historical development of the use
product that was originally distributed as of licensing in the software industry and
part of a Collection unless it is transferred concluded that subsequent changes to the
with all the software in the original Collec- Copyright Act had rendered the need to
tion. This license provision conflicts with characterize the transaction as a license
the first sale doctrine in copyright law, ‘‘largely anachronistic.’’ 939 F.2d 91, 96 n.
which gives the owner of a particular copy 7 (3d Cir.1991).10

8. ‘‘From Adobe’s distributors through the end Under this doctrine, one could purchase a
users, every party along the way receives only copy of a computer program, and then lease it
a license. Since no party can transfer more or lend it to another without infringing the
rights than it acquired, it follows that there copyright on the programTTTT Consumers, in-
was no ‘‘first sale’’ in the transfer to SoftMan, stead of purchasing their own copy of the
and SoftMan’s unbundling of Adobe software program, would simply rent a copy of the
is copyright infringement as a matter of law.’’ program, and duplicate itTTTT [S]oftware pro-
(Adobe Suppl. Brief at 5.) ducers wanted to sue the companies that were
renting the copies of the program to individu-
al consumers, rather than the individual con-
9. See, e.g., Mark A. Lemley, Intellectual Prop-
sumers. The first sale doctrine, though, stood
erty and Shrinkwrap Licenses, 68 S. Cal.
as a substantial barrier to successful suit
L.Rev. 1239 (1995) (‘‘Software vendors are
against these software rental companies, even
attempting en masse to ‘opt out’ of intellectu- under a theory of contributory infringement.
al property law by drafting license provisions By characterizing the original transaction be-
that compel their customers to adhere to tween the software producer and the software
more restrictive provisions than copyright law rental company as a license, rather than a
would require.’’). sale, and by making the license personal and
non-transferable, software producers hoped
10. The court in Step–Saver explained: ‘‘When to avoid the reach of the first sale doctrine
these form licenses were first developed for and to establish a basis in state contract law
software, it was, in large part, to avoid the for suing the software rental companies di-
federal copyright law first sale doctrineTTTT rectly. Questions remained, however, as to
1084 171 FEDERAL SUPPLEMENT, 2d SERIES

(b) Adobe Sells its Software Because we look to the economic reali-
[12, 13] A number of courts have held ties of the agreement, the fact that the
that the sale of software is the sale of a agreement labels itself a ‘‘license’’ and
good within the meaning of Uniform Com- calls the payments ‘‘royalties,’’ both
mercial Code. Advent Sys. Ltd. v. Unisys terms that arguably imply periodic pay-
Corp., 925 F.2d 670, 676 (3d Cir.1991); ment for the use rather than sale of
Step–Saver, 939 F.2d at 99–100; Downri- technology, does not control our analy-
ver Internists v. Harris Corp., 929 F.2d sis.
1147, 1150 (6th Cir.1991). It is well-settled DAK, 66 F.3d at 1095, n. 2. Other courts
that in determining whether a transaction have reached the same conclusion: soft-
is a sale, a lease, or a license, courts look ware is sold and not licensed. See, e.g.,
to the economic realities of the exchange. RRX Indus., Inc. v. Lab–Con, Inc., 772
Microsoft Corp. v. DAK Indus., 66 F.3d F.2d 543, 546 (9th Cir.1985); Applied Info.
1091 (9th Cir.1995); United States v. Wise, Mgmt., Inc. v. Icart, 976 F.Supp. 149, 155
550 F.2d 1180 (9th Cir.1977). In DAK, (E.D.N.Y.1997) (finding that whether a
Microsoft and DAK entered into a license transaction denominated a ‘‘license’’ was in
agreement granting DAK certain nonex- fact a sale conveying ownership was a
clusive license rights to Microsoft’s com- disputed question of fact); Novell, Inc. v.
puter software. The agreement provided CPU Distrib., Inc., 2000 U.S. Dist. Lexis
that DAK would pay a royalty rate per
9975 (S.D.Tex.2000). In Novell, a software
copy of computer software that it distrib-
manufacturer was pursuing a discount re-
uted. Subsequently, DAK filed a petition
tailer for copyright infringement. Like
for bankruptcy, and failed to pay the final
Adobe, CPU argued that it purchased the
two out of a total of five installments.
software from an authorized source and
Microsoft filed a motion for the payment of
was entitled to resell it under the first sale
an administrative expense, claiming that it
doctrine. Novell claimed that it did not
should be compensated for DAK’s post-
sell software but merely licensed it to dis-
bankruptcy petition use of the license
tribution partners. The court held that
agreement. On appeal, the Ninth Circuit
held that the economic realities of the these transactions constituted sales and
agreement indicated that it was a sale, not not a license, and therefore that the first
a license to use. Thus, Microsoft simply sale doctrine applied. 2000 U.S. Dist. Lex-
held an unsecured claim and not an admin- is 9975 at *18.
istrative expense. The court found that Adobe frames the issue as a dispute
the agreement was best characterized as a about the ownership of intellectual proper-
lump sum sale of software units to DAK, ty. In fact, it is a dispute about the own-
rather than a grant of permission to use an ership of individual pieces of Adobe soft-
intellectual property. The court in DAK ware. Section 202 of the Copyright Act
noted: recognizes a distinction between tangible

whether the use of state contract law to avoid grams and phonorecords. [Citations.] As
the first sale doctrine would be preempted amended, the first sale doctrine permits only
either by the federal copyright statute (statu- non-profit libraries and educational institu-
tory preemption) or by the exclusive constitu- tions to lend or lease copies of software and
tional grant of authority over copyright issues phonorecords. [citations.] (Under the amend-
to the federal government (constitutional pre- ed statute, a purchaser of a copy of a copy-
emption). [Citations.] Congress recognized righted computer program may still sell his
the problem, and, in 1990, amended the first copy to another without the consent of the
sale doctrine as it applies to computer pro- copyright holder.).’’ 939 F.2d at 96, n. 7.
 SOFTMAN PRODUCTS CO., LLC v. ADOBE SYSTEMS, INC. 1085
Cite as 171 F.Supp.2d 1075 (C.D.Cal. 2001)

property rights in copies of the work and commentators conclude that a ‘‘shrinkwrap
intangible property rights in the creation license’’ transaction is a sale of goods rath-
itself.11 In this case, no claim is made that er than a license.12
transfer of the copy involves transfer of [14] The reality of the business envi-
the ownership of the intellectual property ronment also suggests that Adobe sells its
within. (See SoftMan’s Suppl. Brief at 9– software to distributors. Adobe transfers
10) (‘‘Adobe has ownership rights in the large amounts of merchandise to distribu-
copyright of [its] software.’’). What is at tors. The distributors pay full value for
stake here is the right of the purchaser to the merchandise and accept the risk that
dispose of that purchaser’s particular copy the software may be damaged or lost.13
of the software. The distributors also accept the risk that
The Court finds that the circumstances they will be unable to resell the product.14
surrounding the transaction strongly sug- The distributors then resell the product to
gests that the transaction is in fact a sale other distributors in the secondary mar-
rather than a license. For example, the ket. The secondary market and the ulti-
purchaser commonly obtains a single copy mate consumer also pay full value for the
of the software, with documentation, for a product, and accept the risk that the prod-
single price, which the purchaser pays at uct may be lost or damaged. This evidence
the time of the transaction, and which suggests a transfer of title in the good.
constitutes the entire payment for the ‘‘li- The transfer of a product for consideration
cense.’’ The license runs for an indefinite with a transfer of title and risk of loss
term without provisions for renewal. In generally constitutes a sale. VWP of Am.,
light of these indicia, many courts and Inc. v. United States, 175 F.3d 1327, 1338–

11. ‘‘Ownership of a copyright, or of any of the 13. ‘‘In purchasing Adobe software from au-
exclusive rights under a copyright, is distinct thorized distributors, I always understood
from ownership of any material object in that SoftMan was obtaining title to the partic-
which the work is embodied.’’ 17 U.S.C. ular copies it purchasedTTTT SoftMan paid
§ 202. fair value for the product and assumes the
risk of loss or damage upon receipt. SoftMan
12. The term ‘‘shrinkwrap license’’ refers to
the fact that the license begins when the pur- also assumed the risk of loss if it was unable
chaser reads its terms and tears open the to resell the software.’’ (Dracup Decl. ¶ 8.)
transparent plastic wrapping, or ‘‘shrin-
kwrap,’’ that encloses the software product. 14. SoftMan points to the language of Adobe’s
‘‘Although early shrinkwrap licenses often distribution agreements, which includes sale
were visible prior to purchase, and could be terms and states that the distributor assumes
read before the purchaser tore open the soft- the risk of loss or damage of the product.
ware’s wrapping, more recent variants place (Soriano Decl., Ex. 1 at 5.7–5.14.) Therefore,
the license within the software’s packaging or SoftMan argues, Adobe transfers title in the
on the disk itself.’’ Stephen P. Tarolli, The software to its distributors subject to a license
Future of Information Commerce under Con- restricting the distributor’s rights and the
temporary Contract and Copyright Principles, manner in which the distributor may sell the
46 Am. U.L.Rev. 1639, 1647–48 (1997) (foot- software. In addition, SoftMan argues that
note omitted); see also ProCD, Inc. v. Zeiden- even if title does not pass to the distributors,
berg, 86 F.3d 1447, 1450 (7th Cir.1996) (‘‘The the distributors may still transfer title in indi-
‘shrinkwrap license’ gets its name from the vidual copies subject to the terms of the
fact that retail software packages are covered EULA. A consumer may obtain good title
in plastic or cellophane ‘shrinkwrap’ TTT ven-
from a distributor who has not perfected title.
dors TTT have written licenses that become
Unif. Comm.Code § 2–403(2).
effective as soon as the customer tears the
wrapping from the package. Vendors prefer
‘end user license’ TTT’’).
1086 171 FEDERAL SUPPLEMENT, 2d SERIES

39 (Fed.Cir.1999). Professor Raymond and licenses under which the use restric-
Nimmer writes: tions principal purpose is to protect intan-
Ownership of a copy should be deter- gible copyrightable subject matter, and not
mined based on the actual character, to preserve property interests in individual
rather than the label, of the transaction program copies. Id. at 172.
by which the user obtained possession.
Adobe relies primarily on two cases to
Merely labeling a transaction as a lease
support its proposition that software is
or license does not control. If a transac-
licensed and not sold. In Microsoft Corp.
tion involves a single payment giving the
v. Harmony Computers & Elecs., Inc., 846
buyer an unlimited period in which it
F.Supp. 208, 212 (E.D.N.Y.1994), the court
has a right to possession, the transaction
is a sale. In this situation, the buyer assumed without analysis that the transac-
owns the copy regardless of the label tion was a license rather than a sale and
the parties use for the contract. Course held that distribution outside the scope of
of dealing and trade usage may be rele- a license agreement constituted copyright
vant, since they establish the expecta- infringement. The Court finds Harmo-
tions and intent of the parties. The ny ’s facts to be distinguishable. In that
pertinent issue is whether, as in a lease, case, the defendants were selling counter-
the user may be required to return the feit Microsoft products. Here, Adobe does
copy to the vendor after the expiration not allege that SoftMan sells counterfeit
of a particular period. If not, the trans- Adobe software.
action conveyed not only possession, but Adobe also relies on Adobe Sys. Inc. v.
also transferred ownership of the copy. One Stop Micro, Inc., 84 F.Supp.2d 1086,
Raymond Nimmer, The Law of Computer 1093 (N.D.Cal.2000). The court held that
Technology § 1.18[1] p. 1–103 (1992). The One Stop’s distribution of Educational ver-
Court agrees that a single payment for a sions of Adobe software to non-educational
perpetual transfer of possession is, in reali- end users was outside the scope of Adobe’s
ty, a sale of personal property and there-
license and in violation of Adobe’s exclu-
fore transfers ownership of that property,
sive right to distribute under § 106(3). In
the copy of the software.
One Stop, an unlicensed reseller admitted
Other commentators have urged courts to adulterating the packaging for Adobe
to look at the substance rather than the
Educational software and transferring it as
form of licensing agreements. See, e.g.,
retail Adobe products for prices below the
David A. Rice, Licensing the Use of Com-
street price of the retail product. Id. The
puter Program Copies and the Copyright
court further held that One Stop could not
Act First Sale Doctrine, 30 Jurimetrics J.
claim to have title for first sale purposes
157 (1990). In particular, the following
factors require a finding that distributing while the end user only obtained a license.
software under licenses transfers individu- The Court finds the facts of One Stop to be
al copy ownership: temporally unlimited distinguishable from the instant case. In
possession, absence of time limits on copy One Stop, the issue was peeling off and
possession, pricing and payment schemes destroying the ‘‘Education version’’ stick-
that are unitary not serial, licenses under ers on software, as well as destroying bar
which subsequent transfer is neither pro- code and serial numbers on the software,
hibited nor conditioned on obtaining the and then reselling it as commercial soft-
licensor’s prior approval (only subject to a ware. Id. at 1088. To the extent that the
prohibition against rental and a require- court in One Stop found that the transac-
ment that any transfer be of the entity), tion at issue was in fact a license, and not a
 SOFTMAN PRODUCTS CO., LLC v. ADOBE SYSTEMS, INC. 1087
Cite as 171 F.Supp.2d 1075 (C.D.Cal. 2001)

sale, this Court simply declines to adopt loads the Adobe program and begins the
that analysis. In One Stop, the court installation process. It is undisputed that
placed great weight on the declarations of SoftMan has never attempted to load the
Adobe’s experts that licensing is the pre- software that it sells. Consequently, the
ferred method of distributing software. Court finds that SoftMan is not subject to
The Court understands fully why licensing the Adobe EULA.
has many advantages for software publish- Adobe fails to offer a compelling ratio-
ers. However, this preference does not nale for how SoftMan becomes subject to
alter the Court’s analysis that the sub- Adobe’s licenses if SoftMan never loads
stance of the transaction at issue here is a the software onto computers. Adobe
sale and not a license. claims that the EULA is enforceable
(c) EULA Terms against SoftMan because the boxes con-
[15] Adobe argues that the EULA re- taining Adobe software (including Collec-
quires construction of the transaction as a tions) clearly indicate that use is subject to
license rather than a sale. The Court the consumer’s agreement to the terms
finds that SoftMan is not bound by the contained in EULA inside. See, e.g.,
EULA because there was no assent to its ProCD, 86 F.3d at 1451. Like the CD
terms. boxes in ProCD, Adobe’s EULAs state
that the product can be returned if the
i) Assent terms are not agreed to by the end user.
Adobe contends that the EULA limits The Adobe Collections boxes state: ‘‘NO-
the consumer’s ability to transfer the soft- TICE TO USERS: This product is offered
ware after buying it. According to Soft- subject to the license agreement included
Man, a hard copy of the EULA agreement with the media.’’ (Navarro Decl. at p. 2.)
is not enclosed with the individual Adobe However, the existence of this notice on
software disk. Instead, consumers are the box cannot bind SoftMan. Reading a
asked to agree to its terms as part of the notice on a box is not equivalent to the
installation process. (Dracup Decl. ¶ 7.) degree of assent that occurs when the
Courts have required that assent to the software is loaded onto the computer and
formation of a contract be manifested in the consumer is asked to agree to the
some way, by words or other conduct, if terms of the license.
the contract is to be effective. E. Allan Adobe further asserts that whether
Farnsworth, Farnsworth on Contracts SoftMan is characterized as a distributor
§ 3.1 (2d ed.2000). As the court noted in or reseller, SoftMan would be bound by
Specht v. Netscape Communications the terms of these license agreements,
Corp., 150 F.Supp.2d 585 (S.D.N.Y.2001): which state that Adobe retains ownership
‘‘The case law on software licensing has of its software products, as well as the
not eroded the importance of assent in media upon which these software products
contract formation. Mutual assent is the are distributed. It is undisputed that Soft-
bedrock of any agreement to which the law Man is not a signatory to any licensing
will give force. Defendants’ position, if agreements. Yet Adobe claims that al-
accepted, would so expand the definition of though SoftMan has never signed an
assent as to render it meaningless.’’ Id. at agreement with Adobe, the terms of
596. Adobe’s distribution agreements all apply
In the instant case, the Court finds that to SoftMan.
there is only assent on the part of the In One Stop, the court stated that al-
consumer, if at all, when the consumer though One Stop was not a signatory to an
1088 171 FEDERAL SUPPLEMENT, 2d SERIES

Adobe licensing agreement, it was never- parties shipped, received and paid for the
theless subject to the restrictions of those product. Therefore, the software shrin-
agreements. 84 F.Supp.2d at 1092. The kwrap agreement constituted additional
court found that by obtaining Adobe soft- terms to the contract, and under Uniform
ware from a party to an Adobe licensing Commercial Code § 2–207 (governing
agreement, One Stop was bound by any commercial counter-offers), these terms
restrictions imposed by that agreement. were invalid without express assent by the
Id. at 1093. In Harmony, the court found purchaser. In contrast, other courts have
that ‘‘to the extent that defendants bought determined that the shrinkwrap license is
their Microsoft Products from authorized valid and enforceable. ProCD, 86 F.3d at
Microsoft licensees, they were subject to 1453; Harmony, 846 F.Supp. at 212.
the same licensing restrictions under The Court finds it unnecessary to reach
which those licensees operated.’’ Harmo- the question of the general validity of
ny, 846 F.Supp. at 213. The Court de- shrinkwrap licenses at this stage because
clines to adopt the analysis of these cases. the Court has determined that SoftMan is
The Court finds that Adobe’s EULA not bound by the EULA because there
cannot be valid without assent. Therefore, was no assent to its terms.
SoftMan is not bound by the EULA be-
2. New York Times Co., Inc. v. Tasini
cause it has never loaded the software, and
therefore never assented to its terms of Adobe claims that even if there was a
first sale of the Adobe Collections, Soft-
use.
Man’s unbundling of the Collections and
ii) Shrinkwrap Licenses In General
redistribution of the individual component
Whether contracts such as Adobe’s parts still constitutes copyright infringe-
EULA, often referred to as ‘‘shrinkwrap’’ ment. Adobe cites New York Times Co.
licenses, are valid is a much-disputed Inc. v. Tasini, ––– U.S. ––––, 121 S.Ct.
question.15 A number of courts that have 2381, 150 L.Ed.2d 500 (2001), for the prop-
addressed the validity of the shrinkwrap osition that the distribution of an individu-
license have found them to be invalid, al component of a collective work infringes
characterizing them as contracts of adhe- the copyright in the underlying individual
sion, unconscionable, and/or unacceptable work.
pursuant to the Uniform Commercial In Tasini, the Court held that print and
Code. Step–Saver, 939 F.2d 91; Vault electronic publishers infringed on the
Corp. v. Quaid Software Ltd., 847 F.2d copyrights of freelance authors when the
255 (5th Cir.1988). These courts have re- publishers placed the authors’ articles in
fused to recognize a bargain in shrinkwrap electronic databases. The Court rejected
license that is not signed by the party the publishers’ assertions that they were
against whom it is enforced. In Step– protected by the reproduction and distri-
Saver, the Third Circuit found that the bution privilege accorded collective work
terms of a contract were formed when the copyright owners by 17 U.S.C. § 201(c).16

15. The enforceability of use restrictions and 16. ‘‘Copyright in each separate contribution
transfer prohibitions set forth in standard to a collective work is distinct from copyright
form, non-negotiated, computer program in the collective work as a whole, and vests
copy ‘‘licenses’’ has been the subject of sub- initially in the author of the contribution. In
stantial academic and other controversy. the absence of an express transfer of the copy-
(Rice Decl. ¶ 28.) right or of any rights under it, the owner of
copyright in the collective work is presumed
to have acquired only the privilege of repro-
 SOFTMAN PRODUCTS CO., LLC v. ADOBE SYSTEMS, INC. 1089
Cite as 171 F.Supp.2d 1075 (C.D.Cal. 2001)

Adobe’s reliance on Tasini is misplaced. therefore cannot be bound by its terms.

The critical distinction is that Tasini does Therefore, the Court finds that Adobe has
not address, as does the instant case, the not demonstrated a likelihood of success
fate of an individual copy of any work on the merits of its copyright infringement
under the first sale doctrine. The Tasini claim.
Court reaffirmed that the owner of the
copyright in the collective work is pre- a. Irreparable Injury
sumed to have acquired only the privilege [16–18] Since the Court finds that
of distributing the contribution as part of Adobe has not made a showing of a likeli-
that particular collective work.17 hood of success on the merits of its copy-
In contrast, what Adobe alleges here is right claim, no presumption of irreparable
quite different. In this case, Adobe seeks harm is raised. See Micro Star, 154 F.3d
to control the resale of a lawfully acquired at 1109. Parties seeking pretrial injunc-
copy of its software. Adobe’s position in tive relief must demonstrate they will be
this action would be more akin to a jour- exposed to some ‘‘significant risk of irrepa-
nalist who claimed that ownership of the rable injury’’ if such relief is denied. As-
copyright to an article allowed him or her sociated Gen. Contractors of Cal. v. Coali-
to control the resale of a particular copy of tion for Econ. Equity, 950 F.2d 1401, 1410
a newspaper that contained that article. (9th Cir.1991). Before a preliminary in-
The Court finds that Tasini is not applica-
junction may issue, the court must identify
ble to the facts at issue.
the harm which a preliminary injunction
3. Copyright Infringement Conclusion might cause the defendant and balance it
against plaintiff’s threatened injury. Arm-
In short, the transfer of copies of Adobe
strong v. Mazurek, 94 F.3d 566, 568 (9th
software making up the distribution chain
Cir.1996).
from Adobe to SoftMan are sales of the
particular copies, but not of Adobe’s intel- Adobe contends it will suffer irreparable
lectual rights in the computer program injury for the following reasons: dilution
itself, which is protected by Adobe’s copy- of customer goodwill, price erosion of
right. SoftMan is an ‘‘owner’’ of the copy Adobe software due to SoftMan’s resale
and is entitled to the use and enjoyment of activities, the Adobe name will be tar-
the software, with the rights that are con- nished and consumers may stop acquiring
sistent with copyright law. The Court re- Adobe products, loss of annual sales,18 and
jects Adobe’s argument that the EULA dilution of trademarks. Adobe also con-
gives to purchasers only a license to use tends that it is faced with a ‘‘Hobson’s
the software. The Court finds that Soft- Choice’’ between upholding distribution
Man has not assented to the EULA and agreements and denying consumers Adobe

ducing and distributing the contribution as sion’ thereof, or ‘as part of TTT any later
part of that particular collective work, any collective work in the same series.’ Both the
revision of that collective work, and any later print publishers and the electronic publishers,
collective work in the same series.’’ 17 we rule, have infringed the copyrights of the
U.S.C. § 201(c). freelance authors.’’ Tasini, ––– U.S. at –––– –
––––, 121 S.Ct. at 2384–85.
17. The Court held: ‘‘The publishers are not
sheltered by § 201(c) TTT because the data-
bases reproduce and distribute articles stand- 18. Adobe alleges that SoftMan grossed
ing alone and not in context, not ‘as part of $700,000 from the sale of Adobe products
that particular collective work’ to which the between October 2000 and May 2001. (Van
author contributed, ‘as part of TTT any revi- Voorhis Decl. ¶ 7, Ex. 7.)
1090 171 FEDERAL SUPPLEMENT, 2d SERIES

services (satisfying Adobe’s ‘‘legitimate’’ b. Balance of Hardships

distribution partners at the expense of cus- [21] In deciding whether to grant a
tomer goodwill), or providing services to preliminary injunction, the Court may also
consumers holding so-called ‘‘pirated’’ balance the potential hardships that each
products. party may suffer if the Court grants or
denies Adobe’s motion. See International
[19, 20] Irreparable injury and proba- Jensen, Inc. v. Metrosound U.S.A., 4 F.3d
bility of success on the merits ‘‘are not at 819, 827 (9th Cir.1993). Given that
really two entirely separate tests, but that neither Adobe nor SoftMan has submitted
they are merely extremes of a single con- any evidence of economic loss except
tinuum.’’ Benda v. Grand Lodge of Int’l broad, general statements, the Court con-
Ass’n of Machinists & Aerospace Workers, siders the balance of hardships to be a
584 F.2d 308, 315 (9th Cir.1978). In this neutral factor.
case, the Court finds that Adobe has not
demonstrated probable success on the c. Public Interest
merits of its copyright claim. Nor has Traditionally, courts have looked to pub-
Adobe made a showing of irreparable inju- lic policy considerations in determining
ry sufficient to obtain preliminary injunc- whether to grant preliminary injunctive
tive relief. Adobe presents no specific evi- relief. Chalk v. United States Dist. Court,
dence relating to dilution of customer Cent. Dist. of Cal., 840 F.2d 701, 711 (9th
goodwill or the direct loss of annual sales. Cir., 1988) (‘‘We recognize that the public
There must be evidence of actual injury to interest is one of the traditional equitable
support claims of ‘‘irreparable injury.’’ criteria which a court should consider in
Speculative losses are insufficient. Gol- granting injunctive relief.’’). In this case,
die’s Bookstore, Inc. v. Superior Court, 739 the Court finds that important public poli-
F.2d 466, 472 (9th Cir.1984); Caribbean cy considerations weigh on each side.
Marine Serv. Co. v. Baldrige, 844 F.2d The Court finds that the provisions con-
668, 674 (9th Cir.1988). Significantly, tained in Adobe’s EULA purport to dimin-
Adobe also admits that it discovered Soft- ish the rights of customers to use the
Man’s allegedly unauthorized distribution software in ways ordinarily enjoyed by
of Adobe software in November 1997. customers under copyright law. There-
(Adobe Mot. at 6.) This delay further sup- fore, these restrictions appear to be incon-
ports the Court’s conclusion that Adobe sistent with the balance of rights set forth
has failed to demonstrate immediate in intellectual property law.19 Commenta-
threatened harm. The Court finds that tors have noted that the arguments for
Adobe has failed to show that it will suffer enforcing this balance are particularly per-
irreparable injury in the absence of pre- suasive in the context of shrinkwrap licens-
liminary injunctive relief. es because the balance of rights in intellec-

19. Scholars have suggested that Congress of copyright remedies—was explicitly disa-
contemplated that parties might attempt to vowed by the Committee Note.’’ Mark A.
contract out of a first sale right. ‘‘Congress Lemley, Intellectual Property and Shrinkwrap
was explicit in the context of section 109(a) Licenses, 68 S. Cal. L.Rev. 1239, 1283 (1995)
that it intended for vendors who ‘contract (citing H.R. Rep. 94–1476 (1976) (providing
around’ the first sale doctrine to be limited to that the parties may contract around the first
contract remedies. The approach of shrin- sale doctrine in 17 U.S.C. 109(a), but limiting
kwrap licenses—to attempt to extend vendor the copyright owner to contract rather than
rights by contract while retaining the panoply copyright remedies if they do so)).
 SOFTMAN PRODUCTS CO., LLC v. ADOBE SYSTEMS, INC. 1091
Cite as 171 F.Supp.2d 1075 (C.D.Cal. 2001)

tual property law is already tilted heavily a. Validity of Adobe’s Marks

in favor of the intellectual property owner. [23] Under the Lanham Act, registra-
‘‘The only countervailing forces favoring tion of a trademark ‘‘shifts the burden of
users are those rights specifically granted proof from the plaintiff, who would have to
to users by federal law. In this context establish his right to exclusive use,’’ to the
more than any other, therefore, it is justifi- defendant, who must rebut the presump-
able to fear that removing or eviscerating tion of the plaintiff’s right to protected use.
those user rights may bring the whole Vuitton et Fils S.A. v. J. Young Enters.,
edifice crumbling down.’’ 20 Inc., 644 F.2d 769, 775 (9th Cir.1981). All
of Adobe’s trademarks at issue in this suit
This is an area fraught with conflicting
are registered with the U.S. Patent and
policy considerations. Software publishers Trademark Office. SoftMan does not dis-
are desirous of augmenting the protections pute that the Adobe trademarks are valid,
offered under copyright law. In this case, protectible marks.
through the use of licensing, Adobe seeks
a vast and seemingly unlimited power to b. Likelihood of Confusion
control prices and all channels of distribu- [24] Courts apply an eight-factor test
tion. On the other hand, in the absence of in determining whether a likelihood of con-
copyright law violations, the market can fusion exists between the plaintiff’s mark
often best regulate prices and all subse- and the allegedly infringing mark. The
quent transactions that occur after the relevant factors may include:
first sale. Sound policy rationales support 1. strength of the mark;
the analysis of those courts that have
2. proximity of the goods;
found shrinkwrap licenses to be unenforce-
3. similarity of the marks;
able. A system of ‘‘licensing’’ which
grants software publishers this degree of 4. evidence of actual confusion;
unchecked power to control the market 5. marketing channels used;
deserves to be the object of careful scruti- 6. type of goods and the degree of care
ny. likely to be exercised by the pur-
chaser;
For the reasons stated above, the Court
7. defendant’s intent in selecting the
finds that this factor weighs in favor of the
mark; and
counter-defendants.
8. likelihood of expansion of the prod-
uct lines.
B. Trademark Claims
AMF Inc. v. Sleekcraft Boats, 599 F.2d
1. Likelihood of Success on the Merits 341, 348–49 (9th Cir.1979). In applying
the Sleekcraft factors, the Ninth Circuit
[22] To prevail on its trademark in- has cautioned that although all of the fac-
fringement claims under the Lanham Act, tors are relevant, some factors may be
Adobe must prove: (1) that it is the owner more significant depending upon the facts
of a protectible trademark, and (2) a likeli- of the case at bar. See Brookfield, 174
hood of consumer confusion as to the F.3d at 1053. Further, the Sleekcraft
source, sponsorship, or origin of the goods. court noted that it did not provide an
Ocean Garden, Inc. v. Marktrade Co., Inc., exhaustive list of relevant factors. ‘‘Other
953 F.2d 500, 506 (9th Cir.1991). variables may come into play depending on

20. Lemley, Intellectual Property, at 1283.

1092 171 FEDERAL SUPPLEMENT, 2d SERIES

the particular facts presented.’’ Sleek- is not rendered inapplicable merely be-
craft, 599 F.2d at 348 n. 11. cause consumers erroneously believe the
[25, 26] Evidence of actual confusion is reseller is affiliated with or authorized by
not necessary in order to establish a likeli- the producer.’’ Sebastian, 53 F.3d at 1076.
hood of confusion. See id. at 353 (stating [30, 31] The first sale doctrine does not
that failure to prove actual confusion is not apply, however, when an alleged infringer
dispositive); Lois Sportswear, U.S.A., Inc. sells trademarked goods that are material-
v. Levi Strauss & Co., 799 F.2d 867, 874 ly different than those sold by the trade-
(2d Cir.1986). ‘‘In assessing the likelihood mark owner. When the reseller’s conduct
of confusion to the public, the standard goes beyond the mere resale of trade-
used by the courts is the typical buyer marked goods, such conduct may be suffi-
exercising ordinary caution.’’ Sleekcraft, cient to support a cause of action for in-
599 F.2d at 353. As the Sleekcraft court fringement. Id. A materially different
explained, ‘‘[w]hen the alleged infringer product is not genuine, and therefore its
knowingly adopts a mark similar to anoth- unauthorized sale constitutes trademark
er’s, reviewing courts presume that the infringement. See Enesco Corp. v.
defendant can accomplish his purpose: Price/Costco Inc., 146 F.3d 1083, 1087 (9th
that is, that the public will be deceived.’’ Cir.1998) (noting that a non-conforming
Id. at 354. The court also noted that, product is not genuine and ‘‘ ‘TTT its distri-
‘‘[g]ood faith is less probative of the likeli- bution constitutes trademark infringe-
hood of confusion, yet may be given con- ment’ ’’ (quoting Warner–Lambert Co. v.
siderable weight in fashioning a remedy.’’ Northside Dev. Corp., 86 F.3d 3, 6 (2d
Id. Cir.1996))). In this case, SoftMan’s con-
duct goes beyond the mere resale of trade-
[27–29] In the instant case, the parties
marked goods.
do not dispute that SoftMan is reselling
genuine, albeit repackaged, Adobe soft- [32] Clearly, not just any difference
ware. The resale of genuine trademarked will cause consumer confusion. A material
goods generally does not constitute in- difference is one that consumers consider,
fringement. See, e.g., NEC Elecs. v. CAL on average, relevant to a decision about
Circuit Abco, 810 F.2d 1506, 1509 (9th whether to purchase a product. See Mar-
Cir.1987). Under the first sale doctrine, tin’s Herend Imps., Inc. v. Diamond &
resale by the first purchaser of the original Gem Trading USA, Co., 112 F.3d 1296
article under the producer’s trademark is (5th Cir.1997). In this case, the sale of
generally neither trademark infringement software without access to customer sup-
nor unfair competition. See Sebastian port and technical services is a difference
Int’l, Inc. v. Longs Drug Stores Corp., 53 that an average consumer would consider
F.3d 1073, 1074 (9th Cir.1995). The ratio- relevant to a decision about whether to
nale behind the rule is that ‘‘trademark purchase a product.
law is designed to prevent sellers from According to both parties, the copies of
confusing or deceiving consumers about Adobe software that SoftMan distributes
the origin or make of a product, which are identical to lawful copies of these prod-
confusion ordinarily does not exist when a ucts. Adobe claims that SoftMan repackag-
genuine article bearing a true mark is es and resells the Adobe software without
sold.’’ NEC Elecs., 810 F.2d at 1509 (sale ‘‘crucial registration elements such as a
of genuine trademarked product by seller registration card.’’ (Adobe Mot. at 13.)
unauthorized to sell not a violation of Lan- Adobe further argues that the copies lack
ham Act). Moreover, ‘‘[t]he ‘first sale’ rule customer support and technical support
 SOFTMAN PRODUCTS CO., LLC v. ADOBE SYSTEMS, INC. 1093
Cite as 171 F.Supp.2d 1075 (C.D.Cal. 2001)

information. Even if the software does software sold by SoftMan lacked the ca-
contain these documents, Adobe claims, pacity for registration, then the copies sold
‘‘customer service and technical support by SoftMan would not be ‘‘genuine’’ insofar
may be denied.’’ (Id. at 17.) In short, as they failed to include access to Adobe’s
Adobe contends that the crucial difference technical support and customer service.
between the Adobe-packaged software and In such a case, when the altered products
the SoftMan-packaged Adobe software is bear Adobe’s name and are in fact actual
that the SoftMan version lacks the neces- Adobe-manufactured software, the Court
sary registration capabilities. Adobe has concludes that these end-products, re-
submitted evidence that its investigators shrinkwrapped by SoftMan, could create
purchased Adobe products from SoftMan customer confusion and could infringe
that lacked a registration and quick refer- Adobe’s trademarks.
ence card. (Palma Decl. ¶ 12.) Without There are a number of factual disputes
the ability to register a product, Adobe to be resolved, however, before the ques-
states that customers cannot receive tech- tion of whether a material difference exists
nical support. Therefore, Adobe argues,
between SoftMan’s repackaged Adobe
customers who buy unbundled Adobe soft-
software and Adobe’s standard software.
ware from SoftMan may be deceived or
Whether consumers in fact can and do
confused as to whether they are entitled to
access Adobe customer support when they
the customer support and technical ser-
buy Adobe software from SoftMan is dis-
vices normally associated with the pur-
puted. At oral argument, Adobe’s counsel
chase of software.
seemed to indicate that customer service
SoftMan disputes that unbundled collec- and support might be unavailable to con-
tions of Adobe software are ineligible for sumers who purchased Adobe software
support. According to SoftMan: from SoftMan, but that such decisions
In fact, the registration process is indi- were made on an ad hoc basis. Adobe
vidual to each program in the collection. does not demonstrate a likelihood of suc-
Each program has an individual serial cess on the merits of this claim because
number. The number is the only thing questions of fact predominate as to the
required to register a program and be- central issue. In a situation where each
come eligible for customer support. A party makes opposing representations as
consumer who purchases a collection can to a disputed fact going directly to Adobe’s
register the programs contained therein likelihood of success on the merits, the
by listing each serial number on a regis- Court will assign no weight to this factor.
tration card or by going on-line and
entering each serial number at the des- 2. Irreparable Injury
ignated web site. A consumer who pur- [34] The Court will not presume irrep-
chases a single program from SoftMan arable injury to Adobe in this case because
can similarly register that program by Adobe fails to make a showing of likelihood
entering the serial number contained on of success on the merits of its trademark
each disk in the designated web site. infringement claim. Brookfield, 174 at
(SoftMan Suppl. Brief at 13–14.) 1066. For the reasons stated above, the
[33] The Court finds that customer Court finds that preliminary injunctive re-
support and technical services are inter- lief is not necessary in this case to prevent
twined functions that may be required to to irreparable injury in the form of harm
insure a ‘‘genuine’’ Adobe product. If the to Adobe’s trademark.21

21. Adobe also brings claims for Unfair Com- petition under Section 43(a) of the Lanham
1094 171 FEDERAL SUPPLEMENT, 2d SERIES

3. Public Policy nary injunction entered by this Court on

September 10, 2001 be VACATED.
The Ninth Circuit has held that public
IT IS SO ORDERED.
policy favors granting an injunction when
an infringing product is likely to cause

,
consumer confusion. See Anti–Monopoly,
Inc. v. General Mills Fun Group, 611 F.2d
296, 300–02 (9th Cir.1979), cert. denied, 459
U.S. 1227, 103 S.Ct. 1234, 75 L.Ed.2d 468
(1983). As discussed above, the Court
does not find that Adobe has demonstrated PLAYMEDIA SYSTEMS, INC.,
a likelihood of success on the merits of the a California corporation,
question of consumer confusion. There- Plaintiff,
fore, public policy considerations do not v.
weigh in favor of granting Adobe’s request AMERICA ONLINE, INC.,
for a preliminary injunction. et al., Defendant.
No. 01CV3506 AHM(EX).
IV. Conclusion
United States District Court,
As set forth above, the Court finds that C.D. California.
Adobe has not demonstrated a likelihood
of success on the merits of its trademark Oct. 25, 2001.
or copyright claims. The Court finds that
Adobe has not demonstrated that it will Owner of copyright for audio file de-
suffer irreparable injury in the absence of coding software brought infringement ac-
preliminary injunctive relief, particularly tion against licensee. On owner’s motion
in light of Adobe’s own admissions that it for preliminary injunction, the District
has known about SoftMan’s activities since Court, Matz, J., held that: (1) owner was
1997. The Court denies Adobe’s applica- likely to prevail on claim that licensee ex-
tion for a preliminary injunction. The ceeded scope of license; (2) irreparable
Court hereby ORDERS that the prelimi- harm to owner was presumed; and (3)

Act and Unfair Competition under California ers concerning the affiliation, connection, or
Business & Professional Codes Section 17200 association of SoftMan with the true owner of
et seq. Section 43(a) of the Lanham Act the Adobe trademarks. For the reasons stat-
prohibits the use of any false designation of ed above relating to the existence of factual
origin which is likely to cause confusion as to disputes on the question of consumer confu-
the origin of the goods. 15 U.S.C. § 1125(a). sion (questions that preclude a finding that
Section 43(a) protects qualifying registered Adobe has demonstrated a likelihood of suc-
trademarks. Two Pesos, Inc. v. Taco Cabana, cess on the merits of its trademark infringe-
Inc., 505 U.S. 763, 768, 112 S.Ct. 2753, 120 ment claim), the Court finds that Adobe has
L.Ed.2d 615 (1992). Adobe asserts that by
not demonstrated a likelihood of success on
unbundling Collections software and then re-
the merits or irreparable injury on these addi-
shrinkwrapping them and distributing them
tional claims. The Court denies Adobe’s re-
as individual pieces of Retail software, Soft-
quest for preliminary injunctive relief on
Man is using Adobe’s trademarks in a manner
calculated to mislead and to deceive consum- these additional grounds.