July 28, 2012
The Court of Justice of the European Union(CJEU) with
its judgment of 3 July 2012, has decided that the resale of software licenses is allowed in spite of contractual prohibitions.
As reported recently by NautaDutilh in their July 19,2012 Newsletter:
German company UsedSoft GmbH sells "second-hand" licences (sic) for Oracle standard software,
acquired by UsedSoft from Oracle licensees. After purchasing the second-hand
licence, customers of UsedSoft can download
the software from Oracle's website. Oracle objected
to this resale of its software licences (inter alia because Oracle's
standard licence agreements
stipulated that the licence granted was non-transferable) and filed suit. The German court
the CJEU for clarification as to whether the rule of exhaustion of the right of distribution, as laid
in the Software Directive (2009/24), would apply. According to the CJEU, it does. Under this
rule, if a copy of a software
program is first sold in the EU by or with the consent of the right holder
(in this case Oracle), the latter's rights
to that copy of the software are exhausted and further
distribution of that copy cannot be prevented. Although most software
is licensed rather than
actually sold, the CJEU held that if the licence is granted for an unlimited period of time and
one-time fee (representing the economic value of the software), such a transaction actually
involves a transfer
of the ownership of the software copy and therefore constitutes a "sale".
Consequently, according to the CJEU,
a contractual provision that the licence is non-transferable
will no longer be enforceable: a ruling that has a major
impact on the scope of licences, existing
The exhaustion rule applies regardless of whether the software
was made available as a hard
copy or through a download. Any resale of a second-hand licence would include software updates
and upgrades that have been provided under a maintenance agreement, as these have become
part of the software."
Software vendors and distributors (open source providers
for example) have long preferred to "license" rather than "sell" software as a means to avoid the "First
Sale" doctrine in both copyright and patent Law. That is, they preferred the license route so as to control the
users from either reselling the software, giving it away, for many reasons. This new case destroys that long held strategy
and has untold implications to App vendors.
While the case focused on Copyright law, a question arises as
to whether the ruling applies to Patent Law as well. What about Patent owner's rights that are now
lost under these circumstances. Does the rule protects a patent owner who has originally licensed rights to a software invention
from contributory infringement, joint infringement, direct infringement of the buyer of the resold program. So what
are the real implications of this new rule on current patent and copyright holders? What do they do? Quickly rewrite
and renegotiate their existing licenses? (I expect there will be a flurry of attempts to do so). How to write and cost
a new license to overcome this new rule? Is it enough to expressly state "the parties agree that this contract
is a "license" and not a contract of sale? What harmonization of software licensing terms is now required?
Required "Guidance" would appear to me to include answers to these questions at a minimum.
this rule must be thoroughly parsed and the patent law as well as copyright law implications thoroughly evaluated. At
least the above questions should be answered.
In the US the question of what is patent eligible subject matter continues.
The recent US Supreme Court Cases. Bilski v. Kappos, 130 S. Ct. 3218 (2010) and Mayo v. Prometheus, 132 S. Ct. 1289 (2012)
focused on Subject Matter eligibility under U. S. C. section 101, and elaborated on the implied exceptions that "laws
of nature, natural phenomenon and abstract ideas" are not patent eligible. Recent lower court cases have wrestled
with the issues of "what is an abstract idea? How do you tell?' and "what is a law of nature?"
And while it has long been held in the U. S. that "laws of Nature, natural phenomenon and abstract ideas" PER SE
are not eligible subject matter, an APPLICATION of a "law of Nature, natural phenomenon or abstract idea"
IS eligible for a patent. Diehr, 450 U.S. at 187,188. Note that the issues of these recent cases are similar in many
respects to the European struggles to define what is a "computer program PER SE". Current cases are chewing
not only on "what is an abstract idea/law of nature?" but also on "what does it take to articulate an
eligible APPLICATION of one of these?" Related issues have cropped up such as - the concept of a "natural
principle", which has been defined as collectively, "a law of nature, a natural phenomenon, or naturally occurring
relation or correlation"; and the concept of steps/limitations" that are "well-understood, routine, conventional
activity, previously engaged in by the field", which are said in Mayo to "add nothing specific to a natural principle
that would render it patent-eligible. " The question is "what is "well-understood, routine, conventional
activity, previously engaged in by the field". Not to mention the concept of "what additional limitations
are required to help the claim/method pass the "computer implemented" test.
Some current guidance in
navigating these issues can be found in: 1. USPTO 2012 interim Procedure for Subject Matter Eligibility Analysis of
Process Claims Involving Laws of Nature, and 2. Opinion in the case of CLS v, Alice, USCA 2011-1301 decided July 9, 2012.