Following a decision in 2012, the second-hand software market is developing. This is at odds with the wishes of software houses, because sales of second hand software means less sales of new software.
There is a growing business in selling second hand software. Legal claims governing the sale of software and restrictive terms of software licences have attempted to prevent this market from developing. Recent case law suggests that they are unlikely to succeed where licences were sold for one-off payments.
Although there is a degree of complexity in the application of laws governing the second hand sale of software, a 2012 decision of the European Court of Justice confirmed that the practice was, in fact, legal.
In UsedSoft GmbH v Oracle International Corp [2012], Oracle, a software developer specialising in client-server software, sold its products to customers with a non-transferable licence of unlimited duration. UsedSoft, filled a gap in the market by acquiring licences from customers of Oracle who no longer had any use for software licensed from Oracle. It then sold on the licences to third parties. The third parties could make use of the software and had access to Oracle’s website.
As you can imagine, Oracle were pretty upset that UsedSoft was ripping up its market for new software sales.
Oracle challenged the practice in German Courts, claiming that this practice breached its temporary and permanent reproduction rights under article 4(1)(a) of Directive 2009/24 (Legal protection of computer programs). It secured an injunction preventing UsedSoft from selling its licences.
UsedSoft appealed this decision to the European Court of Justice. The European Court reversed the German Court’s finding and ruled in favour of UsedSoft. In the course of the decision, the Court emphasised the exhaustion of rights of copyright as set out in article 4(2) of the Directive which states that ‘the exclusive right of distribution of a copy of a computer programme covered by such a licence is exhausted on its first sale’.
This right of exhaustion of copyright in basic terms means that when a copyright owner licences a copyright work, it cannot then go on and control the subsequent use of the copyright work.
The initial unlimited licence in this case constituted a first sale and therefore Oracle’s exclusive rights had expired. The Court made no distinction between tangible software CDs, intangible software and material downloaded directly from Oracle’s website.
The Oracle case represents a clear endorsement of the process of second hand software selling; however, there are a number of important caveats which include:
The right to resell exists where the software was sold on the basis of a one-off payment and where its duration was perpetual in nature. This will no doubt lead to the software industry considering alternative licencing models to avoid the scope of this judgment. That said, colourable attempts to avoid the effect of the decision may well be given short thrift by Courts. Courts are likely to look to the substance of the licensing arrangements rather than the form of the licensing and contractual arrangements.
Further, in situations where the licensee continues to use the software once the licence has been sold on, there will be a breach of the licensor’s reproduction rights. The court was keen to emphasise this point and even suggested that licensors insert protective measures into their licencing agreements to enable their software to be rendered inoperative where a licence is sold on in this manner.
Ultimately, it is possible that the Oracle decision will have a negative effect on the sale of second hand software as licensors will seek to restructure their current software licensing contracts to prevent customers from engaging in second hand selling. There however will be entrepreneurial players willing to enter markets to advantage of a field of sales which enjoys less intensive competition in the marketplace.
For further information on second hand software licensing, intellectual property rights and specialist legal advice on market opportunities, contact London based technology solicitor Leigh Ellis on +44 20 7353 1770.
