European Court rules that software backup copies can’t be resold without owner's permission

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What does the European Court's ruling regarding the reselling of used software mean for your business?

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Europe's highest court has recently ruled that backup copies of software can't be resold without the right-holder's permission, even where the original purchased copy of the software has been damaged, destroyed or lost.

The decision aims to halt the sale of backup software copies obtained illegally and the sale of unauthorised copies of original software on the pretence that they are backup copies.

In the case of Aleksandrs Ranks and Jurijs Vasilevics, the European Court of Justice (CJEU) differentiated between original purchased copies of software and non-original backup copies.

Previous case law established that software sold subject to an unlimited user licence can be resold by the licensee without infringing the original copyright. The question arose (via a case before the Latvian courts) whether the same rule applies to the resale of backup copies.

Software owners will be delighted that the CJEU took a restrictive path, refusing to legitimise the onward sale of backup copies without the owner's consent. Businesses will need to be mindful of this new ruling when seeking to sell, or purchase, used software.

Background – Software Owner's Rights

Under EU copyright law, a copyright holder has an exclusive right to distribute (or to authorise any form of distribution of) its material, including software. However, if any copy of software subject to an unlimited user licence is sold in the EU or EEA with the rights holder's permission, the rights holder's distribution right is considered to be 'exhausted', provided that certain preconditions are fulfilled (for example: the reseller must not retain any usable copy of the resold software).

This means that the rights holder can't prevent the resale of legitimately acquired copies of software. Software copies licensed for use for a limited term only (so-called subscription models) are not subject to this "exhaustion" principle and cannot be resold without the rights-holder's consent.

In addition to this exclusive right of distribution, the Computer Programs Directive ("Directive") provides the rights holder with an exclusive right to authorise the reproduction of software, subject to certain exceptions listed in the Directive.

The Case - Aleksandrs Ranks and Jurijs Vasilevics

The case of Aleksandrs Ranks and Jurijs Vasilevics involved the sale by the defendants of used Microsoft software stored on non-original media (CD and DVD) through an online marketplace without Microsoft's consent.

The Latvian court asked the CJEU whether, under the Directive, a person who acquires a used backup copy of software can resell such a copy to a third party in circumstances where the original purchased software has been damaged, destroyed or lost.

The CJEU ruled that the copyright holder of software who sells a copy of the software on a material medium with an unlimited user licence can't object to subsequent resale of that copy even if its contractual terms prohibit such resale.

Furthermore, the CJEU confirmed the principle in its earlier decision in the (much-criticised) Usedsoft case, which involved the sale of used software purchased online via a download, that the rule of exhaustion applies to both tangible as well as intangible software copies, including software purchased under an unlimited licence.

However, unlike Usedsoft, this recent case focused on the resale of a used copy that wasn't made or distributed on an original medium with the rights holder's consent.

The Directive specifies exceptions to the rights holder's exclusive right of reproduction. One of these exceptions relates to the reproduction of backup copies. Backup copies can be made without the copyright holder's authorisation if, (1) they are made by a person who has a right to use the software and, (2) such copies are necessary for the authorised person's licensed use of such software.

The CJEU emphasised that this exception has to be interpreted strictly. Therefore, a back-up copy reproduced for resale purposes is not considered to be made 'only to meet the sole needs of the person having the right to use that software'.

For this reason, even in circumstances where the original physical copy is damaged, destroyed or lost, the acquirer of the backup copy can't resell that backup copy to a third party.

So, what does this ruling mean for businesses?

Businesses can resell used software that they have purchased subject to an unlimited user licence. In addition, businesses that legitimately obtain software can't be prevented from making backup copies if required for their own necessary use, despite any contractual provisions to that effect.

But, if a company unlawfully acquires software, it is not permitted to make backup copies, and, consequently, such backup copies can't be lawfully resold. Moreover, a business can't sell a backup copy even where the original copy was purchased lawfully, because a backup copy can only be made for the user's sole use.

The CJEU's distinction between different types of media appears policy-driven. With this decision, the court helps prevent both the sale of backup software copies obtained illegally and the sale of unauthorised copies of original software on the pretence that they are backup copies.

In addition, the case demonstrates, once again, the requirement for the CJEU to adjust traditional legal principles to reflect technological developments.

Given the size and scale of the European software sector I expect that this won't be the last time the CJEU will be asked to consider what constitutes the lawful resale of software. The topic is far from exhausted.

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