License vs. Sale: Product Managers Need To Know The Difference

by drjim on July 1, 2009

Products That Are Licensed And Not Sold Can Cause Problems

Products That Are Licensed And Not Sold Can Cause Problems

[Note: I am not a lawyer, nor do I play one on TV. I am not giving out any legal advice in this posting. Should you need legal advice, please contact a lawyer in your town.]

In this crazy mixed-up world that we live in, it’s the words that can often trip us up. For those of us who’s products are software products, often our products come with some carefully chosen words that inform our customers that we have not “sold” them our product, but rather we have “licensed” it to them. What’s the difference?

What’s The Difference Between A Sale And A License

In order to sort things out, we need to turn to an expert. In this case, we’ll reach out for guidance to Pamela Samuelson who is a Professor at the University of California at Berkeley with a joint appointment in the School of Information and the School of Law.

In a recent issue of The Communications of the ACM, Samuelson pointed out that currently there is no clear cut court ruling that spells out if it’s legal to purchase a product that comes with a license statement and then turn around and resell it (which is generally what companies who use a license are trying to prevent in the first place).

What Past Cases Tell Us

Just like those lawyers on TV do, Samuelson uses prior cases to attempt to show where things stand today on this issue. In a case called “Vernor v. Autodesk, Inc.” a judge ruled that Mr. Vernor could sell some copies of AutoCAD that he had bought from a company on eBay.

The reason that the judge said that he could do this is because what is called the first sale rule. What this rule says is that copyright owners do control the first sale of their product (one hop); however after they make that sale, they can’t prevent that person from reselling the product (n+1 hops).

What’s The Difference Between A License & A Sale

Judges in different cases have really done their homework. In trying to determine if a product that was sold with a license was “licensed” or “sold”, they’ve take a look at the transaction. Specifically, the law defines ownership as meaning that the owner has a right to an unlimited duration of possession.

In past cases, this has been found to be the way things were. Additionally, the judges have found that the firms doing the selling have had no interest in having the products returned to them.

Final Thoughts

All of the cases in which this has been an issue are still working their way through the legal system. However, if you are a product manager who’s product comes with a restrictive license, you need to be prepared just in case the courts rule that your customers can resell your product.

The solution to this problem is, as always, a simple one. If your product comes with a tight relationship with you, then customers will always want to buy your product directly from you. This is how great product managers make their product(s) fantastically successful.

Questions For You

Do you currently manage a product that you license to your customers instead of selling it to them? Why do you do it this way? Have you ever had problems with your customers reselling your product? What did you do about it? Leave me a comment and let me know what you are thinking.

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What We’ll Be Talking About Next Time

Not to get too doom and gloom on you or anything, but how is your product doing these days? Sales a bit down? Sales fallen off a cliff? Desperate times call for desperate measures and I’m willing to bet that you are starting to get some pressure from upstairs / sales to start slashing your product’s price...

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