The initial acquirer of a copy of software, in some circumstances, may resell that copy and his licence to a new acquirer. We examine a recent EU court decision on whether the right to resell extends to the resale of backup copies of software programs.

The law

The principle of exhaustion of rights is long established in IP law. The exhaustion principle is reflected in Article 4(2) of the Software Directive, which provides that:

“The first sale in the Community of a copy of a program by the rightholder or with his consent shall exhaust the distribution right within the Community of that copy, with the exception of the right to control further rental of the program or a copy thereof.”

The UsedSoft case

The main authority in this area, as regards software, was the decision of the Court of Justice of European Union (“CJEU”) in the UsedSoft case. This concerned a battle between a seller of “second hand” software, UsedSoft, and Oracle. In the case, the CJEU found that the transfer of a computer program by a copyright holder to a customer of a copy, along with a user licence agreement, constituted a “first sale” within the meaning of Article 4(2). As a result, the rights were thereby exhausted.

After UsedSoft, selling “used” software was not viewed as infringing the owner’s right, provided that the originally downloaded copy (the “first sale copy”) was deleted or rendered unusable.

Ranks and Vasijevics

In the Ranks and Vasijevics case, the CJEU had a further opportunity to consider the doctrine of exhaustion in the context of software. Mr. Ranks and Mr. Vasilevics were Latvians charged with crimes for the resale of software copies. The software involved were Microsoft products, the Office suite, and Windows. The CJEU was asked to determine whether the resale of used copies of computer programmes carried out by Mr. Ranks and Mr. Vasilevics was lawful.

The defendants argued that the principle of exhaustion of the distribution right permitted them to re-sell a copy of a program on a non-original material such as a floppy disk. They argued that this was possible provided the original material medium had been damaged, and so long as they complied with the conditions set out in the UsedSoft case.

The CJEU noted that, according to the Software Directive, lawfully making a backup copy of a computer program was subject to two conditions:

1. the copy had to be made by a person having a right to use that program; and

2. the copy had to be necessary for that use.

Therefore, a backup copy could lawfully be made and used only to meet the sole needs of the person having the right to use that program.

What did the CJEU decide?

The CJEU confirmed that the lawful initial acquirer of a copy of software, accompanied by an unlimited user licence, can resell that copy and his licence to a new licensee. However, this does not apply if the original material medium of the copy which was initially delivered to him has been damaged, destroyed or lost. In other words, the initial acquirer cannot provide his backup copy of that program to a new licensee without the permission of the original rightholder.

This ruling makes clear that the CJEU was trying to go no further than to close an undesirable loophole, and the case is highly fact-specific. Otherwise, is might have been possible to re-sell “used” software on pretence that they were “back-up” copies, which could be difficult for rightholders to prevent.