Can I sell my surplus software licenses?

YesI’m writing this blog following recent news of a dispute between Microsoft and second-hand licensing specialist Discount Licensing.

In particular, I’m keen to publish an independent message in light of the nonsense being stated by FAST in the press over the last few days.

I’ve covered the common questions that crop up when discussing second-hand software – if you have any others or have anything to correct or add please give me a shout.

Q. Can I sell my surplus software licenses?

Yes, but conditions apply:

  1. You can’t resell OEM licenses (because they are tied to a specific machine). Although you can usually sell the whole machine!
  2. You can’t resell subscriptions (because they relate to a specific term)
  3. You can’t break up bundles
  4. It must be uninstalled
  5. This is a EU ruling and only applies to licenses purchased within the EU. Similar disputes in the USA are as yet unresolved.

Q. Has this always been the case?

No. Some landmark cases have cracked open and validated the second use market:

  1. The German second-hand software specialist UsedSoft took on Oracle in the EU court and won. (See the EU judgement here. See our original article on the news back in 2012 here.)
  2. SAP then tried to take on Susensoftware in 2013, and lost.
  3. There is also an ongoing battle between Microsoft and Preo Software AG. The court in Hamburg issued an injunction to insist that Microsoft stop sending silly letters to confuse customers over licensing.

Since these rulings other traders in this area have sprung up. E.g. ‘The Enterprise Strikes Back; Trading platform launched for buying and selling surplus licensing featuring i-CLX.

Business Week, quoting Ray Wang, estimated the German market to be around 100 million Euros in 2011. I have no firm figures to validate the market but estimate that revenues have grown considerably since the ECJ ruling.

Cécile Grégoire from NearlyNewSoftware stated:

“In 2012, the Financial Times wrote that the UsedSoft decision had the potential to create a multimillion dollar market. Attempts by the software publishers to put up a smokescreen of legal uncertainty is doomed to failure. European companies are fast becoming aware that their right to buy and sell second-hand software licences is as legally certain as the free movement of goods”.

Q. Why hasn’t my software reseller or software publisher told me about this?

Why on earth would they?

What business wants to encourage other competitive sources of supply that offer enormous discounts and eats into their bottom line? Don’t expect any public statements or encouragement from traditional channels. However, legally, you should expect full cooperation as per EU law.

Q. Is it risky?

No. But you need to follow the appropriate channels.

  1. You need to validate that the license can actually be transferred.
  2. The legal transfer of ownership needs to be verified by the software publisher (albeit begrudgingly).

Traders and resellers specialising in second-hand software assist with both parts of this process (usually for a slice of license value), they also offer the professional indemnity to cover the end user organizations in case of error too.

Q. What are the downsides?

You might not receive a Christmas card from your account manager at your software publisher.

Q. How much do I stand to save by buying second hand?

Some sample pricing from NearlyNewSoftware:

  • 25 * AutoCAD LT 2013 for Mac (34% Saving) via NearlyNewSoftware
  • 2000 * Microsoft Windows Server 2012 Remote Desktop Services CAL *(35% Saving) via NearlyNewSoftware

Q. Why was Microsoft vs. Discount Licensing in the news?

Discount Licensing and Microsoft reached a settlement when it was found that Discount Licensing had mistakenly tried to sell USA based volume licenses into the EU (which is not permitted as per the restrictions above).

As a result, The Federation Against Software Theft (FAST) kicked out Discount Licensing from its membership program.

Speaking of the second-hand software market Julian Heathcote-Hobbins stated in an article with CRN:

“FAST believes that current case law is insufficient to be able to categorically state that certain second-hand software transactions are or are not legal,”

The smoke and mirrors continues…

“FAST is yet to come across any appropriately qualified legal adviser that can give a 100 per cent assurance that second-hand software is completely infringement-risk free. The position remains buyer beware.”

Perhaps Julian has not been looking hard enough?

“Resellers should therefore think “very carefully” and seek sound legal advice before jumping into the market, he added, saying that it was difficult to anticipate where the law would finally settle.”

It should be noted that Julian is secretariat for FAST Lawyers Group (FLAG). A group of lawyers whose businesses profit from the ambiguity around intellectual property law. Far from acting as the voice of the software industry, FAST are supporting large software vendors (who are also FAST members) in seeding uncertainty in this market. As Rory Canavan stated in his comment on the CRN article, it’s a bit of an own goal.

To support further clarity in this market and overall clear licensing relationships for both software publishers and customers  – please join the campaign at www.clearlicensing.org .

Finally, a good video from Simonetta Vezzoso with an explanation of Copyright concepts and the exhaustion principle – on which the Oracle vs. Usedsoft case was decided.

Second-hand Digital Goods – Creative Destruction in Copyright Law: Simonetta Vezzoso

Note: This is not professional advice, just my opinion and interpretation. We hope to be able to publish definitive statements and further resources as part of the Campaign for Clear Licensing.

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13 Comments

  1. Rob Harmer says:

    Martin,
    Good synopsis of the current confused state of play.
    How about also challenging the ISO 19770-2 and ISO19770-3 gurus about the issues of secondhand software?
    They claim that software tagging and entitlements will make life easier in 2015, 2016, 2017 or whenever they come into being!
    In terms of 19770-2 and 19770-3 we are not sure how they plan to handle the second hand market. I guess they are not sure either, but they had better be prepared.
    Based on what we understand ISO 19770-2 SWID tags aren’t removed on uninstall (like the registry issues we all face now) so the vendor may end up getting paid twice for the same install – once installed, “uninstalled for resale”, then re-installed!
    Regards Rob

  2. itsmreview says:

    -2 is only concerned with identifying the software. Presumably an organization should be able to scan their organization and filter out those tags suitable for resale.

    The key will be with -3. My understanding is that tags can be updated an annotated – which will cover transfer of ownership etc.

  3. Rory Canavan says:

    Rob, I would be interested to know if their is a second hand software market in Australia?

  4. Rob Harmer says:

    Martin -2 will need tags for software that has been uninstalled, to have the relevant SWID tag uninstalled by the OEM vendor not by the end user. The customer site shouldn’t have to filter anything that they have “resold” or “uninstalled”.
    -3 tags can be updated and annotated by both the vendor and the customer site as they are XML files. This is a real trap…… that needs a lot more thought. Managing -3 is going to present more challenges that end user sites should not have to deal with.
    Rob

  5. Rob Harmer says:

    Rory Not aware of one other than the pirate and underground networks. It’s not an area our sites focus on and if it was it would be a small market. 🙂
    Rob

  6. Rob Harmer says:

    Believing that customer sites will use the -3 tags to track ownership ‘transfers” indicates you believe in the tooth fairy too?

  7. Grant Brierley says:

    Hi Martin,

    Well said, I couldn’t agree more. FAST are undermining the very principles they claim to support with this Publisher pleasing rhetoric.

    What end users also need to know is:-
    1. FAST is funded by the software publisher community.
    2. The UsedSoft/Oracle ECJ Ruling didn’t change the law – it clarified the law.
    3. Most publishers even have standard forms for license transfers to unaffiliated organisations.

    The buying and selling of surplus bona fide perpetual licenses is not only 100% legitimate within the EU – provided the conditions you outline above are observed – but it should also be considered as best practice by all SAM professionals.

  8. John Anderson says:

    IBM’s International Program License Agreement (IPLA) has always allowed you to resell your entitlement. There are some wrinkles, as you pointed out….. you have to sell all of it, not just part. And, of course, you have to uninstall your copy. Also, some clients have an amendment to their contracts which prohibits resale.

  9. A few addition points to be aware of:

    Transfer of license ownership must be directly between the 2 legal entities. The agent you bought it through simply facilitates and should not appear on transfer documentation.

    Software Assurance (SA) is not transferable.

    Assume these licenses will be questioned come audit/true-up so you should be particularily careful with the records.

    You should have a letter from the original owner stating that the software has been removed from all the previous devices.

    The entity you are buying from must be incorporated in Europe.

    Get license advice before you make a purchase, especially if you are closing a know compliance gap, to ensure they are appropriate for your needs

  10. An interesting test of how helpful your Microsoft VAR is:

    ask them for their “advice” on the purchase of surplus licenses and to justify why you should consider new licenses to fill a gap?

  11. hugh payne says:

    I would like to see Microsoft try this in a Scottish court, certainly will not stand as Scottish court listens more to Europe laws and decisions.

    Anyone like to give it a try?

  12. abi govind says:

    what is the general opinion on current audits in process

    do you have a defense against license bought from ebay
    which was not registered with the manufacturer.

    you have a legal copy and not copy righted. are you under penalty.I wonder why the software maker does not make it mandatory that you cannot use a license without registering or they also want to perpetuate and abett the whole thing and then come back and penalise the end user. thoughts etc. In the end does it make sense to fight or settle.IF YOU ARE IN USA

  13. Hi Martin,

    You wrote “Q. Can I sell my surplus software licenses? Yes, but conditions apply: … You can’t break up bundles” …

    What is a bundle ?

    Example to illustrate
    ***************************
    In the past a company (Customer) has acquired some SW product’s RTUs from a supplier (Supplier).
    The licensing model for this SW product
    -> foundation RTU / perpetual right (ordered qty is 1 per server running the product)
    -> user session RTU / floating license (ordered qty usually grow following usage )

    History
    2000: after RFP stage Customer selected Supplier. A contract has been signed (2000_contract).
    2001: Customer ordered through one purchase order 1 foundation + 10 user sessions RTUs
    2005: Customer ordered 20 (add’l) user sessions RTUs (T’s&C’s from 2000_contract applied)
    2010: new RFP. Supplier selected again. New contract signed (2010_contract, no difference between 2000_contract and 2010_contract, same T’s&C’s, pricing)
    2011: customer ordered 5 add’l user session RTU (under 2010_contract)

    Globally, customer has acquired 1 foundation and 35 user session RTUs through 3 purchase orders (2 POs under 2000_contract , 1 PO under 2010_contract)

    In term of deliverable, Customer has a (one) licence file ‘aggregating’ all the rights acquired from the beginning (not one file per contract or not one per PO).

    Where is the bundle? I intend to think it is tide to the contract ?
    That means customer could resale
    -> 1 foundation + 30 user sessions RTUs
    AND/OR
    -> 5 user sessions RTU
    but customer can not resale only “1 foundation” neither only “1 user session” nor only “1 foundation + 10 user sessions RTU”

    Not sure btw

    What do you think ?
    Hervé

    Note: I work on SW editor side . I personally see 2ndHand more as an opportunity than a threat in fact.

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