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You can flog 'used' software, but read Ts&Cs first – ECJ

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Companies that sell 'used' licences for other firms' copyrighted computer programs that are downloadable from the internet can legitimately do so – but only provided the terms of the rights-holders' licence do not put a bar on reproduction without their consent, a legal advisor to the EU's top court has said.

Advocate General Yves Bot said that rights-holders "exhaust" their right to control the distribution of their copyrighted computer programs when others first pay them for the right to use a copy of the software.

However, he said EU copyright law does not set out that rights-holders to computer programs lose their right to control the reproduction of that software by others after they receive such a payment. Because of this the ability of a "second acquirer" of the software to sell the licence to other customers would "in practice" be very limited, he said.

Advocate General Bot issued his opinion on a case referred to the European Court of Justice (ECJ) by a court in German over points of EU law laid out in the Computer Programs Directive.

Oracle took action against usedSoft, arguing that that its sale of used licences for software is illegal. Customers who buy second-hand licences from usedSoft download software from Oracle for their use.

A German Federal Court asked the ECJ to clarify whether or not a company can sell second-hand versions of downloaded business software. Oracle's licences say that they are not transferable. Oracle claims that use of the licences leads to copyright infringement and had asked the German court to stop usedSoft from selling them.

Under the Computer Programs Directive, copyright protection is given to "the expression in any form of a computer program" and generally provides rights holders with the exclusive right to authorise reproductions and "the translation, adaptation, arrangement and any other alteration of a computer program and the reproduction of the results thereof". However, consent is not required for reproduction or the other actions in relation to the computer program if those acts "are necessary for the use of the computer program by the lawful acquirer in accordance with its intended purpose, including for error correction".

The rights-holders also generally have exclusive rights to over the authorisation of "any form of distribution to the public, including the rental, of the original computer program or of copies thereof". However, the rights holders' ability to control the distribution is 'exhausted' following the "first sale" of a copy of their computer programs under the terms of the Directive "with the exception of the right to control further rental of the program or a copy thereof".

Bot has suggested that usedSoft's activity is not legitimate, although his opinion is not binding on the court when it comes to make a final judgment on the German court's referred questions.

Bot said that although Oracle could not rely on a right to control secondary distribution of its software following a "first sale" of the works, it does have the right to prohibit copies of its software being made by buyers under the terms of its licence for the use of its program.

"I consider that, in circumstances such as those in the main proceedings, the rightholder has received appropriate remuneration where he has been paid in return for the grant of a right to use a copy of a computer program," the Advocate General said.

"Allowing [the rightholder] to control the resale of that copy and, in that event, to demand further remuneration, on the pretext that the copy was fixed on a data carrier by the customer after having been downloaded from the internet, instead of being incorporated by the rightholder in a medium which was put on sale, would have the effect not of protecting the specific subject-matter of the copyright but of extending the monopoly on the exploitation of that right," he said.

"[The Computer Programs Directive] must be interpreted as meaning that the right to distribute the copy of a computer program is exhausted if the rightholder, who allowed that copy to be downloaded from the internet to a data carrier, also granted, for consideration, a right to use that copy for an unlimited period of time," Bot said.

However, as Oracle's terms of licence allow for the reproduction of its computer program rather than a redistribution, usedSoft cannot legitimately sell 'used' licenses to customers, he said.

"While the simultaneous resale of the downloaded copy by the first acquirer, together with its use, falls within the ambit of the right of distribution, the assignment of a user licence such as that issued by Oracle to its customers involves the exercise of the exclusive right of reproduction, since it allows a new copy of the program to be made by download from the internet or by reproduction from a copy already held by the user," the Advocate General said.

"It follows from the clear wording of [the Computer Programs Directive] that the principle of exhaustion relates exclusively to the distribution of a copy of the computer program and cannot adversely affect the right of reproduction, which cannot be impaired without adversely affecting the very substance of the copyright," he said.

Bot said that only a person "who already possesses a copy of the computer program" can make a reproduction of that work "so that the program can be used for its intended purpose," as is allowed for by the exception to Oracle's exclusive rights of control over reproduction under the terms of the Directive.

New customers, such as those buying 'used' licences from usedSoft, are not authorised to make such a reproduction of the software under the terms of the exception, Bot said.

"As I see it, the purpose of [the exception] is confined to enabling a person who already possesses a copy of the computer program to make a reproduction of that copy so that the program can be used for its intended purpose," he said. "It does not, however, authorise a person who does not already possess a copy of the program to reproduce it not in order to use it in accordance with its intended purpose but simply in order to use it."

"Furthermore, that provision, which is conditional on the absence of specific contractual provisions, can, in my opinion, apply only to an acquirer who has a contractual relationship with the rightholder," he said.

Bot conceded that his reading of the Directive meant that the distribution of already-purchased downloadable copyrighted computer programs would be heavily restricted. "I do not consider that, as the legislation currently stands, the exhaustion rule, which is inherently linked to the right of distribution, can be extended to the right of reproduction.".

"I am aware that confining the rule in this way only to copies materially incorporated in a data carrier after being downloaded from the internet will severely limit its scope in practice but, although justifiable on grounds of the need to preserve the effectiveness of the exhaustion rule and to give precedence to the free movement of goods and services, the converse solution, which would have the effect of widening the scope of the exhaustion rule beyond that envisaged by the EU legislature, cannot, in my view, be adopted without jeopardising the principle of legal certainty, which requires the rules of EU law to be foreseeable," he said.

"[The Computer Programs Directive] must be interpreted as meaning that, in the event of resale of the right to use the copy of a computer program, the second acquirer cannot rely on exhaustion of the right to distribute that copy in order to reproduce the program by creating a new copy, even if the first acquirer has erased his copy or no longer uses it," the advisor said.

Bot's opinion is not binding on the ECJ but judges use the opinions in making their decisions and opinions are followed in a majority of cases.

UsedSoft is not the only company selling used software licences. Discount Licensing founder Noel Unwin previously told Out-Law Radio that his company had a flourishing business selling second hand licences for Microsoft products. He said, though, that this trade was made legal by a clause in those licences allowing for a transfer of them.

Copyright © 2012, Out-Law.com

Out-Law.com is part of international law firm Pinsent Masons.

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