European Court revisits resale of software

Can you re-sell software that you have purchased legitimately? Most people would say that it is definitely possible, you bought it after all, but things get a bit complicated when you explain the legal specifics of the question. When you buy software you are purchasing a licence, a limited permission to use and install the software. So whether or not you can later sell your acquired software is a legal question. It is accepted that you can resale acquired works, as the exclusive rights are exhausted after the first sale. But this usually relates to physical copies of works, such as books, CDs, DVDs, vinyl records, etc. The question is whether you can resale software that has been downloaded digitally.

The main authority on this question was the Court of Justice of the European Union case of UsedSoft GmbH v Oracle International (C‑128/11). In that case, the CJEU had decided that the transfer by the copyright holder to a customer of a copy of a computer program, accompanied by a user licence agreement, constituted a “first sale”, and therefore exhausted the rights of the copyright holder. This has been considered a satisfactory situation for users, as it equates downloaded works with physical copies of works.

The CJEU has now re-visited the concept of exhaustion in software in the case of Aleksandrs Ranks and Jurijs Vasiļevičs (C‑166/15). The case involves Mr Aleksandrs Ranks and Mr Jurijs Vasiļevičs, two Latvian nationals who were charged in criminal proceedings with unlawful sale of copyright works, namely, copies of Microsoft Windows and the Microsoft Office suite. The sale took place on an online marketplace in 2004. It is estimated that they sold more than 3,000 copies of the programs.

They were found guilty in 2012, and the parties appealed for various reasons. The defendants appealed on a point of law, requesting the Riga court to refer a question to the CJEU to clarify whether the resale of private copies of software exhausts copyright. While the facts of the case are not clear on this point, it has to be assumed that the defendants were selling copies of legitimate versions of Windows and Office, and were arguing that they were selling private backup copies, and therefore the copyright on these was exhausted.

The Riga court referred the following question to the CJEU:

“(1)      Under Article 5(1) and Article 4(2) of Directive 2009/24, may a person who has acquired a computer program with a “used” licence on a non-original disk, which works and is not used by any other user, rely upon the exhaustion of the right to distribute a copy of that computer program, the first purchaser of which acquired it from the rightholder with the original disk, [where that disk] has been damaged, if the first purchaser has erased his copy and no longer uses it?

(2)      If the answer to the first question is in the affirmative, then, does a person who may rely upon the exhaustion of the right to distribute a copy of the computer program have the right to resell that computer program on a non-original disk to a third person, in accordance with Article 4(2) and Article 5(2) of Directive 2009/24?’”

The CJEU has made a ruling that maintains the principle contained in Usedsoft, but makes an exception when it comes to backup copies made of the original software. The Court states:

“The Court has already held that the term ‘sale’ in that provision, which must be given a broad interpretation, encompasses all forms of marketing of a copy of a computer program characterised by the grant of a right to use that copy, for an unlimited period, in return for payment of a fee designed to enable the copyright holder to obtain a remuneration corresponding to the economic value of that copy (see, to that effect, judgment of 3 July 2012, UsedSoft, C‑128/11, EU:C:2012:407, paragraph 49). […]

The lawful acquirer of a copy of a computer program, placed on the market by the rightholder or with his consent, may, consequently, resell that program, under the rule of exhaustion of the distribution right laid down in Article 4(c) of Directive 91/250, provided that that sale does not adversely affect the rightholder’s exclusive reproduction right under Article 4(a) of that directive and therefore subject to the condition that any acts of reproduction of that program must be authorised by that rightholder or be covered by the exceptions laid down in Articles 5 and 6 of that directive.“

So far so good. However, it seems like the Court found that the defendants were trying to exploit a loophole, and closed it. The Court concludes:

“It follows that a back-up copy of a computer program may be made and used only to meet the sole needs of the person having the right to use that program and that, accordingly, that person cannot — even though he may have damaged, destroyed or lost the original material medium — use that copy in order to resell that program to a third party. […]

 It follows from all of the foregoing that Article 4(a) and (c) and Article 5(1) and (2) of Directive 91/250 must be interpreted as meaning that, although the initial acquirer of a copy of a computer program accompanied by an unlimited user licence is entitled to resell that copy and his licence to a new acquirer, he may not, however, in the case where the original material medium of the copy that was initially delivered to him has been damaged, destroyed or lost, provide his back-up copy of that program to that new acquirer without the authorisation of the rightholder.“

While at first I was a bit worried about any decision that would erode the principle of exhaustion, the circumstances of this case are very specific. We still have exhaustion in software, even if it has been acquired electronically and downloaded from the Internet. However, if you make a backup copy, that copy is to exercise your own rights to make private copies under copyright (elsewhere than the UK of course). The CJEU realised that if you allow backup copies to be sold, then this would create a loophole allowing people to sell cheap knock-off copies of software under the pretence that they are backups.

In the end, this seems like the right decision, and it will hopefully not affect exhaustion in any meaningful way.