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Legal Basis

What is the legal basis for buying and selling used software licences?

The legal basis for the market in second-hand software is the “exhaustion doctrine”, or the “first sale doctrine”, as it is referred to in the United States. Article 4(2) of Directive 2009/24 on the legal protection of computer programs states that:

“The first sale in the Community of a copy of a program by the rightholder or with his consent shall exhaust the distribution right within the Community of that copy, with the exception of the right to control further rental of the program or a copy thereof.”

This means that once a software vendor has put a software product into circulation in the market, the software vendor cannot prevent the further resale of that particular copy of the software on the second-hand market. The software vendor’s copyright has been exhausted by that first sale.

The principle of the exhaustion doctrine can be explained by analogy to the market for books. For example, once the purchaser of a paperback novel has finished reading the book, he or she can sell it on eBay or to a second-hand book shop, or simply pass it on to a friend. The publisher can do nothing to prevent this. The publisher would be able to prevent the original owner of the book from renting, reprinting or posting the entire contents of the book on the internet, but the publisher cannot prevent the sale of the book on the second-hand market if the original owner decides that they no longer have any use for it.

In an attempt to prevent the emergence of a second-hand market for computer programs, software vendors have always insisted that their software was not sold, but was merely licensed to the user of the software. The assumption was that the user was not an owner, but was merely a licensee of the software. This assumption that software licences are not like normal physical products has meant that the restrictions on transferring software licences contained in almost all software licensing agreements has rarely been questioned.

Software vendors have been always maintained that their software was not a product in the traditional sense. With software, it is difficult to point to a tangible object, especially if the software is distributed by means of digital download. Furthermore, software is constantly being augmented, enhanced, patched, bug fixed etc. by the software vendor. This has reinforced the notion of “licence grant” as opposed to "product ownership".

However, the ruling of the Grand Chamber of the Court of Justice of the European Union in C-128/11 UsedSoft GmbH v Oracle International Corp (<>link) has blown away these assumptions and has opened a second-hand market for sales of used software.

The Court of Justice of the European Union is the highest court in the European Union. It will usually sit in chambers of either three or five judges, but for especially complex or important cases it will sit as a Grand Chamber of 15 judges, as it did in the UsedSoft v Oracle case. There is no right of appeal on a decision made by the CJEU, so the market in second-hand software is assured and the lower courts within the European Economic Area are likely to draw from the principles set out so forcefully by the CJEU in the UsedSoft v Oracle ruling.