Beware licence complications of second-hand software, says Quentin Archer
Software at low prices can be found in many places on the web. Processors are sold with software still in place. Whole businesses are sold with a complete software inventory. Is it all legal? Can licensors prevent it?
Copying software for the purposes of resale will infringe the licensor's copyright, and may also amount to a criminal offence under the Copyright, Designs and Patents Act 1988. However, the creation of back-up copies for the purposes of normal use is allowed, and any term in a contract preventing the creation of back-up copies is made void by the Act.
But what if the software is sold by the original licensee to a purchaser? Under Section 56 of the 1988 Act the original licensee is free to transfer his rights of use to a purchaser, provided, however, that there are no express terms in the licence that restrict that right. If that applies, the purchaser is able to use the software, but if the original licensee retains a copy this duplicate will immediately be deemed to be an infringing copy, and the licensee (not the purchaser) could be sued by the licensor.
Read the small print
The problem is that proviso. If you want to be sure of your rights you have to read the small print in a licence agreement. Nevertheless, licensors have to be mindful of competition law and new consumer-oriented regulations, which make it difficult or impossible to impose unfair terms on users. You may well, therefore, find that the licence agreement for a standard domestic desktop product allows you to transfer the software, provided that you retain no copy of it whatsoever after the handover.
The situation with larger or more specialist software is quite different. Licences commonly prevent assignment of the licence or transfer of the software. Any attempt to transfer the software in breach of the licence will mean that the seller is in breach of contract, and the purchaser (once he uses the software) will be infringing copyright.
In practice most licensors do not mind outright sales, provided that the other terms of the licence will be observed by the purchaser. After all, in reality they are not losing a genuine sales opportunity. Nevertheless, it is always best to check first, not only to maintain good relations but also to make sure that any necessary support will continue.
An exception needs to be made for open source software. Although this software is subject to licences, the general principle of those licences is to protect the open nature of that software and to prevent others from privatising it for their own purposes. Software of this kind can be freely transferred, although the transferee will continue to be bound by the terms of the licence.
Software already loaded onto a machine which is sold is treated by the law in exactly the same way as if it were on separate media. It all depends on the terms of the licence. Just because the software is essential for the operation of the machine does not necessarily mean that the sale of the machine can legally include the operating software.
For example, in the case of a sale to a consumer it would be very difficult for the software licensor to assert that the purchaser had no right to use the operating system, but in the business context this is quite possible.
One of the chores for an IT department following a business sale in which IT assets change hands is the need to contact all the software licensors to tell them of the change. In the case of key licences, for the reasons mentioned above, it is advisable to check with the licensors in advance of the sale, although the need to maintain confidentiality can make this awkward. And each licensor, of course, has different procedures and their own attitude to licensing.
So, is that deal on eBay really as good as it seems? Strangely, online sellers do not usually talk about boring things like licence agreements, and as often as not you cannot tell from the description. Just because it is in its original box, or shrink-wrapped, does not mean it is legal.
Microsoft and other licensors do not have time to rush about investigating every possible infringement, but if you are buying in bulk, be careful, and ask to see the licence agreement first. There is no point paying for something you cannot use or support.
Quentin Archer is a partner at business law firm Lovells
This was first published in October 2005