In the world of literature nobody questions that an author does not own copyright in his written work and nor is the publisher denied the right to obtain protection for publications of the author’s work in the form of a book.
Equally no purchaser of a book assumes that he or she cannot sell that book on. Whilst intellectual property resides in the text of the book it is harder to establish that a right resides in the underlying idea of a book.
In this paper I shall look at the concepts of software as goods and the copyright-able aspects of a software program by reference to the above cases.
USEDSOFT V ORACLE
On the 3rd July 2012 the European Court of Justice (ECJ) decided the case of UsedSoft GmbH v Oracle International Corp  . The ECJ ruled that the copyright owner of software cannot prevent a perpetual licensee who has downloaded the software from the internet from selling the “used” licence.
The background to this case was that Oracle had developed and marketed computer software that was downloadable by licensees from the internet.
The licence of the software was governed by an agreement that provided that in consideration of a one-off payment the licensee would receive a non-exclusive, non-transferable right to use the software for an unlimited period. Separately by a maintenance agreement licensees could download updates, fixes and patches for the software from Oracle’s website.
Whilst it had been understood that mass market computer software “sold” in a durable medium was “goods”, to which rights would apply in respect of lending and sale, until the UsedSoft case it had been assumed that software delivered in an intangible (or non-durable form) was appropriately licenced and therefore was not “goods”, and therefore onward sale could be prevented by the terms of the standard licence agreement.
UsedSoft dealt in second hand software and offered for sale “used” Oracle licences supported by a renewal maintenance agreement via the Oracle website.
Following a successful injunction in the Munich Regional Court whereby Oracle was able to prevent UsedSoft from selling used licences, UsedSoft applied to the German Federal Court which in turn referred a number of fundamental questions on the interpretation of Directive 2009/24/EC on the legal protection of computer programs (the Computer Programs Directive) and the relevant provisions follow:
- Article 4 (1) whereby the rightsholder of a computer program has the exclusive right to control the copying of the software program, its translation, adaptation, arrangement and any other alteration and the distribution of the computer program to the public including rental of the original computer program or of copies
- Article 4 (2) whereby the first sale of a computer program into the EU by the rightsholder or with the rightsholder’s consent is subject to the doctoring of exhaustion of rights, and
- Article 5 (1) in the absence of specific contractual provisions the rights of the rightsholder to control copying amendments and adaptions shall not apply where such activities are necessary for the use of the computer program by its lawful acquirer as part of its intended use including error correction.
The German Federal Court asked the ECJ whether:
- The doctoring of exhaustion of rights applied where the acquirer had made a copy with the rightsholder’s consent by downloading the program from the internet, and
- Whether the acquirer of the original user licence was a “lawful acquirer” within the meaning of Article 5 (1) and thus could rely on the exhaustion rule in order to be able to run the program on its own systems.
The ECJ ruled that downloaded software with a perpetual licence was the “functional equivalent” of a physical product and as such the rightsholder’s ability to control subsequent distribution was exhausted as in effect a sale had taken place.
In particular the ECJ said that “sale of a copy” in Article 4 (2) covers all situations where there is a licence for an unlimited period for the use of a computer program in consideration of a payment.
So therefore, irrespective of any attempt in the licence agreement to restrict further transfer, the rightsholder cannot prevent resale.
Furthermore, where a licence agreement is supported by a maintenance agreement which provides updates and fixes notwithstanding that the maintenance agreement may be for a limited period the performance of such maintenance obligations is deemed an integral part of the licence agreement itself.
At the time of the above decision software vendors were naturally concerned that their ability to enforce copyright and other rights in their software programs was greatly diminished. However the UsedSoft decision is still limited in scope in that:
- The decision does not apply to software as a service or for hosted situations where access to the software only is granted and there is no “sale” as such
- The decision applied to software licensed for a perpetual period and therefore strictly enforced rental terms of licensed terms have enabled software owners to better control ownership
- Multiple user licences cannot be split so therefore from a second hand market point of view it is unattractive to resell block licences
- Finally in the last few years the growth of cloud based solutions and hosted services in general has meant that software is delivered as anything but goods
SAS V WPL
The long running litigation in SAS v WPL  focused on the issue of copyright in a computer program, its manuals and its underlying functionality.
The litigation was conducted in both the UK, before the ECJ and in the US, and ultimately the Court of Appeal handed down its decision in 2013.
The background to the dispute between the parties arose from the fact that SAS as a developer and owner of software programs written in a SAS proprietary program language (the SAS System) licenced a product which enabled users to learn to use the SAS System (“Learning Edition”).
WPL as a licensee of Learning Edition subsequently developed a rival system by studying the functionality of the SAS System and by using the user manual.
WPL’s competing product replicated the functionality of certain parts of the SAS System but in a different programming language and enabled WPL to take away customers from SAS without those customers having to replace all SAS programs. In other words the WPL software emulated the SAS System.
SAS brought a series of claims against WPL alleging that it:
- used the SAS System user manual and copied substantial parts of the manual thereby infringing copyright in the manual
- infringed copyright in the SAS manual by recreating considerable parts in the WPL manual
- misused the Learning Edition software outside the terms of the licence agreement by using it to develop a competing system, and
- indirectly infringed copyright in the SAS System when creating the WPL system.
The case was initially heard in the English High Court by Arnold Judge, who provided his first Judgement in July 2010 but also referred several questions to the ECJ.
Justice Arnold expressed his initial views of the main claims in his initial judgement:
In interpreting Article 5(3), WPL’s use of the learning addition was within Article 5(3) and to the extent that any of the terms of the licence prevented observing, studying or testing functionality of the SAS System such restrictions would be null and void.
WPL had infringed copyright in the SAS manuals but not in respect of the production of the WPL manual.
WPL had not infringed copyright in the SAS System by creating a competing product based on emulation and the studying of underlying functionality.
In respect of the questions referred to the ECJ these related to interpretations of the Software Directive and on the 12th May 2012  judgement was handed down with a conclusion that:
- Article 1(2) of the Computer Programs Directive must be interpreted as meaning that neither the functionality of the computer program nor the programming language and the format of data files used in a computer program in order to exploit certain of its functions constitute a form of expression of that program and, as such, are not protected by copyright in computer programs for the purposes of that directive.
- Article 5(3) of the Software Directive means that a person who has obtained a copy of a computer programme under a licence is entitled, without the authorisation of the owner of the copyright, to observe, study or test the functioning of that programme so as to determine the ideas and principles which underlie any element of it, provided that those acts did not infringe the copyright in the programme.
The ECJ’s decision that the functionality of a program cannot be protected by copyright, in some respects does no more than repeat and endorse the decision of the English Courts in earlier cases .
Ultimately the matter came to the Court of Appeal the appeal by SAS was dismissed. The Court of Appeal confirmed that there had been no infringement of copyright in the SAS System as the functionality of the software was not protected by copyright however infringement of copyright in the SAS System User Manual was upheld.
Copyright Law: other useful links to help you find a solicitor
Law Society: https://www.lawsociety.org.uk/
Solicitors Regulation Authority: http://www.sra.org.uk/home/home.page
Legal 500: http://www.legal500.com/
Legal Week: http://www.legalweek.com/