Second-hand software market: To what extent can 'used' software be re-sold legitimately?

Second-hand software market: To what extent can 'used' software be re-sold legitimately?

Published:

Author: Michelle Sherwood

Creators of software programs may not be able to prevent the resale of 'used' copies of software programs legitimately paid for and downloaded by their own customers from the internet.

It follows a recent Opinion from Advocate General Yves Bot, a legal adviser to the European Court of Justice (ECJ), in Axel W. Bierbach (liquidator of UsedSoft GmbH) v Oracle International Corp.

However, creators of software programs may be able to prevent third-parties from reselling 'used' software licences obtained from the creator's customers as this may well be in breach of European copyright law.

Why has the Advocate General issued its opinion?

 

Advocate General Bot was asked to give his opinion following a referral from the Federal Supreme Court in Germany in the UsedSoft v Oracle case. The case involves Oracle, the US-based software giant that, amongst other things, manufactures and markets software for download via the internet, and UsedSoft, a German company that sells (second-hand) licences bought from Oracle's customers.

Oracle, having taken legal action against UsedSoft, was seeking to prevent UsedSoft from continuing to 'resell' computer software and licences that were no longer being used by Oracle's customers.

Oracle was seeking to rely on current European law that gives computer program rights-holders the exclusive right to do, or allow:

  • reproduction or translation of a computer program
  • any form of public distribution of the original or copies of a computer program

However, under European law, the first sale of a copy of a computer program in the EU by the rights-holder (or with the rights-holder's consent) 'exhausts' the rights-holder's ability to be able to distribute (as in B above) that particular copy within the EU (although it can still control future rental of that program).

This has the effect of giving rights-holders 'one bite of the cherry' in terms of the first sale of a copy of its computer program in the EU as, once the copy is sold, the rights-holder is unable to oppose its resale.

What were the arguments?

 

The judge in the case asked the ECJ to interpret the Software Directive (2009/24/EC) on the legal protection of software programs in light of the dispute between Oracle and UsedSoft. The judge wanted to know whether the principle of 'exhaustion' meant that Oracle had 'exhausted' its distribution rights in the copies of the software programs it had made available to its original customers.

This would determine whether UsedSoft had the right to 'resell' used copies of the computer software, which UsedSoft argued it did have, given that Oracle's original customers had erased, or no longer used, their copy.

Oracle, on the other hand, argued that as it was only licensing copies of its software to customers (under what Oracle described as 'software licence agreements') and not selling copies of its software. Therefore, Oracle felt that it still retained ownership and, more importantly, exclusive distribution rights over the software programs.

So what did the Advocate General say about Oracle v UsedSoft?

The Advocate General said that in the case of Oracle v UsedSoft, the principle of exhaustion did not apply because the sale of a copy of a computer program only exhausts the distribution rights of a rights-holder and not the reproduction rights.

The Advocate General said that, in this instance, UsedSoft was reselling (assigning) Oracle's user licences and creating new copies of the software program.

This occurred when UsedSoft directed its customers to the Oracle site to download a new copy of the software once the customer had obtained its 'second-hand' user licence from UsedSoft.

Therefore, this amounted to reproduction, which is an exclusive right of the rights-holder and not subject to the principle of exhaustion under the Software Directive.

What else did the Advocate General say? Was there a 'sale' of a software program?

 

The Advocate General also said that where software licensing meant that a customer acquired a copy of a computer program for an unlimited amount of time in return for a one-off lump-sum payment, a 'sale' would be deemed to have taken place.

This would mean that the rights-holder's ability to commercially exploit that copy of the program would be 'exhausted'. The Advocate General explained that this was necessary in order to prevent rights-holders calling their customer agreements 'licences' for the sole purpose of circumventing the exhaustion rule.

The Advocate General added that distribution of a software program by downloading it from the internet was a 'distribution' that transferred ownership for the purposes of the Software Directive. He considered that this method of transferring ownership was justified, despite arguments to the contrary, given that downloading was widely used in the industry to distribute software programs.

What does this mean?

 

Although the Advocate General's opinion is not binding on the ECJ, it will undoubtedly be followed in future decisions.

So companies wishing to sell used software licences will need to ensure they have permission from the rights-holder to allow the sale of second-hand software licences. This might be contained in a clause in the software licence agreement.

What does the opinion mean for software developers?

 

In light of the Advocate General's comments on whether the licensing of software constitutes a 'sale', software developers should check their licence agreements to ensure that they are not granting users an unlimited right to use their software for a one-off fee, as this could result in the developer inadvertently selling (and losing control of) their program.

Developers should also ensure that their licence agreements do not envisage the sale of the software to subsequent purchasers.

Improvements in security measures to prevent the developer's software from being reproduced should also be continued to try to ensure that the developer retains ownership of the program.