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Europe gives thumbs up to second hand software sales

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A recent European Court of Justice ruling allowing the re-sale of perpetual software licences has been widely reported, and a number of our clients have asked questions about its impact on NZ software suppliers.

In this case, German company, UsedSoft, resold perpetual licences to Oracle’s database software.  If a client bought a licence for 100 users but now only had 50 staff, UsedSoft would resell that unused allocation.  Oracle sought to stop this practice on a number of grounds, including that the licence was non-transferable under the licence agreement.

Based on the wording of the relevant EU directives (which overrule the express terms of a licence agreement), the Court held:

  • the copyright holder can only restrict the first sale of a copy of a computer program into the EU, not downstream sales.  As a result, the licence in its entirety could be re-sold by UsedSoft because Oracle had exhausted its exclusive right as copyright holder to distribute the software within the EU.  However, part of a licence could not be resold, i.e. UsedSoft could not sell excess user allocations in the way described above
  • the purchaser of the second hand (resold) copy of the software could download the software from Oracle in the same way as the original purchaser and use it, but the original user would need to make its copy unusable.

If you supply or intend to sell software to customers in the EU, you may want to give some thought to your supply model.  If your current model is based on up-front license payments, and you are concerned about subsequent second hand sales of your software, you may want to restructure your model to better protect your interests.  E.g.:

  • fixing the term of the licence, with renewal at an additional fee.  While it is unclear whether this will remove you from the scope of the UsedSoft decision, it will enable to you obtain ongoing revenue from the licence holder on renewal (whether or not the licence has been resold)
  • reducing upfront licence fees whilst increasing on-going fees (e.g. support and maintenance)
  • in the long run, moving to a SaaS/cloud model, which has the double benefit of recurring revenues and controlling access to your software.

Since increasing recurring revenues is often an important business objective for software companies, these approaches may make good commercial sense.

 

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