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Adviser Upends Software Reselling Business Model

(CN) - Companies that sell "used" software licenses violate EU copyright law by allowing new customers to obtain titles without paying software makers for the rights, an adviser to the European Union's high court said Tuesday.

The opinion stems from a lawsuit Oracle filed against UsedSoft in Germany. UsedSoft sells videogame licenses bought from Oracle customers and then sells the used licenses to other customers, who then download the product directly from Oracle's website.

Germany's high court referred questions about EU copyright law protecting computer programs to the Court of Justice in Luxembourg.

Under the law, computer programs are protected as literary works and the software makers "exhaust" the right of distribution with the first sale of a copy. But the companies continue to control further rental of the programs.

UsedSoft claimed that the principle of exhaustion validates its business model of selling used software, which pays its users for unwanted licenses that they previously bought from Oracle, and then sells them to new customers. But Oracle said the principle applies only to tangible software and not Internet downloads.

Court of Justice Advocate General Yves Bot agreed with UsedSoft that the principle of exhaustion applies to both sales of tangible product as well as internet downloads, but he said that it does not apply to the resale of user licenses.

"The answer to this question can be inferred, in my view, from the distinction between the right of distribution, which is exhaustible, and the right of reproduction, which is not exhaustible," Bot wrote.

EU law is clear that "the principle of exhaustion relates exclusively to the distribution of a copy of the computer program and cannot adversely affect the right of reproduction, which cannot be impaired without adversely affecting the very substance of the copyright," he added.

The law authorizes a person who has purchased software to reproduce the work so it may be used for its intended purpose, like burning a CD-ROM copy. But the law does not authorize a new user to obtain the title without first paying the copyright holder for its use, Bot said.

Acknowledging that his decision restricts the scope of the exhaustion principle, Bot pointed out that a converse holding would widen the scope beyond legislative intent.

Thus, the law "must be interpreted as meaning that, in the event of resale of the right to use the copy of a computer program, the second acquirer cannot rely on exhaustion of the right to distribute that copy in order to reproduce the program by creating a new copy, even if the first acquirer has erased his copy or no longer uses it," Bot concluded.

The Court of Justice will take Bot's nonbinding opinion under advisement when it deliberates on the case. The German court will then dispose of the case in accordance with the court's decision.

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