Software Licences: End of the World?

July 9, 2012

Last week the Court of Justice of the European Union gave its answers to a series of questions referred to it by the Bundesgerichtshof. This week, as the full implications of the ruling sink in, the whole world is abuzz with speculation as to its impact.

I might be exaggerating slightly. I am not sure that the {i}whole{/i} world is abuzz with speculation. But I have not been out much because of the weather; a handful of the citizens of Calne have been seen poring over the judgment as they lounge at the town’s pavement bistros but that might not be typical. One thing is for sure: this is a ruling in a European court that is likely to have more impact than any other this year – and the software licensing world should certainly be abuzz.

I am sure you have read the full judgment – at 90 paragraphs it is short and sweet by ECJ standards. It is {here:;jsessionid=9ea7d2dc30db2002f3c367ac4197af24ed3648ad649b.e34KaxiLc3qMb40Rch0SaxuKaNr0?text=&docid=124564&pageIndex=0&doclang=EN&mode=req&dir=&occ=first&part=1&cid=5858739}. But, if you have not read it in full, you should at least familiarise yourself with the rulings:
{i}1. Article 4(2) of Directive 2009/24/EC of the European Parliament and of the Council of 23 April 2009 on the legal protection of computer programs must be interpreted as meaning that the right of distribution of a copy of a computer program is exhausted if the copyright holder who has authorised, even free of charge, the downloading of that copy from the internet onto a data carrier has also conferred, in return for payment of a fee intended to enable him to obtain a remuneration corresponding to the economic value of the copy of the work of which he is the proprietor, a right to use that copy for an unlimited period.
2. Articles 4(2) and 5(1) of Directive 2009/24 must be interpreted as meaning that, in the event of the resale of a user licence entailing the resale of a copy of a computer program downloaded from the copyright holder’s website, that licence having originally been granted by that rightholder to the first acquirer for an unlimited period in return for payment of a fee intended to enable the rightholder to obtain a remuneration corresponding to the economic value of that copy of his work, the second acquirer of the licence, as well as any subsequent acquirer of it, will be able to rely on the exhaustion of the distribution right under Article 4(2) of that directive, and hence be regarded as lawful acquirers of a copy of a computer program within the meaning of Article 5(1) of that directive and benefit from the right of reproduction provided for in that provision.{/i}

It is of course a ruling on particular facts – it relates in particular to downloading. It may be that different licence terms limit rights in very different ways. But the shout-out point is this: you can sell used licences legally. That’s a game changer.

What intrigues me is that the ECJ acknowledged a difficulty that might destroy the software licensing world as we know it – and then moved rapidly on. The Court states (at [78]-[79]) that:
‘the original acquirer of a tangible or intangible copy of a computer program for which the copyright holder’s distribution right is exhausted … who resells that copy must, in order to avoid infringing that rightholder’s exclusive right of reproduction of his computer program … make the copy downloaded onto his computer unusable at the time of its resale.
As Oracle rightly observes, ascertaining whether such a copy has been made unusable may prove difficult. However, a copyright holder who distributes copies of a computer program on a material medium such as a CD-ROM or DVD is faced with the same problem, since it is only with great difficulty that he can make sure that the original acquirer has not made copies of the program which he will continue to use after selling his material medium. To solve that problem, it is permissible for the distributor – whether “classic” or “digital” – to make use of technical protective measures such as product keys.’

The Court rightly acknowledges that ascertaining whether the ‘original copy’ or any of its clones has been made unusable is difficult. And the Court is right in its assumption, not explicit but pretty clear, that some customers will cheat. TPMs will work, not perfectly but well enough in a business context; the Court is right about that too. But here are some questions that may get us to the end of the software licensing world as we know it.

1. What about old but still highly usable software where no such TPMs were created? Surely there will be no protection against multiple copying and sale. Will we be seeing old software living on and on – updated by someone other than the original licensee (perhaps exploiting the {i}SAS v WPL{/i} decision)?
2. If I buy software in good faith on your promise that you have made the ‘original copy’ unusable but you fail to do so, where is the original licensee’s remedy and who does it bite? And is the answer different if I buy from a used software dealer?
3. In the real world, how many people are going to make software unusable? It is not always even easy to do so.
4. In the context of consumers licensing apps, games, music etc, what possible remedies can the licensee have against the original downloader? (I am tempted to ask if the ECJ judges need to get out more – have they visited the real world lately?)

I will settle for questions. But I would like to direct readers to some excellent answers.

Jas Purewal in his blog {Gamer/Law:} was first off the blocks. He poses even more questions but does suggest some answers too. If games are not your area of interest, read this post anyway because it goes beyond that sphere.

The redoubtable Graham Smith in his blog {Cyberleagle:} focuses on the possible extended effect of the ruling: ‘UsedSoft may open up the path to genuine file-shifting of all sorts of copyright works – not the type of illegitimate file-sharing that multiplies and proliferates infringing copies by uploading to public sites, but person to person transfers where the original purchased copy is deleted’. It is sophisticated stuff and no extract can do it justice.

There is an excellent run through too in a Client Advisory from Edwards Wildman, written by Akash Sachdeva and Gareth Dickson. I rather like the title {‘Customers Can Resell Copies of Downloaded Software; Developers Can Try To Stop Them’:}, which pretty well sums up the ruling – the ECJ could have saved 80-odd paragraphs. They have a pretty clear view of the future: ‘Many developers … will feel that the writing is on the wall when it comes to relying on copyright to protect their work. Certainly, the tenor of the Court’s recent judgments on computer programs has been to encourage competition and the secondary market, seemingly at the expense of extending developers’ copyright protections.’

There is insightful analysis too on the {Brodies TechBlog:} from Martin Sloan. He makes the point that the ruling applies only to perpetual licences – anything licensed on an annual basis/fixed term or whatever is out of scope – ‘I wouldn’t be surprised if perpetual licences for enterprise software become a thing of the past for some vendors, with a move towards combined licence and maintenance agreements that are subject to ongoing payments’. He also raises questions about what the effect of the ruling may be on prices. It is a fair point: why would you pay more for a new licensed copy through, eg, an official Oracle partner, when you can just buy a used licence off another business for a fraction of the price?

I am sure that, since ‘the whole world is abuzz’ with this judgment, there are many more comments and guides to it. I would be happy to hear from you if there is anything you have found of special value and I can add it to this post.