More on exhaustion

Just after finishing our recent post on the exhaustion doctrine (ECJ “Usedsoft”), I came across two other news reports touching upon the same issues. The first concerned an ongoing dispute between Microsoft and a German used license trading company . The second pointed to an (unintentionally comical) decision of the Higher Regional Court of Stuttgart (Oberlandesgericht Stuttgart).

1. Preo Software AG (Preo) is a German company selling split volume licenses for business software among which there are all kinds of Microsoft products. For a while now, Microsoft has tried to get in Preo’s way, partly by sending letters to Preo’s customers explaining that volume licenses may not be split and sold and therefore rejecting to take over such split licenses. Heise reports now that Preo has made an interesting move in order to protect its business. Preo has just filed an action for a declaratory judgment against Microsoft, asking the District Court of Hamburg (Landgericht Hamburg) to confirm that Preo is permitted to trade with split volume licenses of Microsoft products. It will be interesting to see what the court will make of this, in particular as Preo’s step came just at the same time as the Advocate General’s opinion in the Usedsoft case. The Advocate General’s position does not seem to help Preo’s case – on the other hand, Preo has been successful in the past in obtaining a preliminary injunction against Microsoft, according to which Microsoft was banned from sending above mentioned letters. As things stand, one should expect that the Hamburg case will not be decided before the European judges let us know their take on the first sale conundrum.

2. In this context, it is interesting to take a look at a decision the Higher Court of Appeals of Stuttgart (Oberlandesgericht Stuttgart) handed down in last November. It dealt again with exhaustion problems, but with a little twist: The legal question the court had to address was whether or not a clause in a copyright owner’s General License Conditions, according to which the recipient of a download was not permitted to pass on the copy created during the download, was effective under Germany’s law on Standard Business Terms.

“Why would such a clause not be effective?”, one might want to ask. Well, the argument is: The distribution right for the copy created is exhausted, and therefore, any contractual obligation to the contrary forced upon a customer through General License Terms (which may not be negotiated) must be unreasonably disadvantageous for the customer and therefore without effect.

The Swabian judges were not convinced by this argument, and held that the clause was fine. This outcome is not all too surprising, as the Swabian judges followed a traditional line of reasoning a number of courts (especially from Southern Germany) have applied in recent exhaustion cases: The distribution right can only be exhausted if a physical copy of a the respective work is sold and handed over; therefore, rightholders continue to control the distribution of a copy that was merely created by a downloader, even if the download was done with the rightholder’s consent. This is pretty much the opposite of what Advocate General Yves Bot argued last week and what an increasing number of scholars and courts think is right.

I am willing to admit that there are valid legal arguments supporting the court’s position. But I’d love to know what on earth made the court rely on the law on the protection of computer programs, if the whole case was about a plain audio file…


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