Germany: Licensing, Up To Exhaustion

Last Updated: 15 December 2011
Article by Christian Breuer

Software can be sold in the widest variety of formats, for example based on a data carrier, by transfer of a master copy on a data carrier, by online download, in OEM models or for online use (cloud computing, ASP, etc.). The interests of the software companies in retaining the maximum possible control over the subsequent distribution of the software products they have sold conflict with the interests of the buyers, who want to use the software they have bought in certain scenarios, e.g. to sell the company's parts or, more generally, to be able to sell it on as a "used" product once they no longer need it.

Licensing, up to exhaustion

According to Section 69c (3), first sentence of the Copyright Act, the holder of the rights has among other things the exclusive right to undertake or allow any form of distribution of copies of the computer program. That regulation is limited by the subsequent Section 69c (3), second sentence of the Copyright Act, which establishes that this right of distribution of the copy, with the exception of the right to hiring, is exhausted if the copy of the software was sold with the consent of the rights holder in the EU area or a signatory to the EEA. The provisions of Sections 69a et seq. of the Copyright Act are based in particular on EU Directive 91/250/EEC (now superseded by Directive 2009/24/ EC – Computer Directive), which is intended to provide an interpretation that is as consistent as possible of the regulations for the legal protection of computer programs within the EU. The legal principle of exhaustion is of crucial significance to the rights of a (first) acquirer of an item of software, notwithstanding any contractual provisions to the contrary, to sell it to third parties and to the rights of the third parties in question to use that software. Against a background of increasing professionalisation of the trade in used software, there is a range of court decisions in connection with the passing on and use of used software. The Federal Court of Justice (file ref. I ZR 129/08 – UsedSoft, reproduced among others in CR 2011, p. 233 et seq.) has now set out certain disputed legal questions in this context with an Order for Reference to the ECJ for a decision.

This process does not include sales models where copies of the software are sold on individual data carriers in the specified territories (exhaustion comes into effect) or where software is made available solely online, via cloud computing applications, ASP, etc., where no exhaustion applies. The sales formats where either the software company creates a master copy of the software for the customer on a data carrier linked to a specific number of licences (e.g. the right to make copies of the software for 100 users), or a sales model where a master copy of the software is transferred to the buyer in the form of an online download and the buyer is entitled to make a specific number of copies of this software on data carriers, remain unresolved and in need of clarification. The latter sales model was the object of the aforementioned FCJ Order for Reference. The question (question 2 of the Order for Reference) was whether, with a download sales model of this kind, the analogous or even direct application of Article 4 (2) of the Computer Directive ("On first sale of a copy of a program within the Community by the holder of rights, or with the holder's consent, the rights to the distribution of this copy are exhausted within the Community; ...") would come into consideration. This matter is (still) disputed and has been opposed in a range of previous court decisions (cf. Nachweise (Evidence) in Schneider, Handbuch des EDV-Rechts (Handbook of IT law), 4th edition, Part C, margin note 141). However it cannot be ruled out that in future, having regard to the formulations of Article 4 (1) and (2) of the Computer Directive, the principle of exhaustion may also be applied in such scenarios. But even if this is approved, in such cases the option remains of splitting up high-volume licences of this kind so that only a certain number of the licences can be sold on without the associated master copy.

The first of the matters referred to the FCJ (loc. cit.) relates to whether those who are entitled to rely on the exhaustion of the right to distribute a computer program are also its "legal acquirer" as provided by Art. 5 (1) of the Computer Directive. The equivalent can be found in German law under Section 69d (1) Copyright Act, where the "persons entitled to use a copy of the program" are referred to. The FCJ is inclined towards that view expressed in margin note 24 of the aforementioned Order for Reference. This view is supported by the idea that the marketability of the copy program created by the exhaustion is resumed if the (second) acquirer is not himself entitled to reproduce and use the "exhausted" copy program in accordance with the regulations.

The third question submitted by the FCJ relates to the case where the second acquirer of a software copy justifies his position simply with the acquisition of a licence, without transfer of the associated physical data carrier, and the first acquirer has deleted the associated copy of the software from his systems. In this case, the FCJ opposed the view that the second acquirer of the "used" licence was a "legal" acquirer and could rely on the exhaustion of the distribution rights of the holder of the rights (cf. FCJ, loc. cit., margin note 32), as such a view would erroneously extend the principle of exhaustion to an incorporeal data set transferred online. This would enable the isolated transfer of user rights to an item of software without the accompanying transfer of the associated physical data carrier.

Even if the ECJ were to partially extend the application of the principle of exhaustion, practically speaking, the subject is qualified on two counts. Firstly, changes to sales on the model of ASP and cloud computing should bring about a lower proportion of sales in the form of master copies. Secondly, software products require a substantial amount of maintenance, troubleshooting and the transfer of updates, and other supplementary services. The acquirer of used software has no enforceable claim against the software company for the provision of such services.

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.

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