Softman Products Co., LLC v. Adobe Systems, Inc.

ORDER RE APPLICATION FOR PRELIMINARY INJUNCTION

This matter comes before the Court on the counter-claimant Adobe’s application for a preliminary injunction. After reviewing and considering the materials submitted by the parties, and hearing oral argument, the Court adopts the following order.

I. Background

The counter-claimant Adobe Systems Inc. (“Adobe”) is a leading software development and publishing company. The counter-defendant SoftMan Products Company (“SoftMan”) is a Los Angeles-based company that distributes computer software products primarily through its web *1080 site, www.buycheapsoftware.com. Adobe alleges that since at least November 1997, SoftMan has distributed unauthorized Adobe software, including Adobe Educational software 1 and unbundled Adobe “Collections.” 2 By distributing the individual pieces of Adobe Collections, Adobe contends that SoftMan is infringing Adobe’s copyright in these products and violating the terms of Adobe’s licenses. While SoftMan agrees that it is breaking apart various Adobe Collections and distributing the individual pieces of them as single products, SoftMan claims that it is entitled to distribute Adobe software in this manner. There is no direct contractual relationship between Adobe and Soft-Man.

Adobe distributes its products through “licensing” agreements with distributors. 3 Each piece of Adobe software is also accompanied by an End User License Agreement (“EULA”), which sets forth the terms of the license between Adobe and the end user for that specific Adobe product. The EULA is electronically recorded on the computer disk and customers are asked to agree to its terms when they attempt to install the software. (SoftMan Opp. at 4.)

Adobe alleges, among other things, that SoftMan has infringed on Adobe’s trademark by distributing incomplete versions of Adobe software. The central difference between these allegedly incomplete products and the genuine Adobe software is that when SoftMan unbundles a Collection and resells its component parts, such individual pieces of software may not be accompanied by the registration information which would entitle the bearer access to Adobe’s customer support and technical services. Adobe alleges that customers may be confused about the connection between authentic Adobe software and the unauthorized versions distributed by Soft-Man because a consumer may acquire a product from SoftMan as a “Retail” version when, in fact, it is a piece of an unbundled Adobe Collection.

On August 27, 2001, this Court granted a temporary restraining order and seizure order against SoftMan. On September 10, 2001, the Court entered a preliminary injunction, to be in effect for the duration of the Court’s review of the supplemental briefing submitted by the parties following oral argument.

II. Legal Standard

“A party seeking a preliminary injunction must show ‘either a likelihood of success on the merits and the possibility of irreparable injury, or that serious questions going to the merits were raised and the balance of hardships tips sharply in its favor.’ ” Micro Star v. Formgen Inc., 154 *1081 F.3d 1107, 1109 (9th Cir.1998) (quoting Johnson Controls, Inc. v. Phoenix Control Sys., Inc., 886 F.2d 1173, 1174 (9th Cir.1989)). In granting a preliminary injunction, a district court must find that the movant demonstrated either: (1) a combination of probable success on the merits and the possibility of irreparable injury if relief is not granted, or (2) the existence of serious questions going to the merits and that the balance of hardships tips sharply in its favor. Brookfield Communications, Inc. v. West Coast Entm’t Corp., 174 F.3d 1036, 1046 (9th Cir.1999). Irreparable injury may be presumed from a showing of likelihood of success on the merits of a trademark infringement claim. Id. at 1066 (citing Metro Publ’g v. San Jose Mercury News, 987 F.2d 637, 640 (9th Cir.1993)). The traditional test for granting preliminary injunctive relief also applies in the context of a trademark action. This test requires the plaintiff to demonstrate: (1) a likelihood of success on the merits; (2) a significant threat of irreparable injury; (3) that the balance of hardships favors the plaintiff; and (4) whether any public interest favors granting an injunction. Dollar Rent A Car v. Travelers Indem. Co., 774 F.2d 1371, 1374 (9th Cir.1985); see also Schwarzer, et al., Federal Civil Procedure Before Trial, § 13:44 (1999). The Ninth Circuit also uses an alternative test which requires the plaintiff to demonstrate “serious questions going to the merits and that the balance of hardships tips sharply in its favor.” See First Brands Corp. v. Fred Meyer, Inc., 809 F.2d 1378, 1381 (9th Cir.1987).

III. Discussion

A. Copyright Infringement Claim

1. Likelihood of Success on the Merits

To prevail on its copyright infringement claim, Adobe must show (1) that it owns the copyright to the product at issue, and (2) that SoftMan infringed Adobe’s copyrights in these products. Johnson Controls, 886 F.2d at 1175. With respect to the second element, Adobe may prove infringement by showing that SoftMan has violated one of Adobe’s exclusive rights guaranteed to copyright holders under 17 U.S.C. § 106(3). 4 Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 433, 104 S.Ct. 774, 78 L.Ed.2d 574 (1984).

a. Copyright Ownership

Adobe’s products consist of original material which is copyrightable subject matter under 17 U.S.C. § 102. There is no dispute that Adobe is the registered owner of the copyrights for all the products in question in this action.

b. Unauthorized Copying of a Protected Work

Copyright infringement exists when any of the rights granted under 17 U.S.C. § 106 are violated. Buck v. Jewell-La Salle Realty, 283 U.S. 191, 51 S.Ct. 410, 75 L.Ed. 971 (1931). Title 17 U.S.C. § 106(3) grants a copyright holder the exclusive right to distribute, and to authorize distribution of, its copyrighted work. Adobe chooses to distribute copies of its products through licensing agreements with various distributors and dealers. 5 It *1082 is not disputed that SoftMan has no licensing agreement with Adobe.

In addition, each piece of Adobe software is accompanied by the EULA. 6 Once the products are distributed to the end-user, the EULA prohibits the individual distribution of software that was originally distributed as part of a Collection. Specifically, the Adobe EULA provides that the end user may “transfer all [his] rights to the Use of the Software to another person or legal entity provided that (a) [he] also transfer this Agreement, the Software and all other software or hardware bundled or pre-installed with the Software.” 7 (Palma Decl., Ex. 1.)

In this case, Adobe alleges that by distributing unbundled Collections, SoftMan has exceeded the scope of the EULA and has infringed Adobe’s copyrights, specifically Adobe’s § 106 right to distribute and control distribution. SoftMan contends that the first sale doctrine allows for the resale of Adobe’s Collection software.

(1) First Sale Doctrine

The “first sale” doctrine was first analyzed by the United States Supreme Court in Bobbs-Merrill Co. v. Straus, 210 U.S. 339, 28 S.Ct. 722, 52 L.Ed. 1086 (1908). The Court held that the exclusive right to “vend” under the copyright statute applied only to the first sale of the copyrighted work. The doctrine has been codified at 17 U.S.C. § 109(a). It states in relevant part: “the owner of a particular copy ... lawfully made under this title ... is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy.” 17 U.S.C. § 109(a). One significant effect of § 109(a) is to limit the exclusive right to distribute copies to their first voluntary disposition, and thus negate copyright owner control over further or “downstream” transfer to a third party. Quality King Distrib. v. L’anza Research Int'l, Inc., 523 U.S. 135, 142-44, 118 S.Ct. 1125, 140 L.Ed.2d 254 (1998). (See Rice Decl. ¶ 11.) The first sale doctrine vests the copy owner with statutory privileges under the Act which operate as *1083 limits on the exclusive rights of the copyright owners.

Adobe argues that the first sale doctrine does not apply because Adobe does not sell or authorize any sale of its software. Adobe characterizes each transaction throughout the entire stream of commerce as a license. 8 Adobe asserts that its license defines the relationship between Adobe and any third-party such that a breach of the license constitutes copyright infringement. This assertion is not accurate because copyright law in fact provides certain rights to owners of a particular copy. This grant of rights is independent from any purported grant of rights from Adobe. The Adobe license compels third-parties to relinquish rights that the third-parties enjoy under copyright law. 9

In short, the terms of the Adobe EULA at issue prohibit licensees from transferring or assigning any individual Adobe product that was originally distributed as part of a Collection unless it is transferred with all the software in the original Collection. This license provision conflicts with the first sale doctrine in copyright law, which gives the owner of a particular copy of a copyrighted work the right to dispose of that copy without the permission of the copyright owner.

(2) Sale v. License

(a) Historical Background

Historically, the purpose of “licensing” computer program copy use was to employ contract terms to augment trade secret protection in order to protect against unauthorized copying at a time when, first, the existence of a copyright in computer programs was doubtful, and, later, when the extent to which copyright provided protection was uncertain. (See Rice Decl. ¶ 6.) Computer program copy use “licensing” continued after federal courts interpreted the Copyright Act to provide substantial protection for computer programs as literary works. (Id. at ¶ 7.) In Step-Saver Data Systems, Inc. v. Wyse Technology, the Third Circuit examined the historical development of the use of licensing in the software industry and concluded that subsequent changes to the Copyright Act had rendered the need to characterize the transaction as a license “largely anachronistic.” 939 F.2d 91, 96 n. 7 (3d Cir.1991). 10

*1084 (b) Adobe Sells its Software

A number of courts have held that the sale of software is the sale of a good within the meaning of Uniform Commercial Code. Advent Sys. Ltd. v. Unisys Corp., 925 F.2d 670, 676 (3d Cir.1991); Step-Saver, 939 F.2d at 99-100; Downriver Internists v. Harris Corp., 929 F.2d 1147, 1150 (6th Cir.1991). It is well-settled that in determining whether a transaction is a sale, a lease, or a license, courts look to the economic realities of the exchange. Microsoft Corp. v. DAK Indus., 66 F.3d 1091 (9th Cir.1995); United States v. Wise, 550 F.2d 1180 (9th Cir.1977). In DAK, Microsoft and DAK entered into a license agreement granting DAK certain nonexclusive license rights to Microsoft’s computer software. The agreement provided that DAK would pay a royalty rate per copy of computer software that it distributed. Subsequently, DAK filed a petition for bankruptcy, and failed to pay the final two out of a total of five installments. Microsoft filed a motion for the payment of an administrative expense, claiming that it should be compensated for DAK’s post-bankruptcy petition use of the license agreement. On appeal, the Ninth Circuit held that the economic realities of the agreement indicated that it was a sale, not a license to use. Thus, Microsoft simply held an unsecured claim and not an administrative expense. The court found that the agreement was best characterized as a lump sum sale of software units to DAK, rather than a grant of permission to use an intellectual property. The court in DAK noted:

Because we look to the economic realities of the agreement, the fact that the agreement labels itself a “license” and calls the payments “royalties,” both terms that arguably imply periodic payment for the use rather than sale of technology, does not control our analysis.

DAK 66 F.3d at 1095, n. 2. Other courts have reached the same conclusion: software is sold and not licensed. See, e.g., RRX Indus., Inc. v. Lab-Con, Inc., 772 F.2d 543, 546 (9th Cir.1985); Applied Info. Mgmt., Inc. v. Icart, 976 F.Supp. 149, 155 (E.D.N.Y.1997) (finding that whether a transaction denominated a “license” was in fact a sale conveying ownership was a disputed question of fact); Novell, Inc. v. CPU Distrib., Inc., 2000 U.S. Dist. Lexis 9975 (S.D.Tex.2000). In Novell, a software manufacturer was pursuing a discount retailer for copyright infringement. Like Adobe, CPU argued that it purchased the software from an authorized source and was entitled to resell it under the first sale doctrine. Novell claimed that it did not sell software but merely licensed it to distribution partners. The court held that these transactions constituted sales and not a license, and therefore that the first sale doctrine applied. 2000 U.S. Dist. Lexis 9975 at *18.

Adobe frames the issue as a dispute about the ownership of intellectual property. In fact, it is a dispute about the ownership of individual pieces of Adobe software. Section 202 of the Copyright Act recognizes a distinction between tangible *1085 property rights in copies of the work and intangible property rights in the creation itself. 11 In this case, no claim is made that transfer of the copy involves transfer of the ownership of the intellectual property within. (See SoftMan’s Suppl. Brief at 9-10) (“Adobe has ownership rights in the copyright of [its] software.”). What is at stake here is the right of the purchaser to dispose of that purchaser’s particular copy of the software.

The Court finds that the circumstances surrounding the transaction strongly suggests that the transaction is in fact a sale rather than a license. For example, the purchaser commonly obtains a single copy of the software, with documentation, for a single price, which the purchaser pays at the time of the transaction, and which constitutes the entire payment for the “license.” The license runs for an indefinite term without provisions for renewal. In light of these indicia, many courts and commentators conclude that a “shrinkwrap license” transaction is a sale of goods rather than a license. 12

The reality of the business environment also suggests that Adobe sells its software to distributors. Adobe transfers large amounts of merchandise to distributors. The distributors pay full value for the merchandise and accept the risk that the software may be damaged or lost. 13 The distributors also accept the risk that they will be unable to resell the product. 14 The distributors then resell the product to other distributors in the secondary market. The secondary market and the ultimate consumer also pay full value for the product, and accept the risk that the product may be lost or damaged. This evidence suggests a transfer of title in the good. The transfer of a product for consideration with a transfer of title and risk of loss generally constitutes a sale. VWP of Am., Inc. v. United States, 175 F.3d 1327, 1338- *1086 39 (Fed.Cir.1999). Professor Raymond Nimmer writes:

Ownership of a copy should be determined based on the actual character, rather than the label, of the transaction by which the user obtained possession. Merely labeling a transaction as a lease or license does not control. If a transaction involves a single payment giving the buyer an unlimited period in which it has a right to possession, the transaction is a sale. In this situation, the buyer owns the copy regardless of the label the parties use for the contract. Course of dealing and trade usage may be relevant, since they establish the expectations and intent of the parties. The pertinent issue is whether, as in a lease, the user may be required to return the copy to the vendor after the expiration of a particular period. If not, the transaction conveyed not only possession, but also transferred ownership of the copy.

Raymond Nimmer, The Law of Computer Technology § 1.18[1] p. 1-103 (1992). The Court agrees that a single payment for a perpetual transfer of possession is, in reality, a sale of personal property and therefore transfers ownership of that property, the copy of the software.

Other commentators have urged courts to look at the substance rather than the form of licensing agreements. See, e.g., David A. Rice, Licensing the Use of Computer Program Copies and the Copyright Act First Sale Doctrine, 30 Jurimetrics J. 157 (1990). In particular, the following factors require a finding that distributing software under licenses transfers individual copy ownership: temporally unlimited possession, absence of time limits on copy possession, pricing and payment schemes that are unitary not serial, licenses under which subsequent transfer is neither prohibited nor conditioned on obtaining the licensor’s prior approval (only subject to a prohibition against rental and a requirement that any transfer be of the entity), and licenses under which the use restrictions principal purpose is to protect intangible copyrightable subject matter, and not to preserve property interests in individual program copies. Id. at 172.

Adobe relies primarily on two cases to support its proposition that software is licensed and not sold. In Microsoft Corp. v. Harmony Computers & Elecs., Inc., 846 F.Supp. 208, 212 (E.D.N.Y.1994), the court assumed without analysis that the transaction was a license rather than a sale and held that distribution outside the scope of a license agreement constituted copyright infringement. The Court finds Harmony ’s facts to be distinguishable. In that case, the defendants were selling counterfeit Microsoft products. Here, Adobe does not allege that SoftMan sells counterfeit Adobe software.

Adobe also relies on Adobe Sys. Inc. v. One Stop Micro, Inc., 84 F.Supp.2d 1086, 1093 (N.D.Cal.2000). The court held that One Stop’s distribution of Educational versions of Adobe software to non-educational end users was outside the scope of Adobe’s license and in violation of Adobe’s exclusive right to distribute under § 106(3). In One Stop, an unlicensed reseller admitted to adulterating the packaging for Adobe Educational software and transferring it as retail Adobe products for prices below the street price of the retail product. Id. The court further held that One Stop could not claim to have title for first sale purposes while the end user only obtained a license. The Court finds the facts of One Stop to be distinguishable from the instant case. In One Stop, the issue was peeling off and destroying the “Education version” stickers on software, as well as destroying bar code and serial numbers on the software, and then reselling it as commercial software. Id. at 1088. To the extent that the court in One Stop found that the transaction at issue was in fact a license, and not a *1087 sale, this Court simply declines to adopt that analysis. In One Stop, the court placed great weight on the declarations of Adobe’s experts that licensing is the preferred method of distributing software. The Court understands fully why licensing has many advantages for software publishers. However, this preference does not alter the Court’s analysis that the substance of the transaction at issue here is a sale and not a license.

(c) EULA Terms

Adobe argues that the EULA requires construction of the transaction as a license rather than a sale. The Court finds that SoftMan is not bound by the EULA because there was no assent to its terms.

i) Assent

Adobe contends that the EULA limits the consumer’s ability to transfer the software after buying it. According to Soft-Man, a hard copy of the EULA agreement is not enclosed with the individual Adobe software disk. Instead, consumers are asked to agree to its terms as part of the installation process. (Dracup Decl. ¶ 7.)

Courts have required that assent to the formation of a contract be manifested in some way, by words or other conduct, if the contract is to be effective. E. Allan Farnsworth, Farnsworth on Contracts § 3.1 (2d ed.2000). As the court noted in Specht v. Netscape Communications Corp., 150 F.Supp.2d 585 (S.D.N.Y.2001): “The case law on software licensing has not eroded the importance of assent in contract formation. Mutual assent is the bedrock of any agreement to which the law will give force. Defendants’ position, if accepted, would so expand the definition of assent as to render it meaningless.” Id. at 596.

In the instant case, the Court finds that there is only assent on the part of the consumer, if at all, when the consumer loads the Adobe program and begins the installation process. It is undisputed that SoftMan has never attempted to load the software that it sells. Consequently, the Court finds that SoftMan is not subject to the Adobe EULA.

Adobe fails to offer a compelling rationale for how SoftMan becomes subject to Adobe’s licenses if SoftMan never loads the software onto computers. Adobe claims that the EULA is enforceable against SoftMan because the boxes containing Adobe software (including Collections) clearly indicate that use is subject to the consumer’s agreement to the terms contained in EULA inside. See, e.g., ProCD, 86 F.3d at 1451. Like the CD boxes in ProCD, Adobe’s EULAs state that the product can be returned if the terms are not agreed to by the end user. The Adobe Collections boxes state: “NOTICE TO USERS: This product is offered subject to the license agreement included with the media.” (Navarro Decl. at p. 2.) However, the existence of this notice on the box cannot bind SoftMan. Reading a notice on a box is not equivalent to the degree of assent that occurs when the software is loaded onto the computer and the consumer is asked to agree to the terms of the license.

Adobe further asserts that whether SoftMan is characterized as a distributor or reseller, SoftMan would be bound by the terms of these license agreements, which state that Adobe retains ownership of its software products, as well as the media upon which these software products are distributed. It is undisputed that Soft-Man is not a signatory to any licensing agreements. Yet Adobe claims that although SoftMan has never signed an agreement with Adobe, the terms of Adobe’s distribution agreements all apply to SoftMan.

In One Stop, the court stated that although One Stop was not a signatory to an *1088 Adobe licensing agreement, it was nevertheless subject to the restrictions of those agreements. 84 F.Supp.2d at 1092. The court found that by obtaining Adobe software from a party to an Adobe licensing agreement, One Stop was bound by any restrictions imposed by that agreement. Id. at 1093. In Harmony, the court found that “to the extent that defendants bought their Microsoft Products from authorized Microsoft licensees, they were subject to the same licensing restrictions under which those licensees operated.” Harmony, 846 F.Supp. at 213. The Court declines to adopt the analysis of these cases.

The Court finds that Adobe’s EULA cannot be valid without assent. Therefore, SoftMan is not bound by the EULA because it has never loaded the software, and therefore never assented to its terms of use.

ii) Shrinkwrap Licenses In General

Whether contracts such as Adobe’s EULA, often referred to as “shrinkwrap” licenses, are valid is a much-disputed question. 15 A number of courts that have addressed the validity of the shrinkwrap license have found them to be invalid, characterizing them as contracts of adhesion, unconscionable, and/or unacceptable pursuant to the Uniform Commercial Code. Step-Saver, 939 F.2d 91; Vault Corp. v. Quaid Software Ltd., 847 F.2d 255 (5th Cir.1988). These courts have refused to recognize a bargain in shrinkwrap license that is not signed by the party against whom it is enforced. In Step-Saver, the Third Circuit found that the terms of a contract were formed when the parties shipped, received and paid for the product. Therefore, the software shrin-kwrap agreement constituted additional terms to the contract, and under Uniform Commercial Code § 2-207 (governing commercial counter-offers), these terms were invalid without express assent by the purchaser. In contrast, other courts have determined that the shrinkwrap license is valid and enforceable. ProCD, 86 F.3d at 1453; Harmony, 846 F.Supp. at 212.

The Court finds it unnecessary to reach the question of the general validity of shrinkwrap licenses at this stage because the Court has determined that SoftMan is not bound by the EULA because there was no assent to its terms.

2. New York Times Co., Inc. v. Tasini

Adobe claims that even if there was a first sale of the Adobe Collections, Soft-Man’s unbundling of the Collections and redistribution of the individual component parts still constitutes copyright infringement. Adobe cites New York Times Co. Inc. v. Tasini, — U.S. -, 121 S.Ct. 2381, 150 L.Ed.2d 500 (2001), for the proposition that the distribution of an individual component of a collective work infringes the copyright in the underlying individual work.

In Tasini, the Court held that print and electronic publishers infringed on the copyrights of freelance authors when the publishers placed the authors’ articles in electronic databases. The Court rejected the publishers’ assertions that they were protected by the reproduction and distribution privilege accorded collective work copyright owners by 17 U.S.C. § 201(c). 16 *1089 Adobe’s reliance on Tasini is misplaced. The critical distinction is that Tasini does not address, as does the instant case, the fate of an individual copy of any work under the first sale doctrine. The Tasini Court reaffirmed that the owner of the copyright in the collective work is presumed to have acquired only the privilege of distributing the contribution as part of that particular collective work. 17

In contrast, what Adobe alleges here is quite different. In this case, Adobe seeks to control the resale of a lawfully acquired copy of its software. Adobe’s position in this action would be more akin to a journalist who claimed that ownership of the copyright to an article allowed him or her to control the resale of a particular copy of a newspaper that contained that article. The Court finds that Tasini is not applicable to the facts at issue.

3. Copyright Infringement Conclusion

In short, the transfer of copies of Adobe software making up the distribution chain from Adobe to SoftMan are sales of the particular copies, but not of Adobe’s intellectual rights in the computer program itself, which is protected by Adobe’s copyright. SoftMan is an “owner” of the copy and is entitled to the use and enjoyment of the software, with the rights that are consistent with copyright law. The Court rejects Adobe’s argument that the EULA gives to purchasers only a license to use the software. The Court finds that Soft-Man has not assented to the EULA and therefore cannot be bound by its terms. Therefore, the Court finds that Adobe has not demonstrated a likelihood of success on the merits of its copyright infringement claim.

a. Irreparable Injury

Since the Court finds that Adobe has not made a showing of a likelihood of success on the merits of its copyright claim, no presumption of irreparable harm is raised. See Micro Star, 154 F.3d at 1109. Parties seeking pretrial injunc-tive relief must demonstrate they will be exposed to some “significant risk of irreparable injury” if such relief is denied. Associated Gen. Contractors of Cal. v. Coalition for Econ. Equity, 950 F.2d 1401, 1410 (9th Cir.1991). Before a preliminary injunction may issue, the court must identify the harm which a preliminary injunction might cause the defendant and balance it against plaintiffs threatened injury. Armstrong v. Mazurek, 94 F.3d 566, 568 (9th Cir.1996).

Adobe contends it will suffer irreparable injury for the following reasons: dilution of customer goodwill, price erosion of Adobe software due to SoftMan’s resale activities, the Adobe name will be tarnished and consumers may stop acquiring Adobe products, loss of annual sales, 18 and dilution of trademarks. Adobe also contends that it is faced with a “Hobson’s Choice” between upholding distribution agreements and denying consumers Adobe *1090 services (satisfying Adobe’s “legitimate” distribution partners at the expense of customer goodwill), or providing services to consumers holding so-called “pirated” products.

Irreparable injury and probability of success on the merits “are not really two entirely separate tests, but that they are merely extremes of a single continuum.” Benda v. Grand Lodge of Int’l Ass’n of Machinists & Aerospace Workers, 584 F.2d 308, 315 (9th Cir.1978). In this case, the Court finds that Adobe has not demonstrated probable success on the merits of its copyright claim. Nor has Adobe made a showing of irreparable injury sufficient to obtain preliminary injunctive relief. Adobe presents no specific evidence relating to dilution of customer goodwill or the direct loss of annual sales. There must be evidence of actual injury to support claims of “irreparable injury.” Speculative losses are insufficient. Goldie’s Bookstore, Inc. v. Superior Court, 739 F.2d 466, 472 (9th Cir.1984); Caribbean Marine Serv. Co. v. Baldrige, 844 F.2d 668, 674 (9th Cir.1988). Significantly, Adobe also admits that it discovered Soft-Man’s allegedly unauthorized distribution of Adobe software in November 1997. (Adobe Mot. at 6.) This delay further supports the Court’s conclusion that Adobe has failed to demonstrate immediate threatened harm. The Court finds that Adobe has failed to show that it will suffer irreparable injury in the absence of preliminary injunctive relief.

b. Balance of Hardships

In deciding whether to grant a preliminary injunction, the Court may also balance the potential hardships that each party may suffer if the Court grants or denies Adobe’s motion. See International Jensen, Inc. v. Metrosound U.S.A., 4 F.3d at 819, 827 (9th Cir.1993). Given that neither Adobe nor SoftMan has submitted any evidence of economic loss except broad, general statements, the Court considers the balance of hardships to be a neutral factor.

c. Public Interest

Traditionally, courts have looked to public policy considerations in determining whether to grant preliminary injunctive relief. Chalk v. United States Dist. Court, Cent. Dist. of Cal., 840 F.2d 701, 711 (9th Cir., 1988) (“We recognize that the public interest is one of the traditional equitable criteria which a court should consider in granting injunctive relief.”). In this case, the Court finds that important public policy considerations weigh on each side.

The Court finds that the provisions contained in Adobe’s EULA purport to diminish the rights of customers to use the software in ways ordinarily enjoyed by customers under copyright law. Therefore, these restrictions appear to be inconsistent with the balance of rights set forth in intellectual property law. 19 Commentators have noted that the arguments for enforcing this balance are particularly persuasive in the context of shrinkwrap licenses because the balance of rights in intellec *1091 tual property law is already tilted heavily in favor of the intellectual property owner. “The only countervailing forces favoring users are those rights specifically granted to users by federal law. In this context more than any other, therefore, it is justifiable to fear that removing or eviscerating those user rights may bring the whole edifice crumbling down.” 20

This is an area fraught with conflicting policy considerations. Software publishers are desirous of augmenting the protections offered under copyright law. In this case, through the use of licensing, Adobe seeks a vast and seemingly unlimited power to control prices and all channels of distribution. On the other hand, in the absence of copyright law violations, the market can often best regulate prices and all subsequent transactions that occur after the first sale. Sound policy rationales support the analysis of those courts that have found shrinkwrap licenses to be unenforceable. A system of “licensing” which grants software publishers this degree of unchecked power to control the market deserves to be the object of careful scrutiny.

For the reasons stated aboye, the Court finds that this factor weighs in favor of the counter-defendants.

B. Trademark Claims

1.Likelihood of Success on the Merits

To prevail on its trademark infringement claims under the Lanham Act, Adobe must prove: (1) that it is the owner of .a protectible trademark, and (2) a likelihood of consumer confusion as to the source, sponsorship, or origin of the goods. Ocean Garden, Inc. v. Marktrade Co., Inc., 953 F.2d 500, 506 (9th Cir.1991).

a. Validity of Adobe’s Marks

Under the Lanham Act, registration of a trademark “shifts the burden of proof from the plaintiff, who would have to establish his right to exclusive use,” to the defendant, who must rebut the presumption of the plaintiffs right to protected use. Vuitton et Fils S.A. v. J. Young Enters., Inc., 644 F.2d 769, 775 (9th Cir.1981). All of Adobe’s trademarks at issue in this suit are registered with the U.S. Patent and Trademark Office. SoftMan does not dispute that the Adobe trademarks are valid, protectible marks.

b. Likelihood of Confusion

Courts apply an eight-factor test in determining whether a likelihood of confusion exists between the plaintiffs mark and the allegedly infringing mark. The relevant factors may include:

1. strength of the mark;