EU court legalises second-hand software

In a landmark decision, the European Union Court of Justice ruled that the reselling of used software licences is legal.

In a landmark decision, the European Union Court of Justice ruled in favor of UsedSoft, a used software licence distributor, that the reselling of used 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. This ruling is based on an interpretation of Directive 2009/24/EC of the European Parliament and of the Council, dated 23 April 2009.  This directive describes the legal protections for computer programs within the EU. 

With this ruling, companies like Germany-based UsedSoft have been validated in their resale of licences, legitimising the niche market for resellers.  Although the EU Directive does not reference the laws of individual countries, the concept of licence resale is not new in the EU.  For instance, a loophole in the UK’s insolvency laws combined with specific language in a Microsoft licence created a boom in the existing resale market in 2005. 

The court’s decision clearly states that the ruling applies to both physical media as well as electronic download.  Oracle attempted to separate the download of a copy of the software as free, but only used legally with a licence agreement that is non-transferable.  The court did not agree with this separation and defined what constitutes a first sale.

"It makes no difference whether the copy of the computer program was made available by means of a download from the rightholder’s website or by means of a material medium such as a CD-ROM or DVD," the court ruled. "Even if the rightholder formally separates the customer’s right to use the copy of the program supplied from the operation of transferring the copy of the program to the customer on a material medium, the operation of downloading from that medium a copy of the computer program and that of concluding a licence agreement remain inseparable from the point of view of the acquirer.”

In addition to the purchase of the licence and product itself, existing contractual obligations transfer legally from seller to buyer. This includes maintenance and upgrade contracts that still recognise and uphold the licence in question.  The implications are that resale seems to have no negative consequences for the buyer. This judgment brings a new perspective when discussing acquisitions, mergers, and buyouts.

Publishers did receive some consideration in the ruling. Before a copy can be sold by a reseller, the original downloads and/or installations have to be removed. Also, licence agreements cannot be separated. The Directive cites the example of an Oracle licence package that is sold in groups of 25 users. If a buyer has 27 users, they must buy two bundles and may not resell the unused users in the agreement.  This still provides Oracle with some leverage and a way to monitor the used licence reseller market through CD key registration.

While this is a huge impact on European markets, the effect on US markets is relatively small. In the precedent-setting case Vernor vs. Autodesk, it was established that US buyers purchase the ability to use a licence, not own the software. Without that ownership transfer upon sale, redistribution is not legally possible. This restriction does not stop US purchasers from sourcing products, software, and licences from outside the US, although the legality for this action remains murky. Organisations run the risk of paying for software and not being able to use it due to no-transfer licence language or the requirement for a matching maintenance agreement.  

The European Union Court of Justice’s decision is important in that it strips away the line that divides sale of a licence from sale of a product. The implications on international trade, intellectual property enforcement and IT asset management are potentially enormous, but that impact is subject to further discussions and agreements. In the short term, the resale of software market in the European Union is  likely to grow as a cost-savings measure for European organisations.

Glenn Wilson is executive vice president & general counsel of the International Association of IT Asset Managers (IAITAM). This article was co-authored by Barb Rembiesa, president of IAITAM.

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