Are the GPL's inheritance obligations enforceable in Europe after the UsedSoft decision?

On July 3 of last year, the Court of Justice of the European Union issued a decision in UsedSoft GmbH v. Oracle International Corp. that possibly calls into question the enforceability of open source licenses such as the General Public License (GPL). The CJEU held that the provision of software via internet download constituted a sale rather than a license of software, thus exhausting the software licensor's right to control subsequent use and distribution of copies of that software. In so ruling, the CJEU, perhaps inadvertently, cast doubt on the enforceability of inheritance (or so-called "copyleft") obligations of the GPL – or at least one experienced practitioner believes so, as evidenced by a recent posting.

The facts presented in the case are straightforward. Oracle distributes database software primarily via internet download. Purchasers of access to the software are required to agree to an online license agreement that grants a non-transferable right to install and use the software for internal business purposes. At the time of the events in question, Oracle sold licenses in blocks of 25, meaning that if an Oracle customer needed 27 user licenses, the customer was required to purchase two 25-user blocks.

UsedSoft is in the business of acquiring and reselling excess user licenses, including licenses to Oracle's database. UsedSoft directed purchasers of its used licenses to download a copy of the software at issue directly from Oracle's website. For customers that had already installed the Oracle database and who desired additional licenses, UsedSoft instructed them to make copies corresponding to the additional used licenses those customers have purchased from UsedSoft.

UsedSoft's entire business model rests on the premise that software vendors exhaust their exclusive right of distribution upon lawful acquisition of a copy of the program, even via internet download. Subsequent acquirers of that copy are not infringers, this reasoning goes, if the first acquirer consents to the transfer and permanently deletes the copy no longer needed.

Copyright "exhaustion", otherwise known as the "first sale" rule, creates an exception to the copyright owner's exclusive right of distribution. The doctrine holds that once a work has been lawfully sold or transferred, the copyright owner's interest in the physical object in which that copy is embodied is exhausted. Consequently, a purchaser of a book, for example, is free to resell, give away or dispose of that book without having to account to the copyright owner. In the US, the first sale rule is codified in 17 USC 109(c): "The owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord."

In the European Union, the first sale doctrine of copyright law in the software context is represented by Article 4(2) of Directive 2009/24/EC of the European Parliament and of the Council of 23 April 2009 on the legal protection of computer programs. This article states, "The first sale in the Community of a copy of a program by the rightholder or with his consent shall exhaust the distribution right within the Community of that copy …."

Oracle brought a copyright infringement action against UsedSoft in Germany, where it ultimately prevailed. The German Federal Court of Justice ruled that the actions of UsedSoft and its customers amounted to infringement of Oracle's exclusive right of reproduction. The German court relied on the fact that the Oracle licenses were expressly non-transferable, and agreed with Oracle that neither the making available of a copy nor the conclusion of the user licence agreement involves a transfer of the right of ownership of that copy.

The CJEU overruled the German court, and rejected Oracle's reasoning, ruling that "the transfer by the copyright holder to a customer of a copy of a computer program, accompanied by the conclusion between the same parties of a user licence agreement, constitutes a ‘first sale … of a copy of a program’ within the meaning of Article 4(2) of Directive 2009/24." It makes no difference, the court held, if the copy is transferred by a physical medium like a disk or via internet download.

The fact that the court disregarded the express terms of the Oracle end user license (specifically, it's non-transferable nature) has some legal commentators concerned that this could spell trouble for the enforceability of the copyleft obligation of the GPL. The GPL requires that any software that contains or is derived from GPL-licensed code be licensed as a whole at no charge to all under the terms of the GPL. Once a party downloads a copy of GPL-licensed code, does that party own that copy just as a user that downloads Oracle software own a copy of Oracle-licensed software?

In a posting entitled Where does free and open source licensing stand in Europe?, one commentator stated:

The copyleft obligations in such licences, … can be ignored by the courts of Europe because these obligations are incompatible with a sale transaction. More ominously, when a licence is judged to be a sale the terms allowing the 'licensee' to modify and distribute the modified software must also be disregarded for the same reason.  Modifying software acquired in a sale transaction will be a breach of copyright without a licence.

The failure of the CJEU to properly recognise the status of a software licence agreement and give effect to its terms is lamentable in itself, but more significantly for free and open source licences is the failure to appreciate that the terms of a licence may grant more rights to a user than occurs on a sale. 

I'm not convinced that the CJEU would characterize an open source license as the first sale of a copy. The court was clearly motivated by the fact that the copy was transferred for an unlimited period on the basis of remuneration being paid to the licensor (emphasis added): "[T]he right of distribution of a copy of a computer program is exhausted if the copyright holder who has authorised, even free of charge, the downloading of that copy from the internet … has also conferred, in return for payment of a fee intended to enable him to obtain a remuneration corresponding to the economic value of the copy of the work of which he is the proprietor, a right to use that copy for an unlimited period."

Nevertheless, it will be interesting to see how this plays out in Europe. UsedSoft is still going strong, apparently, according to a press release it issued on the one-year anniversary of the CJEU ruling: "One Year After the ECJ Ruling: UsedSoft on the Upswing".

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