Europe’s highest court was ruling in a dispute between Oracle and UsedSoft, a German business that offers its clients licences acquired from customers of Oracle.
UsedSoft clients that do not already possess the software download it from Oracle’s website after acquiring a so-called used licence. Clients who already have the software can buy another licence for additional users or to receive software updates. They then download the software to the main memory of the computers of those new users.
Oracle objected to the resale practice and asked the German courts to order UsedSoft to stop. Germany’s Federal Court of Justice asked the Court of Justice of the EU to interpret the directive on the legal protection of computer programs.
Now the Court has ruled that an author of software cannot prevent the resale of a pre-used licence allowing the use of his programs to be downloaded from the internet. In particular, it said that the exclusive right of distribution of a copy of a computer program covered by the licence is exhausted on its first sale.
Oracle had argued that the principle of exhaustion set out in the directive does not apply to user licences for computer programs downloaded online. But the Court held that the exhaustion principle does not only apply to copies of the software on CD-ROMs or DVDs, but also to downloads.
By selling the software – in whatever form – the copyright owner exhausts his exclusive distribution right. Even if the licence agreement bans a further transfer, the IP owner cannot oppose the resale of the copy or to copies of the program that are later updated by the software author.
Conor Ward, partner at Hogan Lovells, said that the finding by the Court that the supplier’s ability to control the distribution of software downloads is exhausted will surprise some commentators who thought that the Court would follow the earlier opinion of the Advocate General.
“The decision has the potential of having pretty profound effects on the software industry,” Ward said. “At present many corporates have a surplus of software licences, reflecting the fact that they have reduced staffing levels and the possibility of getting some cash by selling their surplus will clearly be attractive. It is likely that a market for pre-used software licences could develop fairly rapidly.”
But software companies such as Oracle can take some comfort from the Court’s ruling. The judges decided that if Oracle’s customers buy a licence that allows them to provide the software to more users than need it, the customer cannot then divide the licence and resell only part of it.
In addition, any Oracle customer that sells his licence must then make the software downloaded onto his own computer unusable. The Court said that unlike the exclusive right of distribution, the exclusive right of reproduction is not exhausted by the first sale.
UsedSoft is represented by Andreas Meisterernst from Munich-based Meisterernst Rechtsanwälte. Oracle is represented by Truiken Heydn from TCI Rechtsanwalte.
Managing IP will be publishing more analysis of the decision and its implications for software companies and their clients later this week.