16 Jun 2014 Usedsoft v oracle: “Sale” of second hand software licences
The principle of Exhaustion of Copyright under EU law enshrines in law the legal concept that :-
(1) a copyright owner’s right to control copies of their work “exhausts” (is used up) on its first sale by the copyright owner (or authorised representative); and
(2) subsequent distribution of copies of a work will not infringe the copyright owner’s distribution right.
UsedSoft, which was essentially acting as a supplier of second hand Oracle software programs, had been challenged by Oracle in the German Regional Court (Munich) on the basis of unauthorised copying and distribution of those programs.
Oracle argued that, as the software had been supplied originally under a long-term licence, there had been no sale (because the licence was not capable of being sold and could only be re-licensed). This would mean, Oracle argued, that there could have been no exhaustion of copyright and consequently UsedSoft had no distribution right.
While this argument had succeeded at first hearing, it failed at appeal, the German court finding that the following factors pointed to a “sale” rather than a “licence”:
– the long-term nature of the licence
– the maintenance agreement that came with the licence
– the downloadable copy of the software
These together amounted to an “indivisible whole transaction” akin to a sale.
This meant that the original purchaser of the software licence was a “lawful acquirer” who could sell it on secondhand (but only as the complete bundle, and not in separate individual user licences).
The CJEU endorsed this view, with its decision in answer to various referred questions. The CJEU looked at the issue of “online-offline equivalence” and concluded that the online transmission method of making a computer program available to a customer by means of a download was the “functional equivalent” of the supply of a physical medium provided that the original acquirer makes their own copy unusable upon resale
The suggestion has been made, in response to this decision, that – as the perpetual nature of Oracle’s licence seems to have been the main factor that led to the finding of equivalence to a physical sale – granting renewable, fixed term licences could overcome this problem.
This decision is also seen as being of potential significance for the music digital download market. While we have to be careful when comparing this to the re-sale of digital music files – because that distribution right is framed differently in the Information Society Directive (which applies to digital downloads) to the way it is framed in the Software Directive (which applies to software programs) – it is however the case that the CJEU seemed to give great significance to the definition of “sale” to be applied to both physical and digital property. This may suggest that in future we could see the argument put successfully, with the support of the CJEU, that :-
1) a digital download is a sale rather than a licence; and
2) “second hand” resale of a download or software licence is legitimate provided that the original purchaser deletes their copy from their system when they make the transfer.