The UK’s specialist competition court has delivered a high-stakes ruling that keeps the European secondary market for perpetual Microsoft licenses alive: the Competition Appeal Tribunal found that the subdivision and resale of Windows and Office licences bought under Microsoft Enterprise Agreements is not barred by the agreements and that exhaustion under the Software Directive applies to those products — including the non-program elements Microsoft had used as a novel copyright-based defence.
Background / Overview
The dispute began when JJH Enterprises Limited, trading as
ValueLicensing, launched a damages claim against Microsoft in 2021, alleging that Microsoft had used volume licensing clauses and commercial incentives to choke the legitimate market for pre-owned perpetual licences and thereby distort competition and deprive resellers of business. ValueLicensing put a headline number on the alleged loss: roughly
£270 million. Microsoft’s defence evolved during the case. While some of its early positions responded to competition law arguments, the company later advanced a striking copyright-based argument: because modern Office and Windows packages contain
non-program copyrighted works (icons, clipart, help files, fonts, manuals and GUI elements), reselling licences for those products — especially when sold electronically and then subdivided — would not fall under the exhaustion rules in the Software Directive and therefore would infringe Microsoft’s exclusive rights. That shift proved pivotal in the preliminary hearing that the Tribunal was asked to determine. The Tribunal’s judgment, handed down on 12 November 2025 and reported as Neutral Citation [2025] CAT 75, resolves two preliminary legal issues: (1) whether subdivision and resale of licences acquired under Enterprise Agreements is permissible; and (2) whether exhaustion under the Software Directive applies to all works supplied and inevitably downloaded as part of a Windows or Office installation. The Tribunal answered both questions in favour of ValueLicensing.
Why the judgment matters: the legal architecture
The Software Directive and the doctrine of exhaustion
At the centre of the legal debate is
Article 4(2) of Directive 2009/24/EC (the Software Directive), which provides that the first sale of a copy of a computer program within the EU/EEA exhausts the right of distribution in that copy. The European Court of Justice’s landmark UsedSoft decision (Case C‑128/11) interpreted that provision to permit resale of downloaded licences under certain conditions, effectively extending the “first-sale” doctrine to intangible software copies when the first acquirer had acquired a perpetual right to use the copy in return for payment. Those principles have formed the backbone of the European resale market for perpetual licences for over a decade. Microsoft’s argument attempted to thread a narrow path around that precedent: treat some parts of Office/Windows as independent “creative” works covered by the Information Society Directive (which regulates communication to the public and is less receptive to exhaustion claims), and treat their inclusion in a program download as giving Microsoft residual control over downstream transfers. In short, Microsoft asked the Tribunal to treat the bundled non-program assets as a legal wedge to prevent licence resale. The Tribunal rejected that approach.
What the Tribunal actually decided
The Tribunal’s two-part conclusion is compact but consequential:
- It held that exhaustion under Article 4(2) operates as a matter of law and is not deprioritized or overridden by contractual terms in Microsoft’s Enterprise Agreements; those contractual terms cannot defeat the legal effect of exhaustion. The Tribunal also held that Microsoft’s exclusive distribution and reproduction rights did not prevent the subdivision and resale of licences obtained by the first acquirer.
- It held that the first online sale of Microsoft Windows and Microsoft Office in electronic form exhausts the distribution and/or reproduction right under Article 4(2) of the Software Directive for all works supplied and inevitably downloaded as part of those products, to the extent those works are distributed, downloaded and copied in accordance with the intended purpose of the original sale. That means the inclusion of GUI elements, clipart, fonts and documentation in a first sale does not automatically block resale of the licence governing the whole package.
Those conclusions tie directly back to the UsedSoft framework by reaffirming that a first online sale of software with an unlimited licence can exhaust Microsoft’s distribution rights in the constituent materials delivered with the program.
The Tribunal’s reasoning — in plain terms
Substance over labels
One of the Tribunal’s central jurisprudential points is that the legal effects of exhaustion depend on
the substance of the transaction, not the labels or packaging the vendor puts around it. If Microsoft (or any rightholder) supplies a copy of software — including unavoidable associated elements — and grants a right of use for an unlimited period in return for payment, exhaustion kicks in for the distribution right concerning that copy. Contractual clauses tucked inside a volume licence cannot recreate a legal monopoly over what the first sale has already exhausted.
Non-program works are not a backdoor to perpetual control
Microsoft sought to treat non-program materials bundled inside Office/Windows as independently protected works whose distribution/reproduction could avoid exhaustion. The Tribunal took a contextual, functional approach instead: where those materials are “supplied and inevitably downloaded” as part of the same product and copied in the course of permitted use, exhaustion operates to the extent necessary. That is, Microsoft cannot use the mere presence of clipart, fonts or manuals to carve out a new layer of non-exhausted monopoly rights over the product sold.
Subdivision allowed on these facts
On the fact pattern considered (the sample transactions the parties used to test the law), the Tribunal found no legal bar to the
subdivision of multi-seat volume licence pools and the onward resale of individual licence entitlements. Microsoft had argued that volume agreements implied a single indivisible bundle that could not be split; the Tribunal disagreed, finding that exhaustion and the reproduction/distribution rights do not logically prevent the first acquirer from selling parts of the licence package.
How this changes the market (and what it doesn’t)
Short-term practical consequences for resellers and enterprise buyers
- For established secondary-market resellers and their customers, the judgment is an immediate legal vindication: business models premised on the resale of perpetual Windows and Office licences retain legal legitimacy in the UK for now. Resellers can quote the Tribunal’s ruling when negotiating with vendors and corporate sellers.
- Corporate customers seeking to monetise surplus licences or to dispose of licence pools should feel more confident that such transfers — if structured to comply with the UsedSoft framework and the Tribunal’s findings — will not automatically infringe Microsoft’s rights. Practical steps include ensuring unilateral copies are rendered unusable at the time of resale and documenting the transfer terms carefully to show a perpetual right was originally granted, as contemplated by UsedSoft.
What this does not decide (and why that matters)
- The Tribunal’s ruling was on preliminary issues and resolved legal questions of principle. It did not determine overall liability under the Competition Act, Article 102 TFEU, or the full merits of ValueLicensing’s damages claim. There is still a trial path ahead on liability and quantification. The judgment clears a significant legal hurdle, but it does not deliver a final victory on the wider antitrust and damages claims.
- Microsoft has said it intends to appeal, so the legal debate is not over. If an appellate court accepts Microsoft’s arguments in a narrower or differently reasoned form, the secondary market could face further uncertainty during any appeal process. The company has publicly stated disagreement with the decision and its intention to challenge it.
- The Tribunal’s ruling is fact-sensitive: it tied its conclusions to the sample transactions and the factual fabric of the case. That means different factual patterns — for example, licences with different technical transferability mechanisms, or licences expressly coupled to ongoing services rather than an unlimited-use model — could yield different outcomes in other disputes or jurisdictions.
Wider legal and market implications
For Microsoft’s licensing playbook
Microsoft’s licensing strategy has for years nudged customers toward subscription models (Microsoft 365) and cloud services (Azure) while constraining the economics of perpetual licences via pricing and incentives. A ruling that reaffirms the resale market under exhaustion significantly reduces Microsoft’s leverage over the
secondary lifetime value of perpetual licences and renders volume discounts or transfer restrictions less potent as anti-competitive tools — at least in the UK and potentially across jurisdictions that follow EU/EEA exhaustion principles. Microsoft’s attempted
copyright pivot—treating Office’s bundle of non-program creative works as a legal basis to block resale—was a high-stakes tactic. The Tribunal’s rejection signals judicial reluctance to let copyright doctrines intersect with competition and resale markets in a way that quietly nullifies established exhaustion rules. That is a meaningful limitation on vendor strategies that seek to convert licensing mechanics into de facto ownership control.
For other claimants and the Wolfson collective action
The ValueLicensing ruling will be watched closely by the large collective action led by Alexander Wolfson and backed by litigation funders, which aims to represent UK customers alleging Microsoft inflated prices and restricted the pre-owned market. While this decision is not a final determination of all competition issues, clearing the exhaustion/copyright items removes a potentially dispositive defence Microsoft raised and could strengthen the plaintiffs’ hand in subsequent stages or related cases. However, caveats remain: class litigation raises separate certification, causation and damages issues that this ruling does not resolve.
Regulatory and policy ripple effects
The judgment may attract regulatory scrutiny in the EU and the UK around whether licence design can be used to lock customers into particular consumption models — a central theme for competition authorities that are increasingly interested in digital markets, interoperability and switching costs. The ruling could inform future guidance or enforcement actions on licensing practices, bundling and anti-competitive contract clauses.
Strengths of the Tribunal’s decision
- Clear application of precedent: The Tribunal’s reading of Article 4(2) and its incorporation of UsedSoft logic anchors the decision in established EU law rather than inventing a new doctrine that would surprise markets and vendors. That predictability is valuable to businesses and secondary markets.
- Practical, fact-based approach: By focusing on the “inevitably downloaded” nature of constituent files and the intended use of the software, the Tribunal avoided a formalistic separation of program vs non-program works that could have produced anomalous outcomes. The decision emphasises functional reality over legal sophistry.
- Limits vendor contractual escape hatches: The ruling reaffirms that legal exhaustion is not simply a matter to be contractually waived; that strengthens legal certainty for secondary markets.
Risks, open questions and counterarguments
- Appeal risk: Microsoft has committed to appealing; appellate courts may adopt different interpretive emphases, particularly on the interplay between reproducible non-program works and exhaustion. An appeal could reverse or narrow the ruling, reintroducing market uncertainty. This is not an abstract risk; Microsoft has publicly stated its intention to appeal.
- Fact-sensitivity cuts both ways: Because the Tribunal tied conclusions to specific sample transactions, resellers and customers must guard against overgeneralising the ruling. Licence agreements that include technical controls, tethering to service accounts, or indefinite online entitlements with conditions may produce different results in future litigation. Parties should structure transfers carefully to mirror the facts the Tribunal treated as lawful.
- Cross-border complexity post‑Brexit: The judgment is UK-based and applies Article 4(2) reasoning in light of EU case law; post‑Brexit divergences in interpretation could arise. Resellers operating across EEA and non‑EEA jurisdictions need to watch local courts and regulators.
- Unverifiable economic claims: Headlines about multibillion-pound exposure for Microsoft should be treated cautiously; damage calculations in competition cases are complex and contingent on causation and loss modelling. While the Wolfson action and ValueLicensing claim assert very large numbers, the actual awards (if any) remain speculative until liability and quantification are finally determined. This judgment removes certain legal obstacles but is not itself a damages award. Readers should treat large damage estimates as potential outcomes, not assured figures.
Practical guidance for businesses and resellers
- Document the original licence acquisition carefully: retain evidence that the first acquirer had an unlimited-use, perpetual licence granted in return for payment (the UsedSoft criteria).
- When reselling, ensure the seller renders its copies unusable and retains proof of that step: practical compliance with UsedSoft’s safeguards reduces post-transfer risk.
- Structure sale agreements to mirror the sample transactions the Tribunal analyzed; be explicit about what is being transferred and any license keys or entitlement references.
- Watch for Microsoft policy changes and technical measures (e.g., account-tied activations) that could complicate transfers; legal rights and technical feasibility are separate but interlinked concerns.
What’s next — procedural and strategic timelines
- Microsoft has announced it will appeal the Tribunal’s decision. That appeal will likely focus on the Tribunal’s interpretation of exhaustion when non-program works are involved and on the permissibility of subdivision. The appellate process could take months, if not longer, and will determine whether this judgment stands as a durable precedent or a stop on a longer road.
- ValueLicensing’s broader claim on competition law and damages remains to be litigated. The Tribunal’s ruling clears preliminary hurdles and allows the parties to press forward, but discovery, expert evidence on market effects and damages models, and liability determinations lie ahead. Businesses should not assume the final chapter is written.
- Related litigation, notably the Wolfson collective action, will use this decision as both weapon and precedent in early stages of certification and pleading; however, collective proceedings involve separate procedural hurdles. Expect cross-referencing and tactical citation of the Tribunal’s reasoning in court filings and press strategy.
Conclusion
The Competition Appeal Tribunal’s ruling is a consequential reaffirmation of exhaustion principles for downloadable software and a practical win for the secondary licence market — at least for now. By rejecting Microsoft’s copyright-based attempt to carve out non-program works as a route to block resales and by confirming that subdivision of volume licences can fall within exhaustion, the Tribunal preserved a legal pathway for resellers and organisations seeking liquidity for surplus perpetual licences. That said, the story is far from over. Microsoft’s announced appeal and the unresolved substantive competition and damages issues mean the secondary market will remain under legal scrutiny for some time. Firms that buy, sell, or otherwise depend on perpetual licences should take a careful, evidence-driven approach to transfers and monitor appellate developments closely; the legal environment will continue to evolve and the economic stakes for all parties remain high.
Source: theregister.com
UK tribunal says reselling Microsoft licenses is A-OK