EU Court Of Justice Rules First Sale Doctrine Applies To Software Downloads

Author:Mr Stephen Charkoudian, Joel E. Lehrer and Achal Oza
Profession:Goodwin Procter LLP
 
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On July 3, the Court of Justice of the European Union in UsedSoft GmbH v. Oracle International Corp. held that a licensor of software made available for download over the Internet may not prevent the resale of perpetual licenses by its licensees. The court based its holding on a conclusion that a licensor's exclusive right of distribution of a copy of a software program is exhausted when the licensor first makes that copy available on a perpetual basis in exchange for a fee.

Background

Oracle distributes the majority of its database software by download through the Oracle website, and customers purchase the right to use this software pursuant to license agreements that grant them a non-transferable right for an unlimited period. Customers may, under maintenance agreements, download updates to the software. UsedSoft, a German company that markets used software licenses, sells "used" user licenses to Oracle computer programs. Following purchase of a "used" license, UsedSoft customers download software directly from the Oracle website and use the software under the purchased licenses. Oracle filed a lawsuit in Germany against UsedSoft seeking an order prohibiting these activities.

Directive 2009/24

The German court referred the case to the Court of Justice of the European Union to interpret Directive 2009/24/EC of the European Parliament and of the Council of 23 April 2009 on the Legal Protection of Computer Programs ("Directive 2009/24"). Under Article 4(2) of Directive 2009/24, the first lawful sale within the European Union of a computer program provided on DVD or other tangible media "exhausts" the distribution right within the European Union of that particular copy, allowing the original purchaser to further distribute the computer program. In other words, under Directive 2009/24, the lawful purchaser of a computer program may resell or give away a purchased computer program just as he or she could do so with a book purchased from a book store. This is known as "first sale" doctrine in the United States.

Rationale and Decision of the EU Court

The question before the court was whether the download of a computer program from the Internet triggers this exhaustion right. In determining whether a "sale" takes place with respect to downloads, the court looked first to the commonly accepted definition of "sale" as being an agreement where a person, in return for payment, transfers to another person his or her rights of ownership in an item of property.

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