Microsoft’s late-stage pivot in the long-running ValueLicensing dispute — recasting what began as an antitrust and licensing fight into a copyright question — has elevated a technical legal argument into a case that could reshape the pre-owned software market across Europe and the UK. The Competition Appeal Tribunal is now being asked to decide whether perpetual desktop products such as Microsoft Office (and by extension Windows and other packaged software) are protected as creative works outside the legal regime that, since 2012, has allowed the resale of used software licences. The stakes are enormous: ValueLicensing seeks roughly £270 million in damages for what it says were anti-competitive contractual practices; a ruling for Microsoft on the copyright point could, in practice, collapse the second‑hand market that has traded on the European “UsedSoft” precedent for more than a decade.
The dispute began in 2021 when ValueLicensing — a UK reseller specialising in second‑hand perpetually licensed desktop software — sued Microsoft for alleged abuses of dominance and anti‑competitive behaviour. ValueLicensing’s claim alleges Microsoft inserted or encouraged contractual terms in volume and enterprise licensing deals that discouraged or prevented organisations from reselling surplus perpetual licences in exchange for discounts on subscription services. The effect, ValueLicensing says, was to dry up supply to the pre‑owned market and steer public-sector and enterprise buyers into Microsoft’s cloud subscriptions.
Microsoft denies wrongdoing and mounted a multi-part defence. Earlier stages of the litigation considered whether Microsoft’s conduct amounted to an unlawful restraint of competition. More recently, however, Microsoft has broadened its approach by arguing that the foundational premise of the resale market is legally unsound: that certain components bundled within Office and similar products are not “computer programs” in the sense meant by the Software Directive, but instead fall under broader copyright protections for creative and literary works. If true, Microsoft contends, the EU/UK legal framework that permitted resale of downloaded software since the UsedSoft decision would not apply to those components — and therefore resale could be copyright‑infringing.
A preliminary issues hearing in the Competition Appeal Tribunal in September was focused on these copyright questions. The tribunal must now determine whether Microsoft’s copyright line of defence is tenable; the outcome will materially affect both ValueLicensing’s damages claim and the viability of the second‑hand market for perpetual software licences.
That ruling rested on the exhaustion (or first‑sale) doctrine within EU law: once the rightholder has received appropriate remuneration for the initial sale, the exclusive distribution right is depleted as to that particular copy in the EU. The decision explicitly applied to software delivered electronically and has been taken by courts and market participants as the green light for a cross‑border trade in perpetual licences and for “splitting” some volume licences where permitted by the licence terms or case law.
However, UsedSoft was not an unconditional blessing for license resale in every form. The ruling contains detailed legal reasoning and limits — including considerations about whether a licence is, in substance, divisible and whether a right‑holder’s initial transaction exhausted the distribution right. Over time, courts and practitioners have read UsedSoft as enabling a sizeable pre‑owned market for perpetual licences while leaving open complex questions about volume licensing splits, embedded non‑program content, and the scope of what constitutes a “computer program” versus other protected works.
Conversely, if the tribunal accepts Microsoft’s argument that substantial parts of Office (icons, fonts, help files, embedded documentation) are properly treated as separate copyright works under the Information Society Directive or the Copyright Directive rather than the Software Directive, exhaustion might not apply and resale could be infringing.
The core of Microsoft’s case is that the relevant legal framework for many components found in a modern Office installation is not the Computer Programs Directive (which the UsedSoft decision deployed) but broader EU copyright legislation covering literary and artistic works. Microsoft points to graphical elements (toolbars, icons), fonts, documentation and help systems as instances of independent creative works. Because those elements, Microsoft argues, are subject to different rights and do not fall under the same exhaustion principles as the program code, a lawful resale of a licence that gives access to these elements may not be possible.
ValueLicensing also stresses practical reliance: public bodies, enterprises and commercial resellers have depended on the UsedSoft principle for pricing, procurement, and budgeting. The reseller’s claim is that Microsoft’s commercial incentives — offering subscription discounts in exchange for restraints on licence transfers — intentionally reduced the pool of tradable licences, damaging competitive supply channels.
Regulators and competition authorities will watch closely. The tension between intellectual property rights and competition principles is long‑standing; outcomes here could provide persuasive authority for future disputes over marketplace access, bundling and product design intended to limit resale or interoperability.
A ruling that narrows exhaustion would empower vendors to protect subscription revenue by redesigning products to include non‑program content that vendors can assert remains under exclusive distribution control. That strategy could be legally defensible, but it risks creating a patchwork of ownership rules that are difficult for purchasers and markets to navigate.
Conversely, maintaining a broad exhaustion principle keeps resale as a check on vendor pricing and a source of budget relief for public bodies and smaller organisations. It preserves a used‑software ecosystem that many organisations and resellers rely on.
If the tribunal resists Microsoft’s copyright-driven reframing, the pre‑owned market retains legal footing and ValueLicensing’s damages claim proceeds. If the tribunal accepts Microsoft’s argument, the result may be to constrict resale rights and reshape licensing economics in favour of subscription models. Either way, the decision will reverberate through procurement offices, reseller balance sheets, and vendor strategy for years to come.
Organisations that buy, sell or manage enterprise licences should treat this litigation as a prompt to audit licence portfolios, clarify contractual terms, and prepare contingency plans. The tribunal’s ruling will likely come with complex legal reasoning; its practical effects will require careful interpretation by counsel and procurement professionals to translate doctrine into procurement strategy and commercial contingency planning.
Source: theregister.com Microsoft pivots to copyright claim in ValueLicensing case
Background
The dispute began in 2021 when ValueLicensing — a UK reseller specialising in second‑hand perpetually licensed desktop software — sued Microsoft for alleged abuses of dominance and anti‑competitive behaviour. ValueLicensing’s claim alleges Microsoft inserted or encouraged contractual terms in volume and enterprise licensing deals that discouraged or prevented organisations from reselling surplus perpetual licences in exchange for discounts on subscription services. The effect, ValueLicensing says, was to dry up supply to the pre‑owned market and steer public-sector and enterprise buyers into Microsoft’s cloud subscriptions.Microsoft denies wrongdoing and mounted a multi-part defence. Earlier stages of the litigation considered whether Microsoft’s conduct amounted to an unlawful restraint of competition. More recently, however, Microsoft has broadened its approach by arguing that the foundational premise of the resale market is legally unsound: that certain components bundled within Office and similar products are not “computer programs” in the sense meant by the Software Directive, but instead fall under broader copyright protections for creative and literary works. If true, Microsoft contends, the EU/UK legal framework that permitted resale of downloaded software since the UsedSoft decision would not apply to those components — and therefore resale could be copyright‑infringing.
A preliminary issues hearing in the Competition Appeal Tribunal in September was focused on these copyright questions. The tribunal must now determine whether Microsoft’s copyright line of defence is tenable; the outcome will materially affect both ValueLicensing’s damages claim and the viability of the second‑hand market for perpetual software licences.
The legal foundations: UsedSoft and the exhaustion principle
What UsedSoft established — and what it didn’t
In 2012 the Court of Justice of the European Union handed down its landmark UsedSoft ruling. The court held that, when a right‑holder sells a perpetual licence to a computer program, the right of distribution is exhausted upon that first sale — meaning the purchaser (and subsequent bona fide acquirers) may resell that licence, even if the original acquisition was via download rather than on a physical medium.That ruling rested on the exhaustion (or first‑sale) doctrine within EU law: once the rightholder has received appropriate remuneration for the initial sale, the exclusive distribution right is depleted as to that particular copy in the EU. The decision explicitly applied to software delivered electronically and has been taken by courts and market participants as the green light for a cross‑border trade in perpetual licences and for “splitting” some volume licences where permitted by the licence terms or case law.
However, UsedSoft was not an unconditional blessing for license resale in every form. The ruling contains detailed legal reasoning and limits — including considerations about whether a licence is, in substance, divisible and whether a right‑holder’s initial transaction exhausted the distribution right. Over time, courts and practitioners have read UsedSoft as enabling a sizeable pre‑owned market for perpetual licences while leaving open complex questions about volume licensing splits, embedded non‑program content, and the scope of what constitutes a “computer program” versus other protected works.
Why UsedSoft matters here
ValueLicensing’s entire damages thesis depends on UsedSoft’s commercial reality: if UsedSoft’s exhaustion principle applies to the licences Microsoft sold to customers, those customers could sell surplus licences into a competitive aftermarket that resellers like ValueLicensing served. If the tribunal finds Microsoft’s new copyright defence fails and UsedSoft remains the governing precedent for the software at issue, ValueLicensing keeps its path to proving that Microsoft’s conduct harmed the pre‑owned market and caused the alleged £270 million loss.Conversely, if the tribunal accepts Microsoft’s argument that substantial parts of Office (icons, fonts, help files, embedded documentation) are properly treated as separate copyright works under the Information Society Directive or the Copyright Directive rather than the Software Directive, exhaustion might not apply and resale could be infringing.
Microsoft’s copyright pivot: the argument and its mechanics
The pivot in plain terms
Microsoft’s recent shift is procedural and doctrinal. Rather than fight solely on the factual competitive issues — whether Microsoft induced customers to surrender resale rights via discounts and contract clauses — Microsoft argues that the underlying pre‑owned market itself is legally invalid for many of the products at issue.The core of Microsoft’s case is that the relevant legal framework for many components found in a modern Office installation is not the Computer Programs Directive (which the UsedSoft decision deployed) but broader EU copyright legislation covering literary and artistic works. Microsoft points to graphical elements (toolbars, icons), fonts, documentation and help systems as instances of independent creative works. Because those elements, Microsoft argues, are subject to different rights and do not fall under the same exhaustion principles as the program code, a lawful resale of a licence that gives access to these elements may not be possible.
The consequences Microsoft is seeking
If the tribunal accepts that Office and similar products fall outside the UsedSoft regime for exhaustion, the practical consequence is that organisations that licensed perpetual copies may not have had the right to transfer licences to third parties without express permission — and ValueLicensing’s resales would therefore be unlawful. A legal win for Microsoft on that point could nullify ValueLicensing’s harm claim or greatly reduce its value; it could also have wide industry consequences by chilling resale and increasing the lock‑in value of subscription models.ValueLicensing’s counter: precedent, practice, and market reliance
ValueLicensing’s position is straightforward and grounded in existing jurisprudence. It relies on the ECJ’s UsedSoft ruling and subsequent case law which, in practice, has allowed resellers to trade in perpetual licences for business software, including where initial licences were acquired under volume arrangements. The reseller argues that Microsoft’s late strategy amounts to an attempt to redefine the market retrospectively: rather than defend the factual allegations, Microsoft seeks to rewrite the legal rules that have underpinned the second‑hand market for years.ValueLicensing also stresses practical reliance: public bodies, enterprises and commercial resellers have depended on the UsedSoft principle for pricing, procurement, and budgeting. The reseller’s claim is that Microsoft’s commercial incentives — offering subscription discounts in exchange for restraints on licence transfers — intentionally reduced the pool of tradable licences, damaging competitive supply channels.
What the tribunal will consider: technical, doctrinal and economic threads
The tribunal is being asked to decide several complex questions that blend copyright doctrine, regulatory exhaustion principles, licensing practice, and economic effect:- Is the exhaustion principle, as interpreted in UsedSoft, applicable to the suite of materials included in a typical Office installation, including UI elements, fonts and documentation?
- If some components are creative works outside the Software Directive, does that automatically or necessarily prevent exhaustion in respect of the functionality that remains a program?
- Is the sale of a perpetual licence to a package work the “sale of a copy” for exhaustion purposes, or can Microsoft claim separate distribution rights over embedded creative content that weren’t exhausted by first sale?
- How should volume licences be treated where customers purchased bundles that may not be divisible — and what does precedent require for split sales?
- Even if some resales were unauthorised on copyright grounds, does that negate ValueLicensing’s antitrust/damages claim — or can ValueLicensing still show factual competitive harm from Microsoft’s contracting practices?
Practical and market implications
For businesses and public purchasers
The litigation’s outcome could alter procurement calculus. If resale rights are curtailed, organisations that historically reclaimed value from surplus perpetual licences will find no secondary market to offset upgrade or migration costs. Public sector budgets — which often lean on second‑hand licensing as a cost‑saving mechanism — could be directly affected.- Organisations should audit their licence inventories and contractual histories to understand what restrictions were agreed and whether any transfers were made in reliance on UsedSoft‑style resale rights.
- Procurement teams should reassess the long‑term economic implications of accepting discounts that impose transfer restrictions.
For resellers and the pre‑owned market
A ruling for Microsoft would be existentially threatening. Resellers operating on thin margins and high volumes would lose access to classes of licences that have formed the core of their business models. Even a narrow ruling — e.g., allowing exhaustion for strict code but not for UI elements — could force resellers to retool how they source, validate and market licences.For software vendors and competition policy
The case sits at the intersection of intellectual property and competition law. A successful copyright defence could embolden vendors to use copyright formulations to protect subscription models and prevent aftermarket competition. This could produce a strategic template: bundling program functionality with creative or documentary assets that vendors claim are separately protected, thereby limiting the practical reach of exhaustion.Regulators and competition authorities will watch closely. The tension between intellectual property rights and competition principles is long‑standing; outcomes here could provide persuasive authority for future disputes over marketplace access, bundling and product design intended to limit resale or interoperability.
Possible outcomes and what they would mean
- Tribunal rejects Microsoft’s copyright pivot
- UsedSoft and exhaustion principles continue to govern resale of perpetual licences in the UK/EEA context.
- ValueLicensing’s damages case would proceed, potentially entitling the reseller to a significant award if the tribunal accepts causation and quantification of harm.
- The pre‑owned market remains viable; vendors may still need to pursue other routes (commercial contracts, policy, product evolution) to shift customers to subscriptions.
- Tribunal accepts Microsoft’s position (narrowly)
- Certain embedded elements are protected as creative works and not subject to exhaustion.
- Resale of licences containing those elements would be restricted; resellers would need to demonstrate that licences sold did not include the contested elements, or that there was clear exhaustion.
- Partial disruption to the market: some licences and products remain tradable, others do not.
- Tribunal accepts Microsoft’s position (broadly)
- A major legal shift: the assumption that downloaded perpetual licences are freely resalable would be undermined for a swath of desktop software.
- Immediate chilling of the second‑hand market; significant downstream effects in public procurement, small business costs, and secondary markets.
- Microsoft could be insulated from the damages claim, but would likely face regulatory scrutiny and reputational fallout.
Strengths and weaknesses of the key arguments
Strengths in Microsoft’s position
- Conceptual plausibility: modern software bundles often contain non‑code material (icons, fonts, help files, documentation) that are, in principle, independently copyrightable.
- Legal nuance: if such elements are treated as separate works, different exhaustion rules could apply.
- Commercial incentive: protecting subscription revenue streams is a rational strategic aim for a vendor facing widespread migration to cloud services.
Weaknesses in Microsoft’s position
- Timing and apparent tactical re-framing risk judicial skepticism; a late doctrinal switch from “we didn’t do it” to “it shouldn’t have existed” can be seen as opportunistic.
- UsedSoft and subsequent jurisprudence have been relied upon for years by purchasers, resellers and courts; overruling or limiting that precedent would be disruptive and may be resisted by a court focused on legal stability.
- Proving that the disputed elements are separable in a way that negates exhaustion may be factually and legally difficult: many UI elements serve functional purposes tightly integrated with the program.
Strengths in ValueLicensing’s position
- Reliance on established precedent: UsedSoft is a leading authority that has guided market practice since 2012.
- Economic narrative: ValueLicensing can point to concrete ways in which contractual restraints and discount schemes reduced available inventory and drove customers to subscription models.
- Public interest: arguments about market access and competition for public‑sector purchasers have policy resonance.
Risks and vulnerabilities for ValueLicensing
- If the tribunal accepts even a limited copyright exception, quantifying damages and establishing that all, or most, traded licences were lawful becomes harder.
- Litigation risk: prolonged proceedings, appeals and potential regulatory interventions could dilute the practical remedies even if ValueLicensing wins.
Broader legal and policy context
This dispute is not an isolated commercial quarrel; it sits at the confluence of several long‑running debates:- Digital ownership vs access: the extent to which purchasers own software in a manner akin to physical goods has been contested since software shifted to licences and downloads.
- Vendor strategies to lock customers into subscription ecosystems, often justified on update/security grounds, have antitrust implications if they leverage dominant positions to foreclose competitive aftermarkets.
- The role of courts and competition authorities in maintaining stable expectations for businesses and public purchasers: radically reinterpreting exhaustion rules after years of settled practice could destabilise procurement and secondary markets.
Practical guidance and next steps for stakeholders
- For public sector IT and procurement teams:
- Immediately review licensing arrangements and any discount incentives that required transfer restrictions.
- Document historical licence transfers and any reliance on UsedSoft‑style resale rights.
- For resellers and second‑hand market participants:
- Preserve transactional records and technical evidence showing that resold licences were perpetual, separable and not bundled with contested content.
- Consider contingency planning and diversification, including servicing migration to cloud subscriptions or pivoting to support/consultancy models.
- For IT managers and legal teams at large enterprises:
- Reassess licence lifecycles and the value of maintaining perpetual licences versus moving to subscription models, bearing in mind potential resale restrictions.
- Seek clarity in future contracts regarding transferability to avoid ambiguity.
Why this case matters beyond the parties
At stake is a legal architecture that has governed digital trade for more than a decade. The question is not merely whether one reseller recovers damages or whether Microsoft closes a revenue loop; it is whether the law will continue to recognise a commercially meaningful second‑hand market for perpetual licences in an era when software packaging increasingly blends code and creative content.A ruling that narrows exhaustion would empower vendors to protect subscription revenue by redesigning products to include non‑program content that vendors can assert remains under exclusive distribution control. That strategy could be legally defensible, but it risks creating a patchwork of ownership rules that are difficult for purchasers and markets to navigate.
Conversely, maintaining a broad exhaustion principle keeps resale as a check on vendor pricing and a source of budget relief for public bodies and smaller organisations. It preserves a used‑software ecosystem that many organisations and resellers rely on.
Conclusion
The ValueLicensing v Microsoft litigation has entered a stage where doctrinal classification — whether parts of Office are “programs” under the Software Directive or “creative works” under broader copyright law — could determine the fate of an entire marketplace. The Competition Appeal Tribunal’s preliminary issues hearing is the legal fulcrum on which that question now rests.If the tribunal resists Microsoft’s copyright-driven reframing, the pre‑owned market retains legal footing and ValueLicensing’s damages claim proceeds. If the tribunal accepts Microsoft’s argument, the result may be to constrict resale rights and reshape licensing economics in favour of subscription models. Either way, the decision will reverberate through procurement offices, reseller balance sheets, and vendor strategy for years to come.
Organisations that buy, sell or manage enterprise licences should treat this litigation as a prompt to audit licence portfolios, clarify contractual terms, and prepare contingency plans. The tribunal’s ruling will likely come with complex legal reasoning; its practical effects will require careful interpretation by counsel and procurement professionals to translate doctrine into procurement strategy and commercial contingency planning.
Source: theregister.com Microsoft pivots to copyright claim in ValueLicensing case
