ADOBE SYSTEMS, INC. v. STARGATE SOFTWARE INC.

1051
Cite as 216 F.Supp.2d 1051 (N.D.Cal. 2002)

then the court’s determination of the

bounds of a permissible prudence review ADOBE SYSTEMS INC., Plaintiff,
may become meaningful. Currently, how- v.
ever, defendants’ invocation of the Pike
STARGATE SOFTWARE INC.,
County exception is merely an attempt to
et al, Defendants.
hedge their bet, and it gives the court no
great pause to turn down this attempt. No. C 99–20284 JW.
United States District Court,
IV
N.D. California,
In sum, judgment is not appropriate on San Jose Division.
PG & E’s preemption claims as a matter of
law. Substantial factual issues remain in Aug. 16, 2002.
dispute and in need of development. Ac-
cordingly, all dispositive motions must be Computer software manufacturer
denied. sued distributor for copyright infringe-
1 TURN’s motion to intervene (Doc ment. On cross-motions for summary judg-
## 18, 79) is GRANTED. TURN is ment, the District Court, Ware, J., held
permitted to intervene as of right and, that manufacturer’s distribution of copies
in the alternative, permissively. of its software to licensed distributors did
1 TURN’s motion to dismiss (Doc not constitute ‘‘first sale’’ of copies, such as
## 20, 80) is DENIED. would preclude manufacturer from assert-
1 Defendants’ motion to dismiss (Doc ing copyright claim.
## 24, 77) is DENIED. Plaintiff’s motion granted; defendant’s
1 Defendants’ motion for summary judg- motion denied.
ment (Doc # 104) is DENIED.
1 PG & E’s motion for partial summary 1. Copyrights and Intellectual Property
judgment (Doc # 111) is DENIED. O38.5
1 TURN’s motion for summary judg- Under ‘‘first sale doctrine,’’ sale of
ment (Doc # 119) is DENIED. lawfully made copy terminates copyright
1 Defendants’ motion for leave to file holder’s authority to interfere with subse-
declaration under seal (Doc # 140) is quent sales or distribution of that particu-
GRANTED. The clerk is directed to lar copy. 17 U.S.C.A. § 109(a).
file the lodged document under seal. See publication Words and Phras-
es for other judicial constructions
1 Defendants’ motion for leave to file and definitions.
statement of recent decision (Doc
# 189) is GRANTED. 2. Copyrights and Intellectual Property
O38.5
A case management conference in this
Software manufacturer’s distribution
matter is hereby set for August 16, 2002,
of copies of its software to licensed dis-
at 10:00 am.
tributors did not constitute ‘‘first sale’’ of
IT IS SO ORDERED. copies, such as would preclude manufac-
turer from asserting copyright claim

, against purchaser who engaged in unli-

censed redistribution of copies; rather, re-
sale restrictions in license agreements and
1052 216 FEDERAL SUPPLEMENT, 2d SERIES

presence of end-user license agreements utes its software products under license to
indicated that distributors were only being a network of distributors and original
granted license to distribute software. equipment manufacturers. These distrib-
utors sign license agreements that permit
them to engage in limited re-distribution
to entities or individuals authorized by
Ian N. Feinberg, L. Scott Oliver, Megan Adobe. Adobe claims all Adobe software
R. Whyman, Gray Cary Ware & Freiden- products are subject to a shrink-wrap End
rich, LLP, Palo Alto, CA, for plaintiff. User License Agreement (‘‘EULA’’) that
Douglas W. Beck, Tuttle & Taylor, Los prohibits copying or commercial re-distri-
Angeles, CA, Gary L. Azorsky, Mesirov bution.
Gelman Jaffe Cramer & Jamieson, LLP, Adobe also makes ‘‘Educational’’ ver-
Philadelphia, PA, Gary L. Azorsky, sions of its software packages available for
Schnader Harrison Segal & Lewis, Phila- license to students and educators at a dis-
delphia, PA, Michael A. Topp, Rimac & count. Adobe Educational distributors are
Martin, San Francisco, CA, Joseph M. Ri- licensed to transfer Educational software
mac, Jr, Mound, Cotton and Wollan, San only to resellers who have signed Off or
Francisco, CA, for defendants. On Campus Educational Reseller Agree-
ments (‘‘OCRA’’) with Adobe. In turn, the
ORDER DENYING DEFENDANTS’
OCRA requires that re-distribution of Ed-
MOTION FOR SUMMARY JUDG-
ucational software be limited to students
MENT AND GRANTING PLAIN-
and educators. Adobe claims that the Ed-
TIFF’S MOTION FOR SUMMARY
ucational versions are prominently marked
JUDGMENT
‘‘Education Version—Academic ID Re-
WARE, District Judge. quired’’ and include the legend, ‘‘Notice to
users: Use of the enclosed software is
I. INTRODUCTION
subject to the license agreement contained
Plaintiff, Adobe Systems Inc., (‘‘Adobe’’) in the package.’’
filed this action against Defendant, Star-
Stargate is a discount software distribu-
gate Systems Inc., (‘‘Stargate’’) for copy-
tor wholly owned by Leonid Kelman. Nei-
right infringement of Adobe’s educational
software. Presently before the Court are ther Stargate nor Mr. Kelman are autho-
the Parties’ Cross–Motions for Summary rized distributors of Adobe products. In
Judgment. Based upon all papers filed to 1995, Mr. Kelman co-founded a software
date and oral argument of counsel at the distribution company called Action Soft-
hearing, Stargate’s Motion for Summary ware with Alexander Belfer. Together
Judgment is DENIED and Adobe’s Mo- they incorporated Stargate Software Inc.
tion for Summary Judgment is GRANT- In 1997, Stargate began acquiring software
ED. from two businesses, Dallas Computer and
D.C. Micro, with the majority of the soft-
II. BACKGROUND ware being Adobe Educational software.
Adobe is one of the leading software Adobe contends that Stargate’s suppliers
development and publishing companies in acquired Adobe Educational software from
the United States. Some of its copyright- Adobe Educational distributor Douglas
ed software products include Adobe Illus- Stewart Co. pursuant to valid OCRAs.
trator, Adobe Pagemaker, and Adobe However, Stargate alleges that all of the
Acrobat. Adobe contends that it distrib- Adobe software products that Stargate
 ADOBE SYSTEMS, INC. v. STARGATE SOFTWARE INC. 1053
Cite as 216 F.Supp.2d 1051 (N.D.Cal. 2002)

sold were purchased through either D.C. admissions on file, together with affidavits,
Micro, Inc. or Dallas Computers, Inc. if any, which it believes demonstrate the
Between March 1998 and April 1999, absence of a genuine issue of material
Stargate, purchased between 1795–2189 fact.’’ Id. at 323, 106 S.Ct. 2548. If it
packages of ‘‘Educational’’ software pro- meets this burden, the moving party is
duced by Adobe. Stargate distributed this entitled to judgment as a matter of a law
Educational software at below-market when the non-moving party fails to make a
prices to retail customers and unautho- sufficient showing on an essential element
rized resellers through magazine adver- of its case with respect to which it bears
tisements, trade shows, action websites the burden of proof at trial. Id. at 322–23,
and its website ‘‘www.stargatesoft- 106 S.Ct. 2548.
ware.com.’’ Adobe learned of this practice, The non-moving party ‘‘must set forth
made a trap purchase of the Educational specific facts showing that there is a genu-
software in April 1999, and filed suit in this
ine issue for trial.’’ Fed.R.Civ.P. 56(e).
Court against Stargate and Mr. Kelman
The non-moving party cannot defeat the
soon thereafter.
moving party’s properly supported motion
Adobe alleges that Stargate infringed for summary judgment simply by alleging
Adobe’s copyrights by obtaining and sell- some factual dispute between the parties.
ing Educational versions of Adobe soft- To preclude the entry of summary judg-
ware without Adobe’s authorization. Star- ment, the non-moving party must bring
gate contends that it was the rightful forth material facts, i.e., ‘‘facts that might
owner of the Adobe software products and affect the outcome of the suit under the
therefore did not infringe Adobe’s copy- governing law TTT Factual disputes that
right by reselling those products, pursu-
are irrelevant or unnecessary will not be
ant to the ‘‘first sale’’ doctrine, codified at
counted.’’ Anderson v. Liberty Lobby,
17 U.S.C. § 109. Presently before the
Inc., 477 U.S. 242, 247–48, 106 S.Ct. 2505,
Court are the Parties’ Cross–Motions for
91 L.Ed.2d 202 (1986). The opposing par-
Summary Judgment.
ty ‘‘must do more than simply show that
III. STANDARDS there is some metaphysical doubt as to the
material facts.’’ Matsushita Elec. Indus.
Summary Judgement is proper ‘‘if the
Co. v. Zenith Radio, 475 U.S. 574, 586, 106
pleadings, depositions, answers to inter-
rogatories, and admissions on file, together S.Ct. 1348, 89 L.Ed.2d 538 (1986).
with the affidavits, if any, show that there The court must draw all reasonable in-
is no genuine issue as to any material fact ferences in favor of the non-moving party,
and that the moving party is entitled to including questions of credibility and the
judgement as a matter of law.’’ Fed. weight to be accorded particular evidence.
R.Civ.P. 56 a. The purpose of summary Mason v. New Yorker Magazine, Inc., 501
judgment ‘‘is to isolate and dispose of fac- U.S. 496, 520, 111 S.Ct. 2419, 115 L.Ed.2d
tually unsupported claims or defenses.’’ 447 (1991) (citing Anderson, 477 U.S. at
Celotex v. Catrett, 477 U.S. 317, 323–24, 255, 106 S.Ct. 2505); Matsushita, 475 U.S.
106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). at 588, 106 S.Ct. 1348; T.W. Elec. Serv. v.
The moving party ‘‘always bears the ini- Pac. Elec. Contractors, 809 F.2d 626, 630
tial responsibility of informing the district (9th Cir.1987). It is the court’s responsi-
court of the basis for its motion, and iden- bility ‘‘to determine whether the ‘specific
tifying those portions of the pleadings, de- facts’ set forth by the non-moving party,
positions, answers to interrogatories, and coupled with undisputed background or
1054 216 FEDERAL SUPPLEMENT, 2d SERIES

contextual facts, are such that a rational or disposition, and thus negate copyright
reasonable jury might return a verdict in owner control over further or ‘‘down-
its favor based on that evidence.’’ T.W. stream’’ transfer to a third party. Quality
Elec.Serv., 809 F.2d at 631. ‘‘[S]ummary King Distrib. v. L’anza Research Int’l,
judgement will not lie if the dispute about Inc., 523 U.S. 135, 118 S.Ct. 1125, 140
a material fact is ‘genuine,’ that is if the L.Ed.2d 254 (1998). Thus, under the first
evidence is such that a reasonable jury sale doctrine, ‘‘a sale of a lawfully made
could return a verdict for the non-moving copy terminates a copyright holder’s au-
party.’’ Anderson, 477 U.S. at 248, 106 thority to interfere with subsequent sales
S.Ct. 2505. However, ‘‘[w]here the record or distribution of that particular copy.’’
taken as a whole could not lead a rational Parfums Givenchy, Inc. v. Drug Empori-
trier of fact to find for the non-moving um, Inc., 38 F.3d 477, 480 (9th Cir.1994).
party, there is no ‘genuine issue for trial.’ ’’ ‘‘[T]he copyright owner is entitled to real-
Matsushita, 475 U.S. at 587, 106 S.Ct. ize no more and no less than full value of
1348. each copy or phonorecord upon its disposi-
tion.’’ Parfums Givenchy, Inc. v. C & C
IV. DISCUSSION
Beauty Sales, Inc., 832 F.Supp. 1378
A. Copyright Infringement Claim (C.D.Cal.1993).
[1] Section 106 of the Copyright Act
(the ‘‘Act’’) outlines the exclusive rights A. Sale or License
enjoyed by owners of a copyright including The issue before the Court is whether
the exclusive right ‘‘to distribute copies or Adobe, through its OCRA and EULA,
phonorecords of the copyrighted work to transferred ownership of each particular
the public by sale or other transfer of copy of its software to its distributors D.C.
ownership, or by rental, lease, or lending.’’ Micro and Dallas Computers. Having
17 U.S.C. § 106(3). Under this provision, transferred such ownership would bar
the copyright owner would have the ‘‘right Adobe from claiming copyright infringe-
to control the first public distribution of an
ment by Stargate under the first sale doc-
authorized copy or phonorecord of his
trine. An issuance via license, however,
work, whether by sale, gift, loan, or some
would not. Rather, the establishment of a
rental or lease arrangement.’’ 17 U.S.C.
license by Adobe would protect Adobe un-
§ 106(3). Section 109(a) of the Act, makes
der the first sale doctrine.
clear that ‘‘the copyright owner’s rights
under § 106(3) cease with respect to a Implicably, Stargate concedes that
particular copy or phonorecord once he Adobe retains title to the objective coded
has parted with ownership of it.’’ 17 software of the intellectual property con-
U.S.C. § 109(a) (emphasis added). Also tained on the CD–ROM. Nevertheless,
pursuant to § 109(a), ‘‘the owner of a par- Stargate claims, however, that whenever
ticular copy or phonorecord lawfully made there is a sale, Adobe has parted with title
under this title, or any person authorized to that particular copy of its copyrighted
by such owner, is entitled without the au- intellectual property, thereby divesting it-
thority of the copyright owner, to sell or self of the exclusive right to vend that
otherwise dispose of the possession of that particular copy. In essence, Stargate con-
copy or phonorecord.’’ 17 U.S.C. § 109(a) tends that each time Adobe is paid by a
(emphasis added). One significant effect distributor or reseller for a package of
of § 109(a) is to limit the exclusive right to software, it has ‘‘received its rewards’’ for
distribute copies to their first voluntary that package and has parted with title to
 ADOBE SYSTEMS, INC. v. STARGATE SOFTWARE INC. 1055
Cite as 216 F.Supp.2d 1051 (N.D.Cal. 2002)

that particular copy. Stargate argues that sale. Adobe alleges that their OCRA and
after examining the ‘‘economic realities’’ of EULA are clearly licenses. According to
the initial transaction between Adobe and Adobe, multiple restrictions on title are
its distributors, Adobe’s distribution of its placed on each distributor through the ex-
educational software constitutes a sale, press terms of its OCRA. Additionally,
rather than a license of each particular Adobe asserts that it was their intention to
copy. affect a license agreement, through their
Stargate further alleges that nowhere in OCRAs, rather than a sale.
either the OCRA or in the EULA, does
Adobe purport in any manner to retain 1. The term ‘‘Software’’
title to that particular copy of its software, In this case, it is important to draw a
that is, the package including a CD–ROM distinction between the objective code
on which the program is stored, and any ‘‘software’’ and the medium and packaging
manuals or other materials included within through which it is sold on the market.
it. Therefore, Stargate argues that fur- Section 202 of the Act recognizes a distinc-
ther transfers of that package do not in- tion between tangible property rights in
fringe Adobe’s copyright. copies of the work and intangible property
Adobe contends, on the other hand, that rights in the creation itself. ‘‘Ownership
‘‘a common method of distribution for soft- of a copyright, or of any of the exclusive
ware products is through licensing agree- rights under a copyright, is distinct from
ments, which permit the copyright holder ownership of any material object in which
to place restrictions upon the distribution the work is embodied.’’ 17 U.S.C. § 202.
of its products.’’ Adobe Systems, Inc. v. In this case, both Parties are in agreement
One Stop Micro, 84 F.Supp.2d 1086, 1092 that Adobe is the rightful owner of the
(N.D.Cal.2000). Adobe alleges that Mr. intangible portion of the software, i.e. the
Kelman, Stargate’s sole owner, was aware intellectual property.
that Adobe’s software is distributed pursu- The dispute arises, however, as to who is
ant to licensing agreements. Kelman De- the rightful owner of the package, or phys-
position at 223:1–13. Specifically, Kelman ical manifestation of this intellectual prop-
testified that, ‘‘I’ve seen that there was a erty. The CD–ROM itself is worth not
licensing agreement (in the software box).’’ much more than a nominal amount, and it
Kelman Deposition at 233:9–13. Further- is the code that justifies the purchase price
more it was Adobe’s intent to license the of the product. That being the case, the
software rather than to make an outright economic reality of this transaction is that
sale. According to Adobe, ‘‘Adobe does a consumer is ultimately paying for the
not sell its software. Instead, Adobe dis- software contained on the CD–ROM, rath-
tributes its software products under li- er than the CD–ROM itself. Despite this
cense to a network of distributors TTT’’ fact, this case is still based on the owner-
Navarro Declaration ¶¶ 3–4, Exhibits A ship of each particular copy of software
and B. distributed by Adobe. The determination
Adobe also argues that under the Act, of ownership in turn is based primarily on
the first sale doctrine does not turn on an examination of the OCRA, the agree-
whether the copyright owner ‘‘received its ment between Adobe and its distributors.
reward’’ for a particular piece of software,
but whether the software has been sold. 2. The OCRA
In this case, Adobe has elected to distrib- [2] The Court looks to the language,
ute its products via license rather than content, and intent of the OCRA, in deter-
1056 216 FEDERAL SUPPLEMENT, 2d SERIES

mining whether its terms affect a sale or sentence that provides, ‘‘Adobe may, at its
license of the software. In the OCRA, option repurchase any or all of such Edu-
Adobe contends that ‘‘Adobe is the owner cational Software Products from Reseller
and developer of Adobe Educational Soft- upon written notice of its intention to do so
ware Products.’’ See Bloch Declaration TTT’’ OCRA ¶ 11(c)(iv)(A) (emphasis add-
¶ 7, Exhibit F: (‘‘OCRA’’), preamble. Ac- ed). The question arises therefore, as to
cording to the OCRA, ‘‘Educational Soft- whether this language creates a sale, or a
ware Products,’’ consist of ‘‘the respective license of the product. The Court in One
software program in object code (‘Soft- Stop concluded that ‘‘The OCRA contains
ware’), supporting documentation (‘Docu- additional language indicating that it only
mentation’), and all other related material,
confers a license.’’ One Stop Micro, 84
if any, supplied to Reseller in a commercial
F.Supp.2d at 1090.
package.’’ OCRA ¶ 1(d). Adobe charac-
terizes each transaction it concluded Similarly, the Court in this case also
throughout the entire stream of commerce concludes that the language in Adobe’s
relevant to this action as a license. Ac- OCRA is evidence of a license, rather than
cordingly, Adobe argues that it retains a sale. Although the OCRA contains lan-
ownership of its software, the accompany- guage such as ‘‘repurchase’’ and ‘‘owned,’’
ing documentation, and all other related additional language indicates that the
materials pursuant to the OCRA. OCRA only confers a license. For in-
stance, Paragraph 9 of the OCRA is titled,
a. Terminology
‘‘Ownership of Proprietary Rights and
In One Stop Micro, supra, Adobe filed Nondisclosure’’ (Referring to Adobe)
suit against One Stop, a software distribu-
OCRA ¶ 9 (emphasis added). Under that
tor for copyright infringement, claiming
same paragraph, the OCRA furthers
that One Stop was illegally distributing
states, ‘‘Reseller acknowledges that the
copies of its software intended for edu-
structure and organization of the Software
cational end users to the general public.
is proprietary to Adobe and that Adobe
See Id. The OCRA and EULA in One Stop
are substantially similar to the agreements retains exclusive ownership of the Soft-
relevant to this case. In One Stop, the ware and Trademarks.’’ OCRA, ¶ 9 (em-
Court found in favor of Adobe and held phasis added). The OCRA further states,
that (1) the agreement under which the ‘‘Reseller TTT to protect Adobe’s proprie-
software was distributed was a licensing tary rights in the Educational Software
agreement; and, (2) the license agreement Products. Except as provided herein, re-
applied to the distributor, even though it seller is not granted any rights to patents,
was not a signatory of the OCRA. Id. copyrights, trade secrets, trade names,
Stargate argues, however, that the lan- trademarks (whether registered or unreg-
guage of Adobe’s OCRA is evidence of a istered), or any other rights, franchises, or
sale rather than a license. For example, licenses with respect to the Software or
in ¶ 11(c)(iv)(A), the OCRA reads, ‘‘Resell- Educational Software Products.’’ OCRA,
er shall submit to Adobe within (10) ten ¶ 9 (emphasis added). As explained by the
days after the effective date of termination Court in One Stop, ‘‘evidence of trade us-
a summary of the number of the respective age demonstrates that it is commonplace
Educational Software Products owned by for sales terminology to be used in connec-
Reseller as of the effective date of termi- tion with software licensing agreements.’’
nation.’’ OCRA ¶ 11(c)(iv)(A) (emphasis One Stop Micro, 84 F.Supp.2d at 1091.
added). Also in the same paragraph is a This Court concurs.
 ADOBE SYSTEMS, INC. v. STARGATE SOFTWARE INC. 1057
Cite as 216 F.Supp.2d 1051 (N.D.Cal. 2002)

b. Content ucational resellers are owners of the

After examining the contents of the Adobe educational versions, while the end
OCRA, as well as its express terms, it is users who the resellers distribute to are
clear that the agreement outlines numer- granted a mere license.’’ One Stop Micro,
ous restrictions on title that are imposed 84 F.Supp.2d at 1091.
upon the reseller regarding the distribu- Similar to the OCRA at issue in One
tion of its software. For example in the Stop, the OCRA in this case contains mul-
OCRA, ¶ 3, Adobe premises their restric- tiple restrictions that limit the reseller’s
tions with the following statement, ‘‘Resell- ability to distribute Adobe’s software.
er shall have the right to purchase Edu- Specifically, pursuant to the terms of the
cational Software Products from Adobe or
OCRA, the Reseller promises to:
authorized Adobe distributors who carry
(1). Not distribute outside the country
the Educational Software Products and to
in which its principal place of busi-
distribute the Educational Software Prod-
ucts so long as it remains in compliance ness is located. OCRA, ¶ 3(a)(i);
with all of the following conditions.’’ (2). Distribute solely to Educational
OCRA, ¶ 3 (emphasis added). End Users at Reseller’s Outlet or
The Court in One Stop stated, ‘‘These through Reseller’s direct sales
numerous restrictions imposed by Adobe force. OCRA, ¶ 3(a)(iii);
indicate a license rather than a sale be- (3). Require each Educational End
cause they undeniably interfere with the User to provide identification as
reseller’s ability to further distribute the follows: (1) in the case of a pur-
software.’’ One Stop Micro, 84 F.Supp.2d chase by an individual, a valid
at 1091. The Court in One Stop found the photo ID or such other identifica-
following restriction set forth in Adobe’s tion as is used by the educational
OCRA in ¶ 3(a)(ii) particularly compelling: institution for faculty, staff, or stu-
‘‘Reseller distributes pursuant to the terms dents, or (2) in the case of a pur-
and conditions of the then current appli- chase by an entity, an official pur-
cable Software Product [EULA].’’ OCRA chase order indicating the name of
¶ 3(a)(ii) (emphasis added). the entity. OCRA, ¶ 3(a)(iv);
As explained by the court in One Stop, (4). Distribute the Educational Soft-
supra, the EULA is a shrink-wrap license ware Products solely in the form
agreement which accompanies every obtained from Adobe. OCRA,
Adobe software product. The EULA ¶ 3(a)(v);
states that ‘‘Adobe grants to you a nonex-
(5). Provide adequate service and sup-
clusive license to use the Software and
port in connection with the distri-
Documentation,’’ provided that the user
bution of the Educational Software
agrees to certain restrictions. EULA,
Products. OCRA, ¶ 3(a)(vi);
preamble. The Court in One Stop con-
cluded that under the EULA, the end user (6). Agree not to distribute the Edu-
was only granted a license to use the soft- cational Software Products other
ware. Adobe’s specific incorporation of than pursuant to the provisions of
the EULA into the OCRA indicates that the EULA and, by way of illustra-
the reseller obtains a license, rather than tion but not of limitation, shall not
actual ownership of the product in ques- be entitled to grant any form of
tion. The Court in One Stop stated, ‘‘It site license for Education Software
would be incongruous to conclude that ed- Products. Reseller agrees not to
1058 216 FEDERAL SUPPLEMENT, 2d SERIES

distribute the Educational Soft- leging copyright infringement. Adobe

ware Products without prior writ- claimed that Softman distributed unautho-
ten approval from Adobe (I) by rized copies of Adobe software, including
mail order, (ii) by rental or lease, Adobe’s Educational software and illegally
(iii) in bulk for redistribution, (iv) unbundled Adobe ‘‘Collections.’’ The court
with knowledge or reason to know stated, ‘‘If a transaction involves a single
that the Educational Software payment giving the buyer an unlimited
Products will be transported out- period in which it has a right to possession,
side the country in which a Soft- the transaction is a sale.’’ Id. at 1086.
ware Product is provided to an Ed- The Softman court held the nature of the
ucational End User, or (v) to other transaction between Adobe and its distrib-
Educational Resellers or other utor was a sale and Softman was thus
dealers, resellers, or redistrib- protected by the first sale doctrine.
utions. OCRA, ¶ 3(b); and
This Court respectfully declines to adopt
(7). Promises that the reseller’s rights the Softman analysis. Although the court
in Educational Software Products in Softman, stated, ‘‘The Court under-
used for demonstration purposes stands fully why licensing has many advan-
shall be subject to the terms and tages for software publishers,’’ it conclud-
conditions of the respective EULA, ed that the transaction between the parties
which are hereby incorporated by
constituted a sale. Id. at 1087. In this
reference. OCRA, ¶ 3(c).
case, however, the Court reaches a differ-
In light of the fact that the OCRA in ent conclusion.
this case is substantially similar to the
The facts involved in Softman are distin-
OCRA in One Stop, this Court agrees that
guishable from this case. The court in
the OCRA in the present case contains
Softman dealt with the question of wheth-
numerous restrictions on title that are im-
er the purchaser of a retail collection of
posed on the reseller, limiting the resell-
Adobe software can re-distribute the col-
er’s ability to re-distribute Adobe software,
lection’s constituent parts. Softman, 171
and thereby conferring a license between
F.Supp.2d at 1079–80. In Softman, the
Adobe and the reseller. It is clear to the
court noted that the terms of the Adobe
Court that the terms of the OCRA sub-
EULA prohibited licensees from transfer-
stantially and undeniably interfere with a
ring or assigning any individual Adobe
reseller’s ability to distribute and/or con-
product that was originally distributed as
vey title to the products in question. 17
U.S.C. § 106. part of a Collection, unless it was trans-
ferred with all the software contained in
c. Softman v. Adobe that original Collection. Softman Prod-
ucts, 171 F.Supp.2d at 1083. In Softman,
Stargate, however, cites Softman Prod-
ucts Company v. Adobe Systems Inc., 171 it was uncontested by the Parties that the
F.Supp.2d 1075 (C.D.Cal.2001) for the constituent parts were re-distributed in
proposition that the OCRA in this case that prohibited manner. In contrast, the
constitutes a sale, rather than a license. present case involves the re-distribution of
In Softman, a case arising out of the Unit- Adobe software, with no substantial evi-
ed States District Court for the Central dence of adulteration or the illegal unbun-
District of California, Softman, a computer dling of software.
software distributor brought an action Furthermore, this Court notes that,
against Adobe. Adobe counterclaimed, al- within the context of this case, when a
 ADOBE SYSTEMS, INC. v. STARGATE SOFTWARE INC. 1059
Cite as 216 F.Supp.2d 1051 (N.D.Cal. 2002)

‘‘single payment’’ is made for a particular dance with the terms that they agree and
copy of software, the payment is being consent to mutually execute. ‘‘The right
made for the value of the objective code to contract freely with the expectation that
that is burned on the CD–ROM. Absent the contract shall endure according to its
this ‘‘valuable’’ information and intellectual terms is as fundamental to the society as
property, a CD–ROM would be almost the right to write and to speak without
worthless. The true economic value of the restraint.’’ Blount v. Smith, 12 Ohio St.2d
product is derived from the intellectual 41, 231 N.E.2d 301 (1967). While excep-
property embodied within it. tions are made in the case of unfair or
This Court notes that software is exploitive contracts, or where an inequita-
unique from other forms of copyrighted ble end results as a result of the agree-
information. Technology and software, in ment, commercial parties are generally
particular, has radically transformed the free to contract as they desire. Mellon
way information is created and exchanged. Bank, N.A. v. Aetna Business Credit, Inc.,
Software fundamentally differs from more 619 F.2d 1001 (3d Cir.1980).
traditional forms of medium, such as print
or phonographic materials, in that soft- 3. The EULA
ware can be both, more readily and easily Furthermore, the Court finds that
copied on a mass scale in an extraordi- Adobe’s EULA contains significant re-
narily short amount of time and relatively strictions on title that provides additional
inexpensively. One of the primary advan- evidence that the relevant transaction be-
tages of software, its ability to record, tween Adobe and its distributors is a li-
concentrate and convey information with cense, rather than a sale. For example,
unprecedented ease and speed, makes it the EULA states the following:
extraordinarily vulnerable to illegal copy- (1). ‘‘THIS IS A CONTRACT. BY
ing and piracy. This Court finds that it is OPENING THIS PACKAGE
important to acknowledge these special YOU ACCEPT ALL THE
characteristics of the software industry TERMS AND CONDITIONS OF
and provide enhanced copyright protection THIS AGREEMENT.’’ EULA,
for its inventors and developers. preamble.
Lastly, as a matter of general principle, (2). ‘‘This package contains software
this Court finds that no colorable reason (‘Software’) and related explanato-
exists in this case as to why Adobe and its ry written materials (‘Documenta-
distributors should be barred from charac- tion’).’’ EULA, preamble.
terizing the transaction that has been
(3). ‘‘Adobe grants to you a nonexclu-
forged between them as a license. In light
sive license to use the Software
of the restrictions on title that have been
and Documentation, provided that
incorporated into the OCRA, as well as the
you agree to the following.’’
Parties’ free and willing consent to enter
EULA, preamble.
into and execute its terms, the Parties
should be free to negotiate and/or set a (4). ‘‘The Software is owned by Adobe
price for the product being exchanged, as and its suppliers.’’ EULA, ¶ (2)
well as set the terms by which the product (emphasis added).
is exchanged. Gray v. American Exp. Co., This Court in One Stop stated that, ‘‘TTT
743 F.2d 10 (D.C.Cir.1984). Fundamental under the EULA the end user is only
to any free society is the liberty of its granted a license to use the software.
members to formulate contracts in accor- Adobe’s specific incorporation of the
1060 216 FEDERAL SUPPLEMENT, 2d SERIES

EULA indicates that the reseller obtains a

license. It would be incongruous to con- Alexia WADY, Plaintiff,
clude that educational resellers are owners v.
of the Adobe educational versions, while
PROVIDENT LIFE AND ACCIDENT
the end users who the resellers distribute
INSURANCE COMPANY OF AMER-
to are granted a mere license.’’ One Stop
ICA; Unumprovident Corporation,
Micro, 84 F.Supp.2d at 1091.
Defendants.
Due to the substantially similar nature
No. 01CV10818MMM(PJWx).
and terms of the EULA in both cases, this
Court adopts the analysis used in One United States District Court,
Stop. Like the EULA in One Stop, the C.D. California.
EULA in this case maintains numerous
April 30, 2002.
restrictions on title with respect to the end
user. Furthermore, it clearly states at the
top of the agreement that it is a license Insured brought action against dis-
agreement. Though, the EULA is pack- ability insurer, and its parent holding com-
aged inside the box, the end user is given pany, after her claim for total disability
the opportunity to return the package if he benefits was denied, alleging breach of
or she is not in agreement with the terms contract and breach of covenant of good
of the contract. It is clear that Adobe, faith and fair dealing. On parent compa-
through the express terms of its EULA, ny’s motion for summary judgment, the
intended and attempted openly and in District Court, Morrow, J., held that: (1)
good faith to maintain proprietary owner- documents, allegedly taken off website of
ship over its product, as well as preserve parent company, were inadmissible, as
its rights to title. they could not be authenticated as state-
ments of parent company, and (2) parent
The Court, therefore, concludes that
company could not be held liable, under
based on the clear and unambiguous lan-
alter ego theory, for insurer’s alleged
guage of the relevant contracts, coupled
breach of contract and breach of covenant
with the multiple restrictions on title
of good faith and fair dealing.
placed on the reseller in the above agree-
ments, the transaction should be charac- Motion granted.
terized as a license, rather than a sale.
1. Federal Civil Procedure O2545
V. CONCLUSION Documents were admissible, in opposi-
For all of the aforementioned reasons, tion to summary judgment by insured in
Defendant, Stargate’s Motion for Sum- contract action against disability insurer
mary Judgment is DENIED and Plaintiff, and its parent holding company, to extent
Adobe’s Motion for Summary Judgment is that declaration of witness indicated that
GRANTED. documents came from insurer’s claims file,
as witness provided basis for authenticat-
ing documents. Fed.Rules Evid.Rule

, 1002, 28 U.S.C.A.
2. Federal Civil Procedure O2545
Declaration of witness, relating to
documents submitted in opposition to sum-