July 10, 2012

The Oracle of Luxembourg

Oracle is a well known major software and hardware developer. UsedSoft is a German company that buys and then resells spare licences that are not needed by businesses.

The ECJ has decided that where a software company offers its software for download and separately, or at the same time, sells a licence to use that software, the combination of those two actions is essentially the sale of the software in precisely the same terms as the sale of software contained on physical media.

The downloading/licensing combination is thus a sale of software that engages EC Directive 2009/24, a law which states that the rights of the software company to have exclusive distribution control over its product is extinguished after the first sale of the product i.e. a software company cannot control who holds the licence/software after the first buyer or to restrict that licence by stating that it is “non transferable”. The upshot is that anyone downloading or buying such software in the EU is entitled to sell on the software, and their licence to use it, to anyone else within a member state.

There are however a few interesting points that arise-

Firstly, if the first buyer sells to a second buyer, the first buyer must delete or permanently incapacitate his version of the software at exactly the same time that the sale takes place.

Secondly, this ruling does not grant anyone the right to split up licences, for instance meaning they cannot buy a 100 user licence for the software, use only 90 licences and sell on the spare 10.

Thirdly, the first buyer’s right to ongoing support from the software company, by way of updates and patches under a support contract, will also be transferred to the second buyer upon re-sale.

Fourthly, the licence being sold must be unlimited in time and there must be some element of a fee involved (such as the licence fee or support contract fee) as only this has the quality of a “sale” within the meaning of the EC Directive.

This judgment represents a substantial extension of EU Law into the ever increasing app/software download market. Many software companies are turning to online models of business to avoid retail middlemen and this decision may require a substantial review of their licensing models, particularly with companies who aggressively wish to preserve their closed sales systems and prevent revenue loss by onward sales of their products. This is a particular problem in the computer games industry where digital distribution is ever increasing and second hand sale of physical media by high street retailers is costing publishers large amounts of lost revenue.

For more information on Royds LLP’s services to digital economy businesses contact John North or David Bowman.

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