On 3 July 2012, the Court of Justice of the European Union (the Court) made a ground-breaking decision that affects many of our clients across the Baltic States who (re)sell software licences (local software vendors or software distributors) and companies (end-users) who acquire software and licences for their own business.

In case C 128/11 involving Oracle and the German company UsedSoft the Court found that software copyright holders have no right to block resale. The Court ruled that trading “used” software licences is legal and that a copyright holder of such software cannot oppose resale. The exclusive right of distribution of a copy of a computer program covered by a licence is exhausted on first sale. This applies to downloaded software as well as software bought on CD/DVD.

Where the copyright holder makes available to a customer a copy – tangible or intangible – and at the same time concludes a licence agreement, in return for payment of a fee, granting the customer the right to use that copy for an unlimited period, that rightholder sells the copy to the customer and thus exhausts the exclusive distribution right. The transaction involves transfer of the right of ownership of the copy. Therefore, even if the licence agreement prohibits further transfer, the rightholder can no longer oppose resale of that copy.

The Court also ruled that any patches or upgrades to software through a service agreement form part of used software that can be sold on. Exhaustion of the distribution right extends to the copy of the computer program sold as corrected and updated by the copyright holder. Even if the maintenance agreement is for a limited period, functionalities corrected, altered or added on the basis of such an agreement form an integral part of the copy originally downloaded and can be used by the customer for an unlimited period.

The Court points out, however, that if the licence acquired by the first acquirer relates to a greater number of users than it needs, that acquirer is not authorised by the effect of exhaustion of the distribution right to divide the licence and resell only part of it.

Furthermore, the Court stated that an original acquirer of a tangible or intangible copy of a computer program for which the copyright holder’s right of distribution is exhausted must make the copy downloaded onto their own computer unusable at the time of resale.

This historic ruling sets a precedent for trading in used software licences throughout the European Union, including the Baltic States. Local software copyright holders who want to control further software resales need to rethink their licencing policies and instead of selling software more often use software lease. On the other hand, companies that bought software with a licence for their own business purposes as intangible property will have more legal clarity and security to sell redundant software copies and licences in case of business transfer, reorganisation or insolvency.