The Court of Justice of the European Union ruled that transfer of software licenses is allowed

A long disputed matter now has its partial answer, following the decision of the Court of Justice of the European Union (CJEU) of 03.07.2012. The decision was issued following a preliminary ruling request by a German Court that was reviewing a claim by Oracle against UsedSoft GmbH. Oracle claimed that UsedSoft, who was reselling “second-hand” licenses of Oracle software, was infringing its rights, since the licenses themselves clearly stated that they were not transferrable. The German Court asked the CJEU to clarify if exhaustion of distribution rights às laid down in the Software Directive – 24/2009) would apply in such cases. The CJEU concluded that exhaustion does indeed take place. According to the rule, if a copy of a software program is first sold in the EU by the holder of the rights or with his consent, the rights over that copy of the software were exhausted and its distribution could not be prohibited anymore. The CJEU stated that the same would apply to licenses (a more widely spread case than selling actual software), if the latter are granted for an unlimited time and for a one-time license fee. Such licenses are to be regarded as equivalent to a “sale”, so rights would be exhausted in such cases too. It doesn’t matter if the software is provided as a hard copy, or as a download. Resale of licenses would also include the updates and upgrades, as they are considered part of the software.

The CJEU also lays some limitations to the transfer of licenses. Partial transfers are not allowed and the original licensee cannot continue to use the software himself – he would have to destroy or disable all of his own copies of the software. The latter can also be “enforced” by the right holder himself, through license keys, registration codes and other technical measures or even audits.

The CJEU has also made a clear note that this principle is to be interpreted uniformly throughout the EU and will not be left to national courts applying national legislations.

Some practical problems will no doubt arise from this decision. For example, it is not clear if it would apply to customized software, or if such software would be seen as a service (to which exhaustion does not apply) and not as a product. It also seems that exhaustion would not apply to time-limited licenses and licenses with recurring fees, or if software is offered as a service and not as a product. This would also mean that cases where only access to software is provided, rather than a copy of it, would not be affected. Some contractual law matters are also sure to arise in practice.

It will no doubt be interesting to see the impact of this decision on the legal practice in the field of copyright and licensing, but equally so will be the reaction of the business and the new models it would create.