European Court of Justice, Decision of 3 July 2012, No. C-128/11, UsedSoft v. Oracle

The European Court of Justice (CJEU) allows the sale of used software also in cases where the initial purchase was made by way of Internet download, and thereby extends the application of the exhaustion doctrine to the act of copying the actual software.

The decision of the CJEU gained much attention not only amongst major developers of software applications, particularly computer games, but also at a much broader scale.

So far, the sale of used copyright-protected software, also referred to as second-hand licensing, was restricted to software originally bought on CD-ROMs, DVDs or other material data carriers. At least, that was the view commonly taken in court rooms as well as by commentators in legal journals, based on the restriction of the so-called exhaustion doctrine to copyright-protected works which are manifested in any kind of tangible asset. Upon the marketing of such works by the right holder (e.g. by the sale of CD-ROMs or DVDs), the right holder ceases the right to intervene with the resale of the respective data carrier. In other words, the exhaustion doctrine safeguards the free circulation of copyright-protected goods once they have been introduced legally into the market. Not covered by the exhaustion doctrine so far though was the act of copying copyright-protected work.

Following the CJEU's decision, a remarkable exemption has now been added to the principle of exhaustion.

In the case at issue, Oracle, one of the leading developers and suppliers of software applications, sued UsedSoft, a company specialized in the resale of software products, in Germany, claiming UsedSoft did not have adequate licenses to resale Oracle's software.

The German Federal Court of Justice stayed the proceeding and referred a number of questions relating to the interpretation of the EC Directive 2009/24 on the protection of computer programs to the CJEU.

The CJEU decided that the purchaser of used software initially obtained by way of an Internet download, i.e. without using a material data carrier that could be resold, may facilitate his own copy of the software in order to be able to use it for his own purposes. The court referred to the general doctrine that a rightful download of copyright protected software leads to the exhaustion of the rights of the copyright owner on the particular copy of the software. This could be based on the interpretation of Section 4(2) of the Directive 2009/24, which is seen as a lex specialis to the more general copyright Regulations which differentiate between immaterial and material works.

The court concluded that the purchaser of used software is a "lawful acquirer" under Section 5(1) of the Directive 2009/24, regardless of whether the software was initially obtained on a data carrier or via download. Thus, the purchaser may lawfully copy the acquired software for his own purposes. The CJEU, thereby, legalized the copying of software on the basis of the exhaustion doctrine.

Consequences

The CJEU's decision is of immense impact for the future software market. Major and small software developers will be faced with rising competition from resellers of software and software licenses. Given that Internet downloads have become the major way of distributing software, the now available option to resale software will be commercialized by resellers at a large scale.

It should be noted that, as the CJEU explicitly referred to Section 4(2) of the Directive 2009/24, which deals with computer programs only, the decision is not expected to become a precedent for other copyright-protected works, such as music albums or movies. For those works, the general rules continue to apply; in particular the limited notion of the exhaustion doctrine will still provide the guiding principle. Consequently, so far there is no right to facilitate copies of music or video files initially obtained via Internet downloads on which the acquirer of a "used" file could legally rely.