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July 5, 2012

First Sale Gets A Second Life in Europe

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Posted by Alan Wexelblat

What is now a small decision by a court in Europe could have huge implications for software retailing across the EU.

Let's start as simply as I can: in a decision for UsedSoft GmbH and against Oracle the Court of Justice of the European Union has ruled that purchasers of downloaded software programs cannot be prevented from reselling their used licenses (link goes to the ruling PDF). Traditionally, the European Union and its member states have recognized so-called 'moral rights' of authors in things like, books, music, and movies (see Decherney's recent book for a discussion of how Hollywood sort of imported some aspects of moral rights over here). As a result, the first-sale doctrine mostly hasn't existed over there.

Older copyright laws and treaties haven't always extended to software and it has been up to more recent treaties, or court interpretations of past laws, to specify what rights exist in computer software and how those rights have been treated. Up to now it's been pretty predictable, which is why this ruling came as a bit of a shock. And, as Forbes columnist Ray Wang notes, this may be a way to shake up what are currently very tightly monopolistic enterprises.

However, I don't care much about enterprise software. What I do care about is gaming. And this is a freaking nuclear bombshell for the gaming industry if it holds up. Right now we're in the death throes of the boxed-sale model for gaming. Services like Steam, Origin, and Amazon have shifted people's purchasing habits away from physical media and toward downloaded games. Never you mind things like the App Store (iPhone) and Play Store (Android) which are selling millions of download-only programs. Even stodgy old desktop and console gamers like me
are doing the vast majority of their purchasing online these days. Always-on, high-speed bandwidth has made it the norm for people to download even very large big-name titles.

Unlike physical media, though, you can't do anything with those games once you've bought them. Once you buy a game through Steam, for example, you've bought it. It's not returnable, not refundable, not resellable. This is not universally true, though. There are some businesses that are beginning to explore how to manage resales. An acquaintance who covers the gaming industry pointed me to Greenman Gaming, a UK-based digital retailer that is using proprietary technology to allow downloaders to trade in game purchases.

This reminds me of Redigi here in the US, which is trying to legitimize resales of iTunes purchases. In both cases the claim is that the company can deploy technology to ensure that only one digital copy ever exists. You buy a tune or game as normal, but when you want to resell it, the item is removed from your computer disk/account. You can't access it again, and when it's repurchased that purchaser gets, in effect, your copy. Just as with physical media, the original seller may not see more revenue but the practice is legal under first sale.

As a practical matter I expect that if this ruling stands the online game sellers will adapt to it. You'll probably have to pay a service fee to transfer your purchases back, and you can imagine situations in which people get a discount in exchange for giving up resale rights. Smart retailers will likely copy the practices of places like GameStop (US, physical) and Greenman where you get more in store credits for returned games than you can get in cash. There are a lot of business opportunities that can be opened up here - it's exciting.

As a related aside I wanted to note that the American Library Association has just filed its amicus brief (PDF link) in Kirtsaeng. As I mentioned before, the ALA position is that this case threatens to tear apart the entire practice of library donations and lending if it is upheld. Clearly the US should not go on to destroy crucial first sale rights and the Europeans should be celebrating their new freedoms. Happy 4th of July, guys.

Comments (2) + TrackBacks (0) | Category: IP Markets and Monopolies


1. Noel Unwin on July 6, 2012 1:26 AM writes...

This court ruling puts a long awaited dent in the FUD (Fear, Uncertainty & Doubt) tactics employed by the software vendors. However, worth noting that Usedsoft's use of a Notary (in part, to hide where the licences came from) was deemed illegal by the German courts and Usedsoft is now also going through insolvency proceedings. There are other secondary software licence suppliers whom adopt more transparent business models that do not rely on the Exhaustion Principle eg:

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2. Alan Wexelblat on July 6, 2012 5:44 AM writes...

Thanks for the clarification, Noel. I agree with you that the court's ruling is not a blanket invitation to all possible ways of handling used licenses. I expect that companies will try to use other court challenges at least to clarify - if not narrow - this ruling so there is probably much more to come.

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