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EU Court allows resale of downloaded software (1)

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EU Court allows resale of downloaded software

In a judgment that has significant implications for the software and digital media industries in Europe, the European Court has ruled that, in principle, the owner of copyright in software cannot stop someone who has purchased and downloaded that software online from reselling it.  In UsedSoft GmbH v Oracle International Corp, the Court held that a copyright owner's exclusive distribution right in respect of a computer program is exhausted on its first sale, whether that is made online or on a physical medium.

The ruling is of potentially huge significance not just to the software industry but to any digital business that makes copyright material such as music, e-books, or games available for download. 

It is therefore a significant step towards a single EU market in digitally available content. 

However, while questions remain, the ruling does not herald a free-for-all.

The Court recognised that the original licensee must make his copy unusable at the time of resale.  A copyright owner is entitled, in the event of such resale, to use technical protective measures such as product keys to ensure that the copy is made unusable. This preserves copyright owners' exclusive right of reproduction.

It should also be noted that the ruling applies only to downloaded material; online services, to which the distribution right and exhaustion do not apply, are unaffected.  This therefore raises the question of whether we will see still faster migration of software licensing models to 'the cloud', since software owners in Europe are not exposed to the exhaustion doctrine in relation to online services / software 'rental' models.  There is also scope, of course, for copyright owners to explore other licensing models that do not involve the 'sale' of software copies, whether online or on physical media.

Another question left by the ruling is whether it remains open to copyright owners to use digital rights management techniques to physically prevent the resale of software or other copyright material.

In summary, this is a significant decision.  Copyright owners should review their licensing models and the technological and contractual protections they have in place if they wish to minimise their exposure to this ruling.  On the flip side, those who wish to build resale businesses may find that there are now materially better opportunities to do so.  In either case, the ruling is likely to have a material impact for all players in the European software industry and everyone should now be considering their next moves with great care.

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Find out more about our Technology & Outsourcing and our Intellectual Property Groups at Fieldfisher.

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