Legality of resale of used software
With the onset of digital distribution, the issue of ownership of software has become increasingly muddled. Physical copies of software are easy to resell, but a number of software products now require an additional end-user licence to run, which restricts second-hand sales.
EU copyright law ensures a degree of protection for authors of computer programs. In particular, copyright holders are granted the exclusive right to reproduce and distribute copies of their software.
However, this protection is subject to the principle of exhaustion of rights within the EU, whereby a copyright holder’s exclusive distribution right is exhausted as soon as the first sale of a copy of the software takes place within the EU. Once distribution rights are exhausted, a copyright holder has no right of recourse against third party resellers of the copies on the grounds of copyright infringement. On this basis, it is legal to sell on a music CD or DVD without infringing copyright.
In a landmark judgment recently delivered by its Grand Chamber, the Court of Justice of the European Union has effectively declared the trading of second-hand physical copies and downloaded copies of software to be legal, regardless of what is written in the end-user licence agreement.
The judgment follows a legal battle launched by computer giant Oracle against UsedSoft, a software licences reseller, in the German courts. Oracle sued UsedSoft for buying licence keys for programmes and then selling them on, instructing buyers to download software directly from the Oracle’s website, to be used eventually with the keys.
Despite UsedSoft obtaining the software licences legally, Oracle considered the second download of its software a copyright infringement. The German Federal Supreme Court referred the matter to the CJEU asking it to interpret, in this context, the EU directive on the legal protection of computer programs.
The court started off by affirming that under EU copyright law, a copyright holder has a number of exclusive rights regarding a copyrighted work, namely a right of distribution and a right of reproduction.
In terms of the EU Directive, the exclusive right of distribution is exhausted upon its first sale. After that point, the copyright holder has no right to restrict the on-selling of its products. Software vendors, however, often argue that software is licensed, not sold. The first question dealt with by the CJEU was whether the initial sale of the piece of software amounts to a first sale of that software, leading to the exhaustion of its distribution rights.
The court determined that making software available for download, concluding a user licence agreement for that downloaded copy and receiving payment for that copy, are all features of a complete sale.
In the context of software downloads, the CJEU further ruled that the principle of exhaustion of the distribution right applies not only where the copyright holder markets copies of its software on a material medium (CD or DVD) but also where it distributes them by means of downloads from its website. Consequently, the software developer cannot prohibit second-hand sales.
Consequently, the court held that, since the copyright holder cannot object to the resale of a copy of a computer program for which the right holder’s distribution right is exhausted, a second acquirer of that copy and any subsequent acquirer are lawful acquirers of it. Yet, if a second-hand sale goes ahead, then the first purchaser must stop using its copy of the software and render it unusable, because the developer’s right to control reproduction of software is not exhausted on a second hand sale.
To make sure that the first purchaser stops using the software it has sold on, it is permissible for the software developer to use technical protective measures such as product keys. Such technical measures assist the copyright holder to monitor whether the first purchaser has made its copy unusable. In any case, however, the right to control reproduction is lost against the second purchaser because a second purchaser is held to be a lawful acquirer of the software under the Computer Program Directive.
This decision, which markedly extends the scope of the principle of exhaustion beyond what has been the understanding to date, has a potentially significant impact on the way software is sold and consumed. Potentially it will become much harder for developers and publishers to prohibit second-hand sales of software.
Dr Grech is an associate with Guido de Marco & Associates and heads its European law division.