Europe's highest court has ruled that downloaded software can be re-sold by the purchaser.
The European Court of Justice (ECJ) has said that software downloaded under a licence agreement that allows the user to use the copy of the software for an unlimited period without limit, amounts to a sale of the copy of the software and extinguishes the rights-holder's distribution rights over that copy.
The ECJ ruling comes after it was asked by the German Federal Court of Justice to interpret a point of law in the dispute between UsedSoft GmbH and Oracle International Corp, as discussed in our previous article [insert hyperlink] Secondhand software market: To what extent can 'used' software be re-sold legitimately?
What did the ECJ say?
The ECJ said it did not matter whether the copy of the computer program was made available to the customer as a download from the rights-holder's website, or via a material medium such as a CD-ROM or DVD.
The fact that the rights-holder had received a fee corresponding to the economic value of the copy of the work was sufficient to conclude that a transfer of ownership of that copy of the software program had occurred. This is despite the fact that Oracle's licence agreements with customers prohibited a further transfer of the copy of the software.
The ECJ agreed with the Opinion of Advocate General Bot where he said that if the term 'sale' (within the meaning of Directive 2009/24) was not given a broad interpretation to include licences to use a computer program for an unlimited period of time, software developers and suppliers would merely have to call contracts 'licences' rather than 'sales' in order to circumvent the rule of exhaustion. This would unjustly allow developers and suppliers to demand further payments each time the copy was re-sold.
The ECJ also confirmed that the 'transfer of ownership' of the copy of the software included any patches and new versions incorporated into that copy of the software. This is because the exhaustion of the distribution right applies to the whole copy of the computer program, as corrected and updated by the copyright holder.
Is it all good news for software resellers?
The ECJ did say that whilst software licences may be re-sold, the licences must be re-sold intact (i.e. to the same number of users as originally purchased the licences) and cannot be broken down by the reseller so that only part of the licence is re-sold for a smaller number of users.
For example, if a licence is initially purchased for 25 users, a reseller cannot use the principle of exhaustion to decide that it will keep the licence for 15 users and resell the licence that relates to the other 10 users.
The court also said that the original purchaser of a copy of a computer program must make the copy downloaded onto his own computer 'unusable' if he wishes to resell it. If the purchaser does not and continues to use the copy, he will infringe the copyright holder's exclusive right of reproduction. This is because the right of reproduction, in contrast to the right of distribution, is not exhausted by the first sale. Although policing this would be difficult, the court acknowledged that it would be no more difficult than policing the reproduction of copies of software programs via CD-ROMS or DVDs.
What does this mean for the second-hand software market?
The ruling brings the principle of the exhaustion of distribution rights that apply in relation to the reselling of software in line with the law in relation to the reselling of hardware.
Many see this as important because, prior to this judgment, customers could resell hardware but not the software contained on it, where it was subject to a software licence.
However, by not allowing licences to be divided up, it will be possible for software suppliers and developers to bundle licences to ensure they get their monies worth from the original licence agreement.
Equally, software developers and suppliers are likely to be more cautious about granting perpetual licence agreements to users for a one-off fee. Fixed-term licences may well become more commonplace in the market, with periodic payments, to try to ensure that developers and suppliers do not inadvertently exhaust their distribution rights.