The question of whether or not the trade in used software licenses which are passed on to the buyer by way of online download is compatible with copyright law has long been controversially discussed by German courts and legal commentators. Now, the Federal Court of Justice has asked the Court of Justice of the European Communities (CJEU) to give its opinion on two aspects of this legal controversy.

The Federal Court of Justice made its referral to the CJEU in infringement proceedings brought by the software manufacturer Oracle against the company UsedSoft. UsedSoft trades in software licenses that it had originally acquired for its own use. Upon purchase of the used license from UsedSoft, its customers download the software from Oracle’s websites. In addition, they receive a notary’s certificate confirming that UsedSoft is the rightful owner of the software license and no longer uses the software itself.

The District Court of Munich had granted Oracle the requested injunctive relief on the basis of infringements of copyright, trademark rights, and unfair competition.1 The court held that UsedSoft induced its customers to unlawful reproductions of Oracle’s software, for which it could neither rely on the defense of exhaustion nor on Oracle’s consent. On appeal from UsedSoft, the Court of Appeal of Munich fully confirmed and upheld the judgment.2

  1. No consent for re-sale

Both courts found that UsedSoft had no consent from the right holder Oracle for a transfer of the licenses in Oracle’s software. The licensing agreement between Oracle and UsedSoft only granted the latter a simple license without the right to assign it or to grant sub-licenses.

  1. No exhaustion

UsedSoft could not rely on exhaustion, either. The rules on exhaustion of copyright were held not to apply directly since exhaustion can only arise with respect to the distribution of an existing physical copy (i.e., a copy of the software on a storage medium). Under the business model of UsedSoft, however, a completely new copy came into existence by way of online download. Furthermore, the legislative rationale of exhaustion did not apply, for exhaustion aims at making copies of the work marketable, once they have been distributed with the right holder's consent. But by an online download of software, an entirely new copy of the work is created, so that the principles of sustained marketability do not apply.

  1. Unlawful reproduction

Moreover, the lower instance courts pointed out that exhaustion of copyright only ever applies with regard to the author’s distribution rights. The online download of software is not distribution but a reproduction of the work and, hence, exhaustion did not apply. And such a reproduction by online download was held not to be justified by Article 5 (1) of the Computer Programs Directive 2009/24/EC either. This provision makes an exception from the author’s right to object to a reproduction of his work if such a reproduction is necessary for the licensee’s intended use of the software. Since the licensing agreement between Oracle and UsedSoft expressly excluded transfers of the licensing rights to third parties, such reproductions did not constitute intended use.

The reference of the Federal Court of Justice

Upon UsedSoft’s further appeal, the Federal Court of Justice made a reference to the CJEU, asking whether the purchaser of a used software license, where the software is transferred by online download, is a legitimate acquirer within the meaning of Art. 5 (1) of the Directive — with the consequence that the right holder's consent to a reproduction of the software would not be required. With its second question, the German court wants to obtain clarification on the question of whether the author’s distribution rights become exhausted if a computer program has been brought onto the European market with the author's consent by way of online download