ECJ upholds first sale doctrine for software

Little noticed on a busy newsweek the Court of Justice of the European Union (CJEU) (also known as the European Court of Justice, ECJ), on Tuesday, emphatically upheld the first sale doctrine for software in the EU. So when you purchase software in the EU, regardless of what the small print in the licence says, you are purchasing something which you can sell on second hand, without the copyright owner's permission or interference. The original copyright owner's exclusive right of reproduction, however, is not exhausted by the first sale. In other words, software companies still control the copyright just not the right to resell copies of the software they have already sold.

Oracle had sued a German company, UsedSoft which has been selling second hand copies of its software. And cheekily, some might believe, some UsedSoft's customers have been getting their copy of the Oracle software from Oracle's own website and are entitled to have any updates and bug fixes the original user had.

The case will now go back to the German Federal Court of Justice for a final decision.

The 2009 directive on the legal protection of computer programs theoretically implements a first sale doctrine for software in the EU - first sale in the EU of a copy of a computer program exhausts the right of distribution of that copy in the EU. The bottom line theoretically is that when you purchase software in the EU you are not just licensing the use of the software as every commercial software licence says, you have bought a copy which you're entitled to sell on.

Oracle thought they could bypass the directive through get out clauses in their licences, as is standard practice in the software industry. So it's nice to see the ECJ stand by the letter and spirit of the directive.

Contract pretty much trumps everything in the US courts so this will have been a surprise to Oracle but not necessarily totally unexpected, since the ECJ Advocate General, Yves Bot, issued his advisory opinion along the same lines in April.

The Court issued a very accessible 2 page statement on the decision on Tuesday.

"An author of software cannot oppose the resale of his ‘used’ licences allowing the use of his programs downloaded from the internet

The exclusive right of distribution of a copy of a computer program covered by such a licence is exhausted on its first sale

UsedSoft is a German undertaking which markets licences acquired from customers of Oracle. Customers of UsedSoft who are not yet in possession of the software download it directly from Oracle’s website after acquiring a ‘used’ licence. Customers who already have that software can purchase a further licence or part of a licence for additional users...

Oracle brought proceedings against UsedSoft in the German courts, seeking an order for it to cease those practices. The Bundesgerichtshof (Federal Court of Justice, Germany) ... made a reference to the Court of Justice for it to interpret, in this context, the directive on the legal protection of computer programs.1.

Under that directive, the first sale in the EU of a copy of a computer program by the copyright holder or with his consent exhausts the right of distribution of that copy in the EU.

By its judgment delivered today, the Court explains that the principle of exhaustion of the distribution right applies not only where the copyright holder markets copies of his software on a material medium (CD-ROM or DVD) but also where he distributes them by means of downloads from his website.

Where the copyright holder makes available to his customer a copy – tangible or intangible – and at the same time concludes, in return form payment of a fee, a licence agreement granting the customer the right to use that copy for an unlimited period, that rightholder sells the copy to the customer and thus exhausts his exclusive distribution right. Such a transaction involves a transfer of the right of ownership of the copy. Therefore, even if the licence agreement prohibits a further transfer, the rightholder can no longer oppose the resale of that copy.

The Court observes in particular that limiting the application of the principle of the exhaustion of the distribution right solely to copies of computer programs that are sold on a material medium would allow the copyright holder to control the resale of copies downloaded from the internet and to demand further remuneration on the occasion of each new sale, even though the first sale of the copy had already enabled the rightholder to obtain appropriate remuneration...

Moreover, the exhaustion of the distribution right extends to the copy of the computer program sold as corrected and updated by the copyright holder...

The Court points out, however, that if the licence acquired by the first acquirer relates to a greater number of users than he needs, that acquirer is not authorised by the effect of the exhaustion of the distribution right to divide the licence and resell only part of it.

Furthermore, the Court states that an original acquirer of a tangible or intangible copy of a computer program for which the copyright holder’s right of distribution is exhausted must make the copy downloaded onto his own computer unusable at the time of resale. If he continued to use it, he would infringe the copyright holder’s exclusive right of reproduction of his computer program. In contrast to the exclusive right of distribution, the exclusive right of reproduction is not exhausted by the first sale. However, the directive authorises any reproduction that is necessary for the use of the computer program by the lawful acquirer in accordance with its intended purpose. Such reproduction may not be prohibited by contract.

 In this context, the Court’s answer is that any subsequent acquirer of a copy for which the copyright holder’s distribution right is exhausted constitutes such a lawful acquirer. He can therefore download onto his computer the copy sold to him by the first acquirer. Such a download must be regarded as a reproduction of a computer program that is necessary to enable the new acquirer to use the program in accordance with its intended purpose.

Therefore the new acquirer of the user licence, such as a customer of UsedSoft, may, as a lawful acquirer of the corrected and updated copy of the computer program concerned, download that copy from the copyright holder’s website."

I find it interesting that the UsedSoft v Oracle decision protects the ability of UsedSoft's customers to get their 'used' copy of the software from Oracle's website.  I can't see that that protection would have been upheld by any US court.

Another key element was the Court's decision to specifically neutralise the relative distribution channels as a material factor. Software is software whether you get it on a physical medium or through the Net.

I wish I could share the prevailing optimism on the wider impact of the decision but I suspect the software and games cos. et al will continue to use restrictive licences and make it difficult through drm etc to pass on second hand games through sales, borrowings or donations. Though the legal departments of those same companies will even now be working on a form of words to insert in the licences to address the 'problems' thrown up by the ECJ.

The real breakthrough on end user licence agreements (or EULAs) will come when there's a successful challenge in a supreme court on the basis of unfair contract terms.

Notes
1. Directive 2009/24/EC of the European Parliament and of the Council of 23 April 2009 on the legal protection of computer programs (OJ 2009 L 111, p. 16).