Exhaustion for Downloaded Software: Accessory Non‑Program Works Exhausted Under the Software Directive, and the CAT May Decide Necessary Copyright Issues

Introduction

In JJH Enterprises Ltd (t/a ValueLicensing) v Microsoft Corporation & Ors [2026] EWCA Civ 872, the Court of Appeal (Chancellor of the High Court, Green LJ and Phillips LJ) determined two appeals arising out of standalone competition damages proceedings brought in the Competition Appeal Tribunal (“CAT”) by a reseller of “second hand” Microsoft software licences (“the claimant”) against Microsoft (“the defendants”).

The claim alleged that Microsoft restricted supply of perpetual licences and moved customers to subscription models, amounting to breaches of competition law (Articles 101 and 102 TFEU and UK analogues). Microsoft’s defence depended centrally on EU copyright-law exhaustion: if Microsoft’s copyright was not exhausted, the claimant’s resale model would be infringing and the competition claim would fail (and it was common ground that this would be dispositive).

Two CAT rulings were under appeal:

  • Jurisdiction: whether, under Competition Act 1998 s.47A, the CAT could decide copyright questions that were necessary to determine a competition damages claim.
  • Preliminary copyright issues: (i) whether exhaustion for computer programs also exhausted copyright in “non-program works” embedded in Microsoft products (e.g., graphics/UI); and (ii) whether “volume” licences could be subdivided for resale.

The Court dismissed both appeals, affirming CAT jurisdiction and largely endorsing the CAT’s application of UsedSoft-based exhaustion to Microsoft’s licensing model.

Summary of the Judgment

  1. CAT jurisdiction upheld: Competition Act 1998 s.47A confers jurisdiction to decide any issue that must be decided to resolve a competition claim, even if the issue is “logically anterior” and even if a determination would establish (in the Letang v Cooper sense) facts amounting to a copyright infringement “cause of action”. The absence of a counterclaim for copyright relief was significant: the CAT was not asked to grant copyright remedies.
  2. Non-program works: Where a software “product” is properly characterised as a computer program as a whole, with embedded non-program works (UI/graphics etc.) being incidental/accessory, the Software Directive (Directive 2009/24/EC) governs exhaustion; accordingly, exhaustion applies to the “product” such that Microsoft could not avoid exhaustion by relying on separate InfoSoc-protected elements.
  3. Subdivision of volume licences: Properly read, UsedSoft does not prohibit subdivision of volume licences in circumstances like Microsoft Office/Windows where each installation/use is independent. The UsedSoft restriction at [69] was treated as directed at client-server “hub and spokes” arrangements where user rights are not independent. Contractual transfer mechanics and licence drafting could not undermine exhaustion.

Analysis

1) Jurisdiction: CAT competence to decide necessary non-competition issues

Statutory framework

The Court focused on the plain language of Competition Act 1998 s.47A: a person may bring before the CAT a claim for damages (and other relief) “in respect of” an alleged infringement of the Chapter I/II prohibitions. Nothing in s.47A expressly restricts the CAT to “pure competition law” questions.

Key reasoning

  • Necessary-issues principle: If an issue must be decided to resolve the competition claim, it falls within the CAT’s s.47A jurisdiction. The Court treated copyright as analogous to other non-competition issues routinely determined in competition litigation (contract construction, limitation, causation).
  • “Logically anterior” is irrelevant: Ordering issues in a logical sequence does not carve them out of jurisdiction. If copyright is dispositive of the competition claim (as here), that makes it more, not less, necessary to decide.
  • Cause of action vs remedy: Microsoft relied on Letang v Cooper to argue that deciding copyright would decide a “cause of action” outside CAT jurisdiction. The Court accepted that a determination might establish the elements of an infringement cause of action, but emphasised that Microsoft was not pursuing copyright relief in the CAT; the tribunal was asked only to decide competition-law liability and, if necessary, dismiss the competition claim.
  • Distinguishing transfer jurisprudence: The Court distinguished Unwired Planet v Huawei [2016] EWHC 958 (Pat) (transfer from High Court to CAT refused where contract FRAND claim was an alternative cause of action not necessary to decide competition infringement). Here, by contrast, copyright was a necessary step in deciding the competition claim as pleaded.

Precedents cited and their role

  • Sportradar v Football DataCo [2020] CAT 25: cited for the proposition that standalone s.47A claims often involve non-competition issues; while primarily a case-management authority, it supported the breadth of issues the CAT may handle.
  • Letang v Cooper [1965] 1 QB 232: used to frame “cause of action”; the Court accepted the definition but rejected the jurisdictional consequence argued for.
  • Lloyds Bank v Rogers [1999] 3 EGLR 83: relied on to separate “cause of action” from “remedy”; relevant because Microsoft sought no copyright remedies in the CAT.
  • Unwired Planet v Huawei [2016] EWHC 958 (Pat): distinguished to show that “distinct cause of action” problems arise where non-competition claims are independent/alternative, not where they are necessary issues within the competition claim.

Impact (jurisdiction)

The judgment strengthens a practical and text-based approach to s.47A: the CAT can determine “adjacent” bodies of law when determinative of competition liability. This reduces incentives for defendants to force parallel High Court proceedings by characterising key defences as IP “causes of action”, and supports the CAT’s role as a one-stop forum for standalone competition damages claims, even where IP validity/exhaustion/infringement issues are embedded as dispositive defences.

2) Exhaustion and “complex matter”: non-program works inside software products

Doctrinal setting: Software Directive as lex specialis

The Court reviewed the international and EU framework:

  • Berne/TRIPS/WIPO Copyright Treaty: baseline reproduction rights and (under WIPO) distinct distribution/communication rights; WIPO’s distribution concept is tied to tangible copies, but this does not preclude states from recognising exhaustion for “intangible” distributions if they choose.
  • InfoSoc Directive (Directive 2001/29/EC): distribution right exhaustion applies to “objects” (tangible), while communication-to-the-public rights are expressly not exhausted (Art 3(3)).
  • Software Directive (Directive 2009/24/EC): governs computer programs; Art 4(2) exhausts the distribution right on “first sale” of a copy, without the “object” limitation, enabling exhaustion for downloaded copies per UsedSoft.

The Software Directive operates as lex specialis to the InfoSoc Directive for computer programs (as recognised in UsedSoft and Tom Kabinet).

Precedents cited and how they shaped the Court’s approach

  • Case C-128/11 UsedSoft GmbH v Oracle International Corp: the foundational authority establishing exhaustion for downloaded computer programs where a copy is supplied and a perpetual right to use is granted. The Court treated this as central and controlling for computer programs.
  • Case C-355/12 Nintendo Co Ltd v PC Box Srl: introduced “complex matter” analysis—where a product combines software and other protected elements, the court may treat the subject matter as a whole to select the governing directive (in Nintendo, for technical measures).
  • Case C-263/18 Nederlands Uitgeversverbond v Tom Kabinet Internet BV: rejected digital exhaustion for ebooks under the InfoSoc Directive and applied a “complex matter” characterisation: even if an ebook contains a computer program, the program is incidental/accessory to the literary work; therefore InfoSoc (not Software Directive) governs. The Court of Appeal treated Tom Kabinet as demonstrating that, for exhaustion in complex matter, a single characterisation choice must be made; applying both regimes simultaneously is economically and functionally incoherent.
  • Case C-419/13 Art & Allposters International BV v Stichting Pictoright and Tom Kabinet at [52]: used to reinforce that InfoSoc exhaustion is tied to tangible objects and that the legislator did not extend intangible exhaustion beyond the Software Directive context.
  • C-683/17 Cofemel v G-Star Raw: cited to acknowledge that multiple IP rights can subsist in the same subject matter; nonetheless, the Court held that complex-matter exhaustion requires a governing-regime choice.

The Court’s holding on Microsoft’s “non-program works” argument

Microsoft argued that even if program copyright is exhausted under the Software Directive, embedded non-program works (UI graphics, icons, etc.) are separately protected under the InfoSoc Directive, whose exhaustion is narrower; therefore, Microsoft contended, those elements would remain unexhausted and could block resale.

The CAT found (as fact) that the embedded non-program works in Microsoft Office/Windows were, taken as a whole, ancillary to the computer program functionality for which the products are purchased and used, and therefore “incidental/accessory” in the Tom Kabinet sense. The Court of Appeal upheld that characterisation and its legal consequence: applying the Software Directive exhaustion regime to the product as a whole.

Why the Court rejected “dual regime” exhaustion

  • Complex-matter selection: Following Nintendo and Tom Kabinet, the correct approach is to characterise the subject matter “as a whole” and select the appropriate directive.
  • Functional/economic unity: Attempting to exhaust the program but not the UI/graphics would produce an unworkable outcome because the elements form an integrated product and the more restrictive regime would nullify the effect of the more permissive one.
  • Avoidance concern: The CAT’s concern (accepted as “odd results”) that a rightsholder could evade UsedSoft simply by bundling any protected graphic/icon material was treated as reinforcing the appropriateness of the complex-matter approach.
  • Fundamental rights framing rejected: Microsoft invoked Article 17(2) EU Charter and A1P1 ECHR. The Court treated exhaustion as an inherent part of the balance struck in EU IP law and not an unjustified derogation from the “specific subject matter” of the right.

Impact (non-program works)

For EEA/UK disputes governed by retained/assimilated EU law for the relevant period, the decision provides strong appellate authority that software vendors cannot defeat Software Directive exhaustion for downloaded, perpetual-use software by pointing to embedded InfoSoc-protected UI/graphic elements, where those elements are properly characterised as incidental/accessory to the computer program product.

3) Subdivision of volume licences

The legal question

Microsoft sold “volume” arrangements (e.g., 1000 licences). The claimant’s business model involved disaggregating: a customer might sell a subset of the licences onward, or the reseller might buy all and then resell in smaller lots. Microsoft argued UsedSoft prohibits such “division of the licence” and that Microsoft contract terms (and transfer forms) controlled the permissibility of transfer.

UsedSoft [69] and the Court’s interpretation

The apparent obstacle was UsedSoft at [69], stating that where the first acquirer’s licence relates to more users than needed, the acquirer is not authorised by exhaustion to “divide the licence and resell only the user right … corresponding to a number of users determined by him.”

The Court of Appeal held that [69] concerns a particular factual structure in UsedSoft: client-server software where “user rights” involve (i) maintaining a single server copy and (ii) enabling a certain number of users to access that server copy. In that hub-and-spokes model, selling some “user rights” while continuing to use the server copy means the rights are not independent, so “division” is not permitted in that context.

By contrast, Microsoft Office/Windows were treated as involving multiple independent copies/uses (not a continuing server-access entitlement). Therefore, subdivision was not prohibited.

Role of UsedSoft 3 (German Bundesgerichtshof)

The Court treated the German Bundesgerichtshof decision (“UsedSoft 3” (I ZR 8/13)) as persuasive support for the client-server reading of UsedSoft [69], while emphasising it was not binding. The Court rejected Microsoft’s argument that the CAT had been misled into a CJEU-inconsistent outcome.

Contract terms and exhaustion

  • Exhaustion operates by law: Contractual provisions cannot prevent or undermine exhaustion (citing UsedSoft at [77] and [84], and the Advocate General in Case C-16/03 Peak Holding AB v Axolin-Elinor AB).
  • Single agreement vs multiple licences: The Court agreed with the CAT that even if there is a single purchase agreement, it may still give rise to multiple licences/copies; Microsoft had advanced no “sound criteria” to distinguish a single indivisible licence from multiple licences in the relevant sense.
  • Compliance after resale: The Court endorsed the CAT’s analysis that exhaustion occurs at first sale; whether the first acquirer later renders its retained copy unusable is relevant to potential reproduction infringement by the first acquirer, but does not retrospectively undo exhaustion or invalidate the downstream purchaser’s right to use.

“Transfer forms” and technical measures

  • The Court held that Microsoft’s Perpetual Licence Transfer Forms were irrelevant because exhaustion means Microsoft consent is not required for resale.
  • A further ground alleging breach of InfoSoc technical measures provisions (Art 6) was treated as an attempt to obtain determination of an unpleaded claim and was not addressed substantively.

Burden of proof and lawful acquisition

The Court rejected Microsoft’s attempt to require the reseller to prove, as an element of exhaustion, that the first acquirer deleted or rendered unusable its copy. Exhaustion is determined at distribution/first sale; later misuse is addressed by ordinary civil burdens of proof as to infringement by the party misusing the retained copy. The Court referred to C-166/15 Ranks v Latvia as going no further than requiring lawful acquisition to be shown (which the claimant had).

Impact (subdivision)

The judgment materially strengthens the legality (under the UsedSoft line) of resale models involving disaggregation of volume licences for software like Office/Windows, provided the licences relate to independent uses rather than a client-server “user right” tied to a continuing shared server copy. It also limits the practical ability of vendors to use contractual transfer machinery to reintroduce control over downstream transfers once exhaustion is triggered.

Complex Concepts Simplified

Exhaustion of rights
Once a rightsholder has “sold” a copy (in the relevant legal sense), the right to control further distribution of that copy is “exhausted”. For computer programs under Directive 2009/24/EC, UsedSoft confirms exhaustion can occur even where the copy is downloaded and the buyer receives a perpetual right to use.
Distribution right vs communication to the public
EU law distinguishes distribution (sale/transfer of ownership) from communication/making available online. The InfoSoc Directive denies exhaustion for communication rights (Art 3(3)). The Software Directive focuses on distribution of computer-program copies and provides exhaustion on first sale (Art 4(2)).
Lex specialis
A “special” rule that overrides a “general” rule for its specific subject matter. The Software Directive is the lex specialis for computer programs, overriding the InfoSoc Directive where the question concerns computer-program copyright and its exhaustion.
Complex matter
A product containing different protected elements (e.g., software plus graphics/sound/text). The CJEU authorities indicate courts should characterise the product “as a whole” to choose the governing directive, rather than applying two incompatible exhaustion regimes simultaneously.
Cause of action vs remedy
A “cause of action” is the set of facts that would entitle a claimant to a remedy; a “remedy” is what the court orders (damages/injunction/etc.). Here, Microsoft argued copyright issues were outside CAT jurisdiction because they could establish a copyright cause of action, but Microsoft sought no copyright remedy in the CAT—copyright was raised only to defeat the competition claim.

Conclusion

[2026] EWCA Civ 872 delivers three practically important clarifications for competition claims entangled with EU copyright exhaustion:

  1. Forum: The CAT’s s.47A jurisdiction extends to determining necessary copyright issues, even if those issues are dispositive and would otherwise found an IP infringement cause of action.
  2. Substance over bundling: For downloaded, perpetual-use software, where embedded UI/graphic works are incidental/accessory, the Software Directive governs exhaustion for the product as a whole; rightsholders cannot bypass UsedSoft by relying on separate InfoSoc works within the package.
  3. Volume licence subdivision: UsedSoft does not impose a general ban on subdividing volume licences; any restriction in UsedSoft [69] is tied to non-independent client-server user-right structures, and contractual transfer mechanisms cannot reassert control once exhaustion has occurred.

The overall effect is to consolidate a market-facing reading of EU software exhaustion and to reinforce procedural efficiency by keeping necessary IP questions within the CAT when they are integral to competition damages claims.