Oracle v. UsedSoft
or: How a case can be won in the end despite a hair-raising judgment of the European Court of Justice
This case concerns the legal issue of the legality of trading in used software and has gained notoriety under the name “UsedSoft”. We represented Oracle, plaintiff in the litigation.
The case began in 2005 with an application for a temporary injunction and ended with an order by the Superior Court of Munich on March 2, 2015 compelling UsedSoft to bear the costs of the litigation after second appeal proceedings before the Federal Court of Justice (BGH) and a reference for preliminary ruling proceeding before the European Court of Justice (ECJ) in 2015 after UsedSoft
- had issued cease-and-desist declarations concerning a portion of the asserted cease and desist claims to avoid a judgment and after the litigation had thus been mutually declared to have been settled in part,
- then withdrew its appeal against the judgment of the court of first instance which had fully ruled in favor of Oracle’s complaint.
The litigation was handled from start to finish (2005 to 2015) by our partner Dr. Truiken Heydn as lead counsel.
The main and much discussed rulings:
ECJ, judgment of July 3, 2012 – UsedSoft, and
German Federal Court of Justice (FCJ), Urteil vom 17.7.2013, MMR 2014, 232 – UsedSoft II annotated by Heydn
District Court of Munich I, judgment of March 15, 2007, file no. 7 0 7061/06, MMR 2007, 328, final with respect to the cease and desist obligation under copyright law
Superior Court of Munich, order of March 2, 2015, MMR 2015, 397 – UsedSoft annotated by Heydn
- In October and November of 2005, UsedSoft offered “used” licenses for the database software of our client, to which our client had not given its authorization.
- The subject of the offer was not data media containing the software, but merely licenses, that is the rights to use the software. UsedSoft did not offer the software itself; the purchaser was supposed to download it himself online.
- Under our client’s license agreements, licenses were explicitly “non-transferable”.
- An American manufacturer of database software and other products.
- The software was a client-server application, that is, the database and the database software were stored on a server. Users accessed the software via their desktop computers and their network; no copies of the software were on their desktop computers.
- The software was mostly sold by download.
The first step in litigation up to the ECJ judgment (2005-2012)
- After the District Court of Munich I and the Superior Court of Munich handed down the cease and desist order against UsedSoft for infringements and violations of copyright, trademark and competition law and the FCJ had referred certain questions to the ECJ for a preliminary ruling on questions concerning EU copyright law, the ECJ handed down a landmark decision on July 3, 2012 which surprised the entire software industry and stated that the purchaser of a “used” software license was entitled to use the software under certain conditions even if the license was not assignable under the license agreement and the software was acquired by downloading it by the original licensee.
- UsedSoft was already celebrating its victory in the litigation, but the litigation was far from over following the judgment of the ECJ.
The strategy before the Federal Court of Justice following the ECJ judgment (2012-2013)
- At first glance, the ECJ ruling would appear to be disastrous for our client. However, it was clear from the order for reference of the FCJ on 3. Februar 2011 (MMR 2011, 305 – UsedSoft I annotated by Heydn) that the FCJ did not share the view of the ECJ. The situation was thus very difficult, but not completely hopeless.
- We had to somehow get the FCJ to construe the ECJ judgment in such manner that we could still ultimately win in the litigation. This was not easy because the FCJ was bound by the ECJ ruling.
- In a brief of 85 pages we developed the topics for which the ECJ could not and did not hand down a ruling due to its lack of jurisdiction and which thus were yet to be decided by the FCJ. We particularly emphasized that the ECJ had not commented on any issues relating to the burden of substantiation and proof and that the FCJ would therefore have to decide on this.
- We then presented in detail on the basis of the previous submissions of fact that the requirements set down by the ECJ for lawful trade in used software had not been met in the present case.
- We then particularly noted that UsedSoft bore the burden of substantiation and proof for all of the requirements that must be met according to the ECJ ruling to make the trade in used software legal.
- The FCJ concurred with our argumentation and specified the requirements for the lawful trade in used software in its judgment UsedSoft II and ruled that UsedSoft bore the burden of substantiation and proof for all of these requirements.
- To give UsedSoft the opportunity to substantiate and prove the lawfulness of its actions, the FCJ remitted the litigation to the Superior Court of Munich.
- Litigation PR: This litigation aroused significant interest in the IT industry, and the media reported on it many times over. For this reason, we not only represented our client in court, but also advised it on PR measures over the entire course of the litigation. This advice included the development of a PR strategy that took our client’s PR policies into account, the preparation and writing of various versions of press releases for our client prior to court appearance and the handing down of judgments, as well as actions against false statements by the other party in its press releases through temporary injunctions.
The Reopening of the Appeal Proceedings before the Superior Court of Munich (2014-2015)
- In the reopened appeal proceedings before the Superior Court of Munich, UsedSoft was unable to substantiate and give evidence for the requirements for lawful trade in used software demanded by the ECJ.
- Following equivalent instructions by the court in the hearing, UsedSoft realized that it was losing the case despite the ostensibly favorable ruling of the ECJ.
- UsedSoft then issued cease-and-desist declarations qualified by penalty clauses under trademark and competition law; the litigation was thus mutually declared to have been partially settled.
- The – main – claim to a cease-and-desist order under copyright law was still pending because we did not consider the declaration that UsedSoft had delivered to be sufficient.
- In an apparent effort to avoid a judgment and the negative reporting on its business model this would entail, UsedSoft withdrew its appeal after the hearing.
- Through the withdrawal of the appeal, the prohibition handed down in the judgment of the lower court of “causing third parties to reproduce Oracle Software by insinuating to third parties through the supposed purchase of licenses, particularly through the information on the current maintenance record, that they are entitled to use and reproduce [the software] ” became final.
- Under an order dated March 2, 2015 (file no. 6 U 2759/07), the Superior Court of Munich ruled that UsedSoft must bear the costs of the proceedings.
- In its grounds, the Superior Court of Munich first stated that the evaluation of the trademark and competition law issues surrounding the dispute were essentially in keeping with the admissibility under copyright law and resulted, on this basis, in the finding that the defendant had “not remotely satisfied” its burden of substantiation and thus would have “presumably lost” with respect to the trademark and competition law prohibition without the mutual declarations of the partial settlement of the litigation.
- Particularly gratifying, not only for our client, but also for other software manufacturers, who followed the litigation with great interest, was the reasoning of the Superior Court of Munich that Oracle had rightfully claimed that UsedSoft would have to have submitted in detail that
- our client had given its consent to the downloading of the relevant software license against payment of a fee (FCJ op cit, margin no. 58 et seq. – UsedSoft II),
- our client had granted its purchasers a right to a permanent use of the respective program copy (FJC ibid, margin no. 61 – UsedSoft II),
- the use of software updates in each specific individual case was covered by a maintenance agreement between our client and the original purchaser (FCJ, ibid, margin no. 62 – UsedSoft II),
- the initial purchaser makes its own program copy unusable at the moment of resale and thus no reproduction remains on his server (FCJ, ibid, margin numbers 63 – 65 – UsedSoft II), so that an illegal splitting of licenses is ruled out and
- it is ensured in each individual case that the new buyer only uses the program copy in the scope that was permitted for the initial purchaser under the original terms of contract (FCJ ibid, margin no. 68 – UsedSoft II).
- It was thus finally decided that the UsedSoft business model is illegal, at least in the manner in which it was executed in 2005 in relation to Oracle licenses.