Second-chance saloon
Evolving law continues to support an EU market for the resale of used software - under certain conditions. Fleur Doidge finds out more
Imagine you could only buy a brand new car. The market would slow to a crawl as people hung on as long as they could, hoping to delay the higher expense. Other people might simply dump theirs in the street - as happened in Japan for years because used cars were difficult to sell on as a result of laws against driving vehicles of a certain age.
Software is clearly different to cars, and second-hand software sales have been more controversial. However, law changes have meant a small subset of resellers now focus on remarketed software. Software code does not itself expire, or fail over time, so why not?
Paul Gardner, partner at global law firm Osborne Clarke, confirms that it is possible to resell used software sourced within the European Economic Area (EEA) as a general rule. "There are two pieces of relevant European legislation: the Copyright Directive 2001/29/EC and the Software Directive 2009/24/EC."
Basically, if you are not a copyright holder, you cannot copy the product and sell on that copy while retaining your own version for your own use, for example. An exception might be made sometimes for software that is bought and sold online - that is, downloaded from the internet, especially if all that has been bought is a short-term subscription.
"[But] you cannot as a copyright holder stop the resale of software that has been licensed, as a general principle," Gardner says. "What it boils down to is that the licence agreement can be tantamount to a sale."
Laws continue to evolve
Opponents of secondhand software resale consistently warn that the relevant law is "an emerging area" - but Gardner points out that you can always claim that, because the legal situation always can, of course, change over time. That's just how the law works.
Noel Unwin, founder and managing director of Staffordshire-based reseller Discount-Licensing, notes that vendors including Microsoft and SAP do provision for perpetual licence transfer if certain conditions are fulfilled, including the submission of the correct transfer form.
"Firms such as Microsoft are unique in this; the other vendors, such as Oracle, have always had very prohibitive transfer provisions," he says.
If a company has certain spare licences, perhaps as a result of downsizing, Discount-Licensing buys and resells them to new customers. The market continues to expand 30 to 40 per cent year on year - and Unwin (pictured, below right) reckons it could grow faster if customers were not still confused about the legal situation.
Another model is brokerage, where the firm acts as more of an agent to bring customers and sellers together. Then there's UsedSoft - the German reseller which buys unused new licences and resells them for a discount.
Unwin's advice to buyers and resellers? "Whether you are buying from or selling to a tier within the second-hand volume, OEM or full-packaged-product markets, the key will always be transparency, both in terms of legal ownership and the software vendor's transfer provision. The responsibility does fall upon the secondary supplier as well as the end customer to ensure that it is purchasing from a reliable source and that it can demonstrate the legal ownership all the way back to the original customer."
Also check if the supplier of used apps not only has an appropriate business model within the current legal restrictions but professional indemnity insurance, so there is an avenue for redress should something go amiss. Meanwhile, it's unsurprising that big brands aren't keen on used software resales - even though it is quite legal.
In fact, a January announcement by the European Court of Justice (ECJ) underlined this legality, in relation to a much-discussed 2012 case that Oracle lost against UsedSoft. The principle of exhaustion in the Software Directive 2009 applies to first sales. Licences transferred online may be downloaded by a second buyer, and retain the right to free updates that the first buyer had.
"The copyright holder can no longer oppose the resale of this copy, even if the licence agreement prohibits sale at a later time," according to a corresponding statement from UsedSoft.
Preceding buyers must render their copies unusable. The statement also notes that the prohibition against splitting licences refers to dividing single licences into many - not the division of a larger number of single licences placed on the market in a bundle, as in volume licensing.
Peter Schneider, chief executive of UsedSoft, says vendors have continued to rely on the possibility an ECJ ruling could be overturned. "This was nonsense from the start," he says. "These monopolists have surely run out of arguments now."
Jon Horley, founder and managing director of Derby pre-owned Microsoft licence reseller Value Licensing, agrees with Unwin for the most part. The market is there, for certain buyers and sellers, and will continue.
"The market is fairly stable now, and I think that big buyers and suppliers of software know where they stand. And I think that's probably helped everybody," he says. "And I've never really had any issues dealing with Microsoft."
In 2007, Redmond altered its Select enterprise and Open SMB licence language such that a new paragraph forbids the resale of licences, although customers may transfer licences to an affiliate and to third parties in connection with a divestiture, merger, or consolidation in the case of Open licences, and that forbids transferring licences for resale to unaffiliated third parties, in the case of Select.
This was a further restriction, applying only to licences bought from Microsoft after September 2007, but using brokers to transfer or reassign licences directly from a supplier company to an end customer would still be permissible.
A cloudy argument?
It has been argued that now resale of second-hand licences has legal precedent, more software vendors will simply move to the cloud, enabling them to more easily banish the supposition that anything in particular has actually been bought or sold in a software licence transaction.
The Online Subscription Agreement on Microsoft.com states: "We licence client software to you, we do not sell it ... Unless you obtain perpetual licences under a buy-out option indicated on the portal, a licence to client software you obtained under this agreement lasts only for the subscription term."
Furthermore: "Licence transfers are not permitted, except as explicitly set forth in the Perpetual License Transfer Form located at www.microsoft.com/licensing/contracts." Transfers remain permitted in the case of customer organisation mergers or insolvencies, for example.
Alex Hilton (pictured, left), chief executive of anti-piracy group Federation Against Software Theft (FAST), says that if the resale is legal, neither he nor FAST has a problem with it. It had revoked the membership of Discount-Licensing purely because of a case against it this year regarding sale of US-sourced secondhand licences -- settled out of court by Discount-Licensing.
The revocation, he said, was simply policy in such circumstances.
Value Licensing and other second-hand specialists have also been rejected as members recently - but Hilton did not wish to comment on this.
FAST retains counsel from global law firm Pinsent Masons.
Indradeep Bhattacharya, senior associate at Pinsent Masons, told ChannelWeb: "It's difficult to make a lot of general statements in this area, as for one thing the discussion of the UsedSoft case in 2012 is relatively fact-specific. Particularly in that instance, where the European Court of Justice had to decide whether or not Oracle had effectively ‘sold' the software."
Had Oracle actually sold the software, divesting its own rights to it in large part, or simply granted a limited right to use it? Even if the original manufacturer has sold the software in perpetuity, that might not mean the buyer necessarily has an unfettered right to resell or otherwise distribute the product, he notes.
Someone may actually own a product, and also be able to resell that product, yet still does not have the right, for example, to create multiple copies and sell on those copies to new customers - especially for profit - without permission from the rights holder. That would in many cases be a violation of intellectual property rights.
In certain cases, the resale of software which has been licensed previously may indeed be legal - but the circumstances can be complex to assess in situ. Every case is different, and Pinsent Masons therefore advises hopeful resellers and customers to proceed with care.
"When you're talking about digital licences, it all starts to make less sense," Bhattacharya says. "The key message for software developers at the moment is to look closely at the licence terms, and that there are quite strict requirements for what you can do with software that has been sold - and these are likely to come in relation to a discrete out-of-the-box piece of software.
"The UsedSoft point may be less relevant to bespoke infrastructure software tied to maintenance agreements or other services-based arrangements. It is also much more difficult to argue that software that relies on access to a separate cloud element can be ‘sold' in this sense."
In any case, even if you were allowed to sell them on, you may not be able to pass on the rights to software updates, or maintenance and support services - features critical to many, especially business, end-user customers, he says.
The other warning concerns the gulf between the US and EU views on copyright, as represented in the 2013 US case Capitol Records versus ReDigi and the UsedSoft action respectively.
"The EU courts have been going a long way to make sure that things such as architecture and functionality are not protected by copyright. But the US is saying these things now will be protected. In a way, it is a bit problematic for software developers looking to offer a global solution," Bhattacharya says. "I would not want to back the wrong horse on this one."