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Software Sale/Licensing

Software consumers think they buy their software. Software houses think they licence it. Licence terms are often sought to be imposed only after a contract has been concluded. This is a huge, and unreconciled, conflict of viewpoint. This note sets out some of the difficulties, and some of the possible answers. Please note that this area remains very controversial, with many differences of opinion.

A simple, painful point for software houses. A contract is a meeting of minds, agreeing a particular contractual structure ('I give you this, and you give me that'), which becomes a legally enforceable series of obligations. The agreement of terms is the essence of a contract, and one party cannot generally be obliged to accept something different. Once a customer buys a piece of software, all the nonsense about 'only open this box if you wish to accept these terms', is just that - nonsense. The contract, and each of its terms, will, in the ordinary course of events have already been made, and settled.

At first blush, the software house seems to have lost out, but what, precisely has the user, using a neutral term, acquired? He now has ownership of the physical materials which were in the package. This might be the manuals, and any medium carrying the software, a CD or a disk. He has bought them.

Next, and with odd implications, he has ownership of that copy of the program recorded onto the disk or CD. He may therefore do almost what he wants with that copy - including to sell it on or whatever, but this is where he begins to meet difficulties.

Software sat on a disc is of no use. To be of any value it must be installed - it must be copied onto the buyer's own computer to be run. He is now hit by copyright law. To do this copying, he must do what will, without an authority or licence, be an act infringing the copyright owner's rights. He can do what he wants with his own copy on the disk, but as soon as he wants another copy, on the computer, he needs additional rights. If you buy a book, you do not buy the right to make copies of it.

To his aid now come the provisions inserted in the Copyright Designs and Patents Act 1988 by The Copyright (Computer Programs) Regulations 1992. The buyer can now do any act, as a lawful owner of that copy of the program, which is necessary to allow his lawful use. The wording is very unsatisfactory, but the net effect is likely to be as described.

The buyer can therefore make proper use of his copy, and he has some additional rights, such as the right to make a back up, and in some circumstances to re-compile and de-compile the software. He cannot in particular be stopped from selling on his copy. In practical terms that is as far as it goes.

What goes around, comes around. The buyer then realises that there are one or two things more he may want - support, bug-fixing, upgrades and further material. The software house can, at that point, re-assert itself, and explain that, if the buyer wants to vary the contract after the event in this way, so can the seller, and, in effect, the contract is re-negotiated. The buyer comes to accept the licence, and the seller provides the support.

Why, if this is the case, do software houses never seem to sue? Why is there such a paucity of reported decision that licence terms imposed 'in the box' are either valid or invalid? The simple answer is that it suits neither party to take such things to a conclusion. The risks to a software house of losing are far too high, and the costs to a buyer are quite disproportionate.

We will, no doubt, all just have to muddle through.

Please note that the new Contracts (Rights of Third Parties) Act, may lead to a widespread re-writing of software contracts. For the first time, software escrow in the UK may become legally respectable.

Important: Please note that our law-bytes are retained for archival purposes only. The law changes, and these notes are often, now, out of date. You must take direct advice on your own personal situation and the law as it currently stands.
All information on this site is in general and summary form only. The content of any page on this site may be out of date and or incomplete, and you should not not rely directly upon it. Take direct professional legal advice which reflects your own particular situation.
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Copyright and Database Rights: David Swarbrick 2012
18 October 2013 227 18 October 2013