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The "first-sale doctrine" is a legal concept that applies to combination hardware and software products. Essentially it holds that the copyright of any combinat

by s_q_b 12y ago

The "first-sale doctrine" is a legal concept that applies to combination hardware and software products. Essentially it holds that the copyright of any combination of a piece of intellectual property (e.g. Cisco IOS, or the information in a textbook) and a physical product (e.g. a router or the actual copy of a textbook book) is exhausted after the first sale. [0] Now, there are court-recognized exceptions to this rule in various circuit courts (most significantly by the 9th Circuit in Vernor v. Autodesk, SCOTUS cert denied) for digital goods under the so-called "shrink-warp licensing" exception. [1] So given that the highest court has allowed the ruling to stand in a large circuit, yet has consistently expanded the first-sale doctrine for four decades [2], the precedent is unclear. Cisco does rely on Vernor and its progeny as it's justification for blacklisting resold items. But that argument is unlikely to hold water outside of the software-laden 9th Circuit. The question, stated in layman's terms, is, "To which is a Cisco router or switch more similar, a copy of Windows or an iPod?" This is an open question from a legal standpoint, and thus we must unfortunately resort to that most unreliable of legal tools: reason. Both options are almost equally unpalatable to the Supreme Court for policy reasons. Expand the shrink-wrap exception to cover Cisco and you risk encompassing all products that contain firmware, from TVs to microwaves, and thus strangling the half-trillion dollar secondary sale market for electronic goods. Keep the exception narrow and you choke off the single largest source of revenue (all told, including gains from new purchases, maintenance contracts, and paid software updates close to $20 Billion, or 40% of annual revenue) to the government's largest IT hardware provider (over 85% of DoD in particular), leaving the government stranded with vast networks of legacy Cisco hardware with little to no new development from the company. The existing legal precedent creates a tough needle for the Court to thread. As a result, we have the current state of limbo, and thus discussion of "grey markets," which are neither clearly legal nor clearly illegal. [0] https://en.wikipedia.org/wiki/First-sale_doctrine https://en.wikipedia.org/wiki/First-sale_doctrine [1] https://en.wikipedia.org/wiki/Vernor_v._Autodesk,_Inc https://en.wikipedia.org/wiki/Vernor_v._Autodesk,_Inc. [2] Most recently in Kirtsaeng v. John Wiley & Sons, Inc., No. 11-697 (U.S. Mar. 19, 2013)

mprovost 12y ago
The lack of a legal secondary market can also mess with your accounting. If you don't have the right to resell the equipment because you are the sole owner of the license to the software, then its value is basically zero as soon as you buy it. Most accounting methods assume that goods retain value over time and depreciate in a set schedule. Otherwise every time you bought a Cisco router or Netapp filer the book value would be zero if it wasn't legal to sell, even during a bankruptcy auction etc.
MichaelGG 12y ago
Thank you for the explanation. >leaving the government stranded with vast networks of legacy Cisco hardware with little to no new development from the company. Do we have reason to believe this is true? If resale was allowed, do we believe network hardware companies would just shrivel up? How do we square this with the facts of many platforms being intentionally crippled for marketing reasons? Or does that not happen on top-end platforms?
- s_q_b 12y ago
  >If resale was allowed, do we believe network hardware companies would just shrivel up? Network hardware companies in general wouldn't suffer, but Cisco's increasing reliance upon support, service, and firmware for revenue means that unrestricted resale would bite into Cisco's revenue hard, perhaps 25-50%. Right now Cisco hardware powers the most critical government information systems, including military and financial communications (over 85% of the gear is Cisco.) Since many of these networks use Cisco proprietary functions, have scores of personnel trained on Cisco gear, and relationships with networks of Cisco suppliers, transition to another hardware manufacturer would be both expensive and difficult, at a time when the government has little funding for new initiatives. Since the government needs Cisco to be a smoothly functioning company to meet critical information needs, it makes sense that they maintain tight relations.
- s_q_b 12y ago
  >If resale was allowed, do we believe network hardware companies would just shrivel up? Network hardware companies in general wouldn't suffer, but Cisco's increasing reliance upon support, service, and firmware for revenue means that unrestricted resale would bite into Cisco's revenue hard, perhaps 25-50%. Right now Cisco hardware powers the most critical government information systems, including military and financial communications (over 85% of the gear is Cisco.) Since many of these networks use Cisco proprietary functions, have scores of personnel trained on Cisco gear, and relationships with networks of Cisco suppliers, transition to another hardware manufacturer would be both expensive and difficult, at a time when the government has little funding for new initiatives. Since the government needs Cisco to be a smoothly functioning company to meet critical information needs, it makes sense that they maintain tight relations.

by s_q_b 12y ago

mprovost 12y ago

The lack of a legal secondary market can also mess with your accounting. If you don't have the right to resell the equipment because you are the sole owner of the license to the software, then its value is basically zero as soon as you buy it. Most accounting methods assume that goods retain value over time and depreciate in a set schedule. Otherwise every time you bought a Cisco router or Netapp filer the book value would be zero if it wasn't legal to sell, even during a bankruptcy auction etc.

MichaelGG 12y ago

Thank you for the explanation. >leaving the government stranded with vast networks of legacy Cisco hardware with little to no new development from the company. Do we have reason to believe this is true? If resale was allowed, do we believe network hardware companies would just shrivel up? How do we square this with the facts of many platforms being intentionally crippled for marketing reasons? Or does that not happen on top-end platforms?

s_q_b 12y ago
>If resale was allowed, do we believe network hardware companies would just shrivel up? Network hardware companies in general wouldn't suffer, but Cisco's increasing reliance upon support, service, and firmware for revenue means that unrestricted resale would bite into Cisco's revenue hard, perhaps 25-50%. Right now Cisco hardware powers the most critical government information systems, including military and financial communications (over 85% of the gear is Cisco.) Since many of these networks use Cisco proprietary functions, have scores of personnel trained on Cisco gear, and relationships with networks of Cisco suppliers, transition to another hardware manufacturer would be both expensive and difficult, at a time when the government has little funding for new initiatives. Since the government needs Cisco to be a smoothly functioning company to meet critical information needs, it makes sense that they maintain tight relations.
s_q_b 12y ago
>If resale was allowed, do we believe network hardware companies would just shrivel up? Network hardware companies in general wouldn't suffer, but Cisco's increasing reliance upon support, service, and firmware for revenue means that unrestricted resale would bite into Cisco's revenue hard, perhaps 25-50%. Right now Cisco hardware powers the most critical government information systems, including military and financial communications (over 85% of the gear is Cisco.) Since many of these networks use Cisco proprietary functions, have scores of personnel trained on Cisco gear, and relationships with networks of Cisco suppliers, transition to another hardware manufacturer would be both expensive and difficult, at a time when the government has little funding for new initiatives. Since the government needs Cisco to be a smoothly functioning company to meet critical information needs, it makes sense that they maintain tight relations.