In a recent decision from the European Court of Justice (ECJ), the sale of "second-hand" copies of downloaded Oracle software was confirmed to be lawful, and Oracle could not stop the practice. This clarifies the meaning of the EU Software Directive (and S.56 Copyright Act) in respect of a downloaded program and this right did not just apply to software if the program had been provided on a physical medium such as a CD.
Where a computer program has been sold under a perpetual licence, and downloaded by the licensee, the licensee may sell on that downloaded copy and the buyer acquires the lawful right to use that program copy. However, the original licensee must not retain a copy of the program, as it no longer has the right to use the program.
What should application software vendors do?
The ECJ ruling applies to software that has already been licensed within the EU on a perpetual basis. There is scope to avoid this issue in future sales:
- Periodic licence or subscription-based model: you could consider changing from offering perpetual, fully paid-up licences to a subscription basis, where the licence would be granted for a specific time period e.g. 12 month periods.
- SaaS or cloud: you could offer software as a service or cloud-based service provision arrangements. As the commercial terms offer a service, such arrangements are unlikely to constitute a "transfer of ownership" or sale, even where a cloud services solution requires the download of some software to the desktop.
- Enterprise licensing: vendors may consider licensing their software on a volume basis through "enterprise" licensing arrangements for blocks of users which cannot be split as part of the software "sale" processes.
What about the licence terms?
Be aware that not all the original licence terms will apply to the second-hand buyer. It may be necessary to analyse which aspects of the original licence relate to the scope of the rights granted under copyright in the program, as opposed to commercial obligations imposed on the original licensee.
What about the support and maintenance?
Following the ruling, software maintenance agreements which are separable from the sale are not transferred. The patches and updates released by the licensor to the date of the transfer will be covered by the ruling but not support, so buyers of second-hand software will not be able to obtain new releases or support.
The ECJ ruling states that the seller of the software must not retain any ongoing ability to use the software that it has sold on the second-hand market. Licensors should clarify in the licence that upon sale the original licensee cannot use the software and consider whether it would be worthwhile implementing technical arrangements which would prevent the original buyer using the software following the sale.
If you would like to discuss the implications of this decision, contact Andy Braithwaite.