Opinion: Reselling used software

James Carnie looks at whether it's legal to resell 'used' software licences

How many computer programs have you ever purchased? The answer is probably zero, because most software is not “sold”, but licensed. The same applies for music, movies, and many other forms of intellectual property.

But what about reselling (or “assigning”) licences? Can a music or software licensor object to the resale of “used” licences? The law on this important issue remains in flux.

As reported by Computerworld in July last year, the European Court of Justice (ECJ) ruled the resale of “used” software licences is legal and that the software owner/developer cannot oppose that resale.

The exclusive right of distribution of a copy of a computer program covered by such a licence is exhausted on its first sale, said the ECJ. This applies to downloaded software as well as software bought on CD or DVD. This ruling sets a precedent for trading of used software licences throughout the European Union and could potentially impact ebooks and computer games as well.

In that case (UsedSoft v Oracle), the Court expanded on earlier judgments concerning the “first-sale doctrine”: that is, once the developer sells a copy of the work, the developer’s copyright interest in that particular copy is exhausted, meaning that the purchaser can legitimately resell that copy — regardless of restrictions against resale in the original purchase contract. The purchaser cannot, however, make more copies (and in the case of software downloaded digitally, the ECJ decided that the purchaser could only re-sell the copy provided that they also deleted (or rendered inoperable) the software they had installed for use). The judgment has gathered considerable attention globally.

On October 29 2012, the US Supreme Court heard arguments in another case likely to have important implications for copyright laws in that country. In that case (Kirtsaeng v John Wiley & Sons Inc), a Thai student studying in the US imported some textbooks to re-sell on Ebay, and was found to have breached copyright in doing so. The 2nd US Circuit Court of Appeals in New York upheld the publisher’s claims against the student, saying foreign-made copies of copyrighted works can never be resold in the United States without permission of copyright owners.

Another ‘test’ case (ReDIGi v EMI), this time involving digital music, has also commenced recently in the US. ReDiGi operates a website that allows users who’ve legally purchased music in digital form to sell it on to somebody else, in reliance of the first sale doctrine.

Each of these cases involves the first-sale doctrine in various forms – and highlight the differing, and unsettled, international approaches to that doctrine.

These are issues that New Zealand licensors should be aware of. Where practicable, licensors could tailor both their licence/sale terms, and the method in which they deliver their product to end users, in order to preserve key legal rights.

In customer contracts, the legal status of the transaction must be expressly recorded, and terms such as the duration of the licence as well as use/transfer restrictions can also be very important.

When considering practical delivery methods, techniques such as expiring licence keys or the provision of software on an ASP/SaaS basis (ie therefore avoiding the supply of a ‘copy’ to the customer) might – depending on the jurisdiction and the state of the developing law in this area — successfully avoid the application of the first-sale doctrine, or otherwise effectively stymie the creation of a grey market in second hand licences for the software.

Although it is difficult to predict the final outcome of these emerging laws concerning the resale of intellectual property licenses, exporters should nonetheless be conscious of these issues and take appropriate steps in their licensing and delivery strategies to best position themselves – and preserve the market for new sales – moving forward.

This article provides general information and does not constitute advice. Professional advice should be sought on specific matters. Carnie is a lawyer with specialist expertise in copyright and technology law at Clendons barristers and solicitors, Auckland. He can be reached at james.carnie@clendons.co.nz

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