Microsoft’s high-stakes legal gambit in the UK could redraw the map for the entire European market for second‑hand Windows and Office licences, and the preliminary hearing now before the Competition Appeal Tribunal (CAT) is already exposing fault lines that matter to resellers, IT purchasers, and public procurement teams alike.
The dispute pits Microsoft against the UK reseller ValueLicensing in a case that began as a competition claim but has evolved into a provocative copyright and exhaustion argument. ValueLicensing alleges it lost roughly £270 million because Microsoft’s commercial practices — including trade‑in offers and discount arrangements linked to surrendering perpetual licences — reduced the supply of perpetual licences to the secondary market. Microsoft’s counter‑argument is novel and sweeping: parts of its products, notably non‑program elements such as the graphical user interface (GUI), should be treated as separate copyrighted works that are not subject to the Software Directive’s exhaustion rule, meaning those elements (and, in aggregate, some licences) should not be freely resellable. If the CAT accepts that construction it could dramatically restrict resale of pre‑owned Windows and Office licences across the UK and possibly the EU.
This article explains the legal and technical issues at stake, analyses the likely market and regulatory fallout under realistic scenarios, and offers practical guidance for resellers, IT procurement teams, and organisations that rely on the used‑software market to manage costs.
At the same time, courts and regulators tend to be cautious about doctrinal shifts with systemic market effects. The tribunal’s challenge will be to balance sound copyright interpretation with predictable market rules that many organisations, resellers, and public bodies currently rely upon. For resellers and purchasers the safe course is clear: audit licence holdings, preserve documentation, and prepare contingency plans. For policymakers and regulators, the case is a reminder that modern licensing practices — and the business models they enable — deserve closer and clearer legal and policy scrutiny.
This is not just an abstruse IP fight; it is a live market‑structure question about how software will be bought, sold, and recycled in Europe for years to come.
Source: PC Gamer If Microsoft wins this UK court case it might spell the end of second-hand Windows licenses
Overview
The dispute pits Microsoft against the UK reseller ValueLicensing in a case that began as a competition claim but has evolved into a provocative copyright and exhaustion argument. ValueLicensing alleges it lost roughly £270 million because Microsoft’s commercial practices — including trade‑in offers and discount arrangements linked to surrendering perpetual licences — reduced the supply of perpetual licences to the secondary market. Microsoft’s counter‑argument is novel and sweeping: parts of its products, notably non‑program elements such as the graphical user interface (GUI), should be treated as separate copyrighted works that are not subject to the Software Directive’s exhaustion rule, meaning those elements (and, in aggregate, some licences) should not be freely resellable. If the CAT accepts that construction it could dramatically restrict resale of pre‑owned Windows and Office licences across the UK and possibly the EU.This article explains the legal and technical issues at stake, analyses the likely market and regulatory fallout under realistic scenarios, and offers practical guidance for resellers, IT procurement teams, and organisations that rely on the used‑software market to manage costs.
Background: how we got here
ValueLicensing’s competition claim
ValueLicensing launched its substantive action in 2021, alleging Microsoft engaged in conduct that suppressed the supply of perpetual licences into the secondary market. The claim centers on commercial incentives — for example, trade‑in arrangements and discounts on subscription services offered in exchange for surrendering perpetual licences — that, according to ValueLicensing, deprived resellers of stock and drove down resale volumes and margins. The company alleges losses in the order of £270 million and seeks compensation and injunctive relief.Microsoft’s defensive pivot
Microsoft’s defence has moved beyond disputing the facts of market conduct. In a strategically significant pivot, Microsoft asks the CAT to accept a legal construction that distinguishes between types of copyright protection within a single product: “program copyright” (the software code governed by the Software Directive and the well‑known UsedSoft precedent) and “non‑program copyright” (creative elements like graphical assets and the overall look‑and‑feel) which, Microsoft contends, fall outside the Software Directive and therefore are not exhausted by first sale. If accepted, that legal theory would mean the resale of licences that embed protected non‑program elements could constitute copyright infringement unless authorised by Microsoft. ValueLicensing has pointed out the dramatic shift in Microsoft’s position, warning that “if Microsoft’s argument is correct, it would mean that the entire resale market in Europe should not exist.”Legal context: exhaustion, UsedSoft, and the Tom Kabinet distinction
The Software Directive and UsedSoft
EU law, as developed by the Court of Justice of the European Union (CJEU), has for years recognised a form of exhaustion for computer programs. The pivotal CJEU decision in UsedSoft GmbH v. Oracle International Corp. (C‑128/11, 2012) holds that once a copyright owner has received an appropriate remuneration for a copy of a computer program, the exclusive distribution right is exhausted and the lawful acquirer is free to resell that copy — even for downloaded software — provided the original user makes their copy unusable. That precedent underpins the EU‑wide used‑software market.Tom Kabinet and other distinctions for digital content
However, later CJEU case law (notably the Tom Kabinet decisions regarding e‑books and the interpretation of the InfoSoc Directive) drew lines between different types of digital content. The Court has emphasised that digital works may raise communication to the public issues distinct from pure distribution rights, and consequently concluded resale of some digital content (e‑books) does not automatically benefit from exhaustion. The Tom Kabinet reasoning deliberately separated software (governed by the Software Directive) from other digital content, but Microsoft’s present argument asks the court to split software internally — categorising discrete elements of Windows and Office as non‑program works and thereby outside UsedSoft’s exhaustion protection. That is a novel legal step.Why this legal framing matters
If the CAT accepts Microsoft’s construction and finds that substantial elements of Windows or Office are non‑program protected works, the consequence would be legal uncertainty over whether the resale of licences that cover those elements exhausts distribution rights. In practical terms, courts could conclude that resale requires the copyright owner’s authorisation for the non‑program elements — a ruling that would undercut the doctrinal basis for widespread resales of perpetual licences in Europe.What’s at stake: market, legal, and public‑policy consequences
Immediate commercial consequences
- Resellers: Companies that trade in pre‑owned licences could see their business models invalidated overnight for some product classes. Stock valuations could collapse, financing lines evaporate, and ongoing listings become legally risky.
- Buyers: Organisations and consumers that rely on discounted second‑hand licences would face higher procurement costs and fewer lawful purchasing channels. Governments and public bodies that have used secondary markets to reduce procurement costs could be particularly exposed.
- Microsoft and ISVs: A legal victory would allow Microsoft to recapture control over downstream distribution, accelerating the migration to subscription and services models, and strengthening vendor leverage — but it would also trigger reputational and regulatory pushback.
Regulatory and competition law fallout
A court finding that narrows exhaustion could invite regulatory responses. Competition authorities — including the UK’s Competition and Markets Authority (CMA) and the European Commission — might view judicial contraction of the resale market as a distortion of competitive choices, prompting probes or remedial measures targeting contractual restrictions and tying practices. Conversely, if the CAT rejects Microsoft’s legal construction, competition claims about Microsoft’s commercial strategies (the core of the ValueLicensing action) may proceed unfettered. The matter therefore sits at the intersection of copyright law and competition policy, amplifying stakes for regulators.Secondary risks: fragmentation and compliance costs
A split between national decisions — or between the CAT and future CJEU guidance — could create a patchwork of rules across the UK and EU. Resellers might face country‑by‑country compliance regimes, escalating legal costs and operational complexity. This fragmentation would be especially disruptive for pan‑European resellers and for public procurement that often assumes uniform rights to acquire perpetual licences.Scenarios and likelihoods: three plausible outcomes
- Resale survives (narrow defeat for Microsoft)
The CAT rejects Microsoft’s non‑program / exhaustion construction, holding that the Software Directive and UsedSoft remain the governing framework for computer programs and that the alleged non‑program elements do not change the exhaustion analysis. The secondary market endures; ValueLicensing’s competition claims proceed on their factual merits. This outcome preserves market stability and limits immediate disruption. - Partial restriction (mixed outcome)
The CAT accepts that some discrete creative elements may not be exhausted while others are, creating a product‑specific reservation on resale rights. The result fragments the market: some licences remain tradable, others do not, and resellers must undertake granular provenance and contract reviews before trading. Compliance costs rise and legal uncertainty persists. - Broad victory for Microsoft (major disruption)
The CAT embraces Microsoft’s construction wholesale, excluding key elements of Office and Windows from exhaustion. The secondary market contracts sharply, second‑hand supply dries up, and organisations face higher prices and fewer options. Regulatory scrutiny intensifies and legislative responses become more likely. This outcome would be the most disruptive and is therefore the one courts typically treat most cautiously.
Practical implications and steps for stakeholders
For resellers
- Audit inventory now: Catalogue licences by type (perpetual vs subscription vs OEM), provenance, and any surrender/assignment paperwork. Preserve all acquisition and assignment documents.
- Segregate contested stock: Identify batches that may implicate Microsoft’s non‑program claims and isolate them pending legal clarity.
- Review customer contracts and warranties: Ensure representations about licence legitimacy are accurate and consider adding indemnity carve‑outs or refund mechanisms where risk is highest.
- Consider contingency planning: Explore alternative revenue lines (support, migration services, cloud advisory) and assess litigation‑risk insurance.
For corporate and public purchasers
- Reassess procurement strategies: Model the financial impact if second‑hand channels become unavailable or restricted. Factor in subscription and cloud alternatives.
- Preserve documentation: If your organisation surrendered licences to obtain discounts or credits, retain all correspondence and contractual proof — those records are already material in CAT proceedings.
- Engage legal and procurement counsel: If you rely heavily on secondary licences, consult competition and IP counsel to evaluate exposure and procurement fallback options.
For Microsoft and other ISVs
- Prepare for regulatory engagement: A legal win will not be the end of scrutiny; prepare to engage with competition authorities and explain commercial justifications for licensing models.
- Clarify licensing terms: If Microsoft intends to rely on IP distinctions to control resale, it will need crisp contract drafting and market communications to reduce uncertainty.
Technical and consumer angles: why accessibility matters
The potential contraction of the resale market matters for more than commercial reasons. Many individuals, nonprofits, and small businesses rely on the used‑software market to access modern software affordably. Restricting resale would push more users toward subscription models or force hardware upgrades in ecosystems where Windows 10 is still in heavy use. That raises equity and environmental questions: accelerating hardware replacement increases e‑waste and can widen the digital divide for users who cannot afford new devices or subscriptions. Policy debates about the circular economy and technology affordability will inevitably intersect with the legal outcome.Judicial considerations and why courts may be cautious
Courts are generally wary of sweeping doctrinal changes that would have wide market effects. The CAT will likely scrutinise Microsoft’s construction closely because of its systemic consequences. Judges often weigh not only the legal merits but also the broader market, regulatory, and policy ramifications of a ruling that could effectively restructure long‑standing resale markets. That institutional caution suggests the tribunal may prefer narrower findings that address specific copyright questions without upending the entire used‑software market — though the risk of a disruptive ruling cannot be dismissed.Strategic analysis: strengths and weaknesses of the parties’ positions
Strengths of Microsoft’s position
- Doctrinal creativity: Microsoft’s argument attempts a principled intellectual property distinction — separating program code from creative, expressive elements — that, if accepted, would be legally coherent in some ways.
- Business incentives: From Microsoft’s commercial perspective, reasserting control over downstream distribution aligns with broader strategic moves to monetise software as services and protect platform value.
Weaknesses and risks for Microsoft
- Market and regulatory backlash: A ruling that curtails resale risks inviting regulatory intervention and reputational costs, especially if perceived as anti‑competitive or harmful to procurement budgets.
- Novelty and judicial caution: The proposed legal re‑characterisation of software runs against longstanding UsedSoft precedent and the CJEU’s careful distinctions; judges may be reluctant to create far‑reaching exceptions without clear legislative direction.
Strengths of ValueLicensing’s position
- Practical reliance on precedent: The reseller’s claims rest on established exhaustion doctrine and commercial reality — the secondary market has sizable economic and procurement importance.
- Evidentiary grounding: ValueLicensing can point to concrete business losses tied to Microsoft’s commercial practices (discounts in exchange for surrendered licences) and to documentary evidence in discovery.
Weaknesses for ValueLicensing
- Competition proof burden: Proving that Microsoft’s conduct unlawfully foreclosed competition requires demonstrating intent and measurable exclusionary effects — a demanding evidentiary standard. If the CAT rejects exhaustion as dispositive then ValueLicensing’s competition claims become harder to press.
What a sensible policymaker should watch for
- Regulatory reactions: Will competition authorities open inquiries or issue guidance if the CAT narrows exhaustion? The interplay between judicial decisions and regulatory action will shape long‑term outcomes.
- Legislative clarity: The controversy may prompt policymakers to revisit software exhaustion rules or to clarify how creative elements of software should be treated in the digital single market.
- Market adaptations: Watch how resellers, cloud providers, and enterprise buyers adjust contracts and procurement strategies in the weeks after any ruling; rapid commercial changes can be as consequential as legal ones.
Conclusion: measured risk, systemic consequence
The ValueLicensing v. Microsoft proceedings in the CAT have the texture of a classic commercial dispute but carry broader legal and market significance. Microsoft’s argument — that non‑program elements within Windows and Office sit outside the Software Directive and therefore outside exhaustion — is legally creative and commercially consequential. A CAT ruling accepting that construction could substantially constrict the second‑hand Windows and Office licence market in the UK and beyond, with ripple effects for pricing, procurement, and market competition.At the same time, courts and regulators tend to be cautious about doctrinal shifts with systemic market effects. The tribunal’s challenge will be to balance sound copyright interpretation with predictable market rules that many organisations, resellers, and public bodies currently rely upon. For resellers and purchasers the safe course is clear: audit licence holdings, preserve documentation, and prepare contingency plans. For policymakers and regulators, the case is a reminder that modern licensing practices — and the business models they enable — deserve closer and clearer legal and policy scrutiny.
This is not just an abstruse IP fight; it is a live market‑structure question about how software will be bought, sold, and recycled in Europe for years to come.
Source: PC Gamer If Microsoft wins this UK court case it might spell the end of second-hand Windows licenses
