UsedSoft GmbH v Oracle International Corp, Case C-128/11

Oracle bought proceedings against UsedSoft which markets second-hand software licences acquired from customers of Oracle. Oracle's licence terms provide that its software is to be used exclusively for internal business purposes and is non-transferable. The software is obtained by download from the Oracle site. Under UsedSoft's scheme, those customers who do not yet have the software can download the software directly after acquiring a "used" licence from UsedSoft. Customers who already have the software can purchase from UsedSoft a further licence for additional users.

On a reference from the German courts, the ECJ held, in broad terms that:

  • A first sale in the EU of a computer program by the copyright holder (or with his consent) "exhausts" his exclusive right of distribution of that copy elsewhere in the EU.
  • This exhaustion principle applies as much to distribution by download as by physical copy if a copyright holder makes available a tangible or intangible copy of software to a customer in return for a fee intended to represent the value of that copy and grants to that customer a licence to use the copy for an unlimited period. In these circumstances, the copyright holder is deemed to have "sold" the copy of the software to the customer, thereby exhausting his right of distribution in that copy.

This is the case even if the licence of the software states that it is non-transferable.

  • This exhaustion principle applies not just to the software as originally downloaded, but also to that software once it has been patched and updated as a result of ongoing maintenance of the software by the copyright holder. This is because these updates form an integral part of the copy originally downloaded and can be used by the first licensee as part of the software for an unlimited period irrespective of whether any maintenance agreement with the copyright holder continues.
  • If a purchaser of a second hand software licence downloads a copy of the software from the copyright holder's website without any additional consent from the copyright holder, this act does not contravene the copyright holder's exclusive right of reproduction because it is necessary for the use of the software by the customer in accordance with its intended purpose (which is an exception to the right of reproduction under Art 5(1) of the Computer Programs Directive (91/250/EEC)).
  • To allow the copyright holder to restrict the resale of downloaded copies licensed on these terms would go beyond what is necessary to safeguard his IP in the software and would effectively allow copyright holders to circumvent the exhaustion principle.
  • However, the first licensee is not permitted to split a multi-user licence and sell on licences for a number of users not required by him; and he must, on re-selling the software, make his own copies unusable. Copyright holders are entitled to put in place technical means to ensure that the first licensee's copy of the software becomes unusable on re-sale.

Comment

This ruling makes sure that there is no difference in resale terms between software sold in hard copy or download form where that software is made available to a customer for an unlimited period for a single up front licensee fee. Possible consequences are that licensors will make licences time limited or only available in return for regular smaller payments (so as to be able to argue that the distribution is not a "sale" for the purposes of the exhaustion doctrine) and there may be an acceleration towards making software available as a cloud service (i.e. not a licence). The principles involved may well extend to other products which can be sold digitally, such as films, music and books.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.