UK Court of Appeal gives Microsoft complaint the green light

The ValueLicensing complaint against Microsoft is being upheld following a Court of Appeal ruling. The Court of Appeal unanimously upheld the Competition Appeal Tribunal’s (CAT) decisions in the pre-owned software reseller’s ongoing abuse of dominance competition law claim against Microsoft. The appeal ruling has ramifications on other cases including the separate proceedings in Discount-Licensing Limited’s legal dispute with Microsoft.

ValueLicensing began proceedings against Microsoft in April 2021, alleging anti-competitive conduct, which it stated affects the secondary market for pre-owned Microsoft software licences. ValueLicensing accused Microsoft of imposing anti-competitive conditions on business customers that restrict them from reselling Microsoft’s perpetual licences in return for receiving discounts on Microsoft software subscriptions. It claimed that Microsoft engaged in “unlawful conduct aimed at limiting the size of the market for second-hand software”, leading to higher prices and less choice for customers.

In September last year, The UK Competition Appeal Tribunal heard preliminary arguments from ValueLicensing and Microsoft to decide whether businesses can lawfully sell pre-owned copies of Windows and Office under EU and UK law.

The Court of Appeal confirmed that the CAT has jurisdiction to determine copyright issues where they arise as necessary questions in competition law claims. It also upheld the Tribunal’s application of the UsedSoft v Oracle decision, rejecting Microsoft’s copyright arguments against the lawful resale of qualifying pre-owned Microsoft software licences.

In 2012, the European Union Court of Justice ruled in favour of UsedSoft – a used software licence distributor – that the resale of preowned software licences is legal. According to the Court of Justice, once a software company sells a copy of its computer program, it loses its exclusive rights to distribution.

ValueLicensing said the Court of Appeal’s judgment delivers legal certainty for the secondary software licensing market and provides important guidance on the application of the UsedSoft legal precedent to Microsoft’s software licensing arrangements.

The Court of Appeal rejected Microsoft’s argument against the resale of volume licences. It stated that Microsoft’s licensing arrangements give rise to multiple software licences rather than an indivisible block licence. According to ValueLicensing, this confirms that qualifying volume licences may be subdivided and resold.

The Court of Appeal also rejected Microsoft’s remaining grounds of appeal, including arguments concerning sample transactions, contractual transfer mechanisms and the burden of proof, before unanimously dismissing Microsoft’s appeals.

ValueLicensing said the ruling removes a significant procedural obstacle to the progress of its claim and allows the proceedings, which had been stayed pending the appeals, to resume.

Jonathan Horley, founder and managing director of ValueLicensing, said: “The judgment agreed with all the main conclusions of the CAT on both rulings under appeal as well as clarifying the overall legality of our business model.

“It is notable that none of the arguments run by Microsoft’s legal teams at Willkie Farr and Sidley Austin succeeded. After succeeding on these issues before three judges in the CAT and now three judges in the Court of Appeal, we now intend to press on with the main business of the competition claim.

“We are considering the consequences of the Court of Appeal’s judgment for Microsoft’s defence to our claim and will focus in the coming weeks and months on the key procedural steps leading up to a liability trial.”