BGH (Federal Court of Justice): SOFTWARE CAN BE RESOLD

The legal owner of an object may resell it, independently of any prior owner. This clear statement is applicable to software as well as to any other posession. 

Developers 

Meanwhile, also the software developers gradually acknowledge the explicit legal position. Yet, this has not always been the case, as for many years they tried to restrain the resale of software licences through interpretations of the copyrights.

Since July 6th, 2000, however, it has been made clear that with the initial sale of the licences, software developers also cede the right of resale. That day, in a decision against Microsoft, the Federal Court of Justice pronounced that the developers' copyright "expires" the very moment the software "is brought into transit", i.e. sold,  for the first time.

Individual software licences originating from Microsoft volume licence contracts are allowed to be resold "second hand". This decision was rendered by the Regional Court of Munich I within the scope of a lawsuit regarding purchase price payment, also including the reasons for the judgment in writing, dated April 4, 2008. This judgment has become final and absolute. By means of this judgment, the court rejected Microsoft's legal viewpoint that the buyer of any volume licences does not aquire individual licences, but only a right of reproduction. In this regard, the Regional Court of Munich explicitely refers to the judgment rendered by the Regional Court of Hamburg which had already decided in June 2006 that the resale of individual Microsoft licences originating from any volume licence contracts would be admissible (file number 315 O 343/06). The Regional Court of Munich shared such legal opinion.

The core statements provided in the reasons for the judgment are as follows:

• The court decided "that the sale respectively the vending of individual Microsoft software licences which had been sold within the scope of volume licence contracts is basically possible in an effective way even without Microsoft's consent." That means in concrete terms: If Microsoft sells several rights of use contained in one volume package which includes for example only one master CD, the right of distribution is still exhausted regarding each individual licence. As a consequence, each of them may be resold individually, and not only in form of the original package.
  
  
• In the past Microsoft repeatedly referred to the litigation between Oracle and usedSoft which is pending before court. Pleading that this judgment would also be decisive for Microsoft licences. By means of this "Oracle judgment", the Regional Court of Munich had decided that Oracle software transmitted online must not be resold, whereby this judgment has not yet become final and absolute. In this context, the Regional Court of Munich explicitely stated that these cases could not be compared with one another:"In the present case it is undisputed that - unlike the case which was decided by the Regional Court of Munich I - there was no software sold which was downloaded via internet. It is rather true that the plaintiff sold Microsoft software to the defendant which had been made available by the company Microsoft as volume licence including a master copy."
  
  
• Moreover, the court emphazised in the reasons for the judgment that Microsoft had obviously been aware of such licence assignment in the present case leading to such judgment, but forbore from filing an action for copyright violation. Thus, on page 9 of the judgment it reads as follows:"Based on the defendant's pleadings (...) it also turned out that the company Microsoft neither asserted any claims towards the defendant nor towards the final customer of the defendant for having violated Microsoft's copyright, although the defendant got in contact with the company Microsoft according to the defendant's own pleadings."
  
  

The judgment is based on an action against an IT company which was brought before court by the company usedSoft, the leading European used software trader. The company being sued had bought used Microsoft licences from the company usedSoft, but refused to pay after delivery. The company used its concerns regarding legal security as an excuse not to pay, as the bought software originated from split-up volume licences. The Regional Court of Munich decided that the company being sued must completely pay the agreed purchase price.

In a verdict pronounced on June 29, 2006, the Hamburg Regional Court has confirmed that the resale of "used" software is fully legitimate. According to this, the exhaustion rule, based on which the copyright of a software producer expires the very moment the merchandise is brought into transit for the first time, can also be applied explicitely to single licences out of volume contracts - independently from any contractual restrictions.

In the following you find the core statements of the court opinion:

• "The resale/alienation of single Microsoft software licences ceded priorly within volume licence contracts such as Select contracts, is effective also without the consent of Microsoft."
• As to the reasoning of the plaintiff, according to which the splitting of volume licences is illegal due to the favourable terms granted in this kind of transaction, the verdict states as follows: "Microsoft's remuneration interest is not to be considered - in fact, (it is) entirely irrelevant regarding the occurrence of a copyright exhaustion."
• In the judges' view it does not make a difference by which distribution way the initial buyer has received the software: "If the non-physical transfer substitutes the delivery of a physical workpiece, the exhaustion has to occurr as well concerning the immaterially produced workpiece."

• The exhaustion rule applies not only to the sale of software recorded on data carriers, but also to software transferred online. It is exclusively decisive that a permanent transfer of right of use and enjoyment against payment of a remuneration took place – meaning a software purchase. This is clearly based on Article 4 lit c of the European software-RL. Under Austrian law immaterial things, such as for example online-transferred software, may be subject of a contract of purchase as well.
  
  
• The exhaustion rule also applies to cases when individual licences are sold out of a volume licence, as the initial sale leads to an exhaustion regarding each individual licence. This is based on the analogical application of off- and online distribution: If a software developer sells 50 disks, the right of distribution regarding all these pieces is clearly exhausted, so that only a part of them can be resold. This state of facts is also applicable to volume licences. It does not play any role whether the initial buyer was granted any discount when buying them.
  
  
• The exhaustion effects of section 16 paragraph 3 of the copyright law are imperative. That means that they cannot be repealed by contractual stipulations. Any commitment under the law of obligations of the initial buyer of software provided in any General Terms and Conditions of Trade or in any pre-printed forms of contracts are invalid. It violates section 879 paragraph 3 of the ABGB, as it constitutes a grossly disadvantaging incidental provision.
  
  
• By selling the software, the initial buyer is losing his entitlement as user, while the second hand buyer becomes the party entitled. In case that the second hand user needs to effect acts of reproduction in order to install the software, such acts are covered by section 40 d paragraph 2 of the copyright law.
  
  

• The exhaustion rule of German copyright can analogously be applied to software assigned online. The precondition for this analogy is given on the one hand due to the similar focus of interests: just as in the resale of a physical reproduction piece, in the online assignment the rights owner/bailee has the possibility to charge a fair compensation in return for the license. Besides, we can act here on the assumption of a plan adversity of the legal loophole, i.e. when formulating the exhaustion principle, the legislator apparently was not aware of the problem coming along with the online license assignment. Especially Article 3 Paragraph 3 and Recital 29 of the German Copyright Principle alleged by the Munich Regional Court do not conflict with the latter.


• The copyright exhaustion rule is also applicable to the reproduction right of the originator. In practice, an obverse decision would lead to the impracticable and rather senseless result that in a resale the data carrier of the first materialisation – which normally is the entire hard disk - would have to be copied. Yet, such a regulation would inhibit the software tradability in an unreasonable manner.


• According to the Munich Regional Court, applying the exhaustion rule conflicts with the fact that otherwise integrative usage rights would be splitted. However, multiple licenses de facto only represent a major number of software assignments and not an unsplittable standardised right. Selling licenses in packages is simply a question of practicability. A prevention of the independent sale of multiple licenses would lead in the first place to a hedge in the pricing policy of many software enterprises. Yet, protecting their profit interest to the extent the Munich Regional Court stipulates cannot be in accordance with the purpose of copyright.


• A software producer must not restrain contractually the resale of the merchandise by the initial purchaser. A resale prohibition contradicts with the fact that the copyright exhaustion rule is a compulsory law that cannot be contracted out. Moreover it is inconsistent with the basic principle of a sales agreement if the initial purchaser is contractually enjoined to deal with his property the way he wants.

Expertise of Prof. Dr. Thomas Hoeren from 17-02-2006

In his expertise, the leading German copyright law expert, Prof. Dr. Thomas Hoeren, treats the issue whether software acquired by download may be resold like software that has reached the customer through packaged media.

Quintessence

• The distribution manner of software has no affect on the purchaser's rights. The first purchaser can therefore also resell programs aquired via download, and for which he has no physically packaged media, without the vendor's permission.
  
• The purchaser has an installed version of the program on his computer, not just through the purchase of packaged media, but also through the purchase of downloaded software. Therefore, both methods of distribution lead to the same result.
  
• The "Exhaustion Rule" in copyright law is effective not just for the distribution of packaged media, but also for other methods of delivery, such as download.
  
• The customer who purchased his software by download retains the same rights as a purchaser of packaged software: He can also resell the purchased programs at any time without the vendor's permission.

Supplemental expertise of Prof. Dr. Thomas Hoeren from 06-02-2006

In order to distribute programs originally obtained by download, it is necessary to copy the program, since no CD or other media exists. In his expertise, Prof. Dr. Thomas Hoeren investigates the question of whether the second owner has the right to do so. On top of that, the copyright expert checks whether the vendors can forbid the resale of downloaded software in their General Terms of Use. 

Quintessence

• The second owner also has the right to download the software from the vendor's server and install it. A limitation on the resale of software purchased by download is not valid.
  
• With the acquisition of a licence, the buyer has the right to use the program. This means that he may make any copies – without the need of getting permission from the vendor – necessary for the use of the program. 
  
• Just like the first owner, he therefore has the right to download and install the program in question.
  
• Any clause in the vendor's General Terms forbidding resale is just as invalid as a limitation on the usage rights of the downloaded computer programs. This would place the customer at an incommensurate disadvantage. Such General Terms are therefore invalid.
  

In on of his expertises, the Munich attorney at law Andreas Meisterernst has treated the issue whether the trade with used software is legally questionable.

Quintessence: The decisions of experts in the BGH judgement and in all other legal regulations are clear:

• The buyer or seller of used software is legally on the safe side.
  
• Even when the developer's terms and conditions contain a clause forbidding resale, this is invalid for the end users and consumers.
  
• With used software, the buyer purchases many of the developer's guarantees (support and maintenance) at the same time – exactly the same services given to the original customer, who bought the software directly from the developer or vendor.
  
• When software is resold, the developers remain the owners and can take action against third parties who modify their software. They cannot, however, limit or regulate who the software may be resold to or the price for the transaction.
  
• At the time of resale an unbroken licence chain back to the developer must be proven to exist, and also that the software is no longer used at its original place of usage. – This responsibility is provided by usedSoft as the middle man.
  

Detailed Information:

• The decision of the Federal Court of Justice (BGH) from July 6th, 2000, File Id: I ZR 244/97
• Press release of the BGH concerning the decision
• Expertise of attorney at law Andreas Meisterernst from January 28th 2003.
• Supplemental expertise of Prof Dr. Thomas Hoeren from February 6th, 2006.
• Expertise of Prof. Dr. Thomas Hoeren from February 17th, 2006.