The Software IP Report

First Sale Doctrine Inapplicable to Antitrust Claims Concerning Licensed Software

By Charles Bieneman

Categories: Copyright, The Software IP Report

The first sale doctrine governing transfers of copyrighted works could not be used to allege that statements made to potential customers were “false, predatory or anti-competitive.” Int’l Equip. Trading v. Ab Sciex Llc, No. 13 C 1129 (N.D. Ill. Aug. 29, 2013). The plaintiff in this case had brought a number of unfair competition claims, including antitrust claims, against the defendant. The court was considering a Rule 12(b)(6) motion to dismiss for failure to state a claim, and therefore based its opinion on the following facts as pled in the plaintiff’s complaint.

The plaintiff distributed medical laboratory equipment, including new and pre-owned mass spectrometers manufactured by the defendant. The parties were competitors because the defendant also sold its own pre-owned products. The defendant owned a copyright for software needed to operate the spectrometers. Licenses to this software were not transferable; a customer purchasing a pre-owned spectrometer therefore would also need to purchase a license from the defendant. The defendant had instituted the practice of telling customers that a $40,000 “site license fee” was required for pre-owned spectrometers purchased from anyone other than the defendant. However, the complaint alleged that the defendant had never actually imposed this $40,000 fee. The complaint further alleged that the fee was a “scare tactic” that put the plaintiff at a competitive disadvantage to the defendant.

The first sale doctrine does not apply to licensed software, but “permits the purchaser of a copyright to transfer the protected copy of a work without the permission of the copyright owner.” The plaintiff contended that the first sale doctrine applied here as a basis for alleging that the defendant’s alleged statements to the plaintiff’s potential customers were anti-competitive.

The court did not accept the plaintiff’s contention that customers for the defendant’s software were potential purchasers, and that the first sale doctrine was applicable. The complaint in this case “affirmatively conceded that [the defendant] licensed the software used in its mass spectrometers to its customers.” Among other things, the complaint alleged that the defendant learned of the plaintiff’s potential customers when the potential customers contacted the defendant with a “licensing inquiry,” and contrasted the defendant with other mass spectrometer manufacturers who actually sold their software.

In part based on the inapplicability of the first sale doctrine, the court accordingly dismissed without prejudice the plaintiff’s antitrust claims.