With its groundbreaking judgment of 3 July 2012, the Court of Justice of the European Union (CJEU) has decided that the resale of software licences is allowed in spite of contractual prohibitions.
The German company UsedSoft GmbH sells “second-hand” licences for Oracle standard software, i.e. licences acquired by UsedSoft from Oracle licensees. After purchasing the second-hand licence, customers of UsedSoft can download the software from Oracle’s website. Oracle objected to this resale of its software licences (inter alia because Oracle’s standard licence agreements stipulated that the licence granted was non-transferable) and filed suit.
The German court asked the CJEU for clarification as to whether the rule of exhaustion of the right of distribution, as laid down in the Software Directive (2009/24), would apply. According to the CJEU, it does. Under this rule, if a copy of a software program is first sold in the EU by or with the consent of the right holder (in this case Oracle), the latter’s rights to that copy of the software are exhausted and further distribution of that copy cannot be prevented. Although most software is licensed rather than actually sold, the CJEU held that if the licence is granted for an unlimited period of time and for a one-time fee (representing the economic value of the software), such a transaction actually involves a transfer of the ownership of the software copy and therefore constitutes a “sale”. Consequently, according to the CJEU, a contractual provision that the licence is non-transferable will no longer be enforceable: a ruling that has a major impact on the scope of licences, existing and new.
The exhaustion rule applies regardless of whether the software was made available as a hard copy or through a download. Any resale of a second-hand licence would include software updates and upgrades that have been provided under a maintenance agreement, as these have become part of the software. However, the CJEU does set some limits to the exhaustion rule: the original licensee/reseller may not sell only part of the licence (for example insofar as he has an unused surplus of permitted users), and must stop using the software himself (he must disable/destroy his own copies of the software). The right holder may seek to “enforce” this requirement by using technical or other measures such as product keys, registration codes and audits.
The CJEU has made it clear that the principle of first sale should be interpreted uniformly in accordance with EU law; its interpretation should not be left to national courts applying national laws. It is unclear whether the decision also applies to customized software or whether such software should be seen as a service, to which the exhaustion rule does not apply, rather than a product.
What to do?
It is almost certain that more litigation on the subject will follow as the implications of the CJEU’s decision in day-to-day business unfold. However, for now it seems that the exhaustion rule would not apply if the licence is granted only for a limited period and requires recurring licence fees, or if software is offered as a service rather than a product, since the CJEU differentiates between the product as such and services offered in respect of that product. As a consequence, the decision would not affect SaaS business models (where the user is only given access to the software, but is not provided with a copy of the software). This may lead to an increase in “cloud computing” and the offering of an integrated package of software and maintenance services, rather than the offering of maintenance separately as an optional service.
We assume that under the contractual law of most countries, the licence agreements would not automatically be transferred along with the second-hand software, as this would require the consent of the parties to those agreements. The CJEU does seem to acknowledge that certain limitations on the licence are transferred along, hence the prohibition on selling only part of a licence. However, the extent to which obligations can be imposed on the licence purchaser is unclear. At the same time, we would think that a party can never transfer more rights than it has, and therefore that the purchaser cannot have a broader licence than that held by the first licensee.
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