When is a software license transferable even though it says it is not transferable?

Second-hand software licenses and judgment of the European Court in UsedSoft vs. Oracle

Software publishers cannot prevent the sale of “used” software licenses when these licenses are paid for and of unlimited duration. Terms in these licenses stating that they are not transferable will not be enforceable. This is the effect of a recent judgment of the Court of Justice of the European Union in the case UsedSoft GmbH v Oracle International Corp. (July 3, 2012).

The case is based on the “exhaustion of rights” principles of EU competition law, according to which, once a product incorporating intellectual property rights has been sold within the EU by the rights holder (or with his consent), the rights holder cannot object to the product being subsequently sold to someone else. The European Court has now considered how this principle applies to software licenses.

UsedSoft is a Munich-based company (www.usedsoft.com) that sells used software licenses for Oracle and other products. Oracle’s licenses were expressly declared non-transferable and Oracle sued UsedSoft in Germany. The German court referred a number of issues to the European Court in April 2009 to determine whether or not UsedSoft’s business model was legitimate.

decision

When the original Oracle customer downloaded software from Oracle’s website, was it a “first sale”, which would mean that Oracle could not object to the upgrade on sale ? “First sale,” in this context, the court said, means a transfer of title to the particular copy of the software.

The Court went on to say that if the copyright holder (i.e. Oracle), who authorized the download of the software (even if it is free), also conferred a right to use of this copy for an unlimited period in exchange for “payment of a royalty intended to enable him to obtain remuneration corresponding to the economic value” of this copy of the software, the right to distribute a copy of a program It doesn’t matter whether the first customer acquired the software on tangible media, such as a CD, or downloaded an electronic copy.

In other words, the software publisher cannot sue the buyer of a used license when the license was:

  • For a royalty that represents the value of the software, which seems to mean a one-time royalty (i.e. not a recurring license fee that remains to be paid after the used license is sold) and

  • For an unlimited period.

The person who buys the used license in this situation is a “legal acquirer” (like anyone to whom they resell the license), which means that the software publisher cannot use their copyright to s object to the buyer using the software. or resell the license.

Not all bad news for software vendors

However, there are limits to this release of the used software license market.

  • As stated above, this does not apply where the software is licensed for a recurring fee or for a limited time (or where the software is rented). These business models are therefore not affected.

  • When the license is for a single block of users, you cannot divide it into several parts and sell only part of the license for the excess number of users. So “corporate” licenses, as opposed to individual licenses, are unaffected unless the original licensee wants to sell the right to use the entire block.

  • You cannot sell a contract for services (such as a software maintenance contract) in this way, because the principle of exhaustion does not apply to services. The acquirer of the license cannot therefore oblige the software publisher to provide services.

  • The original licensee shall not continue to use the software after the sale; otherwise, it will infringe copyright. He must make his own copy of the software “unusable”. Technical protection measures can help, but in practice it will be difficult for Oracle and other software vendors to be absolutely sure that the original customer is still using the software alongside the acquirer. second-hand copy.

These limits on judgment can influence the business models adopted in the software industry wherever the existence of a second-hand market is perceived as a significant threat.

Relevant Oracle License Clause

“With payment for the Services, you receive, exclusively for your internal business purposes, for an unlimited period of time, a non-exclusive and non-transferable right to use free of charge for everything that Oracle develops and makes available to you on the basis of this OK.”

Main legal provisions

Recital (28) of the InfoSoc Directive1 “The first sale in the Community of the original of a work or of copies thereof by the rightholder or with his consent shall exhaust the right to control the resale of that object in the Community.”

Article 4(2) Software Directive2 “The first sale in the Community of a copy of a program by the rightholder or with his consent exhausts the right of distribution in the Community of that copy…”.

Article 5(1) Software Directive “In the absence of specific contractual provisions… [acts such as running, copying, translating etc., the program] do not require authorization from the holder of the rights when they are necessary for the use of the computer program by the legitimate acquirer in accordance with its intended purpose, including for the correction of errors.