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software reselling

Used software reselling ‘clouded’ by technological advancements

By Harry John, Research Analyst for Procurement Leaders

Published by Procurement Leaders Global Intelligence Network, September 2013

With software license resale now backed by EU courts, slow uptake suggests that laws are once again unable to keep pace with technological developments.

“More than a year after a ruling by the European Court of Justice over the resale of software licences, the business world is still holding its breath to see what will happen next”, writes Paul Sheehan. In other words, “corporates are cautious”, notes Sheehan, managing partner at IT Asset Management Solutions.

In 2012, the European Court of Justice (ECJ) passed a landmark ruling for the free market in Europe. The case, UsedSoft – a used software broker, founded in 2003 – Vs. Oracle, was concerned with the exhaustion of distributor rights upon release of a software product into the market. In principle, it has for a long time been legal to purchase used software, however, buyers and sellers fell into a legal grey area with the laws’ inability to keep pace with technological developments. When EU guidelines were originally published in 1993, nobody had predicted (as is technology’s mystery) the sale of downloadable software, for example.

20 years on, the ECJ has finally mandated legal certainty for buyers of used software, meaning that any software licence purchased can be re-sold without the permission of the manufacturer, allowing for increased transparency and free competition in software trade. About time, too; the stifling nature of IP has long been the blight of the free market, and it is a concept that continues to suffocate US trade, with software vendors’ monopolistic practices continuing in the same vein.

Despite legal backing now encouraging b2b software license trading, developments in the cloud have meant development in the used software market is slower than early predictions may have suggested.

The advantages for buyers in Europe, however, are rife. UsedSoft estimate the purchase of used licenses to be as much as 30% cheaper than new. Additionally, with the ability to transfer online licenses, sub-purchasers are able to benefit fully from manufacturer updates, free of charge, without being tied to the usual perplexing encumbrances that come with traditional supplier lock-in. The efforts of those such as UsedSoft should be applauded not only for their progress made in the market, then, but also by customers for reinforcing their rights in the face of supplier “hoodwinking”.

There are, however, certain caveats. While volume licences may be split and sold individually, i.e. a volume licence comprising 100 individual licences may be divided and sold separately, selling, for example, 50 of the original 100 purchased. Client-server software, on the other hand, may not be sold separately, given that one license typically comprises a number of access rights, rather than individual licenses per se.

Further, just as relevant laws failed to keep pace in the late 20th and early 21st Centuries, it seems that the ECJs ruling has again failed to account for developments in the cloud and the declining market for on-premises software sales. The ruling could in fact have been said to spur providers on even further in delivering cloud-only services, restricting customer ownership and usage rights in line with a growing propensity towards lease and rental agreements. Indeed, a number of leading global software manufacturers and distributors have told of their commitment to a future in the cloud; so far in 2013, Adobe alone have achieved an impressive 47% quarter on quarter growth in cloud subscriptions.

What should come as a major concern for software users is that – once pointed out, it sounds obvious – only software that has been purchased can be resold. Any form of lease or subscription-based payment disqualifies the license for secondary purchase. Second-hand buyers should also be wary of software developers’ efforts to restrict access to third party maintenance services; efforts that so far have been described as “heinous” (Forbes) and “heavy handed” (Computer Weekly), leading to the confiscation of attendee passes at SAP’s annual SAPPHIRE event.

The work of both Rimini Street and Spinnaker (third party maintenance providers) must be considered in the same vein as that of the ECJ, and it is up to both software users and the European Union to support such services in the face of supplier monopoly.

So far as pushing to the fore the rights of the customer and the benefits of free trade, unforeseen ramifications could make the ECJ’s ruling utterly redundant, with little or no similar protection currently in place for cloud users. Clearly, these issues will need to be addressed if a marketplace free from the opacity of aggressive supplier tactics is to be realised.

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