Buyer beware: second-hand user licences mired in uncertainty

Software licensing

Buyer beware: second-hand user licences mired in uncertainty

The European Court of Justice (ECJ) issued guidance in 2012 on the sale of used software after developer Oracle obtained an injunction against Usedsoft for selling used Oracle licences.

The decision in Oracle vs Usedsoft was heralded by some as a telling blow against the monopoly of the big software developers, allowing users to resell their software when they no longer needed it.

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In truth, the outcome is still far from clear. Any vigilant business needs to think very carefully before buying second-hand software – or it could find itself paying twice over for the same program.

An illustration of the dangers posed by buying second-hand software is shown by Microsoft’s recent High Court case against Discount-Licensing, a software reseller (see sidebar).

In the Oracle vs Usedsoft case, Oracle sued second-hand software licence trader Usedsoft, claiming that its resale of Oracle licences – perpetual licences available through electronic download – breached its licence terms, which prohibited the sale of the software to a third party without Oracle’s consent. 

European Directive 2009/204 states that once a copy of a program has been sold in the EU the software provider has exhausted its rights in that copy and has no right to prevent its onward sale. Oracle argued that its software was licensed rather than sold and in any event that the law did not apply to electronic downloads. 

The company also argued that even if it could not control the resale of copies, the purchasers of those copies could not use the software as they did not have a licence to do so. Usedsoft argued that the directive made it clear that the software could indeed be resold.

The ECJ held that the sale by a software house of a perpetual licence was equivalent to the sale of a copy whether it was supplied on a disc or by electronic download. The ECJ also found that a purchaser of the used copy could use the software subject to certain reservations. In July 2013, the German Federal Court of Justice (FCJ) applied the Oracle decision but referred the case back to the local Munich court for further investigation of the facts.

If not all the guidelines set down in the Oracle judgment apply, then a software house will have a good argument that licences purchased second-hand are not effective and that all the use made to date has been infringing. A buyer would then have to pay licence fees for that infringing use, and legalise the situation going forward. Until the law in this area is clarified, buying cheaply may require a business to buy twice.

No decision is expected for at least another two years. In the meantime many of the issues surrounding the sale of second-hand software remain unanswered.


Used licences Q&A

Does the ECJ’s Oracle ruling apply to the sale of all software by all providers?

No. That ruling applies only to the sale of perpetual licences and not those granted for a limited term. Software houses may decide to change their licence terms to ensure all their licences are for a specific term only, even if that term is a very long one.

What about cloud-based services?

It seems likely that cloud-based services will be treated as services supplied rather than licences to use software, and so are unlikely to be legally resaleable. The precise drafting of the actual cloud-based services agreement will be crucial.

What about volume licences? If I have bought 100 user licences can I buy or sell 30, say?

No. The ECJ made it clear that licences cannot be split. This is likely to result in software houses adding users to existing licences and not issuing additional separate licences. Buyers should exercise particular caution in these circumstances.

What does a seller have to do to make a sale lawful?

The FCJ and the ECJ have both stated that for a sale to be lawful, a seller, among other things, has to delete all copies of the software. In reality, it is difficult for a buyer to satisfy itself that a seller's assertion that it has deleted all copies is true. Some traders deal with this issue by obtaining notarised certificates but the FCJ has ruled that insufficient. Once again, this is an area where buyers should exercise particular caution.

What about support and maintenance?

The ECJ explicitly stated that its ruling did not apply to support and maintenance contracts, which software houses can still make non-transferable. It is likely that the Oracle ruling will be interpreted to allow a seller to transfer to a buyer (if all other conditions are complied with) the benefit of patches up to the date of sale but not afterwards, leaving the buyer unlikely to be entitled to further updates and support.

What was the Micosoft vs Discount-Licensing case about?

Microsoft brought a copyright infringement suit against Discount-Licensing’s resale of second-hand licences of its software without its consent – although Discount-Licensing’s European customers did not know this. Discount-Licensing eventually admitted infringement and paid Microsoft a significant sum in damages and costs. The case shows why consumers might not know whether their second-hand software is legal.

Adam Morallee is an IP partner at law firm Mishcon de Reya

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This was first published in May 2014

 

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