Legal Alerts / 14 Aug 2012

Legal Alert – The ECJ Rules On Resale Of Licenses Of Downloaded Software

The European Court of Justice (ECJ) recently handed down a judgment in the case C-128/11 UsedSoft v. Oracle. The judgment, a preliminary ruling, dealt with the resale of “used” licenses of downloaded software by a German company UsedSoft. In short, the ECJ ruled that the resale of licenses of non-physical copies of software in the secondary market was, in itself, legal.

The judgment

The ECJ held that the principle of exhaustion applies equally to tangible (such as CD-ROM) and non-tangible (downloaded) copies of software. The principle of exhaustion dictates that once a copy of a copyrighted work has been distributed within the European Union with the consent of the right holder, he may no longer prevent further distribution of that copy. To be applicable, the principle of exhaustion requires that there be a “sale” of the software to the customer, involving a transfer of ownership of the copy to the customer in return for a payment.

In the case at hand, a copy of the computer program was made available by Oracle, downloaded by a customer and a user license agreement was concluded. When taken together, the Court held that there indeed was a sale as the operations were intended to make the downloaded copy usable by the customer (i) in a permanent basis and (ii) in return for payment of a fee enabling the right holder to obtain a remuneration corresponding to the economic value of the copy.

Further, the Court ruled that the new, second acquirer of a resold copy is a “lawful acquirer” of that copy, thus allowing second acquirers to make what copies are necessary to enable them to use the program in accordance with its intended purpose.

Limitations set by the ECJ

Firstly, the Court required that in order for the original acquirer of a copy of a computer program to avoid copyright infringement, he must make his own copy unusable when the license is resold. Secondly, if the license is a group license, the original acquirer is not allowed to split the user licenses in order to resell them separately.

Further, the Court pointed out that right holders are entitled to ensure by all technical means at their disposal that when a copy is resold the original acquirer’s copies are indeed made unusable.

Implications of the judgment

While a similar legal view had already been adopted in Finland by the Supreme Court in 2003 (see case 2003:88) regarding tangible copies, a unified European interpretation will go a long way towards harmonising the legal framework for software business as well as facilitating sales of business assets spanning several EU member states.

It should be noted that the ECJ judgement related to an arrangement where the customers received a perpetual license to the software. Over the past years, many software developers have already taken on to provide their software under monthly/annual licensing models or as a cloud computing based service. In practice, the concept of a “sale” mentioned in the ECJ judgement does not apply to these time-limited models. In other words, it is still possible to prohibit the resale of licenses by offering licenses or subscriptions for a specific time.

It further remains to be seen, if the ECJ ruling has impact in other copyright-intensive fields of business, such as online distribution of music files and e-books, as their licensing may in some cases similarly be considered a “sale”.

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