On 3 July 2012, the Court of Justice of the European Union ruled in a landmark judgment that a purchaser of a license to download a software copy can re-sell this license to a third person (Case C-128/11). The Court has clarified that it makes no difference for resale whether the software is bought in a shop on CD or purchased online via download from the provider’s website. The judgment strengthens the rights of the purchaser of products downloaded online, treating them equally in comparison to purchasers of tangible copies. The judgment will have a strong impact on online distribution and licensing models and, besides the software sector, may also have an impact on online music and e-book files for which a second-hand market may evolve.
Background to the case
The German Bundesgerichtshof had requested a preliminary ruling in proceedings initiated by Oracle International Corp. (“Oracle”), a developer of soft- and hardware against UsedSoft GmbH (“UsedSoft”), a marketing provider for used software licences. One of Oracle’s software products is a client server software. Purchasers of this software buy a licence for a specific number of users to download the software to their computers from Oracle’s online platform. In 2005, UsedSoft marketed used licences for client server software from Oracle. Customers of UsedSoft who acquired a used licence then downloaded a copy of the software from Oracle’s website.
Exhaustion principle (or First Sale Doctrine)
In essence, the Court has interpreted the exhaustion principle for online downloads of software. In the present case, customers of the used licences do not hold a user right granted by the rightholder but have to rely on the exhaustion of the right to distribute a copy to be considered as lawful acquirers of the licence. The exhaustion principle which is enshrined in Article 4(2) of the EU Copyright Directive (2001/29/EC) foresees that the authorised first sale of the original or copies of a work exhausts (“ends”) the right of the rightholder to control resale of that object in the European Union. The principle tries to strike a balance between the provision of reasonable compensation to the rightholder and the free movement of goods in the internal market.
Applicability of the exhaustion principle to download software
Whether this principle can also be applied to intangible property like software downloads, in contrast to tangible property, was highly disputed. The Computer Programs Directive (2009/24/EC) refers in Article 4(2) to the exhaustion by first sale of “a copy of a program by the rightholder”. The Court concluded that the principle also applies to intangible property in the form of software downloads: the purchase of a licence for a software copy against a fee, corresponding to the economic value of the copy of the work, constitutes a first sale of this copy and exhausts the right of distribution by the rightholder in the sense of Article 4(2) of the Computer Programs Directive. The Court clarified that this would not only apply to physical copies (CDs, DVDs etc.) but also to online downloads of software for which the rightholder grants a right to use the copy for an unlimited period.
The second-hand purchaser can download a “new copy” from the rightholder’s website
The issue of downloading a “new copy” by the second-hand purchaser from the rightholders platform was discussed by Advocate General Bot, who argued that it has to be distinguished whether a purchaser resells the copy itself or the licence to download a new copy from the rightholder’s website. He was of the opinion that whereas the resale of the copy itself can take place without the consent of the rightholder, the assignment of a user licence would not fall under the exhaustion principle. However, the Court ruled that the reproduction of a computer program did not require the authorisation of the rightholder if this reproduction was necessary to use the program for its intended purpose (e.g. error correction). It clarified that the download of a copy by the purchaser would constitute the first sale and that the resale after exhaustion could therefore not be prohibited. However, the Court stated that the first purchaser has to make the program unusable on their devices before selling it. The Court was aware of the argument that this would be difficult to control but noted that the same problem would arise with copies from tangible DVDs or CDs. The Court specified further that the purchaser of a licence to be used by a certain number of users cannot sell a lesser number of usage rights while keeping some, and therefore continuing to use their own copy. A full de-installation would be required to transfer the right to the new acquirer.
Exhaustion and Software Resale Rights: A comparison between the European exhaustion doctrine and the U.S. first sale doctrine in the light of recent case law, Tjeerd Overdijk/Polo van der Putt/Eva de Vries/Thomas Schafft, CRi 2/2011
Der Erschöpfungsgrundsatz bei Software. Körperliche Übertragung und Folgeprobleme., Thomas Hoeren, GRUR 2010, 665
Global copyright : three hundred years since the Statute of Anne, from 1709 to cyberspace, Lionel Bently / Uma Suthersanen / Paul Torremans, 2010
Digital copyright : law and practice, Simon Stokes, 2009