Permissibility of Trading in Used Software Licences

The issue of trading in 'used' software licences has increasingly occupied German courts in recent times. This relatively new and attractive business model impairs copyright and, not least, the remuneration interests of manufacturers, which is why they regularly endeavour to address the problem through appropriate restrictions in the licence terms. The effectiveness of such agreements depends substantially on the chosen licence model or the modalities of software provision. However, the legal situation in this area is extremely controversial and no decision by the highest court has yet been rendered.

In principle, two types of software 'purchase' can be distinguished: the acquisition of a physical data carrier or the intangible software download from the internet. Both are conceivable as single-user or volume licence agreements.

Software Embodied on Data Carriers

There is no doubt that the resale of software embodied on a particular data carrier is permissible, provided that this data carrier was put into circulation by the copyright holder (the manufacturer) in this form. The so-called copyright exhaustion principle (§69 c Nr. 3 S. 2 UrhG) limits the distribution right that is fundamentally available to the copyright holder in so far as the copyright holder no longer has any influence over the further distribution channel of the original data carrier. The only prerequisite is that the data carrier was intentionally put into circulation by the manufacturer or copyright holder. The copyright holder therefore only has the right of first distribution of its product. This means that the initial purchaser is generally free to dispose further over the data carrier containing the software. Insofar as the manufacturer attempts to counter this limitation of its copyright by contractual means, it faces legal difficulties. On the one hand, restrictions in this regard, such as for example a restriction in General Terms and Conditions (licence terms), are probably regularly ineffective due to violation of essential principles of copyright law (exhaustion of the distribution right). On the other hand, this is mandatory law that cannot be modified by legal transaction (on the foregoing: Landgericht Hamburg, judgment of 29.06.2006 – Az. 315 O 343/06). The distribution right in the embodied product must, however, be distinguished from the reproduction right. The latter is not covered by copyright exhaustion and therefore prevents – with exceptions – reproductions of the software undertaken by the purchaser.

Intangible Download Software

The legal situation is less clear if the software is available exclusively as an intangible download or was at least acquired in this manner. The fate of the distribution right is vigorously disputed among legal scholars. What is likely to be significant for practice, however, is the current view of the Higher Regional Court (Oberlandesgericht) Munich (judgment of 03.08.2006 – Az. 6 U 1818/06). According to this, exhaustion of the distribution right can only be considered if the software product embodied on a data carrier was put into circulation by the rightsholder. The principle of exhaustion of copyrights therefore applies – which accords with the statutory wording – exclusively to the physical reproduction item, namely the data carrier on which the software is stored, and not to the individual licence as an 'invisible' right of use. These requirements are precisely not met in the case of a download. The further sale of software acquired in this manner thus infringes the manufacturer's rights in two respects: on the one hand, the manufacturer continues to have unrestricted distribution rights and, on the other hand, such further sale would require a reproduction act by the first or second purchaser that is always impermissible. The result found by the court is also likely to correspond to the actual circumstances. Unlike embodied software products, it is difficult – at least without rights management – to determine whether a lawful reproduction item exists. The foregoing applies equally to volume licence models (multi-user licences) if the software is only available as a download.

Volume Licences and Master Copy

Volume licences that permit the installation and use of software provided as a so-called master copy on a data carrier on a specified number of workplaces occupy a middle position. Here the product is indeed embodied, but only once. By contrast, the number of associated licences can theoretically be unlimited. The Landgericht Hamburg recently took the view that resale by the initial purchaser was permissible (judgment of 29.06.2006 – Az. 315 O 343/06), since each individual right of use must be treated as a separate reproduction item. In this respect, there would be no difference to the case where a data carrier is handed over for each licence. What is problematic about this is, above all, that the court, as evidenced by its reasoning, apparently and generally assumes that the intangible transmission of software replaces the physical transfer on a data carrier and therefore the provisions on exhaustion of the distribution right should apply accordingly, which amounts to the assumption that exhaustion relates to the right of use and not the (here non-existent) original data carrier. However, this view contradicts not only the clear statutory wording, but also an unambiguous decision of the Higher Regional Court (Oberlandesgericht) Munich of 03.08.2006 (Az. 6 U 1818/06), which makes clear once again that copyright exhaustion can only apply to embodied works. It can therefore make no difference whether the initial purchaser is handed over a master copy or is referred from the outset to a download of the software. Resale should in both cases be excluded, as long as an original data carrier is not available for each licence.

Contractual Restriction of Rights of Use

Although the cited decisions partly contradict one another and legal certainty is still far from guaranteed, certain trends can be discerned from the case law so far that permit a prognosis. It thus appears to be provisionally settled that the right of use granted in the licence terms of software manufacturers can be restricted with effect also against third parties (e.g. the second purchaser) to the effect that the initial purchaser is granted only a simple, non-transferable right of use. This simultaneously constitutes a refusal of consent pursuant to §34 Abs. 1 UrhG, which is required for every transfer of granted rights of use. The limit of such restrictions is, according to the judgment of the Landgericht Hamburg (Az. 315 O 343/06), reached where this would circumvent the copyright exhaustion of the distribution right. However, as discussed, this is probably only the case where it is a matter of resale of original data carriers put into circulation by the manufacturer, so that pure download licences or rights of use in connection with the handing over of a master copy can be restricted.

However, given the legal complexity of the subject matter, the formulation of sweeping general principles is inadvisable. Rather, it must be clarified on a case-by-case basis, with reference to the concrete licence model and the chosen distribution structure, how the licence terms are to be designed.