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23.07.2012

ECJ: landmark ruling on online software distribution

By now software predominantly is sold online, i. e. it is offered by download where the purchaser normally acquires a license for consideration with the download. However, the license specifications of an online download do not provide the right to distribute the downloaded software to third persons. In contrast to that, an acquired data medium can be distributed to third persons without approval of the right holder because the distribution right is exhausted.

Now, the European Court of Justice (ECJ) was asked by the German Federal Court of Justice (BGH) whether and to what extent the basic principle of exhaustion has any effect on the distribution of software which has not been sold on a data medium but via download (judgement of 3/7/2012 - Case C-128/11 – Oracle/UsedSoft). Up to now, the distribution of software being purchased by download is not subject to the principle of exhaustion. Thus, the right holder was able to control online software sale effectively.

This landmark ruling of the ECJ will introduce a paradigm change for online software sale. It explicitly approves that the further transfer of software is admissible without the consent of the right holder if the purchaser originally acquired the software per download. A precondition to this is that the economical value of the license granting the purchaser a temporal unlimited right to use the software corresponds to the economical value of the copy. Linchpin of the judgement is the interpretation of the term “sale of a copy of a program” in Art. 4(2) of the Directive on the legal protection of computer programs (Directive 2009/24/EC). The ECJ arguments that the distribution of software on a physical data medium and the download of software under a license granting a temporal unlimited right to use it are to be recognised as equivalent. Both sale channels are comparable economically as well as functionally. Thus, the exhaustion of the distribution rights is applicable for both cases. Correspondingly, even if the software is offered for download under equivalent conditions the exclusive right to distribute the software exhausts. Otherwise, the basic principle of exhaustion would be circumvented by online distribution of the software per download only. Further, the ECJ does not account the re-download of the software by a second purchaser of the license as an inadmissible reproduction. Rather, this is a necessary reproduction to allow the legitimate purchaser the intended use of the software (cf. Art. 5(1) of the Directive 2009/24/EG).

But, how can a right holder control the software sale per download? The ECJ refers to technical protection measures like product keys for restricting the use of software. In this regard the BGH already has referred to alternatives to control the use of software by means of online authentication (judgement of 11/2/2010 – I ZR 178/08 – Half-Life 2). As well, it is expected that the licensing agreements for online sale will change. In order to avoid the effects of the basic principle of exhaustion, e. g. software purchased via download could be granted temporarily only.

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