A landmark decision in UsedSoft GmbH v Oracle International Corp ruling that the owner of copyright in software cannot prevent a perpetual licensee who has downloaded the software from the internet from selling his "used' licence". This decision has significant implications for the software and other digital industries.
Oracle develops and markets computer software which in majority of the cases can be downloaded by its customers from their website. The customer's rights is governed by a licence agreement which includes the right to use the software for an unlimited period by payment of a one-off fee. The customers can also download updates and programmes for correcting faults from their website in accordance with a separate maintenance agreement. UsedSoft deals in second-hand software and it offered for sale "used" Oracle licences.
The ECJ ruled that the EU Software Directive 2009/24/EC, Article 4(2) applied:
The first sale of a copy of a program by the rights holder or with their consent in the EU exhausts the distribution right of that copy within the EU (the rights holder loses its right to rely on its copyrights to oppose the resale of that copy).
The ECJ held that where the customer downloads a copy of Oracle's software and enters into a licence agreement under which it receives the right to use that copy for an unlimited period in return for a one-off fee, such transaction amounts to a "sale" for the purposes of Article 4(2) and involves a transfer of the right of ownership in that copy. The copies could therefore be sold on even if Oracle's licence agreement prohibited further transfer.
In light of the ECJ decision, it is important for software providers and resellers to consider the following:
a) Limited term licences - The ECJ placed emphasis on the fact that the Oracle licences were not limited in time, and for this reason concluded that a "sale" of the copy of the program had occurred. It is therefore open for software providers to argue that they have not exhausted their distribution rights in software which is licensed for a limited time via a rental model. This is of course dependant on the length as the Courts are unlikely to be persuaded that very long licences such as 99 years is not in substance a "sale".
b) Contracts for services - The ECJ was clear that the doctrine of exhaustion does not apply to maintenance agreements and contracts for services. We may therefore see more reliance on software being provided through online services such as 'the cloud' where the arrangement is less likely to be equivalent to a 'sale of a copy' of software.
c) Technical protective measures - Any acquirer who resells its licence must make his own copy unusable prior to the resale. The ECJ said expressly that copyright holders may make use of technical protective measures (e.g. product keys) to ensure that this is the case.
d) Multi-user licences - The principle of exhaustion does not allow licensees to divide and sell parts of multi-user licences.
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