ECJ, 3 July 2012, C 128/11
On 3 July 2012, the ECJ rendered a judgment in a case between Oracle and UsedSoft. This case was about used (or second-hand) software licenses. The referring court - the German Bundesgerichtshof - asked questions about this to the ECJ. In brief, the ECJ ruled that Oracle no longer had the right to control the distribution of its software, which had already been downloaded previously under a license agreement.
Oracle markets software that clients can download through its website. The software can also be supplied on a CD or DVD. This dispute is about software for which Oracle offers licenses for a maximum of 25 users. The license agreement grants a non-exclusive non-transferable use right for an unlimited period. UsedSoft buys and sells used licenses. Among other things, it buys licenses for Oracle software from parties that no longer need the software, or when such parties have fewer users than the maximum number of users allowed under the license. In the latter case, a party resells the license for the remaining users to UsedSoft, which markets these license on the again. In this case, the acquirer of the used license can then download the software through the website of Oracle.
Oracle opposed these acts and brought proceedings against UsedSoft. The case eventually came up for trial before the German Bundesgerichtshof, which referred the case to the European Court of Justice to obtain more clarity on the concept of 'exhaustion'.
The Judgment of the ECJ
The ECJ has three questions to answer. The first question to be considered was whether the lawful downloading of a copy of the software constitutes exhaustion, so that Oracle could no longer oppose the distribution of a lawfully acquired copy of the software. This is about Article 4 (2) of the Software Directive 2009/24: "The first sale in the Community of a copy of a program by the rightholder or with his consent shall exhaust the distribution right within the Community of that copy, with the exception of the right to control further rental of the program or a copy thereof."
The ECJ considered that the first acquirer of the license who downloads the software does so with the consent of the rightholder (Oracle). The important thing here is that the ECJ puts the downloaded copy on a par with a physical copy, like a copy on CD or DVD, and holds that there is exhaustion indeed. An important aspect in this judgment is that the licenses at issue were perpetual licenses, for which a one-off fee had to be paid. So Oracle cannot oppose the further distribution of a lawfully downloaded copy of the software, not even when this copy is downloaded again by the acquirer of the used license. In that case, the first acquirer must remove the software from his computer(s).
Lawful Acquirer and right to use and reproduce
With the other two questions, the referring court wishes to learn whether, and if yes, under what circumstances the acquirer of a used license can be regarded as a 'lawful acquirer' within the meaning of Article 5 (1) of the Software Directive. If the answer is indeed 'yes', then this lawful acquirer will obtain a right to use and reproduce the software, which will make a license agreement with the rightholder unnecessary for the software to be lawfully used.
The ECJ held that the acquirer of a used license must also be regarded as a lawful acquirer. After all, Oracle was paid by its customer for the right to use the software perpetually. After this has happened, Oracle cannot oppose the further distribution of the software any more, since there is exhaustion. The acquirer of the used license must be considered to be a lawful acquirer who has a lawful user right.
However, the dividing of the original licenses is prohibited. UsedSoft was guilty of this practice. The license for 25 users must be resold in undivided form; not for only 5 of the 25 users, for example.
What is the meaning of this judgment?
This judgment may have far-reaching consequences for software suppliers. Since there is exhaustion, a rightholder may no longer be able to oppose, on grounds of copyright law, the transfer of the license it has provided. This is the case for software for which a perpetual license is granted. In license models in which the software is leased, in return for periodical payments, this may be different.
The use of software under a used license does not constitute copyright infringement, not even if the license agreement with the first acquirer prohibits the transfer of that license. Unfortunately, the ECJ has not expressed an opinion about the meaning of such a prohibition of license transfer from the perspective of the law of obligations.
First published in the Kennedy Van der Laan newsletter - July 2012
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