[Jas Purewal is a games lawyer and writer of Gamer/Law. The following was reproduced from the original with his permission.]
The second hand sale of physical and digital software has effectively been declared legal, according to a judgment published by the Court of Justice of the European Union today. This has the potential to have a real impact on the way that software is sold and consumed – but at the same time the case raises more questions than it answers, so we're really not in a clear cut situation at all. Read on for more details…
The facts:
The case related to a dispute between software companies Oracle and UsedSoft over whether UsedSoft could sell businesses and consumers used licenses for Oracle software without Oracle’s permission (previously discussed here). Oracle therefore took UsedSoft to court in Germany, which was referred to the Court of Justice of the European Union ("CJEU").The judgment – short view:
Essentially, the court held that, under EU law, the right of software developers to control distribution of a piece of software – whether stored physically or digitally – is "exhausted" (i.e. lost) once the developer has been paid for it (known as a "first sale"). This means that developers lose the ability to prohibit any second hand sale. However, if a second hand sale goes ahead then the first purchaser must stop using her copy of the software and render it unusable, because the developer's right to control reproduction of software is not exhausted on a second hand sale. In order to make sure that the first purchaser stops using the software she has sold on, it is permissible for the software developer to use "technical protective measures such as product keys". IF YOU DON'T WANT TO READ THE LEGAL GOODNESS THAT NOW FOLLOWS (SHAME ON YOU IF SO), SKIP TO "WHAT THIS MEANS" BELOW!The judgment in more detail:
The case involved resolving complicated questions about how international and EU law determine the legal position of second hand software sales. My summary (omitting some of the more arcane aspects of the case) follows:- Under EU copyright law, a copyright holder has a number of exclusive rights regarding a copyright work – including a right of distribution (i.e. to control how the copyright work is distributed) and an exclusive right of reproduction (i.e. to control who makes a copy of the copyright work)
- One key provision of EU law, Article 4.2 of Directive 2001/29 (aka the 'Information Society Directive') states: "The distribution right shall not be exhausted within the Community in respect of the original or copies of the work, except where the first sale or other transfer of ownership in the Community of that object is made by the rightholder or with his consent"
Other issues discussed:
Issue 3: can the wording of the EU legislation be read such that the first sale/exhaustion of rights principle only applies to tangible software? No, said the CJEU following some slightly complex discussion of the relevant legislation (paragraphs 55 – 58). Later, it said: "…from an economic point of view, the sale of a computer program on CD-ROM or DVD and the sale of a program by downloading from the internet are similar. The on-line transmission method is the functional equivalent of the supply of a material medium" (para 69). And even more clear still: "To limit 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 an appropriate remuneration. Such a restriction of the resale of copies of computer programs downloaded from the internet would go beyond what is necessary to safeguard the specific subject-matter of the intellectual property concerned" (para 63). Issue 4: does it matter that the software has been patched/updated/changed between being bought by the first purchaser and then transferred to the second purchaser? Oracle argued that, because the software in question had been updated under a maintenance agreement since it was bought by the first purchaser, it could not be said that the second purchaser was purchasing the same software. Therefore, Oracle said, there could not be an issue of exhaustion of rights here. The CJEU disagreed. It said: "the exhaustion of the distribution right under Article 4(2) of Directive 2009/24 extends to the copy of the computer program sold as corrected and updated by the copyright holder" (para 68). Issue 5: what happens if the first purchaser acquires more licenses than he actually needs? The CJEU said that the first purchaser couldn't then slice and dice the licenses into piece and sell them off individually – they had to be transferred en masse (para 69). (This is only likely to be relevant in block license deals of course). Issue 6: what happens to the first purchaser's installed copy of the software once he has sold it to a second purchaser? The CJEU held that the first purchaser needs to "make his own copy unusable at the time of its resale…in order to avoid infringing the exclusive right of reproduction of a computer program which belongs to its author", laid down in Article 4(1)(a) of Directive 2009/24". (This makes sense – if you sell the software on you shouldn't have the right to keep using it – otherwise you won't really have sold it at all). Later on, the CJEU acknowledged that in practice this could impose difficulties on the software developer because it'd be hard to know whether the first purchaser has made his copy "unusable". The CJEU therefore briefly commented "to solve that problem, it is permissible for the distributor – whether ‘classic’ or ‘digital’ – to make use of technical protective measures such as product keys". Issue 7: can a software developer stop second hand sales on the basis that the second purchaser hasn't signed a license agreement with the developer? Some EU governments argued that a "lawful acquirer" could only be someone who had signed a license agreement with the developer (i.e. if you don't sign a EULA, you can't sell the game on). The CJEU disagreed and said: "that argument would have the effect of allowing the copyright holder to prevent the effective use of any used copy in respect of which his distribution right has been exhausted …by relying on his exclusive right of reproduction … and would thus render ineffective the exhaustion of the distribution right under Article 4(2)" (para 83). Issue 8: does it change things if the developer calls the software transfer a 'license' not a 'sale'? No. The CJEU held "if the term ‘sale’ within the meaning of Article 4(2) of Directive 2009/24 were not given a broad interpretation as encompassing all forms of product marketing characterized by the grant of a right to use a copy of a computer program, for an unlimited period, in return for payment of a fee designed to enable the copyright holder to obtain a remuneration corresponding to the economic value of the copy of the work of which he is the proprietor, the effectiveness of that provision would be undermined, since suppliers would merely have to call the contract a ‘licence’ rather than a ‘sale’ in order to circumvent the rule of exhaustion and divest it of all scope" (para 49).What this all means:
At first blush, this seems to be a pretty comprehensive decision by the CJEU coming down on the side of second hand sales of software. The CJEU was clearly not persuaded that there is a legal justification for the prohibition on second hand sales (at least not as advanced by Oracle or its supporting parties). EU Member States are bound by EU law (which now includes this case) and have to interpret their own law in a way consistent with it – any domestic law which conflicts with EU law can (and has in the past been) struck down. So, in principle this case now means across the EU that:- It will become much harder for developers and publishers to prohibit second hand sales of software via legal means.
- It will probably raise a spotlight on the technical restrictions imposed on software at the moment.