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| It is well-known that speaking of used software is the secret to a successful date |
This is my first post as a guest Kat, and I am indeed looking forward to these months together.
The story I would like to start with may not be the most intriguing to tell, unless you believe that there is something sexy in the resale of downloaded software.
Apparently this is what the Court of Justice of the European Union believed, when this morning delivered its 89-paragraph judgment in Case 128/11 UsedSoft v Oracle, on which Advocate General Bot had given his Opinion a few months ago (see earlier posts here and here).
Background and questions referred
As is well-known, Oracle has not only been busy in various courts recently (eg with the Oracle v Google saga), but is also a software house, which develops and markets computer software. In 85% of cases, Oracle distributes its software by download directly from its own website.
The user right in those programs includes the right to store the software permanently on a server and to allow a number of users to access it by downloading the software to the main memory of their workstation. On the basis of a software maintenance agreement, updated versions of the software and programs for correcting faults (patches) can be downloaded from Oracle's website.
Oracle's licence agreements include, among the other things, the following proviso:
With the payment for services you receive, exclusively for your internal business purposes and for an unlimited period, a non-exclusive, non-transferable user right, free of charge, in respect of everything which Oracle develops and makes available to you on the basis of this agreement.
UsedSoft, as the name suggests, trades in used software licences. In 2005 it started offering used Oracle licences, stating that they were current in the sense that the maintenance agreement concluded between the initial licence holder and Oracle was still in force and that the legality of the sale was confirmed by a notarial certificate.
Customers who were not yet in possession of the Oracle software concerned, downloaded the software directly from Oracle’s website after acquiring the ‘used’ licences, while those who already had the software and wished to purchase licences for additional users (Oracle allowed a maximum of 25 users per licence) downloaded the software to the main memory of the workstations of those additional users.
Oracle was not particularly happy with this state of affairs. So it sought and obtained an injunction from the Landgericht München I (Regional Court, Munich I) to prevent the continuation of these practices. Following the dismissal of the appeal lodged by UsedSoft against that decision, UsedSoft lodged with the Bundesgerichtshof (Federal Court, Germany).
According to the Bundesgerichtshof, the actions of UsedSoft and its customers infringed Oracle’s exclusive right of permanent or temporary reproduction of computer programs within the meaning of Article 4(1)(a) of Directive 2009/24 (this is the codified version of the Software Directive). However, the Court decided to stay the proceedings and referred three questions to the CJEU:
(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 …? [“In the absence of specific contractual provisions, [most infringing acts, such as reproduction, translation, adaptation, and arrangement] 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.”]
(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 Article 4(2) of Directive 2009/24 [“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, with the exception of the right to control further rental of the program or a copy thereof.”] … when the acquirer has made the copy with the rightholder’s consent by downloading the program from the internet onto a data carrier?
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| It was rather exhausting for Henry to understand the questions referred by the Bundesgerichtshof ... |
(3) If the reply to the second question is also in the affirmative: can a person who has acquired a “used” software licence for generating a program copy as “lawful acquirer” under Article 5(1) and Article 4(2) of Directive 2009/24 … 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 response of the CJEU
Question 2 – Exhaustion of the right of distribution
Following an explanation of the rationale underlying Article 5(1) (to safeguard the exhaustion of the distribution right under Article 4(2)), the CJEU decided to address the second question first. This concerned whether and under what conditions the downloading from the internet of a copy of a computer program, authorised by the copyright holder, can give rise to exhaustion of the right of distribution of that copy in the EU within the meaning of Article 4(2) of Directive 2009/24.
Wishing to praise the usual clarity of EU law provisions, the Court observed that “there are several possible interpretations” of Article 4(2).
As a first option, Article 4(2) could be interpreted as attaching the legal consequence of exhaustion of the distribution right to the first sale of a copy of the program and not necessarily presupposing the putting into circulation of a physical copy of the program.
Alternatively, Article 4(2) could be applicable by analogy in the case of the sale of a computer program by means of online transmission. This would be because of an unintended lacuna in the Directive, which does not regulate or contemplate online transmission of computer programs.
A third interpretation would be in the sense to make Article 4(2) inapplicable, in that the exhaustion of the distribution right under that provision always presupposes the putting into circulation of a physical copy of the program by the rightholder or with his consent. In other words, the authors of the Directive deliberately refrained from extending the rule on exhaustion to the online transmission of computer programs.
This said, the Court found that, in order to determine whether the copyright holder’s distribution right is exhausted, it must be ascertained first whether the contractual relationship between the rightholder and its customer may be regarded as a "first sale … of a copy of a program" within the meaning of Article 4(2).
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| ... But to Bertrand the questions looked extremely easy, being a streetwise downloader of used software |
the commercial transaction giving rise, in accordance with Article 4(2) of Directive 2009/24, to exhaustion of the right of distribution of a copy of a computer program must involve a transfer of the right of ownership in that copy.
According to the Court, this is what happened in relation to the downloading of Oracle’s computer programs from the software house’s website. Indeed,
It makes no difference, in a situation such as that at issue in the main proceedings, whether the copy of the computer program was made available to the customer by the rightholder concerned by means of a download from the rightholder’s website or by means of a material medium such as a CD-ROM or DVD. Even if, in the latter case too, the rightholder formally separates the customer’s right to use the copy of the program supplied from the operation of transferring the copy of the program to the customer on a material medium, the operation of downloading from that medium a copy of the computer program and that of concluding a licence agreement remain inseparable from the point of view of the acquirer …
According to the Court, to limit the application of the principle of the exhaustion under Article 4(2) solely to copies that are sold on a material medium would allow the copyright holder to control the resale of copies downloaded from the internet and to demand further remuneration on the occasion of each new sale, even though the first sale of the copy had already enabled the rightholder to obtain an appropriate remuneration. Such a restriction of the resale of copies of computer programs downloaded from the internet would go beyond what is necessary to safeguard the specific subject-matter of the intellectual property concerned.
Furthermore, considering the conclusion of a maintenance agreement aimed at patching and updating the copy originally purchased, the exhaustion of the distribution right under Article 4(2) of Directive 2009/24 extends to the copy of the computer program sold as corrected and updated by the copyright holder.
In any case, however, if the licence acquired by the first acquirer relates to a greater number of users than he needs, the acquirer is not authorised by the effect of the exhaustion of the distribution right under Article 4(2) of Directive 2009/24 to divide the licence and resell only the user right for the computer program concerned corresponding to a number of users determined by him.
According to the Court,
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| The judges of the CJEU turned into oracles to address exhaustion issues |
Questions 1 and 3 – Notion of ‘lawful acquirer’
By its first and third questions the referring court wished essentially to know whether, and under what conditions, an acquirer of used licences for computer programs may, as a result of the exhaustion of the distribution right under Article 4(2), be regarded as a ‘lawful acquirer’ within the meaning of Article 5(1) of Directive 2009/24 who, in accordance with that provision, enjoys the right of reproduction of the program concerned in order to enable him to use the program in accordance with its intended purpose.
Following the response provided to Question 2, the Court held that, since the copyright holder cannot object to the resale of a copy of a computer program for which that rightholder’s distribution right is exhausted, a second acquirer of that copy and any subsequent acquirer are ‘lawful acquirers’ of it.
A sound judgment ... with some dark shadows
The judgment of the Court looks pretty sensible. In particular, it would have been fairly unreasonable to distinguish the situation in which the copy of a computer program is made available by means of a download from the rightholder’s website from that in which the copy is provided through a material medium such as a CD-ROM or DVD, also in consideration of current commercial practices and users' habits.
In any case, the Court did not interpret the principle of exhaustion in too a radical (pro-competitive?) manner. In particular, it is likely that controversy arises in relation to the part of the ruling in which the Court made it clear that the first purchaser of a licence is not authorised by the effect of the exhaustion of the distribution right to subsequently divide the licence he has acquired.
In any case, the Court did not interpret the principle of exhaustion in too a radical (pro-competitive?) manner. In particular, it is likely that controversy arises in relation to the part of the ruling in which the Court made it clear that the first purchaser of a licence is not authorised by the effect of the exhaustion of the distribution right to subsequently divide the licence he has acquired.