Shrink-Wrap Licences in Europe After the EC Software Directive

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SMITH G.P., Shrink-Wrap Licences in Europe After the EC Software Directive, Computer Law Journal, V. 11, i. 4, 1992, 957

Type Article
Abstract Shrink-wrap licenses evolved in the early 1980s as a response to the problem posed by mass-marketed software. Such software was distrib- uted through retailers and by mail order and, in these circumstances, a signed licence agreement was not possible. At the same time, in many countries, the protection afforded to computer software was unclear. Accordingly, software producers attempted to impose licence terms on the ultimate purchaser of their software as a means of protecting their rights in the software.' Now, a decade later, the efficacy of shrink-wrap licences remains as uncertain as ever. A Shrink-wrap licenses evolved in the early 1980s as a response to the problem posed by mass-marketed software. Such software was distrib- uted through retailers and by mail order and, in these circumstances, a signed licence agreement was not possible. At the same time, in many countries, the protection afforded to computer software was unclear. Accordingly, software producers attempted to impose licence terms on the ultimate purchaser of their software as a means of protecting their rights in the software.' Now, a decade later, the efficacy of shrink-wrap licences remains as uncertain as ever. A few States of the United States have introduced legislation to confirm the validity of shrink-wrap li- censing, 2 but in most jurisdictions, including England, such licences have to be analysed under existing legal concepts. However, in Europe there is now a new element to consider: the E.C. software directive. The impact of the directive is considered below, but first we will ex- amine the existing position in England.few States of the United States have introduced legislation to confirm the validity of shrink-wrap li- censing, 2 but in most jurisdictions, including England, such licences have to be analysed under existing legal concepts. However, in Europe there is now a new element to consider: the E.C. software directive. The impact of the directive is considered below, but first we will ex- amine the existing position in England.
Link http://repository.jmls.edu/cgi/viewcontent.cgi?article=1410&context=jitpl
Topics Contract, Intellectual Property, Property

Notes

In 1991, the Directive 91/250/EEC on the legal protection of computer programs was introduced.

Its Recital 17 stated: “Whereas the exclusive rights of the author to prevent the unauthorized reproduction of his work have to be subject to a limited exception in the case of a computer program to allow the reproduction technically necessary for the use of that program by the lawful acquirer”.

Its Recital 18 stated: “Whereas this means that the acts of loading and running necessary for the use of a copy of a program which has been lawfully acquired, and the act of correction of its errors, may not be prohibited by contract; whereas, in the absence of specific contractual provisions, including when a copy of the program has been sold, any other act necessary for the use of the copy of a program may be performed in accordance with its intended purpose by a lawful acquirer of that copy”.

Its article 5(1) stated: “In the absence of specific contractual provisions, the acts referred to in Article 4 (a) and (b) shall not require authorization by the rightholder where they are necessary for the use of the computer program by the lawful acquirer in accordance with its intended purpose, including for error correction”.

Today, the Directive ruling the legal protection of computer programs is DIRECTIVE 2009/24/EC on the legal protection of computer programs, which codifies the previous Directive as amended. Therefore, Recitals 17 and 18 are today Recital 13; article 5(1) has preserved its numbering.

Recital 13: “The exclusive rights of the author to prevent the unauthorised reproduction of his work should be subject to a limited exception in the case of a computer program to allow the reproduction technically necessary for the use of that program by the lawful acquirer. This means that the acts of loading and running necessary for the use of a copy of a program which has been lawfully acquired, and the act of correction of its errors, may not be prohibited by contract. In the absence of specific contractual provisions, including when a copy of the program has been sold, any other act necessary for the use of the copy of a program may be performed in accordance with its intended purpose by a lawful acquirer of that copy”.

Art. 5(1): “In the absence of specific contractual provisions, the acts referred to in points (a) and (b) of Article 4(1) shall not require authorisation by the rightholder where they are necessary for the use of the computer program by the lawful acquirer in accordance with its intended purpose, including for error correction”.

As we can see, despite some minor changes in the formulation of the above-mentioned provisions, their meaning is remained the same. Therefore, in giving interpretation to the current rules, we can take into account the preparatory works and the proposals that eventually led to the final version of the Directive of 1991.

The initial position of the European Commission was to specify that only “a written licence agreement signed by both parties” (COM (88) 816 final—SYN 183; O.J. 1989 No. C91/4 (12.4.89)) could derogate to the limited exception provided by article 5(1). The purpose of the Commission was to prevent the current practice of shrink-wrap licensing, because through it “producers impose conditions on the use of programs which have been in reality 'sold' to consumers” (O.J. 1989 No. C91/12 (12.4.89)).

Unfortunately, other European institutions were for shrink-wrap licensing, therefore they proposed to replace the expression suggested by the European Commission by “any valid licence agreement” (Committee) or “specific contractual provisions” (European Parliament).

In response, [[CC1::the Commission amended its proposal: the case in which a copy of the computer program has been sold was distinguished from the case in which we have a “licence to use a copy of a computer program” (COM (90) 509 Final—SYN 183; O.J. 1990 No. C320/22 (20.12.90)): in the latter case only, the exception could be derogated by the rightholder (the necessary loading and running anyway excluded) (COM (90) 509 Final—SYN 183; O.J. 1990 No. C320/22 (20.12.90)).

In its explanatory memorandum, the Commission underlined that among the aims of Article 5(1) there was also that of “allow[ing] a purchaser of a computer program in particular to correct any errors in order to maintain his own continued use of the program in accordance with its intended purpose” (COM (90) 509 Final—SYN 183, p. 7).

Therefore, if mandatory legal provisions are part of the legitimate expectations of consumers and prevail on contrary statements of the provider (see HELBERGER), this means that software that can't be corrected by the consumer himself or by third parties on his behalf are products that don't respect the conformity test.]]

In the memorandum, the Commission takes also an example of the limitation the rightholder can impose to the licensee: “for example, the licence to use a copy of a program may prohibit the licensee from running the program at all in any circumstances, but it may limit its use to a specific machine or impose other similar restrictions”. From this example, we may infer that a use limited to a specific machine or other similar restrictions are not possible when a sale has taken place.

[[CC4::But when is a contract identifiable as a “licence”? We could say that in this context a synonym of licence is “rental”: we can infer that from the fact that the Commission speaks about “a licence to use a copy”, and from the fact that it is opposed to the term “sale”. Indeed, Recital 16 (today Recital 12) of the Software Directive contains a definition of the term “rental” (“Whereas, for the purposes of this Directive, the term 'rental' means the making available for use, for a limited period of time and for profit-making purposes, of a computer program or a copy thereof [...]”) which seems to can apply at the licence of the above-mentioned proposal; moreover, Advocate General Yves BOT, in its Opinion about the Oracle v. UsedSoft case, states: “In my view, it is clear that, under Directive 2009/24, the distinction between sale and rental is the ‘summa divisio’ on which both the application or otherwise of the exhaustion rule and the scope of that rule depend. Recital 12 in the preamble to that directive defines rental as being the making available for use, for a limited period of time and for profit-making purposes, of a computer program or a copy thereof. Conversely, a computer program or a copy of such a program must be regarded as being sold within the meaning of Article 4(2) of that directive where the transaction, however it may have been described by the parties, involves the transfer of ownership of a copy of the computer program, for an unlimited period of time, in return for the payment of a one-off fee. Moreover, that distinction is consistent with the case-law of the Court of Justice, which has held that exhaustion does not arise in the case of rental but that it does in the case of transfer of ownership”.]]

[[CC4::We know that the final version of article 5(1) states: “In the absence of specific contractual provisions [...]”, which – if interpreted only literally – remains ambiguous, and may even lead to think that its exception only applies “to the extent that there is no contractual provision to the contrary” (SMITH p. 603). But if we take care also of an historical interpretation (therefore looking also at the preparatory works) and if we consider – for its interpretation – also the Recitals of the Directive (“although the operative text of a directive takes precedence over its recitals, nevertheless the recitals to a directive are normally accorded considerable weight in interpreting its provisions”, SMITH p. 603), we can say that the above-mentioned amended proposal of the Commission has been implemented: indeed, Recital 18 (today Recital 13) “appears to imply […] that effective contractual provisions can never apply when a copy of a program is sold” (SMITH p. 604).]]

[[U11::It remains the problem of the “intended purpose”. What is it? And how to identify it? SMITH (p. 604) cites CZARNOTA and HART: “the purpose […] may include conditions under which the program is to be used (number of users, terminals, location, equipment) and the function which the program is to carry out (e.g., control of machine-tool operation, word processing of text, monitoring of instruments, etc.)”. SMITH (pp. 604-605) states that “where a copy of a program is sold the intended purpose may be determined by reference to the licensor's brochure or other documentation (such as user manuals) accompanying the software, the price of the software (particularly if there are different prices for different levels or types of use), the shrink-wrap licence terms (even if not contractually binding), and any statements contained in screen displays. Provided the purpose intended by the licensor is notified to the purchaser before the sale is made [...]”. Only if the purpose intended by the rightholder is not notified to the purchaser at the time of the sale, the intended purpose should be objectively determined (through elements as the ones suggested by CZARNOTA and HART, cited by SMITH at p. 604: “the technical capacity of a program to perform certain tasks, its portability unchanged from one environment to another, any technical limitations which may have been placed on user access and so on”), even if the price still remains relevant (SMITH, p. 605). SMITH therefore concludes (p. 605) saying that rightholders that sell copies of their software should be able – through the intended-purpose limitation – to restrict use by purchasers (necessary loading and running and error correction always excluded); “[h]owever, instead of relying solely on the licence terms, licensees should make sure that statements of the intended purpose of the program also appear in the other places referred to above”.]]

Therefore, the rightholder can establish – through contractual conditions and technical measures (and perhaps also advertising, even if SMITH doesn't mentioned it) – the intended purpose of the software sold (even if contractual conditions must be notified to the buyer before the conclusion of the sale; and we can probably say that technical measures that limit the purpose have also to be made clear before the conclusion of the contract: indeed, not informing the consumer about interoperability issues violates the Consumer Rights Directive, and probably also the Directive on Consumer Sales because – as HELBERGER has said – if you don't inform about a lack of interoperability, the product you sell doesn't satisfy the conformity test introduced by this Directive); but, once determined this purpose, those acts which are necessary to realize this purpose can be realized without authorization. And therefore there is no need for a direct relationship between the rightholder and any lawful user. Moreover, once determined the intended purpose, if some clauses established by the rightholder are incompatible with its realization (e.g. if they forbid acts which are instrumental to those purposes), these clauses don't apply.

[[U11::The 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 computer programs states that: “In the view of the Commission, what was intended by Article 5 (1) and recital 18 was that it should not be possible to prevent by contract a "lawful acquirer" of a program doing any of the restricted acts that were required for the use of the program in accordance with its intended purpose or for correcting errors. It is, however, possible for a contract to include specific provisions that "control" the restricted acts which may be carried out by the user of the computer program”. Thus, for the Commission, the meaning of Art. 5(1) and Recital 18 is that necessary acts can't be forbidden by contract, but the form of their realization may be imposed by the rightholder.]]