Update: Court of Appeal hands down judgment in second-hand software dispute

The Court of Appeal has handed down a judgment relating to the ongoing Competition Appeal Tribunal (CAT) dispute between JJH Enterprises Limited (trading as ValueLicensing, “VL”), a seller of pre-owned software licences, and Microsoft.

The dispute

The underlying CAT dispute concerns an allegation that Microsoft (and its related entities) engaged in anti-competitive conduct, contrary to Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU), by introducing a number of "Impugned Terms" in its agreements with licensees that had the effect of stifling the supply of pre-owned Microsoft licenses on the market. 

We have reported on a CAT judgment dealing with the preliminary issues in the dispute previously. In that judgment the CAT ruled on two preliminary issues relating to the reselling of software licences and the extent of the exhaustion of distribution and reproduction rights in software and its constituent elements upon first sale.  The CAT determined that:

• Preliminary Issue 1 - Microsoft’s Enterprise Agreements granted a bundle of licences (up to the licensed amount) to download, copy and use the products from the Microsoft server rather than, as Microsoft had contended, a single licence providing rights to multiple users to access copies of the software which prohibited subdivision. The subdivision of licences was not prohibited by the CJEU decision in UsedSoft.
• Preliminary Issue 2 – “non-program works” such as GUI interfaces and icons were ancillary or incidental to their attendant programs in that they exist to enable a user to run or to use the programs. As such, Microsoft was unsuccessful in its argument that even if its distribution and reproduction rights in the software products were exhausted, there was no exhaustion of rights in non-program works.

Microsoft appealed the CAT’s findings on both preliminary issues. 

Prior to the CAT’s judgment on these preliminary issues in November 2025, the CAT had separately determined in May 2025 that it had jurisdiction to hear copyright disputes insofar as they arise in the context of a competition claim. The CAT’s finding on jurisdiction was also the subject of Microsoft’s appeal to the Court of Appeal.

Jurisdiction

Microsoft argued that the copyright issues in dispute fell outside the CAT’s jurisdiction for the following reasons:

1. relying on section 47A of the Competition Act 1998 which governs the jurisdiction of the CAT, Microsoft contended that the copyright issues were anterior to the competition law claim. The competition claim therefore could not be brought unless VL is successful on the copyright issues; and
2. the copyright issues involve allegations that VL has infringed copyright. Claims for copyright infringement are not within the jurisdiction of the CAT and would need to be determined in the High Court.

As to limb (i) above, the Court of Appeal rejected Microsoft’s argument holding that where an issue needs to be decided in order to resolve a claim for an alleged infringement of competition law, that issue falls within the CAT’s jurisdiction under section 47A. The Court of Appeal held that the CAT must be able to decide any issues which need to be determined in order to resolve a competition claim. Using the example of a competition claim which involved as issue of contractual interpretation, the Chancellor of the High Court noted that the fact that the law of the interpretation of contracts is part of contract law rather than competition law is irrelevant in respect of the CAT’s jurisdiction.

On limb (ii), the Chancellor of the High Court determined that the copyright cause of action is something necessary to be decided in order to resolve the competition law claim itself and there was nothing in the wording of section 47A to suggest that an implicit exclusion of the kind contended for by Microsoft was necessary nor that it would be justified by any legislative purpose.

Preliminary Issues

The Court of Appeal upheld the CAT’s findings on both preliminary issues.

Preliminary Issue 1 - Subdivision

On Preliminary Issue 1, the Court of Appeal rejected Microsoft’s argument that the subdivision of bulk licenses was impermissible based on the decision in UsedSoft and the specific terms of Microsoft’s Enterprise Agreements.  As to the decision in UsedSoft, the Court of Appeal noted that the software in issue in that case was client-server software.  In the context of the client-server software at issue in UsedSoft the Chancellor of the High Court noted that:

“…part of the user right in that case is a right to access the single copy of the program stored on the server. So this poses a problem when an Oracle customer has bought 25 user rights in a pack but only wishes to sell some of them (say 10). In such a case the customer is going to keep using the unsold 15 user rights, keep the server copy of the program, and keep the server/hub access dimension of the user right in use by the 15 users. Therefore it makes sense in that situation to hold that one cannot subdivide in those circumstances. There is only one server copy, which is being kept in use, and thus those 25 particular kinds of user rights are not independent of one another. In my judgment that is the subdivision which the CJEU is prohibiting in UsedSoft…”

The judgment differentiated between the client-server software at issue in UsedSoft and the software in dispute in the present case, the latter involving “simply a collection of equivalent copies of the software, each one used independently.”  Therefore, Microsoft’s argument based on UsedSoft failed.

As to the terms of Microsoft’s Enterprise Agreements, the Court of Appeal determined that the “Exhaustion of rights takes place by operation of law notwithstanding contract terms which might purport to prevent or undermine it”. In circumstances where the first acquirer resells a licence but continues to use a retained copy of the software, the Court of Appeal expressly agreed with the CAT’s finding that this may right rise to an infringement by the first acquirer but that did not affect the validity of what was purchased by the subsequent purchaser. 

Preliminary Issue 2 – Non-program works

The Court of Appeal noted that there was no dispute that the Microsoft software products in issue comprise computer programs but also other works in which copyright subsists, such as graphic works. The software products are subject to the Software Directive while the latter (referred to as non-program works) are governed by the InfoSoc Directive.  However, the Court of Appeal upheld the CAT’s conclusion that the non-program works were ancillary or incidental to their attendant programs in that they exist to enable a user to run or to use the programs. The exhaustion regime under the Software Directive therefore applied.