When Is A Software License Transferable Even If It Says It Is Non-Transferable?

Author:Ms Sarah Byrt and Mark A. Prinsley
Profession:Mayer Brown

Second-hand software licences and the European Court's judgment in UsedSoft v Oracle

Software companies cannot prevent the sale of "second-hand" software licences, where those licences are for a one-off fee and an unlimited period. Clauses in these licences stating that they are non-transferable will not be enforceable. This is the effect of a recent judgment by the Court of Justice of the European Union in the case of UsedSoft GmbH v Oracle International Corp. (3 July 2012).

The case is based on EU competition law "exhaustion of rights" principles according to which, once a product incorporating intellectual property rights has been sold inside the EU by the rights-owner (or with his consent), the rights-owner cannot object to the product then being sold to someone else. The European Court has now looked at how that principle applies to software licences.

UsedSoft is a Munich-based company which on-sells used software licences for Oracle and other products. Oracle's licences were expressly stated to be non-transferable and it sued UsedSoft in Germany. The German court referred a number of questions up to the European Court back in April 2009, to determine whether or not UsedSoft's business model was legitimate.

Relevant clause of Oracle licence

"With the payment for services you receive, exclusively for your internal business purposes, for an unlimited period a non-exclusive non-transferable user right free of charge for everything that Oracle develops and makes available to you on the basis of this agreement."

Key legal provisions

Recital (28) of InfoSoc Directive1: "The first sale in the Community of the original of a work or copies thereof by the rightholder or with his consent exhausts the right to control resale of that object in the Community."

Article 4(2) of Software Directive2: "The first sale in the Community of a copy of a program by the rightholder or with his consent shall exhaust the distribution right within the Community of that copy ...".

Article 5(1) of Software Directive: "In the absence of specific contractual provisions ... [acts such as running, copying, translating etc, the program] shall not require authorisation by the rightholder where they are necessary for the use of the computer program by the lawful acquirer in accordance with its intended purpose, including for error correction."

The decision

When Oracle's original customer downloaded software from the Oracle website, was this a "first sale", which would mean...

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