Used software questions go to Europe's highest court

The so-called ‘used software’ market profits from this digital transfer. Used software is software that is purchased, used and then sold on to another user. There are several companies that have specialised in selling this kind of software, which has had a strong impact on the software industry.

Nearly all software is protected by copyright. Under the German Copyright Law, the owner of the copyright has the exclusive right to distribute the protected software and to determine the conditions under which it can be used. In the past, the resale of software has not been problematic.

A resale of software that is stored on a physical medium (CDs and DVDs, for example) is permitted without the consent of the copyright owner, as long as the copyright owner has already consented to the distribution of the software within the EU. This follows from the principle of exhaustion of copyright under the German Copyright Act, which is in accordance with the first clause of the second paragraph in Article 4 of the Software Directive (2009/24/EG). The directive says:

“The first sale in the Community of a copy of a program by the rights holder or with his consent shall exhaust the distribution right within the Community of that copy.”

"THE MOST IMPORTANT QUESTION IS WHETHER THE PRINCIPLE OF EXHAUSTION HAS TO BE APPLIED IN CASES OF ONLINE DISTRIBUTION OF SOFTWARE WHEN A BUYER DOES NOT REQUIRE A TANGIBLE COPY OF THE SOFTWARE."

However, the question is whether this principle of exhaustion is restricted to sales of physical copies only, or whether it can be extended to online distribution of software, as already practised by several companies. This question has arisen during litigation in different European countries, including Germany. The District Court of Hamburg held, in a June 2006 decision, that the principle of exhaustion applies to the online distribution of software because of the similarities to the sale of hard copies.

In contrast, the Court of Appeal of Munich stated that, in accordance with the wording of the law, the principle of exhaustion applies only to embodied works such as software on CDs or DVDs, but not downloadable software. In 2009, the Courts of Appeal of Frankfurt and Dusseldorf followed the Munich court’s decision.

However, in the Munich proceeding, the defendant filed an appeal to the Federal Supreme Court of Germany. The Federal Supreme Court’s decision was presented on February 3, 2011 (I ZR 129/08), but it does not clarify anything. The Federal Supreme Court referred the issue to the Court of Justice of the EU (CJEU) and asked three questions with respect to the resale of downloaded software.

The most important question is whether the principle of exhaustion has to be applied in cases of online distribution of the software when a buyer does not require a tangible copy of the software. The Federal Supreme Court wanted the CJEU to provide guidelines on how to interpret the relevant section of the Software Directive.

In its decision, the Federal Supreme Court described different opposing views on this question. It also indicated, rather clearly that, in its opinion, the principles of exhaustion should be restricted to the sale of tangible copies. From the Federal Supreme Court’s point of view, the principles of exhaustion concern the marketability of an individual copy of software and not the marketability of an original copyrighted work itself.

The CJEU’s answers to these questions will not be given for some time. The CJEU’s decision will not only be important for resellers of software. It is a question of principle that will affect all industries that deal with intangible copyrighted works.

Dr Julia Vogtmeier, LLM, is attorney at law at Krieger Mes & Graf v. der Groeben. She can be contacted at: julia.vogtmeier@krieger-mes.de