A new secondary market for used software has emerged

Some time back in December 2006, we wondered why enterprises could not resell unused and used software and transfer related services to a willing buyer under a perpetual license.  Enterprises could resell hardware, telecom equipment, and other services contracts.  So why couldn’t a licensee retain the right to sell their software in the secondary market?  In addition to licenses, this could include maintenance agreements, support contracts, training, and consulting services to either an unrelated third party, joint venture, partnership, or subsidiary.  In fact, we even put this in as the 36th right in the landmark Enterprise Software Licensee’s Bill of Rights.  Well, since that time, several German vendors such as Preo Software, SusenSoftware and UsedSoft in EMEA have pioneered such a capability in the German market.

Recent lawsuit with SAP highlights some tactics vendors have tried to mislead customers

German copyright law (UrhG) upholds the principle of the “Exhaustion Rule”, which means that the developer’s copyright expires at the time of sale.  This legal foundation was upheld in the German Federal Court of Justice (BGH) on July 6th, 2000.  In summary, a developer can only make money on the initial sale and any attempt to restrict trade of used software through specific trade terms conflicts with the exhaustion rule.  Experts cite that this rule applies throughout the EU and Switzerland based on recent case law.

In the most recent case against SAP, apparently an SAP employee told a customer that they must seek permission from the software vendor to purchase used software. Based on a previous ruling between UsedSoft and Microsoft in the Hamburg courts on June 29, 2006, vendors can not mislead customers on the legality of used software.  In specific, “It is forbidden (416 O 103/08) to the software producer to spread misleading statements for the legal standard of the using software trade”.  The provisional order won by SusenSoft over SAP also reinforces the previous legal challenges.

Ruling also applies to the U.S.

To date, the “Exhaustion Rule” also known as the “First-Sale” doctrine has been upheld most recently in the June 2nd 2008 case of Timothy S. Vernor v. Autodesk Inc.  In fact the specific ruling cites, “This doctrine is stated in the following statutory provisions: “Notwithstanding the provisions of section 106(3) [17 USCS § 106(3)], 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.” 17 U.S.C. § 109(a).  Because a first sale exhausts the copyright holder’s distribution right, future distributions of the copy do not implicate the Copyright Act. Opinion, p.7, citing United States v. Wise, 550 F.2d 1180, 1187 (9th Cir. 1977).  A first sale does not, however, exhaust other rights, such as the copyright holder’s right to prohibit copying of the copy he sells. Id. For example, the first sale doctrine permits a consumer who buys a lawfully made DVD copy of “Gone With the Wind” to resell the copy, but not to duplicate the copy. Id.

The bottom line -  consider the secondary market as part of your long term apps strategy

Enterprises seeking to optimize enterprise software costs may want to consider the used software or secondary market as an option.  It appears that the legal precedents have been set in EMEA (we’re hearing mixed things in the US (revised 6/22/2009 8:05 am PT).  Now may be the time to pick up additional SAP R/3 4.7, Oracle 11i EBS, or Infor Baan 4CIV licenses!  Resellers, VARs, and distributors should take the opportunity to create this new market.  Pressure from vendors will most likely be limited as the sentiment in the courts now side with the customer.

Your POV

Wondering when you can unload your used software licenses?  Are you looking to unload an acquired entities assets to use?  Would you want to benefit from the secondary enterprise software market? Please post or send on to rwang0 at gmail dot com and we’ll keep your anonymity.

Related research and links

June 12, 2009, Channel Partner, “Used software – SAP suffers defeat”

June 9, 2009 Channel Partner, “UsedSoft obtains a provisional order against Microsoft”

December 22, 2008, Forrester Research – Peter O’Neill  “The Spread Of Remarketed Software Could Be A European Response To The Economic Crisis”

June 2, 2008, Law Updates – “Federal Judge Approves eBay Auction of Copyrighted Autodesk AutoCAD Design Software”

December 18, 2006, Forrester Research – R “Ray” Wang “An Enterprise Software Licensee’s Bill of Rights”

Copyright © 2009 R Wang. All rights reserved.

* This post provides an alternative that must be vetted by proper legal professionals.  Please consult your own legal counsel for specific advice on legalities.