'The European Court of Justice (ECJ) has decided that a copyright holder’s right to oppose the resale of computer software is lost where it licenses computer software to customers for an unlimited period of time in exchange for a licence fee.
The case, Oracle Inc. v Used Soft GmBh, related to a dispute between the software companies over whether UsedSoft could sell businesses and consumers used licences for Oracle software without Oracle’s permission. The case was referred from the German courts, but all EU states have to interpret their law in the light of this case.
Oracle argued that, when licensing downloaded software, Oracle grants its customers non-transferable rights to use the software for an unlimited period. Oracle argued that such rights do not include a right to resell the software.
The Court held that Oracle as a copyright holder is selling that copy of the software to the customer. If it sells the copy permanently it exhausts its exclusive distribution right, even if the licence agreement prohibits further distribution. Therefore resale of intangible (downloaded) and tangible (software supplied on CD or DVD) can be resold subject to:
· The original licence being for an unlimited period of time
· The customer making its own copies of the software unusable
· The whole licence to the software being sold. The licence cannot be divided or resold in parts (e.g. by selling licences on a “per user” basis where the number of users permitted by the licence exceeds the customer’s requirements).
· A third party who purchases a resold licence has the right to download a copy of the corrected and updated software directly from the copyright holder’s website.
What does this mean?
The judgment is a shock for software suppliers in that they thought that providing a non-transferable software licence was just that, non-transferable.
For commercial software suppliers, the case is likely not to affect them as they licence their products for a period of time.
Games suppliers may find this of relevance to them. Is software as service affected by this, we cannot tell at this stage.
The next cases in this area will decide how serious this is to suppliers of commercial and retail software that is licenced for unlimited periods of time. However, we now know that a licence of software (supplied for an unlimited time) can transfer ownership in the EU.
I would expect an administrator or a liquidator to test this further unless a more evident market in unused software springs up beforehand.
Undoubtedly the technical restrictions in software to stop licence transfers will be challenged. Will the use of product keys and disabling features be seen as a barrier to free trade in used software in the EU? We are likely to see this tested.
Caution will still have to be exercised in dealing with unused licences as this case is quite specific. This is still not a free for all.
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Can developers freely copy software without impunity?
In a recent case, the English high court after a referral to the European Court of Justice (ECJ) decided that the functionality of software is not copyright protected but the source code is copyright protected.
In SAS Institute Limited against World Programming Limited (WPL), SAS argued that WPL had infringed its copyright by producing software that functioned like that of SAS.
WPL had bought a copy of SAS’s software and emulated it by analysing the features in its user guide and then it wrote its own code.
The court found that the software was created without sight of SAS’s code and therefore WPL could not have infringed SAS’s copyright. The judgment states “to accept that the functionality of a computer program can be protected by copyright would amount to making it possible to monopolise ideas, to the detriment of technological progress and industrial development.”
WPL did infringe SAS’s copyright in the text of its user manual. The text mirrored the SAS manuals. Flow diagrams system specifications and user guides are protected.
The outcome of the case is that developers can emulate the business logic of computer programs. This means the functionality of a program is not protected but the actual code that expresses that functionality is. Developers have never been able to copy source code unless it is provided for use by them, such as under an open source licence. Care has to be taken with that code too as there may be restrictions on commercial reuse.
In my view, this case reinforces the law as we know it in the UK, although some interesting comments were made by the judge about some assertions made in one of the leading cases in this area, Navitaire v Easyjet and another.
One assertion that has always alarmed software suppliers is the thought that APIs can be emulated at no cost rather than licensed from the software supplier. In this SAS case, the judge stated:
“Although I am not persuaded that Pumfrey J was wrong to conclude in Navitaire that, on the true interpretation of Article 1(2) of the Software Directive, copyright in computer programs does not protect interfaces from being copied where this can be achieved without decompiling the object code, I consider this is also a question on which guidance from the ECJ is required.”
The answer to the question is no. Developers cannot freely copy software that is not freely available for use without impunity. Those that do are committing a form of theft, copyright theft. Software houses and developers have to use their own skill to create software code but as the SAS case confirms they can look to known software applications for inspiration.
Does this affect Open Source software tools and code?
No, but developers and software houses using Open Source code must take care about the Open Source licence that governs that code. Some Open Source licences restrict use in commercial applications.
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