It is reported that UsedSoft has withdrawn its appeal and signed an undertaking to cease and desist. After eight years of legal proceedings and a landmark decision by the ECJ in their favour, they gave up the case. But why?
The legal dispute between Oracle and UsedSoft revolved around the question whether “used” software licences may be sold to third parties, a long-time controversial legal issue.
Many such licences concerned digitally distributed software, i.e. software not distributed on physical media such as DVDs, but as mere licence keys enabling customers to download it from the server of the respective publisher. In order to verify that the licence is genuine and to ensure that the initial licensee does not just continue using the software despite having re-sold its licence, UsedSoft offered notarial certificates. These certificates were meant to confirm that the original licence holder declared to the notary to have lawfully owned the licences, to have ceased using the software, and to have paid the entire initial purchase price.
In 2007, Oracle sued UsedSoft in Germany, requesting a permanent injunction against UsedSoft selling “used” software licences of Oracle products.
An exhausting legal background
The copyright concept at the core of the matter was the so-called doctrine of exhaustion (also known as the “first sale doctrine” in North America), which may be summarized as follows:
As a general principle, the author of a copyright-protected work is free to determine the conditions of any licences, so they are free to forbid any resale.
On the other hand, Western economies are based on the idea of a free market, and restricting the flow of goods or services is always somewhat of a hindrance. That is where the doctrine of exhaustion comes into play: Under EU law, once copyright-protected work has been publicly put on the market within the European Economic Area (“EEA”), it can be freely resold within the EEA. So the author’s right to decide how his protected work may be used is overruled by the idea of a free market within the EEA.
Yet, it was controversial for many years whether this principle also applies to intangible copies – i.e. for software solely sold via download. Thus, courts had to clarify whether the doctrine of exhaustion also covers such cases.
Both the Regional Court of Munich and the Higher Regional Court Munich (on appeal) decided in favour of Oracle. Upon further appeal, the German Federal Court of Justice (“BGH”) finally submitted the matter to the ECJ in 2011. The ECJ was supposed to provide binding guidance on the interpretation of the exhaustion provision in the European directive on the legal protection of computer programs (Directive no. 2009/24/EG). In 2012, the ECJ answered the question with its famous “UsedSoft” ruling (docket no. C-128/11).
According to the ECJ, the resale of software licences was generally permitted under the following conditions:
- The computer program was put on the market within the EEA with the rights holder’s consent.
- The original rights holder granted a perpetual licence, meaning without time limitations.
- The rights holder received reasonable remuneration.
- The initial acquirer (who later resells the licence) deletes all remaining program copies.
With these guidelines, the case went back to the BGH in Germany, which referred it back to the Higher Regional Court of Munich: That court now had to decide whether the conditions on legitimate resale given by the ECJ were met in this specific case with UsedSoft.
Additionally, the federal judges set down some further guidelines:
- the burden of proof and rendering evidence for meeting the ECJ’s conditions was with UsedSoft, as the doctrine of exhaustion was an exception to copyright protection rule invoked by UsedSoft.
- the notarial certificates UsedSoft had supplied to prove the genuineness of the licence, the entire payment and deletion of the software by the first purchaser were not sufficient.
- finally, the initial purchaser had to ensure that the second purchaser also used the licence only to the extent that was initially agreed upon with the publisher.
Especially the second indication raised many questions: Is a notarial certificate not sufficient in general? Does it only regard the specific content of the certificate in this particular case? And what exactly would have to be the content of the certificate to make it valid and sufficient proof? With all these open questions, the case went back to Munich.
The end of the UsedSoft case
The dispute has now ended in an unspectacular way. Apparently, UsedSoft gave up the fight, withdrew the original appeal against the ruling of the Regional Court of Munich, and signed an undertaking to cease and desist.
The exact details are not published yet and the content of the final decision by the Higher Regional Court (which now has to deal only with costs) is currently still only available as a brief summary.
Apparently, the crucial point was that UsedSoft was not able to prove the occurrence of exhaustion. In particular, UsedSoft was not able to prove that
- Oracle consented to the download of the software in exchange for remuneration
- Oracle granted the software purchasers the right of use for an unlimited period (perpetual licence) for the respective program copy
- the use of software updates in the actual individual case was subject to a maintenance agreement between the Oracle and the initial purchaser
- the initial purchaser deleted their program copy entirely at the time of the resale so there was no copy left on the server and an (illegal) “split” of licences could be ruled out
- it is ensured for the actual individual case that the second purchaser (client of the defendant) uses the program copy only to the extent granted to the first purchaser in its original contract
Thus, it seems that UsedSoft was not able to prove even one of the conditions set out by the ECJ. Particularly astonishing is the first aspect stated by court, meaning the question of whether the software was put on the market with consent of the rights owner as a perpetual licence. Usually, this can be proven quite easily if the licence chain – meaning the origination and the prior purchaser of the licence – are documented properly. Apparently, UsedSoft was not able to present such documentation.
Similar considerations apply to the third aspect mentioned by court with regard to software updates. It would have been possible to provide sufficient evidence by presenting purchase receipts, licence agreements and, if necessary, possible maintenance agreements. Currently, one can only speculate why UsedSoft could not present such rather straightforward evidence.
However, also the last point mentioned by the court is quite interesting: Whoever sells a used licence has to ensure that the licence agreement with the developer also applies to the second purchaser. This is actually a lot harder than it seems. A licence agreement initially only applies to the parties involved, meaning the initial purchaser and the publisher. It is a very difficult question to be determined for each individual case whether and to what extent these contractual obligations can be transferred to a third party.
An abrupt end
So far, the full written reasons of the decision by the Higher Regional Court of Munich are not available. Since that decision will only have to deal with costs of the matter, it is not very likely that it hides more details about the end of the case UsedSoft – but it cannot be ruled out yet.
Currently, it appears that a lack of documentation became UsedSoft’s downfall. In order to prove the conditions for a legitimate resale of software licences, a complete documentation of the licence chain is vital. Many other suppliers of used software have already reacted and now offer comprehensive consulting and support with the documentation on top of the actual selling process.
However, many questions still remain unanswered: How and to what extent can licence agreements be transferred to the next purchaser? How exactly can one prove that the initial purchaser deleted all program copies?
And, of course, the evergreen: Do the principles of the UsedSoft case apply to other virtual goods such as music or e-books (spoiler alert: most likely not)?
Even if the UsedSoft case as such has now found a rather abrupt end, the legal questions regarding the resale of licences will still be in focus for a long time.