The Usedsoft decision : its contributions to the Digital Single Market and implications on standard software licensing models

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The Usedsoft decision

Its contribution to the Digital Single Market and

implications on standard software licensing models in practice

Master thesis Information Law University of Amsterdam

Institute for Information Law (IViR)

Name: Lennard Meulens Student ID: 10431012

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Introduction

Background and research question

The 3rd of July 2012, the European Court of Justice (hereafter: the Court) rendered its decision in the case “UsedSoft GmbH v Oracle International Corp” (hereafter: the Usedsoft decision). The outcome of the decision came as a surprise to a lot of legal experts, because the prevailing doctrine of exhaustion up till then entailed that the rights of distribution of a right holder of copyright protected works could only be exhausted if the product was delivered on a tangible medium. The Court determined that perpetual license agreements for the supply of a copy of standard software, where the licensee has payed a fee intended to enable the right holder to obtain a remuneration corresponding to the economic value of that copy of his work, should be considered a “sale” under European law.1 With this decision the Court subjected these license agreements to the exhaustion rule and legally opened the way for entire new markets within the internal market focussing on the sale of used digital standard software. This is standard software which is produced and supplied in digital form, like for example by through downloading of download.

In March of 2010, the European Commission proposed some initiatives to catalyse economic growth in the European Union. One of these initiatives is the “Digital Agenda for Europe” which has as its aim to modernise the European legal framework in order to create a Digital Single Market. The Digital Single Market is a European market without barriers that hinder online trade or the provision of online services within the internal market. It hereby, inter alia, seeks to foster a European market for digital content and improve the confidence of consumers and businesses in the online purchase and sale of digital content like standard software.2 Digital content means data which are produced and supplied in digital form, irrespective of whether they are accessed through downloading or streaming.3

The European Court of justice plays a crucial role in the creation of the internal market and the Court’s decisions cannot be seen as separate from EU policy objectives in relation to the creation of the internal market. With the Usedsoft decision the Court has

1_{UsedSoft v Oracle, par. 45.} 2

Centre for European Policy Studies, Copyright in the EU Digital Single Market, Report of the CEPS Digital Forum, June 2013, Brussels, p. 27.

3

Directive 2011/83/EU, of the European Parliament and of the Council of 25 October 2011 on consumer rights, recital 19.

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made an important decision as to how the European single market should treat the

distribution of copyright protected standard software in digital form. This has led me to the following research question:

How does the Usedsoft decision contribute to the creation of the Digital Single Market and what are its implications on standard software licensing models in practice?

Research plan

To be able to fully understand this ground breaking decision by the Court, it is

important to get a thorough understanding of what the exhaustion principle exactly is. In the first paragraph of the first chapter I will examine what the rationales behind the exhaustion principle are, on what legal provisions the European exhaustion principle is based and how the Court has developed the exhaustion principle in its case law. In the second paragraph, the Usedsoft decision itself will be extensively discussed and I will explain the reasoning of the Court that has led to the exhaustion principle being widened to encompass perpetual software license agreements for downloaded standard software.

In the second chapter I will focus on the Digital Single Market and explain how the Usedsoft decision contributes to the creation of the Digital Single Market. In the first paragraph I will discuss what the Digital Single Market is, what the aim of the Digital Single Market is and in what EU regulations and official documents we can find the aim of creating the Digital Single Market.

In the second paragraph, it will be explained how the digital exhaustion principle contributes to the attainment of the Digital Single Market by counteracting market

fragmentation caused by buyer discriminating practices of software suppliers in the area of digital standard software licensing. In the last paragraph of this chapter, we will see how the Court’s reasoning and its findings which have led to the digital exhaustion principle

contribute to the creation of the Digital Single Market. In this paragraph I will focus on how the Directive on Consumer Rights and the Proposal for Regulation on a Common European Sales Law have to be changed in light of the Usedsoft decision, in order to improve the confidence of consumers and businesses in the online purchase and sale of digital content like standard software, which is a key objective of the Digital Single Market.

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The legal implications of the Usedsoft decision are important to the users of the digital standard software, but also to the digital standard software suppliers. All of a sudden users were legally permitted to sell their software license agreements to others, which could lead to major loss of revenues for the software suppliers. In the last chapter I will discuss how the digital exhaustion principle has affected software licensing models for standard software in practice.

Following the criteria for digital exhaustion as determined by the Court in the Usedsoft decision, there are some licensing models for digital standard software that prevent the exhaustion of the distribution rights of the copyright holder. In the first paragraph the focus of my research will be on these licensing models. In the second

paragraph it will discussed how the software suppliers use these licensing models in practice and what influence the Usedsoft decision has had on this. Furthermore, I will go into the resale of used digital standard software by secondary suppliers.

Scope of the research

This thesis will solely focus on the obstacles that hinder the attainment of the Digital Single Market and can be counteracted by the digital exhaustion principle and the Court’s findings in the the Usedsoft decision on sales agreements. There are other obstacles that hinder the attainment of the Digital Single Market, but it is beyond the scope of this thesis to explore these obstacles. For this reason the focus of thesis will be on how the decision contributes to counteract market fragmentation in the area of standard software licensing and the lack of confidence of consumers and businesses in the online trade of digital standard software.

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1. The exhaustion principle and the Usedsoft decision

In the first paragraph of this chapter, we will explore what the exhaustion principle is, what the rationales behind it are, on what legal provisions the European exhaustion principle is based and how it has been developed by the Court in its case law.

In the second paragraph, the Usedsoft decision will be discussed in detail and I will explain the reasoning that has led to the exhaustion principle being widened to encompass perpetual software license agreements for digital standard software.

1.1 The exhaustion principle

The Usedsoft decision is about the exhaustion of copyrights, so it is important to first understand what the exhaustion principle is and what its rationales are.

In principle, intellectual property law is national law and every state creates and enforces its own intellectual property rights within its jurisdiction. This means that the creator of a product who seeks protection for his product in different states needs a set of parallel national intellectual property rights for the different national jurisdictions. The right holder can invoke the intellectual property right for a certain jurisdiction to prevent the import and resale of a product on that market, if that product was brought onto the market in another jurisdiction. In this way he can segment the international market. However, this is not the case within the internal market of the EU, as we will attend to later on.

The exhaustion rule entails that once a product which is protected by intellectual property rights, is legally distributed with the authorization of the right holder, the right holder can no longer domestically enforce the related intellectual property rights against the owner of the product to prevent the resale of that product.4 The distribution right of the right holder has been exhausted after the first sale has taken place.

The right of distribution plays an important role in the commercialization of copyright protected works and allows the right holders to control the introduction of tangible

embodiments of a work into the market.5 The exhaustion principle forms a restriction on this

4

Michigan Journal of International Law, The Desirability of Agreeing to Disagree, 1999-2000, p. 341. Citation: 21 Mich. J. Int'l L. 333 1999-2000

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right of distribution.

The exhaustion principle in the EU

One of the goals of the former European Economic Community, was to establish a “common market”. This goal has been set out in Article 2 of the EEC Treaty. In the words of the Court, the aim of the common market was to remove all the barriers to intra-Community trade with a view to the merger of national markets into a single market, giving rise to conditions as close as possible to a genuine internal market.6

The EEC Treaty provides that national intellectual property rights of national Member States are to be respected, but shall not constitute either a means of arbitrary discrimination or a disguised restriction on trade between Member States, as included in Article 36 EEC Treaty.7

The community exhaustion was established based on Article 36 EEC Treaty which permits “restrictions on imports, exports or goods in transit justified on grounds of (…) the protection of industrial and commercial property.”8 The Court determined in the case Membran & K-Tel v GEMA that the expression "protection of industrial and commercial property", occurring in Article 36 of the EEC Treaty, includes the protection conferred by copyrights.9

The exhaustion principle for copyrights contributes to the creation the European common market by ensuring that once a right holder puts a copy of protected work or a product in which a copy of the work has been installed on the market in a Member State, he has no rights to further control the distribution, circulation or reselling of these copies within the internal market.10 However, when the right holder puts copyright protected work on the market, he does not exhaust the right of reproduction and adaptation. Furthermore, rights such as broadcasting, rental or lending are acts which are not subject to exhaustion.11

6_{Case 15/81, Judgment of the Court of 5 May 1982. - Gaston Schul Douane Expediteur BV v Inspecteur der}

Invoerrechten en Accijnzen, Roosendaal. - Reference for a preliminary ruling: Gerechtshof 's-Hertogenbosch - Netherlands. - Turnover tax on the importation of goods supplied by private persons, par. 33.

7_{Treaty establishing the European Economic Community, Rome 1957, Article 2.} 8

Treaty establishing the European Economic Community, Rome 1957, Article 36 reads.

9

Joined Cases 55 and 57/80, Judgment of the Court of 20 January 1981, Membran/GEMA.

10

R. Clark 2013, p. 460.

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The Court on the exhaustion of copyrights

The first case in which the Court introduced the exhaustion principle for copyright protected works in order to form a common European market is the Deutsche Grammophon v. Metro Case of 8 June 1971.1213 The principle has since then been reiterated in several other decisions by the Court, but the most important rationales of the exhaustion principle for copyrights have been laid down in this decision. This case demonstrates the view of the Court on parallel import, which is import by a reseller into a country without the

authorization of the owner of the intellectual property right in that country, and the

exhaustion of copyrights. It is a fundamental decision on the interaction between intellectual property rights of physical goods and the European common Market.14

In the Deutsche Grammophon v. Metro Case the Court ruled that the copyright holder, a German sound recording manufacturer, had exhausted its distribution right with the authorised sale of music recordings in France and could therefore not prevent the sale of sound recordings in Germany. In this case the Court balanced the copyrights against the free movement of goods by using a couple of principles so that the internal market would not be distorted.

The first principle is the doctrine of existence versus exercise of a right. This principle entails that although existence of a national copyright is not subject to EU regulations, the copyright holder must exercise his or her rights in a manner consistent with the free movement of goods requirements.15 The power of the right holder to prohibit the distribution of copyright protected products which have been lawfully brought on the market in another Member State, involves an exercise of the intellectual property right that does not accord with the objective of the European common market. The Court is of the opinion that such a power would legitimize the isolation of national markets. 16 This has been reiterated by the Court in other cases such as Membran & K-Tel v GEMA and the Dansk

12

Deutsche Grammophon v Metro SB (78/70) [1971] E.C.R. 487; [1971] C.M.L.R. 631.

13_{A. Nicholson 2013, p. 372.} 14

C. Stothers 2012, p. 790.

15

Deutsche Grammophon v Metro SB (78/70) [1971] E.C.R. 487; [1971] C.M.L.R. 631, D — Observations submitted by the Commission of the European Communities, A.

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Supermarked v Imerco case.17

The second principle emphasized in the Deutsche Grammophon v. Metro Case, is the doctrine of specific subject matter which implies that intellectual property rights should be narrowly construed, so they do not impede the fundament principle of free movement of goods.18 The specific subject matter in relation to copyrights has been defined by the Court in the case Phil Collins v. Imtrat as follows:

“The specific subject-matter of those rights, (…), is to ensure the protection of the moral and economic rights of their holders. The protection of moral rights enables authors and performers, in particular, to object to any distortion, mutilation or other modification of a work which would be prejudicial to their honour or reputation. Copyright and related rights are also economic in nature, in that they confer the right to exploit

commercially the marketing of the protected work, particularly in the form

of licences granted in return for payment of royalties.”19

Article 36 EEC Treaty permits prohibitions or restrictions on the free movement of goods for the purpose of protecting industrial and commercial property. However, the Court stated that this article only permits restrictions on the free movement of goods to the extent that they are necessary to guarantee the essential function and specific subject matter of copyright.20

European Directives and copyright exhaustion

The exhaustion principle has originally always been connected to tangible embodiments of a work.21 This point of view in relation to copyrights has also been published in a report of the European Commission of April 2000 on the legal protection of computer rights which stated:

17

Case 58/80, Judgment of the Court of 9 February 1982, Dansk Supermarked v Imerco; Joined Cases 55 and 57/80, Judgment of the Court of 20 January 1981, Membran/GEMA.

18_{M. Gillen 2014, p. 12.} 19

Joined Cases C-92/92 and C-326/92, Judgment of the Court of 20 October 1993, Phil Collins v. Imtrat [1993], para. 20.

20

M. Gillen 2014, p. 6.

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“As to the exhaustion of copyright it must be borne in mind that under the Directive Community exhaustion only applies to the sale of copies i.e. goods, whereas supply through

online services does not entail exhaustion.”22

The exhaustion principle for copyrights was first drawn up in European regulation in the Directive 91 /250/EEC on the legal protection of computer programs, which has been repealed and replaced by Directive 2009/24/EC, hereafter referred to as the Software Directive. At the time of the drafting of the Software Directive in the late eighties, copyright law in the EU was still very divergent and this was having adverse effects on the free

movement of goods and the development of the software industry.23 The exhaustion principle was later also codified in the Copyright Directive in article 4 (2) Infosoc Directive. Article 4(2) Software directive on the exhaustion of copyrights reads:

“The first sale in the Community of a copy of a program by the rightholder or

with his consent shall exhaust the distribution right within the Community of that copy, with the exception of the right to control further rental of the program or a copy thereof.”

1.2 The Usedsoft v. Oracle decision

The Court’s landmark decision Usedsoft v. Oracle of the 3rd of July 2012 has changed our perception of the principle of exhaustion, as it was traditionally confined to tangible copies of a protected work.24 By redefining perpetual standard software license agreements as a sale in certain circumstances, the Court has welcomed intangible software copies under the legal concept of exhaustion the same way it applies to tangible objects. The decision has shaped the principle of exhaustion to fit new legal and economic realities and legitimized the markets for used standard software downloaded from the internet.25

Copyright rules play a very important role in the Usedsoft decision, but the decision is also based on the basic principles underlying the EU Treaty, namely the creation of the

22

Report from the Commission to the Council, the European Parliament and the Economic and Social Committee on the implementation and effects of Directive 91/250/EEC on the legal protection of computer programs, COM (2000), 199 final, Brussels, 10 april 2000.

23

T. Overdijk 2011, p. 34.

24

R. Hilty, K. Köklü & Hafenbrädl 2013, p. 264.

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European Single market with the overarching aim of EU law to promote the free movement of goods and services across the internal market. The Usedsoft decision is about the

interpretation of secondary European law and has binding effect on the courts in all Member States.

This paragraph will focus on the Usedsoft decision and explain the Court’s reasoning of the Court and its findings have led to the digital exhaustion principle. For reasons of clarity I have put each of the important findings by the court under its own heading.

The main issue in the case

Oracle International Corp. (hereafter: Oracle) is a company that develops computer software, namely databank software, and is the proprietor of the exclusive user rights under copyright law in those programs. A copy of the “client-server-software” is downloaded directly by the customer to his computer from Oracle’s website and the user right for the software is granted by a license agreement. The license agreement states that it provides the customer, for a one-off fee with a non-exclusive, non-transferable right to use the software exclusively for internal business purpose for an unlimited period.26 On the basis of a

maintenance-agreement users are able to update their version of the program.

Usedsoft is an internet platform where people can buy or sell used standard software licenses. Usedsoft acquired licenses from Oracle customers, who had bought group licenses for a larger number of users than they needed because of the bundle policy. This bundle policy meant that Oracle offered group licences for the software at issue in the case for a minimum of 25 users per license. The maintenance agreement was still ongoing in these license agreements and buyers were able to update to current versions of the standard software. Despite the contractual restrictions against transfer, Usedsoft transferred the license. The buyers of the ‘used’ licenses, who were not yet in possession of the Oracle software, were able to download a copy directly from Oracle’s website.27

Oracle sought an injunction to prevent this practice, but the District Court in Munich and the Court of Appeal both ruled that Usedsoft and its customers infringed Oracle´s exclusive rights of reproduction and distribution. However, Usedsoft appealed to this

26

Ibid.

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decision and the Bundesgerichtshof decided to stay the proceedings and refer to the CJEU for a preliminary ruling under Article 267 TFEU. The main issue that the Court solved in the Usedsoft decision is: “whether and under what conditions the downloading from the internet of a copy of a computer program, authorised by the copyright holder, can give rise to exhaustion of the right of distribution of that copy in the European Union within the meaning of Article 4(2) of Directive 2009/24.”28

The definition of a sale

To determine whether the copyright holder’s distribution right is exhausted, the Court first ascertained whether a ‘first sale … of a copy of a program’ within the meaning of Article 4(2) of Directive 2009/24” had taken place with the downloading of the copy of the

program.29

The Court reasoned in its decision that “according to a commonly accepted

definition, a “sale” is an agreement by which a person, in return for payment, transfers to another person his rights of ownership in an item of tangible or intangible property belonging to him.”30 The Court held that the commercial transaction giving rise to exhaustion of the right of distribution of a copy of a computer program must involve a transfer of the right of ownership in that copy.31

Transfer of rights of ownership

first sale in the Community by the right holder of a copy of the program shall exhaust the rights of distribution under Article 4(2) Software Directive. The Court stated that for this exhaustion of the right of distribution, the right holder has to transfer to another person his rights of ownership of the software program either on a disk or by online distribution.

The Court determined that the making available of the program by allowing the user to download a copy of the program and the conclusion of a license agreement form an

indivisible whole.32 These acts transfer the right of ownership of the copy and may be

28_{UsedSoft v Oracle, paragraph 35.} 29

Ibid,, par. 38.

30

UsedSoft v Oracle, paragraph 42.

31

Ibid.

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regarded as a ‘first sale’ within the meaning of article 4(2) Software directive under certain circumstances. Namely, when the customer concludes a license agreement to use a copy of the software for an unlimited period, in return for payment of a fee designed to enable the copyright holder to obtain a remuneration corresponding to the economic value of the copy of the work of which it is the proprietor.33

Tangible or intangible form of the copy

The Court held that it makes no difference whether the copy of the computer program was made available to the customer by the right holder concerned by means of a download from the rightholder’s website (intangible form) or by means of a material medium such as a CD-ROM or DVD (tangible form). 34 Furthermore it held that "it does not appear from Article 4(2) of Directive 2009/24 that the exhaustion of the right of distribution of copies of

computer programs mentioned in that provision is limited to copies of programs on a material medium such as a CD-ROM or DVD".35

Specific subject-matter

The Court determined in the Usedsoft decision that to limit the application of the exhaustion of the distribution right under Article 4(2) of the Software Directive to sold tangible copies of the computer program would go beyond what is necessary to safeguard the specific subject-matter of the intellectual property concerned, which is explained in the previous chapter. It would allow the copyright holder to control further resale of copies of the standard software downloaded from the internet, to partition markets and to receive remuneration with each new sale, even though the first sale had already enabled him to receive remuneration for the economic value of the copy.36 This principle has been reiterated by the Court in inter alia the “Football Association Premier League and Others case”.37 33 Ibid., paragraph 45. 34_{Ibid., paragraph 53.} 35 Ibid., paragraph 53. 36 Ibid., par. 63 37

Cases C-403/08 and C-429/08: Judgment of the Court of 4 October 2011 - Football Association Premier League Ltd & others vs QC Leisure & Others / Karen Murphy vs Media Protection Services Ltd, par. 107.

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Lex specialis

According to the Court, Article 4(2) Software Directive on the legal protection of computer programs constitutes a lex specialis in relation to Article 3 Infosoc Directive on “the right of communication to the public of works”. This is because Article 1(2)(a) Infosoc Directive determines that the Infosoc Directive in no way affects existing Community provisions relating to the legal protection of computer programs. By interpreting the Software Directive as a lex specialis in relation to the Infosoc Directive, which has been re-affirmed in the Nintendo Case, the Court left the question open whether the exhaustion of the distribution right under the Infosoc Directive also applies to other downloaded copyright protected works like e-books and music or film works.38

The criteria for exhaustion

The Court has determined in the Usedsoft decision that “Article 4(2) of Directive 2009/24 must be interpreted as meaning that the right of distribution of a copy of a computer program is exhausted if the copyright holder who has authorised, even free of charge, the downloading of that copy from the internet onto a data carrier has also

conferred, in return for payment of a fee intended to enable him to obtain a remuneration corresponding to the economic value of the copy of the work of which he is the proprietor, a right to use that copy for an unlimited period.”39

The right of reproduction

Furthermore, the Court stated that when a license agreement is subjected to the exhaustion rule under article 4(2) of the Software directive, the buyer of a used software license does not need the authorisation by the author for the reproduction of computer software. This reproduction of the software by the lawful acquirer is authorised under Article 5(1) of the Software Directive. The reproduction of the software that takes place during the download of the software by the second acquirer of the license, as well as any subsequent acquirer of it, must be regarded as a reproduction of a computer program that is necessary to enable the new acquirer to use the program in accordance with its intended

38

Case C-355/12 Nintendo and Others v PC Box Srl and Others, par. 23.

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purpose.40

Maintenance agreements

The Court also held that the exhaustion principle does not relate to contracts for services such as maintenance agreements. The maintenance agreement is therefore

separable from the sale and is not transferred to the new user. The functionalities corrected, altered or added on the basis of the maintenance agreement before the resale of the license agreement form an integral part of the original software and can be resold with the

software.41

Making the own copy unusable

Moreover, the original acquirer who resells the copy of the standard software must make his own copy unusable at the time of its resale in order to avoid infringing the exclusive right of reproduction of a computer program which belongs to its author.42 It is hard to ascertain whether such a copy has been made unusable by the reseller. The Court states that it is permissible for the software distributor to make use of technical protective measures such as product keys, also known as software keys.43 These keys are codes required by software programs during installation to ensure that the copy of the software was legally purchased.

Non-transferability clause

Oracle’s licence agreements for the software at issue in the main proceedings contained the following term, under the heading ‘Grant of rights’:

‘With the payment for services you receive, exclusively for your internal business purposes, for an unlimited period a non-exclusive non-transferable user right free of charge for everything that Oracle develops and makes available to you on the basis of this agreement.’ 40 Ibid., paragraph 81. 41 Ibid, paragraph 66-67. 42 Ibid., paragraph 70. 43_{Ibid., paragraph 79.}

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With its decision the Court ruled that by virtue of the exhaustion of the copyright holder´s distribution right in accordance with Article 4(2) Software Directive, the copyright holder can no longer oppose the resale of the copy of his computer program.44 The Court therefore dismissed the non-assignment clause in Oracle’s license agreements and decided that they cannot be enforced as they would undermine exhaustion.45

Conclusion

At first glance it may seem as if the Usedsoft decision does not fit in with EU legal provisions and earlier case law, as from a traditional point of view the exhaustion principle only applies to purchased software which is stored on physical data carriers at the time of the sale. However, after analysing the Usedsoft decision and previous case law of the Court on the exhaustion principle, we can see that the Usedsoft decision is in line with the

rationales the exhaustion principle as determined by the Court in earlier case law. In short, only those restrictions on the free movement of goods and services are permitted that are necessary to guarantee the essential function and specific subject matter of copyright are permitted, namely to ensure the protection of the moral and economic rights of Oracle. The Court determined in the Usedsoft decision that to limit the application of the exhaustion of the distribution right under Article 4(2) of the Software Directive to sold tangible copies of the computer program, would go beyond what is necessary to safeguard the essential function specific subject-matter of the intellectual property concerned. The Court made sure the software developer’s rights were given full effect, with the economic implications that flow from that as Oracle still receives the payment of a fee intended to enable him to obtain a remuneration corresponding to the economic value of the copy of the standard software. Furthermore, the copyrights of Oracle have been balanced by the Court and the exhaustion principle makes sure that the copyrights are not exceeded in a way that would inhibit the internal market by constituting either a means of arbitrary discrimination or a disguised restriction on trade between Member States.46

44 Ibid., paragraph 77. 45 A. Goebel 2012 p. 231; A. Nicholson 2013, p. 396. 46

Cases C-403/08 and C-429/08: Judgment of the Court of 4 October 2011 - Football Association Premier League Ltd & others vs QC Leisure & Others / Karen Murphy vs Media Protection Services Ltd, par. 81.

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2. The Usedsoft decision and the creation of the Digital Single

Market

In the previous chapter we have seen that copyright rules play an important role in the Usedsoft decision, but the decision is also based on the basic principles underlying the EU of establishing an internal market, formerly known as the common market, which will comprise an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured in accordance with the provisions of the Treaties.47 With its decision the Court widened the scope of the exhaustion principle so that it also covers the

distribution right of a right holder for a perpetual standard software license agreement and in this way ensured the free movement of these license agreements within the internal market.

The Usedsoft decision cannot be seen as separate from EU policy objectives regarding the creation of the internal market. With its decision the Court has delivered an important judgment on how the European single market should treat the distribution of copyright protected standard software in digital form and it therefore has to be placed within the context of the EU policy objective of creating the EU Digital Single Market. In this chapter we will attend the first part of the research question and explain how this decision contributes to the creation of the EU Digital Single Market. Firstly, I will discuss what the Digital Single Market is, what its goal is and in what EU regulations and official documents we can find the aim of creating the Digital Single Market.

Subsequently, it will be explained how the Usedsoft decision counteracts market fragmentation in the area of standard software licensing caused by discriminating practices against standard software buyers and contributes to the creation the Digital Single. Lastly, I will make clear how the Directive on Consumer Rights and the Proposal for Regulation on a Common European Sales Law will have to be changed in light of the Usedsoft decision in order to improve the confidence of consumers and businesses in the online purchase and sale of digital content like standard software, which contributes to the creation of the Digital Single Market

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2.1 The Digital Single market

In its communication of 3 March of 2010, the Commission set out EU targets for 2020 to achieve smart, sustainable and inclusive growth in the EU. One of the initiatives proposed by the Commission to catalyse economic growth is the “Digital Agenda for Europe”. The Digital Agenda is split up into seven pillars, which are EU action plans to help reboot the European economy by modernising the European regulatory framework in order to help Europe’s citizens and businesses get more benefits out of digital technologies.

Pillar I of the Agenda contains actions that promote the creation the Digital Single Market which is a European online market without barriers that hinder online trade or hinder the provision of online services within the internal market. The Digital Single market seeks to foster a European market for digital content like standard software by stimulating businesses to trade online and protecting consumers while purchasing online.48

The EU Digital Single market is a work in progress and builds on the concept of the internal market, defined as “an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured’.49 In order to reach its goal of the creation of the Digital Single Market the European Union is modernising its regulatory framework in the area of, inter alia, consumer protection rules, (online) sales law, data protection rules, telecoms rules and multi-territorial licensing rules.50 This regulatory framework should, inter alia, remove national barriers to online transactions, establish a single area for online

payment and protect EU consumers in cyberspace, create a level playing field for businesses and increase economic prosperity within the EU.

The Digital Single Market and digital content

The EU has been focussing for some time on how to adapt intellectual property rights to the digital era, as this will promote creativity and innovation in the online environment and will contribute to the creation the Digital Single Market. Unification of national

48_{Centre for European Policy Studies, Copyright in the EU Digital Single Market, Report of the CEPS Digital}

Forum, June 2013, Brussels, p. 27-28.

49

European Parliament, Fact Sheets on the European Union, The ubiquitous digital single market, available at: http://www.europarl.europa.eu/aboutparliament/en/displayFtu.html?ftuId=FTU_5.9.4.html

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legislations through European regulations seems to be the best way to realise this goal. Copyright is the only field in the domain of intellectual property law that has not been unified yet, and updating the EU’s copyright framework is a central priority of the European Union.51

The aim of the Digital Single market in the area of copyright is to make access to legal digital content, like software programs, easier and more attractive across the internal

market by facilitating the licensing and dissemination of works. It therefore seeks to promote a thriving market for the distribution of digital content by businesses. These

businesses should operate in a level playing field and provide users with the choice to access legal and authorised commercial content online.52 A competitive European market for digital content leads to innovation, lower prices, higher quality and higher choice in products. The current EU copyright framework does not guarantee this thriving market for the online distribution of digital content. However, the Usedsoft decision brought the creation of the Digital Single market one step closer in the in the area of standard software as the digital exhaustion principle makes sure that software license agreements can be resold freely within the internal market so that everyone has access to them.

Obstacles that hinder the attainment of the Digital Single market

The EU has removed most cross-border barriers to trade in physical goods and a lot of services within the internal market. But there are still obstacles that hinder the attainment of the Digital Single Market. These obstacles are, inter alia, fragmented digital markets in the area of licensing of standard software and other digital content and a lack of trust by

consumers and businesses in the online purchase and sale of digital content. One of the reasons for this lack of trust are the different national consumer protection regimes.53 The reason I mention specifically these obstacles is because the Usedsoft decision plays a valuable role in counteracting these obstacles that hinder the attainment of a digital single market for downloadable standard software.

51

Centre for European Policy Studies, Copyright in the EU Digital Single Market, Report of the CEPS Digital Forum, June 2013, Brussels, p. 28.

52

Digital Europe, “A Transformational Agenda For The Digital Age”, Vision 2020, p. 62.

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In the next paragraph I will construe how the digital exhaustion principle plays an important role in counteracting market fragmentation in the area of digital standard

software licensing caused by discriminating practices against standard software buyers, and in this way contributes to the creation of the Digital Single Market.

2.2 Market fragmentation in the area of standard software licensing

Buyer discriminating practices creating market fragmentation

Businesses often restrict their activities to a certain country or a certain group of countries. Technology, the internet, digital business models and the growing autonomy of online consumers all contribute to the availability of digital standard software within the internal market, as distance has become an irrelevant factor in the delivery of digital

content.54 However, even online suppliers of digital content like standard software, which in theory should be able to be accessible through the internet throughout the whole of the European Union, often decide not to deliver in certain countries and use geo-blocking to prevent citizens from certain countries to purchase software on their website.55

One of the reasons for software suppliers to choose to not sell their digital standard software in certain member states are legal issues related to the sale. These legal issues related to copyrights that complicate the supply of standard software on certain markets, inter alia, consist of differences in implementation of the Directives by Member States. Also the fact that copyrights for the same software can be held by different parties across Europe creates an important source of legal uncertainty with the conclusion of license agreements.

The common practices that differentiate between online buyers of digital standard software within the internal market are the refusal to supply the software on certain

markets, automatic re-routing to national online shops where purchasers are forced to pay a different price, and unjustified diversifying of sale conditions.56 One of the most invasive

54_{European Commission, Communication on A Single Market for Intellectual Property Rights}

Boosting creativity and innovation to provide economic growth, high quality jobs and first class products and services in Europe, COM (2011) 287 final, p. 9.

55

European Commission, Communication on content in the Digital Single Market, COM(2012) 789 final, p. 3.

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practices used is restricting the proper use digital content to a certain geographical area.57

This buyer discrimination based on geographical location and jurisdiction of the buyer because of copyrights makes users feel excluded from the internal market and causes

market fragmentation, which is exactly what the European Union wants to counteract within the Digital Single Market. The digital exhaustion rule from the Usedsoft decision is a great step towards the elimination of buyer discrimination in the Digital Single Market based on the geographical location and jurisdiction of the buyer.

How digital exhaustion counters market fragmentation

The principle of digital exhaustion solves a lot of these problems for standard software, as the distribution right of the original right holders will be exhausted after the first sale.58 It prevents the original right holder from exploiting particular national markets once a

distribution scheme is established in one of the member states.59 The exhaustion principle permits resale and therefore allows for parallel import of the standard software within the internal market. Even software users in national markets where the standard software is not being distributed via download are thus able to buy the standard software in an indirect manner and it therefore acts as a means of preventing market fragmentation in the area of standard software licensing.

Oracle’s license agreements stated that the right to use the software is “non-transferable”. This non-transferability provision was a way for Oracle to control post-commercial activities and allowed for market fragmentation.60 The rules from the Usedsoft decision counters these practices by taking away the control in the form of a distribution right of the distributor after the first sale has taken place. The non-transferability clause in the software license agreements became unenforceable, as we have seen before.

The buyers of used software still have a great disadvantage as they are not legally entitled to new software updates under the Usedsoft decision, because the maintenance

57

Ibid, p. 13

58_{Directorate General for Internal Policies, Policy Department A: Economic and Scientific Policy, Discrimination}

of Consumers in the Digital Single Market, IP/A/IMCO/ST/2013-03, November 2013, p. 18

59

A. Nicholson 2013, p. 392.

60

Rubi-Puig 2013, p. 160

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agreement is separable from the sale and the exhaustion principle does not relate to contracts for services such as maintenance agreements.61 In general, software users are more interested in buying the newest and most updated version of the software. This means online software suppliers are still in a position that allows them to differentiate between users in different national markets via updates, as these maintenance agreements are not transferable. In practice some software suppliers conclude new maintenance agreements with the secondary users in order to still make money on these new users.

European legislation and the prevention of buyer discrimination

The digital exhaustion rule from the Usedsoft decision is especially important as European legal provisions fall short to counter this online buyer discrimination within the Digital Single Market based on the geographical location and jurisdiction of the buyer. The fundamental principle of the free movement of goods and services does not directly protect online buyers of software license agreements against discriminatory practices by suppliers of downloadable standard software. It ensures the free circulation of goods and services within the EU, but it does not force software sellers to use this freedom and provide the entire market with software.62

Other European legal provisions also fall short to counter discrimination of buyers of standard software in the digital single market by software suppliers. Article 18 of the Treaty on the Functioning of the European Union contains a directly applicable, general prohibition of discrimination on grounds of nationality and the Court has considered in other cases that discrimination on the basis of geographical restriction of a Member State constitutes indirect discrimination on the ground of nationality.63 However, the article has no horizontal effect and therefore can only be applied against Member States and the EU.

Article 20 (2) of Services Directive obliges Member States to ensure that the general conditions of access to a service, which are made available to the public at large by a

61

UsedSoft v Oracle, par. 66.

62

Ibid, p. 10

Directorate General for Internal Policies, Policy Department A: Economic and Scientific Policy, Discrimination of Consumers in the Digital Single Market, IP/A/IMCO/ST/2013-03, November 2013, p. 26.

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provider on the Digital Single Market, do not contain discriminatory provisions relating to the nationality or place of residence of the recipient. However it does not preclude the possibility of providing for differences in the conditions of access where those differences are directly justified by objective criteria.64 The problem with this article is that the Directive does not offer clear guidance about what these objective criteria that allow for differences in conditions of access are.65 It is therefore unable to counter discrimination of buyers of standard software and other digital content on the digital Single market.

Moreover, the refusal to supply digital content online in a certain Member State is mostly allowed under competition law, intellectual property rights and national provisions because of the freedom of contract and freedom to conduct a business that businesses enjoy.

Conclusion

The incapacity of European legislation to prevent market fragmentation in the area of standard software licensing caused by discrimination of digital standard software buyers in the Digital Single Market, makes the Usedsoft decision of special importance. The digital exhaustion principle counteracts this market fragmentation by making sure that all businesses and consumers within the European Union indirectly have access to the same digital standard software without being restrained by their geographical location and

jurisdiction. In this way the decision ensures the circulation of legal standard software within the internal market and contributes to the creation of the Digital Single market.

The essential function of intellectual property rights is to give right holders an

economic return and to protect their moral rights. However, it does not give the right holder the right to optimum remuneration by permitting him to divide up the internal market into different national markets and prevent parallel import.66 The refusal to deliver digital content to certain countries or setting different contractual conditions and prices in certain

64_{Directive 2006/123/EC of the Parliament and of the Council of 12 December 2006 on services in the internal}

market, OJ L 376, 27.12.2006, article 20 (2) reads:

"general conditions of access to a service, which are made available to the public at large by the provider, do not contain discriminatory provisions relating to the nationality or place of residence of the recipient"

65

European Commission, Communication on a coherent framework for building trust in the Digital Single Market for e-commerce and online services , COM (2011) 942, p. 6

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countries, delays and in a way even prevents the attainment of European Digital Single market.

2.3 The Usedsoft decision & EU consumer and sales law

Copyright law grants authors the exclusive exploitation rights of a work and moral rights. These exclusive exploitation rights include, inter alia, the right to control the

distribution, to make the work available and the right to copy the protected work. Consumer law governs the rights that the consumer has towards the supplier of the products and ensures that the terms and conditions under which a product is supplied are fair, and that the product meets the expected quality standard. When digital contents is purchased online, copyright law and consumer law come together.67

The way the Court defined the “sale” of a software license agreement in the Usedsoft decision and its reasoning that has led to the digital exhaustion principle has its implications for European consumer law, as well as European sales law.68 A lot of consumers feel

uncertain about their rights in case a problem arises with online purchased digital content across borders because of the fragmented consumer law regime in the EU. Issues like until what time it is possible to back out from a purchasing contract for digital content is often unclear under the different consumer law regimes. Also businesses experience the different consumer law regimes as one of the main regulatory barriers to cross-border trade as they are worried about the cost of dealing with the different consumer law regimes. This leads to a reluctance of traders to conduct in the online trade of digital content.

One of the key objectives of the Digital Single Market is to improve the confidence of consumers and businesses in the online purchase and sale of digital content like standard software. It is therefore crucial that consumers are able to take full advantage of consumer protection offered in the form of EU legislation and that that the legislation is in line with current legal and technological developments.69 I will now explain how the Directive on

67

N. Helberger & L. Guibault 2012, p. 23.

68_{BEUC, The European Consumer Organisation, Digital products: EU consumers need clear rights, BEUC}

position paper, X/2012/099 – 10/12/2012, p. 2.

69

European Consumer Agenda, action 17, Annex to the Communication from the Commission to the European Parliament, the Council, the European Economic andSocial Committee and the Committee of the Regions. Commission Work Programme for 2012. COM (2011) 777 final/2

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Consumer Rights and the Regulation on a Common European Sales Law need to be revised in light of the Usedsoft decision in order to provide European consumers with a higher and level of consumer protection. The Usedsoft decision can play an important role in improving the confidence of consumers in the purchase of online digital content. In this way it

contributes to the creation of the Digital Single Market.

2.3.1 The Directive 2011/83/EU on Consumer Rights

In its 2012 Consumer Agenda The European Commission set itself the goal to adapt consumer law to the digital age. In Directive 2011/83/EU on Consumer Rights, the

Commission has made improvements to European consumer law inter alia on distance sales. However, there are still a lot of improvements to be made, especially in the light of the Usedsoft decision. The Directive contains a comprehensive scheme for digital content that was delivered on a tangible medium or in a different way like by means of downloading or streaming, and grants consumers rights in their relation to suppliers of digital content. The scope of the Directive on Consumer Rights is any contract between a trader and a

consumer.70 The directive binds all Member States with regard to the result to be achieved, while allowing the Member States competency as to the form and methods used.

Recital 4 in the preamble of the Directive on Consumer Rights states that “in accordance with Article 26(2) TFEU, the internal market is to comprise an area without internal frontiers in which the free movement of goods and services and freedom of establishment are ensured”. This is an important consideration and the same one that has led the Court to its decision in the Usedsoft case.

Concerning the purchase of digital content, there is still a discrepancy between legal protection for consumers that purchase digital content that is sold on a carrier, and

70_{Directive 2011/83/EU, of the European Parliament and of the Council of 25 October 2011}

on consumer rights, recital 19 reads:

“Digital content means data which are produced and supplied in digital form, such as computer programs, applications, games, music, videos or texts, irrespective of whether they are accessed through downloading or streaming.”

Directive 2011/83/EU, of the European Parliament and of the Council of 25 October 2011 on consumer rights, Aricle 2(11) reads:

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consumers that purchase digital content that is downloaded onto hardware, as a lot of important provisions from the Directive which offer protection to consumers are limited to sales contracts for the supply of goods (tangible property). They are not applicable to digital content which is not supplied on a tangible medium and therefore neither to standard software like at issue in the Usedsoft decision.

However, the Directive states that some provisions from the Directive shall also apply to contracts for the supply of digital content that is not supplied on a tangible medium.71 In this way some sales law provisions are nonetheless indirectly applicable to digital content that is not supplied on a tangible medium.72

I will now explain why I am of the opinion that the Directive on Consumer Rights should be revised in the light of the Usedsoft decision, so that buyers of digital standard software get the same consumer protection under the Directive as the buyers of goods. Furthermore, I will explain how the Directive has to be revised.

In the Usedsoft decision the Court determined that “according to a commonly accepted definition, a “sale” is an agreement by which a person, in return for payment, transfers to another person his rights of ownership in an item of tangible or intangible property belonging to him.”73 The Court expressly stated that this definition is commonly accepted and this means that a sales contract should therefore be defined in the same way in all European regulations.

However, unlike the Usedsoft decision, recital 19 of the Directive on Consumer Rights clearly states that contracts for digital content which are not supplied on a tangible medium cannot be considered sales contracts, nor service contracts. Moreover, the Directive on Consumer rights defines a sales contract under Article 2 (5) as: “any contract under which the trader transfers or undertakes to transfer the ownership of goods to the consumer and the consumer pays or undertakes to pay the price thereof, including any contract having as

71

Directive 2011/83/EU, of the European Parliament and of the Council of 25 October 2011 on consumer rights , Article 5 sub 2.

72

R. van Neck 2013, p. 109

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its object both goods and services”. The definition of a “good” in the Directive on Consumer Rights covers only tangible movable items.74

The Directive on Consumer Rights came into force before the Court ruled in the Usedsoft case, and is therefore not in line with the commonly accepted definition of a “sale” as defined in the Usedsoft decision. Therefore, the Directive on Consumer Rights should be revised so that the definition of a sale also covers intangible property.

The sale of digital standard software

In light of the Usedsoft decision, the Directive on Consumer Rights should be revised so that it mentions that the online buyer’s entitlement to a software license agreement is qualified as “ownership” if the copyright holder who has authorised, the downloading of that copy from the internet onto a data carrier has also conferred a right to use that copy for an unlimited period, in return for payment of a fee intended to enable him to obtain a remuneration corresponding to the economic value of that copy.75

Furthermore, it should mention in the light of the Usedsoft decision that such a license agreement is considered a sale and therefore falls under the definition of a sales contract.76 By defining a perpetual license agreement for standard software as a sales contract, the Court has tied the suppliers of this standard software to sales law and

therefore also to consumer law in the case of sales to consumers. Buyers of digital standard software should therefore get the same consumer protection under the Directive as other buyers and I am therefore of the opinion that this should also be incorporated in the Directive on Consumer Rights.

There are also certain other rights for the buyer of the standard software that flow from the sale, like the right to resell the standard software because of the exhaustion of the distribution right of the right holder, and by not defining the license agreement as a sale the Directive on Consumer Rights gives a false impression of the rights of the buyer.

74_{Directive 2011/83/EU, of the European Parliament and of the Council of 25 October 2011}

on consumer rights , Article 2 sub 3.

75

Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on a Common European Sales Law {SEC(2011) 1165 final}, Article 91(B).

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A simple example of how the Directive on Consumer Rights could be revised in the light of the Usedsoft decision is by adding an extra recital in the Directive:

“Standard software transmitted to the consumer in a digital format with the authorisation of the right holder, where the consumer obtains the permanent possibility of use and where the right holder receives an equitable remuneration, is considered a sales contract and the standard software should therefore be treated as a good for the application of the provisions applying to sales contracts.”

Other digital content

In the Usedsoft decision the Court does not say whether the download from the internet of a copy of digital content which is not standard software and is authorised by the copyright holder, can also be considered as transferring the right of ownership under certain circumstances. Therefore, a perpetual license agreement for other digital content cannot be considered as a sales contract and consumer protection which is limited to sales contracts will therefore not be applicable.

However, the Court stated in the Usedsoft decision that, from an economic point of view, the sale of a computer program on CD ROM or DVD and the sale of a program by downloading from the internet are similar.77 Moreover, the Court held that the online transmission method is the functional equivalent of the supply of a material medium, a good.78

The Court did not interpret the Directive on consumer rights in the Usedsoft decision, but there is a lot to be said for equal consumer protection for consumers who buy digital content which is not supplied on a tangible medium and consumers who buy digital content supplied on a tangible medium, as the Court considers the two delivery methods similar from an economic point of view, as well as in a functional way. We will see in the Regulation on a Common European Sales Law that the European Parliament and the Council share this opinion on equal consumer protection.

77

UsedSoft v Oracle, paragraph 61.

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Conclusion

In short, in light of the Usedsoft decision, the Directive on Consumer protection should be revised in order to improve the confidence of consumers and businesses in the online purchase and sale of standard software. Improving the trust of consumers and businesses in the online trade of digital content is one of the key objectives of the Digital Single Market. Firstly, the definition of a sale should be revised so that it so that also covers intangible property. Secondly, consumers who purchase digital standard software which is not supplied on a tangible medium and consumers who purchase digital standard software supplied on a tangible medium should get the same consumer protection under the Directive. And lastly, the Directive should mention that a standard software license agreements under certain circumstances constitutes a sale and mention that the online buyer’s entitlement to a software license agreement can be qualified as “ownership” with all the rights that flow from that.

These changes will create stronger protection for consumers who buy digital standard software and create more legal certainty for businesses as the consumer law regimes of the Member States will be legally aligned regarding the sale of digital standard software. This will stimulate the online trade of standard software and contribute to the creation of the Digital Single Market, as the fragmented consumer law regime within the internal market is one of the factors that hinders the creation of the Digital Single Market.

2.3.2 The Regulation on a Common European Sales Law

This paragraph will focus on the Regulation on a Common European Sales Law (hereafter: CESL) which the Commission has proposed instead of further adapting the Directive on Consumer Rights Directive to the Digital Age. The CESL has not been accepted yet and therefore is not applicable to sales contracts. It contains a large amount of consumer law, but is also applicable to business to business sales contracts. The aim of the CESL is to promote the Digital Single market by providing a coherent set of rules for the marketing of digital products and related services instead of 28 different national regulations.

Furthermore, the CESL should improve the establishment and the functioning of the internal market by facilitating the expansion of cross-border trade for business and cross-border

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purchases for consumers.79

The Regulation is an optional legal system, which would give traders the choice to apply, by express agreement, the Common European sales law to cross-border sales.80 81 This legal framework co-exists in parallel with national laws and also contains provisions for the supply of digital content. It could eliminate some of the legal barriers which cause

companies to refrain from delivering to certain countries. However, the high level of

consumer protection in the CESL could be a reason for companies not to opt-in to the set of rules.82 Just like the Directive on Consumer Rights, the CESL is not in line with the legal considerations from the Usedsoft decision.

The definition of a “sales contract” only includes the transfer of the ownership of (tangible) goods for the pay of a price by the buyer and hereby excludes rights of ownership in an item of intangible property like standard software license agreements.83

The Regulation should incorporate the commonly accepted definition of a sale which also includes items of intangible property. Moreover, for the purpose of Part IV of the CESL, the supplier of digital content like standard software is also referred to as the ‘seller’, which implies a transfer ownership. This inconsistent use of terminology creates legal uncertainty and should be cleared from the regulation. 84

79

Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on a Common European Sales Law {SEC(2011) 1165 final} {SEC(2011) 1166 final}, p. 4.

80_{European Commission – Press Release, European Commission proposes an optional Common European Sales}

Law to boost trade and expand consumer choice, Brussels, 11 October 2011, p. 1.

81

Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on a Common European Sales Law {SEC(2011) 1165 final} {SEC(2011) 1166 final}, Article 3 & 4.

82

Discrimination of consumers on single market., p. 53.

83

Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on a Common European Sales Law {SEC(2011) 1165 final}, article 2(K) reads:

“‘sales contract’ means any contract under which the trader ('the seller') transfers or undertakes to transfer the ownership of the goods to another person ('the buyer'), and the buyer pays or undertakes to pay the price thereof; it includes a contract for the supply of goods to be manufactured or

produced and excludes contracts for sale on execution or otherwise involving the exercise of public authority;”

84

ELI European Law Institute, Statement of the European Law Institute on the Proposal for a Regulation on a Common European Sales Law COM(2011) 635 final, p. 25.

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Other digital contect

The CESL states in recital 17 of the preamble that the Common European Sales Law should cover the supply of digital content irrespective of whether or not that content is supplied on a tangible medium, in order to reflect the increasing importance of the digital economy.85 The CESL includes all digital content in the scope of the European sales law if the supplier of the digital content is a trader, so it covers business to consumer contracts (B2C) and business to business contracts (B2B).86 This is a major improvement compared to the Directive on Consumer Rights, because in the CESL the European Parliament and the Council have legally aligned the rights and obligations that flow from the sale of goods and the supply of all digital content irrespective of its tangible nature.

The entitlement of ownership

In addition, just like the Directive on Consumer rights the CESL fails to mention that the online buyer’s entitlement to a software license agreement is qualified as “ownership” and therefore constitutes a sale under certain circumstances as determined in the Usedsoft decision. However, this is not as important under the CESL as under the Directive on Consumer Rights as the consumer protection is equally high for the purchase of goods and for the purchase of digital content under the CESL. However, the CESL does not give a just impression of the rights of the buyer of the standard software that flow from the sale of the software, like the right to resell the standard software because of the exhaustion of the distribution right of the right holder.

Conclusion

To conclude this analysis of the CESL in the light of the Usedsoft decision, the CESL offers a higher consumer protection for the purchase of digital content than can be achieved on the basis of the Usedsoft decision. In the CESL the rights and obligations that flow from

85_{Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on a Common European}

Sales Law {SEC(2011) 1165 final}, article 2(j) reads:

“digital content’ means data which are produced and supplied in digital form, whether or not

according to the buyer's specifications, including video, audio, picture or written digital content, digital games, software and digital content which makes it possible to personalise existing hardware or software;”

86

Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on a Common European Sales Law {SEC(2011) 1165 final} {SEC(2011) 1166 final}, Article 7.

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the sale of goods and the supply of all digital content irrespective its tangible nature have been legally aligned. However, the definition of a “sales contract” still has to be changed in the CESL and it should mention that the online buyer’s entitlement to a software license agreement is qualified as “ownership” and therefore constitutes a sale under certain circumstances.

The aim of the CESL is to promote the Digital Single market by providing a coherent set of rules for the marketing of digital products and related services. However, the high level of consumer protection in the CESL could be a reason for companies not to opt-in to the set of rules.

The CESL will not replace the Directive on Consumer Rights, but will only complement the harmonisation brought about by the Directive on Consumer Rights by introducing this opt-in system. Moreover, the CESL can only be applied to cross-border sales. So in my opinion the Directive on Consumer Rights still needs to be revised in order to achieve a true unified consumer law regime in Europe that will promote the creation of the Digital Single Market. Whether the CESL will be able to improve the trust consumers have in cross-border transactions of digital content and eliminate the barriers that dissuade businesses from entering into cross-border trade, remains to be seen once the Regulation has been accepted and has entered into force.

The Usedsoft decision : its contributions to the Digital Single Market and implications on standard software licensing models