Yesterday, the European Court of Justice (ECJ) rendered a landmark decision in Oracle v. Usedsoft on the sale of used software licenses. Granted, it is a substantive judgment in an IT matter and you might ask why it is covered in this blog – well, it originated in the German courts, and the referring court was the Federal Supreme Court (Bundesgerichtshof). And I view it as yet another illustration of Germany’s popularity for international IP disputes. The question before the ECJ was whether purchasers could resell, without limitation in time, licensed software even if purchased via download. Yes, said the ECJ.
The judges found that the exclusive right to distribute copies of programs is exhausted at the first sale, even if the initial purchaser obtains the program copies via download. A licensee can validly transfer title (property rights) to the software, irrespective of provisions to the contrary in the licensing contract. The exhaustion of distribution rights extends even to copies of programs that have subsequently been improved and/or updated by the copyright owners.
However, in narrowing the scope of its decision, the ECJ requires that the original purchaser stops using its original copy at the time of resale. Moreover, the reseller is not allowed to split a multi-access licence into different parts that are subsequently being resold individually. The decision does neither stop software producers from technically preventing the resale, neither. No doubt, the decision lead to an arms race, as producers will ramp up both software code and contract terms to minimize the impact of the ruling.
I want to elaborate on the point on dividing licences and how this ruling relates to other software vendors. For transparency purposes, my business created the first second-hand Microsoft Volume software (Discount-Licensing.com) back in 2004.
This ruling refers to an Oracle ‘licence’ blocks (of 25 CALs) i.e.: a company that purchased 100 blocks (2500) CALs can sell off those 100 blocks to 100 different customers but it cannot break down the individual licence blocks e.g.: a ‘licence’ block cannot be broken down into 5 x 5 user licences. Similarly, with Microsoft Volume LA’s (Select / Enterprise), such LA’s can also be broken down to licence level e.g.: an LA containing 1000 x Office 2010 PRO can be broken down and sold off in smaller quantities but you cannot break down at the individual Office 2010 PRO licence level and then sell off as individual components (Word, Excel, PowerPoint, Access etc). Another Microsoft product example would be the Windows SBS CALs, which could be purchased in licence blocks of 5 or 20 – a company may purchase a 2 licences, 1 containing 20 CALs + the other containing 5 CALs –whilst the ECJ ruling is not as clear as it should be on this point, the intent could only be that you cannot then break down the licence block of 20 and sell off to two different customers in smaller quantities such as 10 + 10 CALs but you can sell the 2 licence blocks to 2 different customers. The key caveat to take away from the ruling is that first acquirer must ensure the quantity of software licences being divested must have been de-installed and not in use any further on its machines.
In any case, this court ruling puts a long awaited dent in the FUD (Fear, Uncertainty & Doubt) tactics employed by the software vendors. However, worth noting that Usedsoft’s use of a Notary (in part, to hide where the licences came from) was deemed illegal by the German courts and Usedsoft is now also going through insolvency proceedings. There are other secondary software licence suppliers whom adopt more transparent business models that do not rely on the Exhaustion Principle.