Selling on Software

August 6, 2012

A judgment of the EU Court on 3 July 2012 has implications for software licensors and the terms of their licence agreements.   The case concerned Oracle and a software licence reseller in Germany called UsedSoft.  The key points are as follows.

Non-transferable: the essence of the decision is that a software owner will no longer be able to control the onward sale or distribution of software downloads within the EU.  Clauses in licence agreements that state that the licence is “non-transferable” and that restrict sale or assignment of the licence will not be enforceable.  This principle is based on the EU doctrine of “exhaustion” of distribution rights under the EU Software Directive.  It applies to both software sales on tangible media, as well as to software downloads. 

Perpetual:  the case concerned perpetual licences granted for a one-off payment.  Licences that are limited in duration may be treated differently, as such a licence may not be classed as a “sale”.

Updates and upgrades:  the Court also decided that the exhaustion of the distribution right also extends to updates and upgrades to the software which the first licensee received.

Deletion and resale: in the event of a resale of the software licence, the first licensee must delete the software from its own systems or make it unavailable for future use.  However, there may be practical issues in verifying this.

Comment

Software licensors will need to review their licensing model, perhaps by moving to an time-limited licences with recurring licence fees rather than a perpetual licence with one-off fee, or a SaaS model where no software is downloaded.  Consideration could also be given to implementing technical measures to prevent licensees from transferring ownership, or to ensure that the first user does not continue to use the software once it has been sold on.


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