Pre-owned Software: Yes, it's okay

Best practice

Pre-owned Software: Yes, it's okay

03 June 2019

6 minute read

This article has been written by Rich Gibbons of ITAM Review and Michael Vilain of Relicense.

The pre-owned software market has been around for longer than you think but is still very much in the growth stage. It exists primarily in the EU (and also Norway & Switzerland*) and is becoming more interesting, prominent, and attractive than ever as businesses face the combined trends of the rise of cloud, and the expectation to do more with less.

*Products sourced in Norway & Switzerland may only be sold in their respective countries, but products sourced from the EU can be sold into Norway & Switzerland.

Let us look at some key moments in the life of the pre-owned software industry, its legal position, and some examples of how it could benefit you.

The UsedSoft Case

A key moment in the evolution of the pre-owned software market was the Court of Justice case C-129/11: “UsedSoft GmbH v Oracle International Corp.” The Court of Justice is the supreme EU court when it comes to EU law.
This case stated that persons could resell software they have purchased and that “any subsequent acquirer of a copy for which the copyright holder’s distribution right is exhausted constitutes such a lawful acquirer”.
The case also stated some caveats around what can and cannot be done:

1) “an original acquirer of a tangible or intangible copy of a computer program for which the copyright holder’s right of distribution is exhausted must make the copy downloaded onto his own computer unusable at the time of resale”

If you’re going to sell the software, you must ensure it can no longer be used within your organisation.

2) “if the licence acquired by the first acquirer relates to a greater number of users than he needs, that acquirer is not authorised by the effect of the exhaustion of the distribution right to divide the licence and resell only part of it”

This means you cannot split a bundle and resell them separately. There is sometimes confusion around this – it only applies to an actual bundle where you purchase 1 license that includes multiple products; purchasing “X” number of volume licenses on an order is not a bundle – and so these can be resold in any quantities.

3) “the functionalities corrected, altered or added [via maintenance] form an integral part of the copy originally downloaded”

When the software is resold, it can include updates/patches etc. that were downloaded via a maintenance contract held by the original purchaser.

Principle of Exhaustion

Also known as the ‘First Sale doctrine’, this states that once an IP owner (such as Oracle) has sold their product covered by IP rights, the IP rights of commercial exploitation are now exhausted. This means they cannot then control that product being re-sold to 3rd parties.

What’s the Opportunity with pre-owned software?

Most organisations are sitting on a considerable amount of unused software. Think about it – if you buy perpetual licenses, each time you purchase a new version, what happens to the old software? In most cases it tends to be forgotten, offering no value of any kind to the organisation. The pre-owned software market gives you an opportunity to change that, where you can make money and/or save money.
Although the key ruling involved Oracle software, the primary focus of the pre-owned market is Microsoft software – most commonly the Office suite. There are several reasons for this, including:

Sheer prevalence – everyone uses Microsoft
Uniformity – an Office license for you is the same for me
Office 365 – the more cloud adoption increases, the more perpetual software is left behind

Organisations tend to stay on older versions of Office for 3 reasons:

They require compatibility with an on-premises LOB (Line of Business) app
They don’t have the time/budget to re-train users on new features/layouts/interfaces
They don’t see the value in the new version’s additional features

In all these scenarios, the usual action is to purchase new licenses and downgrade them to the earlier version required – however, this means you’re paying for the latest and greatest, whilst not using any of those new features.
What pre-owned software allows you to do is buy copies of the older software – the version you actually want to use – at prices that reflect the fact they’re not brand new.

Pricing

While the actual pricing depends on many factors including your agreement, your price level, and your partner but, an indicative example from ReLicense AG, shows:

Showing the potential price savings available with pre-owned software

*based on 250 minimum

This represents a potential saving of $386 – 72% – per license. If you’re the buyer, that’s €96,500 saved – budget that can be put to work elsewhere within your business. Equally, if you’re the seller in this situation, that’s €37,250 (minus fees etc.) additional budget available to you.

Next Steps with pre-owned software

There is money to be made, and money to be saved, so working out where you – as a company – stand on this is key.

Look at upcoming software purchases – are there any scenarios where pre-owned software could help reduce the bill?
Look at your purchase history – particularly around version upgrades and cloud migrations -and identify surplus software you may be able to sell.
Calculate the potential savings/earnings available to you.
Speak to internal stakeholders, including legal, and understand their position.

It’s likely that many people will feel unsure about the whole idea but, as we’ve seen, there is legal precedent within the EU and an ever more robust industry to support it. Although your organisation may initially be wary of the idea of pre-owned software, this is more due to unfamiliarity rather than risk.
If you feel pre-owned software could help your organisation, talk to some of the suppliers in the marketplace to understand their processes and how the verification process etc. works. Ask to speak to some of their reference customers, and get your key stakeholders involved; if your CFO/CIO etc. talks to their counterpart at another organisation and hears their experiences, it should help them see how it can benefit you too.

Pre-owned Software: Yes, it's okay