Case C-128/11 UsedSoft v Oracle
Note by Alfonso: The Court of Justice has published yesterday its long-awaited decision in UsedSoft v. Oracle. Even though the matters are issue are mainly IP-related (they concern the application of the so-called ”exhaustion doctrine” to computer programs), they have important competition law implications. Marcos Araujo (a friend of ours and a partner at Garrigues) has followed closely this case as well all others concerning the intersection of IP and competition law. We’ve asked him to provide us with his first views on this very fresh Judgment. Here they are:
In a Grand Chamber judgment, the ECJ has taken a determined stance in favour of THE free movement of goods and the exhaustion doctrine. Today’s Judgment has dismissed not only Oracle’s arguments, but also those raised by the Commission and by the various intervening Member States, and has affirmed vigorously the right of licence holders to “resell” their rights of use of computer programs, supporting intermediaries and end customers in the way.
The case had attracted much attention given the contradictions in this area of European Law, which on the one hand declares that the sale of computer programs exhausts the rights of the owner (art. 4.2 of Directive 2009/24) and therefore that the program can freely be re-sold, and, on the other hand, states that the provision of services over the Internet does not cause exhaustion of rights (Recital 29, Directive 2001/29). In this situation, software companies which license (and arguably do not “sell”) software over the internet may claim that their IP rights should not be deemed to become “exhausted”, as they would be providing a service rather than selling a product.
In a decision that may change the manner in which computer programs are licensed in Europe, the European Court declares that where the software license contemplates a permanent right of use, it equates to a “sale” for the purposes of the Directive on the Legal Protection of Computer Programs 2009/24. The Court argues that “if the term ‘sale’ within the meaning of Article 4(2) of Directive 2009/24 were not given a broad interpretation as encompassing all forms of product marketing characterised by the grant of a right to use a copy of a computer program, for an unlimited period, in return for payment of a fee designed to enable the copyright holder to obtain a remuneration corresponding to the economic value of the copy of the work of which he is the proprietor, the effectiveness of that provision would be undermined, since suppliers would merely have to call the contract a ‘licence’ rather than a ‘sale’ in order to circumvent the rule of exhaustion and divest it of all scope” (Judgment, para. 49).
The Court also dismisses that internet and physical sales should be treated differently (“it must be considered that the exhaustion of the distribution right under Article 4(2) of Directive 2009/24 concerns both tangible and intangible copies of a computer program, and hence also copies of programs which, on the occasion of their first sale, have been downloaded from the internet onto the first acquirer’s computer”) ( Judgment, para. 59).
This “broad interpretation” of the exhaustion doctrine also serves the Court to dismiss the objection raised by Oracle, as the product being re-sold would not be the same as the one originally purchased as a result of service agreements which are, as indicated, not subject to the exhaustion doctrine. On that point, the Court notes, somewhat cryptically, that “(e)ven if the maintenance agreement is for a limited period, the functionalities corrected, altered or added on the basis of such an agreement form an integral part of the copy originally downloaded and can be used by the acquirer of the copy for an unlimited period, even in the event that the acquirer subsequently decides not to renew the maintenance agreement. (…) In such circumstances, the exhaustion of the distribution right under Article 4(2) of Directive 2009/24 extends to the copy of the computer program sold as corrected and updated by the copyright holder.”
The Court has been careful to avoid that the judgment may be read beyond software licensing and extending to content distributed over the internet such as books or media. Stressing that the Software Directive 2009/24 is a “lex specialis”, it has sought to maintain the current exclusive right of the content owner to authorise the distribution and communication of content.
One may however wonder whether this distinction between “content and “program” will raise questions in the future, as new generations of software are marketed. It may also be questioned whether new forms of software licensing not entailing a “permanent right of use” would be subject to this rule.
Time will tell if this was a good or a bad decision. In the short term one may wonder if this ensures adequate protection for IP owners. However, as the Internet world evolves to cloud-based applications the practical effects of much of the judgment might become less relevant than it appears at first sight.