Microsoft has been accused of abusing its market position by stifling the sale of second-hand copies of its Windows operating system and Office suite, in a long-running battle over the lawfulness of selling pre-owned software.
ValueLicensing, which sold pre-used software licences to businesses, is seeking damages of £270m from Microsoft for loss of sales in the UK and Europe, claiming that Microsoft unlawfully restricted enterprises from reselling their unwanted software.
The UK Competition Appeal Tribunal is hearing preliminary arguments this week from ValueLicensing and Microsoft to decide whether businesses can lawfully sell pre-owned copies of Windows and Office under EU and UK law.
ValueLicensing has accused Microsoft of imposing anti-competitive conditions on business customers that restrict them from reselling Microsoft’s perpetual licences in return for receiving discounts on Microsoft software subscriptions.
It claimed that Microsoft engaged in “unlawful conduct aimed at limiting the size of the market for second-hand software”, leading to higher prices and less choice for customers.
Microsoft ‘suppressed’ second-hand market
ValueLicensing argues in legal filings that there is a large market for resold software in the UK and Europe, involving 50 substantial businesses when the company was founded in 2008.
The reseller, which filed a legal claim against Microsoft in 2021, argues that Microsoft used its dominant position to suppress the availability of pre-owned perpetual licences of its software from 2016 onwards, thereby restricting competition from resellers.
It claimed in legal submissions on 9 September that Microsoft has belatedly changed its legal arguments and is now claiming that there was never a lawful resale market in second-hand Office and Windows software for ValueLicensing to participate in.
“If Microsoft’s argument is correct, it would mean that the entire resale market in Europe should not exist,” argued the reseller.
ValueLicensing cited a decision by the Court of Justice of the European Union in the case of software reseller UsedSoft, which found that an organisation is entitled to sell software it has bought.
This could lawfully be achieved by the seller deleting copies of its software in return for the buyer downloading an equivalent number of copies from the developer’s website, the court found.
Microsoft says companies cannot ‘split’ licences
Microsoft argues that enterprise customers that buy large amounts of Microsoft software under volume licences cannot choose to sell a portion of the licences. Instead, they must resell them in their entirety.
ValueLicensing said Microsoft’s objection to sub-dividing volume licences is “arbitrary and pointless”, and that doing so would not deprive Microsoft of any income it would otherwise be entitled to.
“It follows from Microsoft’s contentions that if an enrollment covers licences in respect of 1,000 copies of Windows and 1,000 copies of Office, then these can only be resold to one customer seeking exactly this many copies,” ValueLicensing said in written submissions this week.
When is software a creative work?
The case hinges on whether Microsoft’s products fall under the Software Directive or the Copyright and Information Society (Infosec) Directive, which covers creative works.
Microsoft claimed that its Windows and Office products are not simply computer programs but also include non-software elements, such as a graphical user interface, fonts and typefaces, and help or error messages.
Microsoft relies on European case law from a case involving Tom Kabinet, an online platform for selling e-books, to argue that the presence of any material in software beyond executable code means the product should not be treated as simply computer code.
The Redmond-based tech company also cites a European court decision on Nintendo, which found that computer games should be treated as copyright works akin to films or television programmes, rather than computer code, and are protected under the Information Society Directive.
“The far-reaching consequences would be, if that were the case, that it would not be possible to resell digitally distributed copies of software products at all,” ValueLicensing claimed.
That would be contrary to the ruling of the Court of Justice and German national court decisions in the case of UsedSoft – which supported the sale of second-hand software – it said in legal submissions.
The hearing continues until 11 September.
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