Précis - The European Court of Justice (ECJ) has held that a copyright holder’s right to oppose the resale of computer software is lost where it makes a copy of computer software available to a customer for an unlimited period in exchange for a licence fee. This will further strengthen the distribution channel for used software.
In this case, referred to the ECJ by the German Federal Court of Justice, Oracle opposed the resale of its software by German company UsedSoft. Oracle’s challenge was based on the submission that, when licensing downloaded software, Oracle grants its customers non-transferable rights to use the software for an unlimited period. Oracle argued that such rights do not include a right to resell the software.
The Court held that by granting a right for a customer to use computer software for an unlimited period, coupled with the payment of a licence fee, the copyright holder (in this case Oracle) is selling that copy of the software to the customer and exhausting its exclusive distribution right (even if the licence agreement between the parties prohibits any further distribution of the software). Provided that the customer makes its own copies of the software unusable, it is permitted to resell the downloaded software (including any corrections and updates) to a third party.
In such circumstances, a customer can only resell its entire licence to the software and cannot divide the licence or resell only part of it (e.g. by selling licences on a “per user” basis where the number of users permitted by the licence exceeds the customer’s requirements). A third party who purchases a resold licence has the right to download a copy of the corrected and updated software directly from the copyright holder’s website.
The main consequence of the judgment is that is that it clarifies that the “exhaustion of distribution right” principle, contained in the European Directive on the Legal Protection of Computer Programs, will apply both to downloaded software and software attached to tangible media. The ruling also extended to CDs and DVD ROMs as well as downloads, so it is of relevance to video games makers too.
One outcome following the ECJ’s judgement is likely to be a steady increase in the number of software licence resellers within Europe (its coverage is in relation to the EU), so expect more channel growth. Over time, first generation software licences may also become more expensive as software houses seek to realise their share of their software’s resale value – although, we would not expect to see a knee-jerk reaction in the short term. Following this judgement, some businesses may be more confident in generating additional income by reselling software that no longer fulfils a business use whilst others look to acquire software licences at a discounted price.