"Famous Last Words"

End User License Agreements (September 2004)

Dear Jim,

The language of End-User License Agreements (EULAs) appears to prohibit "copying, renting, sublicensing, distributing, publicly displaying... or otherwise commercially exploiting software."

Rental distribution of console software, however, appears to circumvent EULAs, as do LAN party or console software pay-per-play models.

Do you believe these examples defeat the legal purpose and spirit of the EULA?

Ralph

Dear Ralph:

Section 106 of Title 17 of the U.S. Code, the United States copyright law, lays out the bundle of rights owned and controlled by the proprietor of a copyrighted work. These are:

1. to reproduce the work in copies or phonorecords;
2. to prepare derivative works based upon the work;
3. to distribute copies or phonorecords of the work to the public by sale or other transfer of ownership, or by rental, lease, or lending;
4. in the case of literary, musical, dramatic, and choreographic works, pantomimes, and motion pictures and other audiovisual works, to perform the work publicly;
5. in the case of literary, musical, dramatic, and choreographic works, pantomimes, and pictorial, graphic, or sculptural works, including the individual images of a motion picture or other audiovisual work, to display the work publicly; and
6. in the case of sound recordings, to perform the work publicly by means of a digital audio transmission.

Each of the rights granted or limited in a EULA springs from this language. The owner of the copyright can specify (or dictate depending on your point of view) the terms under which use of the copyright is permitted. This is why a copyright owner can impose the limitations contained in the sample EULA referenced in your question.

Under copyright law, there is an historic principal known as the “first sale doctrine.” While Section 106(3) above reserves to the copyright owner the exclusive right to distribute copies of the work (or authorize others to do so), nothing prevents the rightful owner of a copy from selling or otherwise vending his or her own copy. This right does not include the right to make copies from the copy for sale. This principal is illustrated by the purchase of a painting at a craft fair. You have the right to frame and hang the painting in your home, to sell or rent the painting to a friend. You do not, however, have the right to make and sell copies of the painting.

After passage of Title 17, representatives of the recorded music and software industries went back to Congress to get the law changed. The combination of the first sale doctrine and easy copying technology resulted in rental of audio CDs and computer software and resulting widespread unauthorized copying. Representatives of the recorded music and computer software industries were successful in getting Section 109 passed into law.

Section 109(b)(1)(A) of Title 17, titled “Limitations on Exclusive Rights: Effect of Transfer of Particular Copy or Phonorecord” overrides the first sale doctrine and permits the copyright owner of a sound recording or computer software program to prohibit rental, lease, or lending of a copy that has been sold or licensed.

But this doesn't explain why video games can be rented. At the time the Section 109 amendments were under consideration in Congress, around 1990, the Video Software Dealers of America (VSDA trade association) lobbied heavily to get an exception to the rental exclusion for videogames. The video dealers complained that rental of video games was a major part of their business and they would suffer severe economic injury if the right to rent videogames were taken away. They also argued that ROM-based videogames at the time were much more difficult to copy than floppy-disk or tape based computer software or audio CDs.

In the end, their position prevailed and Congress included subsection 109(b)1(B)(ii) that excludes videogame software from the rental prohibition right given to owners of computer software.

This is why videogames can be rented despite the EULA.

Regarding consideration of LAN party or pay-per-play models, remember that Title 17 gives copyright owners control of their rights. While the broad general purpose EULA you quote may control certain uses of software, special consideration may be given to licensees who offer greater return or other consideration to a copyright owner.