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Opinion: Legal Traps for Software Developers

Guest article by Grant Esterhuizen of Lester Aldridge LLP

The case of Usedsoft v Oracle is important for software developers, who may as a consequence no longer be able to restrict their customers from selling their software on to a third party as “used software”.

Like most software houses, Oracle makes its software available for download electronically under perpetual, non-transferable licences for a one-off licence fee. Usedsoft established a business in Germany buying and selling “used” software, including Oracle software. Oracle argued that by buying used Oracle software from Oracle’s customers and then selling that software on to third parties, Usedsoft, together with Oracle’s customers, had breached the terms of Oracle’s software licence.

Oracle argued that its software was not sold but instead licensed to its customers, who did not have the right to resell Oracle’s software on to Usedsoft. However, the European Court decided that a perpetual licence which is made available in consideration of a one-off payment is equivalent to a sale, not a licence, regardless of the medium by which the software is supplied. In its view, Oracle’s rights were “exhausted” by the first sale of the software to Oracle’s customer, in the same way as publishers of books and DVD’s are exhausted.

The Court also held that updates and upgrades to software which the original customer may have received under a maintenance agreement with Oracle could be included in the customer’s sale of the software to Usedsoft.

Lester Aldridge warn: If you are in the business of providing software on a perpetual basis for a one-off licence fee and seek to generate revenues by concluding maintenance agreements under which your licensees must pay annual fees, you may like to review the terms of your software licence(s), as retaining non-transfer provisions in those agreements may be unenforceable and also breach EU competition law.