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The ECJ Judgment Oracle vs. UsedSoft of 3 July 2012

A Comprehensive Summary by Dr. Truiken J. Heydn

07.11.2012

On 3 July 2012 the Court of Justice of the European Union (‘ECJ’) issued a judgment regarding the admissibility of dealing in ‘used’ software licenses in the case UsedSoft vs. Oracle.  UsedSoft is a company that acquires ‘used’ software licenses from licensees and resells them to third parties.  UsedSoft does, however, not provide a copy of the software to its customers.  The customers rather have to obtain the software elsewhere, for example by downloading or copying.  UsedSoft bases its business model on the principle of exhaustion under copyright law, also known as the first sale doctrine.  Oracle distributes its software by entering into license agreements with its customers.  Most of the customers download the software from Oracle’s website. Only a small number of customers orders the software on a physical data medium such as a DVD.  Oracle sued UsedSoft in the District Court of Munich, Germany for contributory copyright infringement.  Oracle argued that its license terms explicitly provide that the license is non-transferable, and that the principle of exhaustion does not apply to downloads.

The ECJ ruled that the resale of licenses despite their non-transferability does not infringe the software company’s copyright, if certain conditions are met.[1]

The Proceedings

The District Court of Munich decided in favor of Oracle.[2]  On appeal, the Court of Appeal of Munich upheld the decision.[3]  On further appeal, the German Federal Supreme Court referred the following three questions for preliminary ruling to the ECJ:[4]

1. Is the person who can rely on exhaustion of the right to distribute a copy of a computer program a ‘lawful acquirer’ within the meaning of Article 5 (1) of Directive 2009/24/EC (the ‘Computer Program Directive’, originally Directive 91/250/EEC)?

2. If the reply to the first question is in the affirmative:  is the right to distribute a copy of a computer program exhausted in accordance with the first half-sentence of Article 4 (2) of the Computer Program Directive when the acquirer has made the copy with the rightholder’s consent by downloading the program from the Internet onto a data carrier?

3. If the reply to the second question is also in the affirmative:  can a person who has acquired a ‘used’ software license for generating a program copy as ‘lawful acquirer’ under Article 5 (1) and the first half-sentence of Article 4 (2) of the Computer Program Directive also rely on exhaustion of the right to distribute the copy of the computer program made by the first acquirer with the rightholder’s consent by downloading the program from the Internet onto a data carrier if the first acquirer has erased his program copy or no longer uses it?

The ECJ Judgment

The ECJ imposed various conditions in order for the resale of software licenses to be legal under EU copyright law and answered all three questions in a ‘Yes, if…’ manner.  The second question was answered first, and the first and third questions were then answered together.

First, there are certain requirements for exhaustion pursuant to Article 4 (2) of the Computer Program Directive.  The copyright holder must have authorized the downloading of the copy by the first acquirer, the copyright holder must have conferred a right to use that copy for an unlimited period of time and must have received a remuneration.  The same requirements apply to the usage right of the second acquirer pursuant to Article 5 (1) of the Computer Program Directive.  It follows from these requirements that there is no exhaustion in cases of online use of software such as ASP and SaaS, because there is no download of a copy.  Furthermore, there is no exhaustion in cases of usage rights for a limited period of time or free trial licenses.

Second, there are certain further requirements for the resale that must be met by the first acquirer.  In this respect, the ECJ pointed out that the downloading of the copy of the computer program and the conclusion of a user license agreement for that copy form an indivisible whole (para. 44, 84).  Consequently, the ECJ ruled that the first acquirer is not entitled to divide the license and to resell only the user right corresponding to a number of users determined by him (para. 69, 86).  It follows from this requirement that it is illegal to resell parts of a license or licenses without the pertinent copy or the copy without licenses.

The ECJ, however, drew another conclusion from the indivisibility of copy and license:  The exhaustion does not extend to additional user rights which are acquired to extend the number of users of a copy already installed on the server (para. 71).  This means that only licenses which were acquired with the first purchase of the copy may be resold, and that it is illegal to resell additional licenses which were acquired later to use an already existing copy.  It does, however, also mean that it is inadmissible to purchase additional used licenses to extend the number of users of a copy already installed on the server of the second acquirer.

Third, there are further duties of the first acquirer. The ECJ pointed out that the first acquirer must make his own copy unusable at the time of the resale (para. 70, 78), otherwise he infringes the exclusive reproduction right of the copyright holder.  The ECJ does, however, not comment on whether this is a requirement for the validity of the resale.  In this context, the ECJ advised that it is permissible for the software distributor to make use of technical protective measures to ensure that the first acquirer does not continue to use his copy (para. 79, 87).

Finally, the ECJ ruled that software maintenance agreements are not subject to exhaustion (para. 66).  However, the exhaustion does extend to the copy of the computer program as corrected and updated through software maintenance.  Consequently, the second acquirer does not have the right to use further updates but rather must enter into a support agreement.  The second acquirer may only download, install and use the current version of the software from the vendor‘s website if the first acquirer had a current maintenance and support agreement.  Software that is not or no longer under support may thus be resold only ‘as is’ in the possession of the first acquirer, i. e., the outdated copy and licenses.  In that case, the second acquirer must not download the current version from the vendor‘s website.  The second acquirer may only use the outdated copy received from the first acquirer.

The ECJ’s Arguments

The ECJ based its judgment on its opinion that the download of a copy of a computer program that entails a license for an unlimited period constitutes a transfer of ownership and thus a sale within the meaning of Article 4 (2) of the Computer Program Directive.  According to the ECJ, it does not make a difference whether the copy of the computer program was made available by download or by means of a material medium (CD-ROM, DVD).

The ECJ stated that it was the intention of the European Union legislature to assimilate tangible and intangible copies of computer programs (para. 58, 60).  This is, however, simply wrong. The Commission Report of 10 April 2000 on the implementation and effects of Directive 91/250/EEC[5] contains the following statement on p. 17:

‘As to the exhaustion of copyright it must be borne in mind that under the Directive Community exhaustion only applies to the sale of copies i.e. goods, whereas supply through on-line services does not entail exhaustion.’

The ECJ further argues that Article 1 (2) of the Computer Program Directive provides that the Directive applies to ‘the expression in any form of a computer program’, and that this would include tangible as well as intangible copies of computer programs (para. 57-58). The ECJ does, however, not provide any explanation how this provision from 1991 can possibly include software downloads. The Computer Program Directive clearly does not address downloads, whereas Directive 2001/29 EC (the ‘InfoSoc Directive’) does.

The InfoSoc Directive provides in Article 3 (1) for the exclusive right of authors to authorize or prohibit any communication to the public of their works. This new right was established in order to address the development of the Internet, over which copyrighted works can be communicated in intangible form. Article 3 (2) of the InfoSoc Directive clarifies that there is no exhaustion of the communication to the public right. Recital 29 of the InfoSoc Directive confirms that the question of exhaustion does not arise in the case of online services, and that this also applies ‘with regard to a material copy of a work or other subject-matter made by a user of such a service with the consent of the rightholder.’, i. e., in cases where a work has been downloaded and the user has made a material copy.

The ECJ, however, argues that the Computer Program Directive is lex specialis in relation to the InfoSoc Directive (para. 51). Again, the ECJ fails to explain how a directive from 1991, when software downloads were not widely known, can be lex specialis with regard to software downloads.

The ECJ finally argues that it follows from Article 6 (1) of the WIPO Copyright Treaty (‘WCT’) that the existence of a transfer of ownership changes an ‘act of communication to the public’ provided for in Article 3 of the InfoSoc Directive into an act of distribution referred to in Article 4 of the InfoSoc Directive (para. 52). This is, however, simply wrong. Article 6 (2) of the WCT provides that the right of distribution may be subject to exhaustion after the first sale or other transfer of ownership of a copy. The Agreed Statements concerning Articles 6 and 7, however, provide the following:

‘As used in these Articles, the expressions "copies" and "original and copies," being subject to the right of distribution and the right of rental under the said Articles, refer exclusively to fixed copies that can be put into circulation as tangible objects’.

This confirms the clear distinction between tangible and intangible copyright exploitation and clarifies that the distribution right (and exhaustion of same) pursuant to Article 6 refers exclusively to the distribution of tangible objects, whereas the making available to the public, e. g., over the Internet, which does not involve tangible objects, falls under Article 8 WCT (right of communication to the public). Consequently, the WCT provides that downloads must not be made subject to exhaustion.

Conclusion

The UsedSoft judgment is a political decision rather than a decision based on the law. The judgment concerns only software but not other digital content such as music and films. The strange result is that while downloaded software is subject to exhaustion and may be resold, music and films may not be subject to exhaustion, because the InfoSoc Directive applies.

It remains to be seen how and based on which arguments the ECJ will rule on copyrighted works other than software.


[1]Court of Justice of the Europan Union, judgment of 3 July 2012, case C-128/11, http://curia.europa.eu/juris/document/document.jsf?text=&docid=124564&pa....

[2]Landgericht München I, judgment of 15 March 2007, MMR 2007, 328.

[3]Oberlandesgericht München, judgment of 3 July 2008, MMR 2008, 601.

[4]Bundesgerichtshof, decision of 3 February 2011, MMR 2011, 305.

[5]COM(2000) 199 final.

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