Background
ValueLicensing (VL), trading as JJH Enterprises Limited, sold second-hand licenses for Microsoft software products, including Windows and Office. Microsoft placed contractual restrictions on license resales and migrated customers from perpetual licenses to subscription models. VL brought a damages claim alleging that Microsoft violated Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU) and the Competition Act 1998, claiming Microsoft improperly restricted the secondary market for software licenses. The claim covered the UK and entire EEA for the period 1 January 2014 through 31 December 2022.
Microsoft challenged the Competition Appeal Tribunal’s (CAT) jurisdiction, arguing that copyright issues central to the dispute—specifically whether VL’s resales infringed Microsoft’s copyright—must be decided by the High Court, not the CAT. Microsoft contended that if copyright had not been exhausted, VL could have no right to resell licenses. The CAT ruled it had jurisdiction and decided two preliminary copyright issues in VL’s favor: (1) that copyright exhaustion applies to non-program works (graphics, icons, user interfaces) within software, and (2) that bulk licenses could be lawfully subdivided and resold.
Microsoft appealed both the CAT’s jurisdiction ruling and its decisions on the copyright preliminary issues.
The Court’s Holding
The Court of Appeal dismissed both appeals. On jurisdiction, the court held that Section 47A of the Competition Act 1998 grants the CAT authority to hear any issue necessary to resolve a claim for damages arising from alleged infringement of competition law—including copyright issues. The court rejected Microsoft’s argument that copyright matters must be reserved to the High Court, reasoning that many non-competition-specific issues (contract interpretation, causation, limitation) routinely arise in CAT proceedings without stripping the CAT of jurisdiction. The CAT is not being asked to grant copyright remedies; it need only decide copyright issues insofar as they defeat or support the competition law claim.
On the copyright preliminary issues, the court upheld the CAT’s rulings by reference to the CJEU’s UsedSoft decision (Case C-128/11 UsedSoft GmbH v Oracle International Corp, EU:C:2012:407). The Software Directive constitutes lex specialis (specialized law) over the InfoSoc Directive for computer programs and does not limit exhaustion to tangible copies. The principle of exhaustion of the Distribution Right applies after the first sale by the copyright owner or with consent, regardless of whether copies are tangible or intangible. Critically, the court held that this exhaustion applies to the entire work—including non-program elements such as graphics—because the Software Directive governs computer programs as a whole and the court must treat the work as a unified whole (“complex matter”) rather than carving out different regimes for different components.
On subdivision of bulk licenses, the court confirmed the CAT’s holding that the exhaustion doctrine permits disaggregation. A customer purchasing 1,000 bulk licenses from Microsoft may sell 500 to ValueLicensing and retain 500, or ValueLicensing may purchase all 1,000 and resell portions to multiple customers. The court rejected Microsoft’s interpretation that bulk license terms imposed indivisibility.
Key Takeaways
- The CAT has jurisdiction to decide copyright issues that are logically and legally necessary to resolve a competition law claim for damages, even if those issues could theoretically support a separate copyright cause of action.
- The doctrine of exhaustion under the Software Directive applies to intangible (downloaded) copies of software and to the entire work, including non-program elements such as graphics and user interfaces, not only to tangible physical media.
- Bulk software licenses can be legally subdivided and resold; the existence of bulk pricing does not prevent disaggregation under the exhaustion principle.
- The Software Directive is specialized law (“lex specialis”) that overrides the general InfoSoc Directive rules for copyright in computer programs, and courts must treat software works holistically rather than applying different copyright regimes to different components.
Why It Matters
This decision significantly protects secondary markets for software. By confirming that copyright exhaustion applies to downloaded software and extends to all component works within software products, the court blocked a potential strategy by major software publishers to use copyright restrictions to prevent resale of licenses. Microsoft had argued that non-program elements within Office and Windows products—such as icons and interface graphics—retained unexhausted copyrights even if the program code itself was exhausted. Had that argument succeeded, publishers could have leveraged copyright in UI elements to prevent secondary trading while claiming they were not restricting the software “program” itself. The ruling forecloses that interpretation.
The decision also clarifies the relationship between intellectual property law and competition law in EU and UK courts. The CAT’s jurisdiction is broad enough to resolve ancillary intellectual property issues without transfer to specialized IP courts, provided those issues are necessary to the competition claim. This allows competition tribunals to conduct efficient, integrated proceedings when IP and competition law intersect, rather than fragmenting cases across courts and risking inconsistent rulings. The case may influence ongoing disputes between major software providers and secondary markets, and reinforces the principle that exhaustion doctrine limits a copyright owner’s ability to control distribution even in the digital era.