The Legality of Second Hand Software Sales in the EU

Spurred by the EU’s ruling that publishers can’t stop people from reselling their digital games, Gamasutra has republished an article over on Gamer/Law that takes a closer look at the facts, judgment, and other issues surrounding the ruling and how it might affect you and I and our future of video gaming. The judgment in a nutshell, and some issues and problems that arise because of it:

Essentially, the court held that, under EU law, the right of software developers to control distribution of a piece of software whether stored physically or digitally is “exhausted” (i.e. lost) once the developer has been paid for it (known as a “first sale”). This means that developers lose the ability to prohibit any second hand sale.

However, if a second hand sale goes ahead then the first purchaser must stop using her copy of the software and render it unusable, because the developer’s right to control reproduction of software is not exhausted on a second hand sale. In order to make sure that the first purchaser stops using the software she has sold on, it is permissible for the software developer to use “technical protective measures such as product keys”.

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Issue 3: can the wording of the EU legislation be read such that the first sale/exhaustion of rights principle only applies to tangible software?

No, said the CJEU following some slightly complex discussion of the relevant legislation (paragraphs 55 58). Later, it said: “.from an economic point of view, the sale of a computer program on CD-ROM or DVD and the sale of a program by downloading from the internet are similar. The on-line transmission method is the functional equivalent of the supply of a material medium” (para 69).

And even more clear still: “To limit the application.of the principle of the exhaustion of the distribution right .solely to copies of computer programs that are sold on a material medium would allow the copyright holder to control the resale of copies downloaded from the internet and to demand further remuneration on the occasion of each new sale, even though the first sale of the copy had already enabled the rightholder to obtain an appropriate remuneration. Such a restriction of the resale of copies of computer programs downloaded from the internet would go beyond what is necessary to safeguard the specific subject-matter of the intellectual property concerned” (para 63).

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Issue 6: what happens to the first purchaser’s installed copy of the software once he has sold it to a second purchaser?

The CJEU held that the first purchaser needs to “make his own copy unusable at the time of its resale.in order to avoid infringing the exclusive right of reproduction of a computer program which belongs to its author”, laid down in Article 4(1)(a) of Directive 2009/24″.

(This makes sense if you sell the software on you shouldn’t have the right to keep using it otherwise you won’t really have sold it at all).

Later on, the CJEU acknowledged that in practice this could impose difficulties on the software developer because it’d be hard to know whether the first purchaser has made his copy “unusable”. The CJEU therefore briefly commented “to solve that problem, it is permissible for the distributor whether ‘˜classic’ or ‘˜digital’ to make use of technical protective measures such as product keys”.

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Problem No. 2: what about software which doesn’t have an upfront sale value?

The case relates to Oracle software which I believe featured a single upfront payment. What about World of Warcraft, or The Old Republic, with their subscription models? Or freemium games, which don’t even have a subscription model? Does this case mean anything to them? Arguably not, because their value lies in their experiential content and their ‘services’ aspect (more on that later) not the actual software itself.

That said, things could still get a little uncomfortable here because the case could be read to argue that free software can continue to be distributed for free from person to person once it has been released on to the market. I doubt that many software companies would like having even their installer file, for example, legally passed around from person to person (in practice of course that happens often online, but software companies have been able to argue previously that that would be illegal, or at least a breach of the software EULA).

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Problem No. 6: is the real world going to pay any attention?

Not many businesses are using legal methods to control second hand sales anyway (apart from Oracle, obviously). The focus is much on putting pressure on the retailers facilitating second hand sales while also devising technical, creative and business solutions to reduce the appeal of second hand sales. I’m not sure this case will do much to stop that (although, as I said, over time there might be more focus now on these ‘workarounds’ now it has been established that the principle of second hand sales is permitted).