Federal Court of Justice, Decision of 11 February 2010, I ZR 178/08 (Half Life 2)

The resale of "used" software is a market with a potential value of billions of Euros worldwide. Software manufacturers often exclude resale in their end user license agreements ("EULAs"). Recently, such restrictions were subject of a number of groundbreaking court decisions in the U.S. and across the Atlantic. The decisions deal with the impact of the "first resale" protection in the U.S. and the "exhaustion principle" in Europe, respectively, according to which the legitimate owner of a copy is entitled to resale.

On 10 September 2010, the U.S. Court of Appeals for the Ninth Circuit ruled in the case Vernor v. Autodesk that exclusion of resale in EULAs was valid in case the software was licensed rather than sold. As for Germany, the German Federal Court of Justice had indicated in a decision made in the year 2000 that such clauses may be illegal.

Now, in a judgment regarding the computer game "Half Life 2", the Federal Court of Justice approved a contractual ban on resale.

Subject of the decision was the sale of "Half Life 2" on DVD-ROM in Germany. Use of the game requires opening a user account. The account can be opened only once and, pursuant to the EULA provisions, may not be assigned to a third party. The Federal Court of Justice had to decide whether such restriction was invalid for breach of the exhaustion principle.

In its decision, the court made a strict distinction between the DVD and the user account. It held that the restriction was legal since it only affected the user account rather than the physical copy, and therefore the exhaustion principle was not affected.

With its decision, the court paved the way for manufacturers to prevent resale of any software delivered on CD-ROM/DVD through a registration requirement in connection with a contractual exclusion of an assignment of the account. While the effect of the exhaustion principle on software download was expressly not addressed in the judgment, the decision indicates that the Federal Court of Justice will consider restrictions on resale in such EULAs legal. According to this reading, the judgment would constitute a precedent for all digital media including software, computer games, music, text and films - their resale may be controlled through user accounts in case of offline sales and through mere licensing conditions in case of online distribution.