For (Re)Sale: The ECJ Rules on the Exhaustion of Software Distribution Rights

For (Re)Sale: The ECJ Rules on the Exhaustion of Software Distribution Rights

Early in July, the European Court of Justice (ECJ) came to a decision with regards to the distribution rights retained by a software company. The ruling, resulting from litigation between UsedSoft GmbH and Oracle International Corp., which can be found here, will prove an important one in today’s increasingly digital society.

The case was initiated by Oracle in response to UsedSoft’s 2005 promotion which advertised “already used” licenses for Oracle programs (UsedSoft’s website can be found here). The decision comes at a time when a number of software companies are already scrambling due to an increasing frequency in pirated software downloads, and only time will tell as to what lasting effect the decision will have on the industry.

The main issues decided by the ECJ can be summarized in a few main points: a downloaded copy of a program along with the conclusion of a user license agreement is considered a sale and thereby extinguishes the distribution rights of the copyright holder (it can be considered a transfer of rights of ownership); the obtained license can be sold to others, making them lawful acquirers of the product; and lastly, in order to avoid infringing the rights of the copyright holder, the license must be sold wholesale and the seller cannot retain the program for personal use.

The ruling by the ECJ will cause a number of ripples throughout the European Union, national courts around the world, and the software industry. Within the context of the EU, while the ECJ’s decision is not binding to national courts, a final judgment in Germany concerning the same case will probably look to the ECJ ruling for guidance. Similarly, while distribution and reproduction laws differ from the EU when compared to Canada and the United States, the decision might have some influence on judges that find themselves presiding over similar cases.

The largest impact that is expected to result from such a decision is expected to be on the operation and success of the software industry. If such a decision gains momentum through the rest of the world, it is very possible that companies similar to UsedSoft could quickly become a new viable business.

While the software industry will remain anxious about this kind of ruling becoming the norm, there is an ongoing debate (with proponents on either side) about whether this type of reselling should be allowed when it comes to digital content. In the automotive industry, used cars are increasingly featured even at the new car dealerships; in the console video game industry, publishers are trying every possible method to prevent the losses of sales that used game retailers like GameStop have been targeting. If reselling is allowed in these types of businesses, why would it not be allowed in a digital environment?

Another approach that software companies might take if such rulings become more common is to move to a different business model to avoid exhausting their distribution rights. Something like this would avoid the language that the ECJ used when describing the “unlimited period” of use provided to consumers by the copyright holder. However, more “sneaky” practices like this might have the unfortunate consequence of pushing those people that would purchase a product legitimately to pirate such content. Hopefully, cases like this will allow the law to grow to the point where consumer and publisher rights are balanced against each other appropriately.

Adam Del Gobbo is a JD Candidate at Osgoode Hall Law School.