Case: Axel W. Bierbach, administrator of UsedSoft GMbH The Oracle International Corp, case C-128/11, opinion of Advocate General Bot
Facts
Oracle is a licensor of software, of which a large proportion is obtained through download. The terms of its licence are that, for a one-off fee, the customer receives a "non-exclusive, non-transferable" right to use the software "exclusively for [the customer's] internal business purposes and for an unlimited period". Oracle also provides maintenance services subject to payment of periodic fees.
UsedSoft is a German company selling "used" licences of Oracle software (where the maintenance services agreement was still ongoing). The buyers of these "used licences" then download the software directly from Oracle.
Oracle sought an injunction to prevent this practice claiming its copyright was infringed. UsedSoft argued that Oracle's rights in the copyright protecting the software were exhausted following the download and that UsedSoft's actions amounted to distribution (permitted under the Software Directive (2009/24/EC)).
Advocate General's opinion
The Advocate General was clear that exhaustion was only to apply to the right of distribution (with the exception of the right to control further rental). This does not include the right of reproduction or alteration, which will be governed entirely by the terms of the software licence. Only one form of distribution triggers the exhaustion rule – "sale", which for these purposes was interpreted as that which does not fall within the ambit of "rental". As rental arrangements are limited in time and subject to payment of periodic fees, the Advocate General reasoned that "sale" occurs where, for a one-off fee, a licence is granted for an unlimited period of time.
He opined that in the circumstances of this case, once software has been downloaded, the rights holder has received appropriate remuneration on receipt of the licence fee – he has exhausted his rights in the software insofar as relates to distribution only (i.e. he cannot prevent the medium on which the software is loaded being sold and the right to use the software transferring with it). The licence terms, however, prevent reproduction of the software. If the "resale" involves the creation of a further copy of the software, this is outside the scope of the exhausted rights. This is the case even where the original licence holder has ceased to use or deleted his own version of the software. The effect of this is that while vendors are entitled to sell media containing "used" software as a result of the principle of exhaustion of rights, the ability to create further copies of software for resale is dependent on the terms of the licence. Businesses selling "used" software licences are likely to suffer since most commercial software licensors prohibit the creation of copies or alterations to the software under the licence terms.
Points of interest
The decision will be a comfort for online software licensors and a disaster (if followed by the CJEU) for businesses selling "used" licences.
It appears from the Advocate General's opinion that the only way in which the rights may be exhausted and sale unrestricted are by sale of physical media containing the software. However, if the original owner copies the software onto disc for the purpose of selling, this is not a distribution, but reproduction and could amount to a breach of licence terms. If the software was downloaded straight to CD-ROM or memory stick by the original licensee (who runs it from such media), it would appear to be within the scope of "distribution" for the purposes of exhaustion of rights if he then sells the CD-ROM/memory stick to a third party. Similarly, if the hard drive on which the software is stored is sold, this would also be a distribution.
For software originally sold by CD-ROM, the licence terms will be key in determining whether the "used" software may be sold on.
It was noted in the opinion that in the recitals to the Information Society Directive (2001/29/EC) it states that "the question of exhaustion does not arise in the case of services and online services in particular". A point which was not discussed at all in the case is that there is long-standing uncertainty in the UK and elsewhere as to whether downloaded software is in fact goods or services. The Advocate General presumes that the principle of exhaustion is relevant (even though the facts he was considering involved a second download of the software rather than sale of physical media containing the software). Does this mean that we have an opinion (albeit non-binding) that downloaded software is in fact goods? Perhaps the CJEU will comment on this issue.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
