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Is second-hand software illegal?

The action by Federation Against Software Theft to suspend one of its members confuses users over legal second-hand user licences

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Cliff Saran
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Published: 18 Feb 2014 12:00

The action by Federation Against Software Theft to suspend one of its members has been dubbed a PR stunt designed to confuse users over the legality of second-hand user licences.

Earlier in February Microsoft settled a copyright infringement with second-hand software distributor, Discount-Licensing.

Microsoft began proceedings against the supplier several months earlier following a US ruling related to the export of music. On 11 April 2013, Microsoft threatened court action and subsequent proceedings were brought against Discount-Licensing for breach of copyright in respect of United States (non-European Economic Area)-sourced software licences.

Discount-Licensing only realised its membership had been revoked after it contacted FAST when the links on its website failed. According to Discount-Licensing, FAST did not ascertain the facts of the situation before revoking the company's membership

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Discount-Licensing said the illegal licences were sold to a relatively small percentage of its customers in the EEA region, which were subsequently replaced by EU-sourced licences to comply with the EU Software Directive 2009/24/EC.

The EU Software Directive is designed to protect users buying second-hand software. However, software providers are using the Discount-Licensing case as a way to denigrate the legality of second-hand user software.

"Second-hand software buyers are rarely in a position to tell whether or not the transaction is legitimate, but it is they who bear the consequences and the potential liability if it turns out to be illegitimate," said Juan Hardoy, assistant general counsel, Digital Crimes Unit, Microsoft EMEA.

Conflicting interpretation

FAST said it had to terminate the membership of Discount-Licensing, the first time a membership has been revoked in its history. Its removal came following the news that Discount-Licensing had infringed Microsoft’s copyright.

"FAST is about copyright protection," said Alex Hilton, CEO, FAST. "It would be inept of us to maintain membership of anyone who had infringed software licensing. I’m not trying to persecute Discount-Licensing. I accept the EU Software directive exists. It is real. It was done at the European Court. But I want to raise awareness of second-hand software."

Julian Heathcote-Hobbins, general counsel, FAST, said: "Practical challenges, the European Court’s view and the conflicting interpretation taken by the US courts on the same issues creates uncertainty. FAST believes current case law is insufficient to be able to categorically state that certain SHS second-hand software transactions are or are not legal. 

Reselling compliant software licences is perfectly legal

Cécile Grégoire, NearlyNewSoftware

"We believe there are wider issues at stake, most notably the need for legal certainty of end users together with potential damage to confidence of the UK reseller channel.”

Experts in the software asset-management field believe the software industry has used the case to question the legitimacy of second-hand software, in spite of the guidelines set out in the EU Directive.

Following the company’s expulsion from FAST, Discount-Licensing managing director, Noel Unwin, said: "This is typical of the FUD (Fear, Uncertainty and Doubt) that secondary software businesses have to deal with from the software vendors and their representatives. 

"Contrary to FAST’s recent comments, the legalities of second hand software is no longer a developing area of law within the European Union (“EU”) and the European Court of Justice’s decision is not in danger of being over-turned by comments from FAST or the software vendors."

Seller's rights

"I think The Federation's move to expel Discount-Licensing from The Federation is a PR own goal for two reasons," says Rory Canavan, director, ITAM services for 1E. "First it sends the wrong message about helping and educating people and companies about software licensing. Second it has now set a precedent. Does this mean all future members will have to be licence compliant prior to joining?"

The software industry has fought a sustained battle with the European courts over the second-hand software industry.

On 3 July 2012, the European Court of Justice handed down its landmark decision in the UsedSoft versus Oracle case, ruling that the owner of copyright in software cannot prevent a perpetual licensee who has downloaded the software from the internet from selling his ‘used’ licence.

The Federation's move to expel Discount-Licensing from The Federation is a PR own goal

Rory Canavan, 1E

In October 2013, the district court of Hamburg court ruled in favour of second-hand software dealer, Susensoft in its case against SAP. The Court said two clauses in SAP’s general terms and conditions for licensing and maintaining standard software were anti-competitive. From a second-user perspective, the court stated that SAP’s clause, which stipulated that it required written approval for software transfers, was not legally binding.

"Reselling compliant software licences is perfectly legal. The law is clear on the licences that can be sold: neither buyers nor sellers have anything to worry about," said Cécile Grégoire, business development manager at second-hand software distributor, NearlyNewSoftware. 

Software publishers cannot legally restrict the resale of second-hand software licences. The European Court of Justice, sitting as a Grand Chamber of 15 judges, clarified this in UsedSoft v Oracle. 

Such a decision cannot be over-ruled and must be followed by all courts in the European Economic Area: if a software publisher were to lodge legal proceedings against compliant licence sales, any court would follow the UsedSoft judgement, as the recent ruling in SusenSoftware v SAP demonstrates.

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