Disclosure of the supply chain – CRN reveals the matter

The trade journal, CRN, reported about a controversial case in its December edition: In Autumn 2017, used Microsoft Office Pro Plus licenses that originated in Canada and Australia flooded the German market. According to current case law, they may not be distributed in Europe. Clearly, however, not all used software dealers comply with this requirement.

VENDOSOFT was also offered 6,000 of the licenses. Managing Director, Björn Orth uncovered the origin and declined the purchase. The trade journal, CRN, reports on this – and mentions a total of 30,000 licenses.

Read the CRN article

Legal aspects when purchasing and selling used software

The demand for disclosure of the supply chain is raised time and time again in the trade in used software licenses for commercial use. The current example makes it clear that this is not a panacea.  An interview with Björn Orth explains:

Mr Orth, you recently received a tempting offer to purchase 6000 used Microsoft Office licenses.
What was that about?

Orth: Yes, that’s right. There was an option of buying Microsoft Office Pro Plus licenses at an extremely low price. That made me suspicious, so we put the offer to the test. As a used software dealer, we insist on the disclosure of the entire supply chain. In this case, we also requested economic information via Creditreform. It seemed to be a sound business deal. That is, until our research showed that the software was first circulated in Canada, and the licenses were later transferred to a UK office of the same company.

Does this correspond to the principles of the case law of the Court of Justice of the European Union and German Federal Supreme Court of Justice regarding the so-called exhaustion??

Orth: No. The Court of Justice of the European Union and the German Federal Supreme Court of Justice imposed strict guidelines on trade in second-hand software. Accordingly, the aforementioned principle of exhaustion applies. This is enshrined in copyright law and states that the right of distribution of the right’s owner – i.e., the software publisher – is exhausted as soon as that publisher has placed their work on the market for the first time. The basic requirement for this is that the software publisher must have originally sold the licenses within the European Union or in the European Economic Area. The copy in question of the software is subsequently available for further dissemination within the EU and a subsequent purchaser can invoke the ruling.

Does this principle not apply to software that originates in Canada?

In all likelihood, no. It cannot be excluded, however, that the software publisher has consented to the transfer from Canada to the UK and, in the further course of the transfer, from Great Britain to Europe. It is also possible that they are licenses purchased in Europe that, according to the contract, could be used in a Canadian branch. We were not able to determine this.

As the holder of the rights, if Microsoft were to assert a claim for copyright infringement against the purchaser of these licenses in Germany, this should be governed by German or European law. The customer would then be denied an appeal to the (European) principle of exhaustion due to the Canadian origin of the software. There are some risks in buying these used licenses.

How did you respond and what happened with the offer?

Orth: We rejected the offer and called the seller’s attention to the possible illegality of the trade. To our knowledge, this is how most used software dealers in Germany responded.

Were the 6000 licenses ultimately placed on the market?

Orth: Yes they were. Our industry is relatively small and therefore, we keep an eye on deals of this kind. I have heard from multiple sources that a South German used software dealer bought up the licenses – specifically one who advertises loudly about the disclosure of the supply chain. We are curious to see if this dealer actually informs their customers about the Canadian origin and provides the necessary information for clarifying the legality of the purchase.

What is the situation with the disclosure of the supply chain anyway – is this required when trading in used software?

Orth: In various court decisions (most recently in 2016 by the Procurement Chamber of Münster), buyers are advised to request proof that the copy of the software has been de-installed from the original holder of the license in a “suitable manner”. This transfers the rights to the license to the new buyer. According to the court, the disclosure of the supply chain is not explicitly required, and can also not be required.

You have to realise that we often purchase used software licenses in the three- or four-digit range and sell those licenses to many different buyers. We cannot disclose the sensitive data of the original purchaser to 20, 30 or more buyers, simply due to data protection considerations alone.

How else could customers be certain that the used software they acquire meets all of the legal requirements?

Orth: VENDOSOFT provides its customers with a declaration of exemption with every completed purchase. Moreover, an independent auditing office determines the proper chain of title for all of our sales – and guarantees this to our customers.

Do you recommend the disclosure?

Orth: No. This is because, as the example with the Canadian licenses has shown, a complete novice would never have discovered that basis of the software being offered was located in Canada. Most customers of used software do not have sufficient expertise in licensing law.

As a rule, the customer’s biggest worry is not being licensed in a manner that is manufacturer-compliant because this may result in back payments and in case of doubt, legal consequences. In order to be on the safe side, the following documents are important: Bill of sale and invoice, confirmation of the proper acquisition of the software by the original purchasers and dealer, as well as a confirmation of the de-installation of the licenses acquired. All of this is reviewed and sealed by an auditor for VENDOSOFT.

Legal issues pertaining to the used software trade