Secondhand Software Licenses, be aware of the pitfall

Lately there is a lot of fuss about secondhand software licenses, especially in the Netherlands. A lot of resellers of those secondhand software licenses point to EU legislation and tell potential customers that ‘all is legal’ and there is ‘nothing to worry about’. But there is a pitfall. In this article we explain the legislation and what you should do to assure that using the software is according to (copyright) law and legislation.

10 minute read.

This article contains important information for all organizations based in the European Union. This article / document is not an advise nor is it a legal ground. The content is solely for software license guiding purposes and is presented ‘as is’ without any warranties. Please do not make any strategic decisions based on what people say or write, read the corresponding legal documents yourself or consult your legal counsel.

The 2009/24/EC Directive
The Directive2009/24/EC of the European Parliament and of the Council, implemented in 2009, is all about the legal protection of computer programs and concludes that the unauthorized reproduction, translation, adaptation or transformation of the form of the code in which a copy of a computer program has been made available constitutes an infringement of the exclusive rights of the author.

Within the Directive, under Article 4, Restricted acts, sub (2) is stated:

“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.”

In plain English, as soon as the software company has first sold the legal right (license) to use the software, it no longer controls the right to resell it again. This right now rests with the buyer. But this is not a free pass to do whatever you like, as is clarified in the Judgement of the Court (Grand Chamber) of the European Union ….

Use case
Besides pointing to the Directive described above, parties involved in reselling secondhand software licenses often point to a ruling of the Grand Chamber of the European Court at July 3rd 2012 between UsedSoft GmbH (Germany based) and Oracle, regarding the resell of software licenses. And more often these parties ‘apply’ the ruling to other software vendors as well, like Microsoft.
Because the use case is specific for Oracle, one cannot assume that all that is ruled by the Grand Chamber also applies to other parties, not involved in this particular case. However, there is some guidance which is useful.

Protection of copyright
In the ruling by the Grand Chamber we find this particular phrase:

“9 In accordance with Article 1(2)(a) of Directive 2001/29, the directive ‘shall leave intact and shall in no way affect existing Community provisions relating to … the legal protection of computer programs’.”

This means that even after a resell of secondhand licenses, the software vendor still holds the right to protect their copyright and the new owner isn’t free to use the software in whatever way he of she wants.

Include the license
Another phrase in the text:

“42 According to a commonly […] in accordance with Article 4(2) of Directive 2009/24, to exhaustion of the right of distribution of a copy of a computer program must involve a transfer of the right of ownership in that copy.”

This means that with the transfer of the computer program, also the license has to be transferred. This should be verifiable, off course.

Do not split
Last example:

“69 It should be pointed out, however, that if the license acquired by the first acquirer relates to a greater number of users than he needs, as stated in paragraphs 22 and 24 above, the acquirer is not authorized by the effect of the exhaustion of the distribution right under Article 4(2) of Directive 2009/24 to divide the license and resell only the user right for the computer program concerned corresponding to a number of users determined by him.”

In other words, one cannot split a contract or license for X amount of users/usage into smaller parts to be sold or transferred separately. Off course, there has to be legal evidence of that when an organization wants to buy secondhand licenses and use computer programs accordingly.

How to do it right
Please do not simply believe everything anybody is saying about selling or buying reused software. Here are some guidelines in respect to the court ruling about subjects and terms which have to be met for reused software licenses:

  1. Evidence of license origin; within what country were the licenses originally purchased
  2. Evidence of licenses being perpetual licenses
  3. Evidence of the licenses being fully paid by the previous owner
  4. Evidence that the initial licensee (previous license owner) has deleted all the software copies corresponding to the original licenses from all of its desktops and / or servers before the transfer of the license to reseller X
  5. Evidence of completed license transfer from the initial licensee to reseller X
  6. Evidence of completed license transfer from reseller X to buyer B or evidence of completed license transfer from previous licensee (A) to buyer B
  7. Evidence that the licenses mentioned for transfer to buyer B are genuine (original) licenses from software vendor Z
  8. Evidence that the licenses transferred are complete and from one previous licensing contract / agreement (all licenses sold under a licensing contract / agreement by the original licensee have to be transferred)
  9. On all documents the product references (SKU’s) must be mentioned

As the user of the software, your organization is responsible for meeting the requirements which also have to be proved. Please do not accept a reference to a file at a legal counsel where the information is held. You do want this in your hands. So please do document all actions and store carefully any (original) license order, invoices and corresponding product keys.

Terms of use
After you acquired ownership of the licenses for reused software, you must comply with all terms and conditions within any legal software licensing document and / or terms of use from the software vendor specific for those software licenses transferred, amongst with but not limited to:

  1. Assigning licenses to devices or users
  2. Eventual downgrade rights
  3. Multiplexing restrictions
  4. Restrictions to batch processing
  5. Restrictions or rights for virtual installations

Please do make yourself familiar with the terms of use which come with the software you bought. This is not only important for reused software or secondhand licenses, but for new software and technology as well.

Have you bought secondhand licenses or reused software and do you have doubts if all is well and you comply to copyright law and the EU Directive? Please do contact us for additional information of consultancy.

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