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End user agreements under pressure over right to resell

US ruling on second hand sales could prove "absolute goldmine" for publishers, but no UK legal precedent set

A US appeal court's decision to utilise a EULA to judge the legitimacy of second hand software sales could prove to be a crushing blow to the used games market if it serves as a precedent to the rest of the industry, GamesIndustry.biz has been told.

Gamerlaw's Jas Purewal said that the use of the terms of an End User Licence Agreement to prevent the resale of second hand software could prove to be the crucial factor in the next stage of major publishers' battle against the second hand market.

The US court of Appeals for the Ninth Circle recently reversed a decision to allow a man to sell copies of design program AutoCAD via his eBay business. Their decision was based on the exact terms of the EULA, which stated that what was being purchased was a licence to use the software, rather than the software itself, and that the licence was non-transferable. These terms are relatively common in videogame EULAs.

"EULAs have been coming under increasing pressure and scrutiny in recent years which is why they're being more and more carefully drafted, and there's increasing consumer pressure on EULA's too," Purewal told GamesIndustry.biz.

"It's testing times for the EULA, but what hasn't been tested is whether EULA's can be used to prevent second hand sales in the UK altogether. Obviously the point in this case is that those arguments are now being made in the US - and the decision from the courts at the moment seems to be that a EULA can be used to prevent second hand sales, which has a very wide potential application, not just to games but to all forms of software, as well as to books and music.

"Very much the future of the second hand market lies in the balance...It's very complicated and it's very early. Certainly as an off the cuff observation, is that this sounds, potentially, like an absolute goldmine for the US games industry if they can actually use it and push for a stop to second hand sales, but that's going to be incredibly litigious."

Purewal was keen to stress that there is no immediate threat to the sector, however, as there is no way to directly transfer the ruling outside of the US.

"This is very much going in the states at the moment. The decision was made upon detailed provisions of US law, it relates to consumers who are buying software in the US, it has no bearing on people in the UK or Europe, although if there is any similar litigation on similar issues, brought here, then you could see similar arguments being made.

"Whether or not that would actually wash is far too much like gazing into the crystal ball. It's far too premature. What I would say is that the consumer protection laws are much stronger in the UK than they are in the US, it may be that a more consumer friendly approach may be advanced. "

Game rental companies could potentially be affect by the longterm ramifications of the ruling, too, as they would be covered under the same EULAs as regular consumers.

"The American Library association, the Electronic frontier foundation and the association of college and research libraries all made submissions in relation to this litigation. They were essentially saying the same thing, that the precedent which this sets could be very harmful to all forms of resale, not just software, but books or any other kind of works because similar logic could apply," Purewal argued.

"The court saw the force of those arguments but they said it didn't affect the legal decision. What they usually mean when they say that is that it's up to the legislature, congress in the states or parliament here, to actually decide the issue one way or the other."

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Latest comments (17)

Private Industry 8 years ago
Don`t DVD movies have/had something like "This video can not be sold, rented, bla bla bla unless agreed with the copyright holder"? Never stopped people from reselling movies.
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Jas Purewal Partner, Purewal & Partners8 years ago
Werner - I think the main point of this new case is that now it could stop people from reselling those DVDs!
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Terence Gage Freelance writer 8 years ago
That's right Werner, but I suppose the difference is that DVDs don't have a comparatively high entry price and tend to drop in value very quickly after their first two or three months on sale, meaning there probably wouldn't be a lot of money to be made in their second-hand sales. Plus, most big films have already made profit by the time they hit DVD, so I imagine the film companies are not so worried about squeezing every last dollar possible out of the consumer like videogame publishers seem to be.

Anyway, if there are to be changes made, I hope that pre-owned sales continue to be an option and that it is the retailer who has to sacrifice a little profit. I would hate to see consumers' choices be hampered by what is questionable business practice by the retailers. How second-hand sales through sites like eBay or Amazon would be affected, I don't know, but this ruling could have far-reaching ramifications.
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Show all comments (17)
Lawrence Makin Audio 8 years ago
What does it really come down to? The money involved, of course. The only 'winners' in such a situation are the publishers.

Except even they don't really win, as those who buy second-hand games (or any other product), in the majority of cases, do it for a reason: they can't afford the high retail prices.

So what will/could it mean?

1. The same amount of people buying the games at retail.
2. No people buying 2nd-hand.
3. Fewer people overall being exposed to any particular game, meaning potential loss of sales when/if those same people later on have the money to buy brand new.
4. Rise in black market (I'm not talking pirated games, just simple car boot style) sales.
5. Rise in hacking to overcome 'always connected' / 'ten dollar' gaming.
6. A potential return of shareware gaming? Especially by indie devs with a lot to gain but with less need to please shareholders?

I hope that this legislation never comes into effect, at least not to affect other 2nd-hand markets. But if it does, it'll be very interesting to see the effects it has on the industry as a whole.
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James Sharman Technical Director, Climax Group8 years ago
The court decision that this article relates to has been heavily misunderstood by a number of games sites in its relationship to used games sales. The heart of legal issue the judgment relates to is a very different issue. CTA had legally acquired copies of AutoCAD and then later upgraded them to a later version (At a far reduced price than buying the new version, the upgrade required them to destroy the materials relating to the older version). Instead of destroying the old version they promptly sold them on ebay. To use the obligatory Car metaphor, this isn’t about selling a second hand car, it’s about signing a part exchange deal and then trying to sell your old car to a third party before anyone collects it.
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Private Industry 8 years ago
I have absolutely no problem with things like project 10$ and similar things, but fully banning second hand sales can only backfire. There are more then enough people just trading in old games for new games especially in Q4 and Q1 where one good games comes out after the next one. Except for the huge AAA must have games all other sales would be hurt for the not so huge games that come out at a similar time if all 2nd hand sales are banned. People are more willing to give more unknown games a chance when they know they can still trade it back in if they don`t like it.
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Terence Gage Freelance writer 8 years ago
That's very true James and perhaps we're reading too much into it, but don't forget that when a consumer buys a game they're technically buying a licence to play the game for private home use only, and are not supposed to sell the software on without permission from the platform holder. Obviously these EULAs are rather tenuous and never actually acted upon, but the worry is that with this court case will set a precedent and start the ball rolling whereby publishers play the legal hand when their software is sold on second hand by retailers.

Given all the pre-owned debates going on at the moment, it must certainly be something they are or have considered.
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Paul Cardy Programmer, Rebellion8 years ago
I agree with Lawrence Makin, but I'd go further. I see

1. The same amount of people buying the games at retail.

As

1. Far less people buying full price games at retail, as a lot of these purchases are partially funded by second hand sales of previously completed games

I don't see that 1st hand retail prices are sustainable at their current levels if you remove the resale value of the product.
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John Donnelly Quality Assurance 8 years ago
Consumers have become used to the pre-owned market and like it.
Retailers make more from pre-owned titles and like it.

Publishers make nothing from the pre-owned market and dont like it but wont try and find a compromise with the retailers and instead try and use things like project $10 to make up for the lack of a new sale.

I dont question the companies making a profit but the risk here that consumers wont be happy and will end up buying less games meaning the long run lower sales and even more job cuts.

This ruling is also being taken out of context as James Sharman has already pointed out.
At this time no one has taken legal action against the EULA for a videogame in relation to re-selling on the game.
Until that happens its just speculation what publishers or even retailers may do if EULAs start to restrict this.

I also want to add that for consoles its even less clear cut as the disk is your license and as a physical item could be treated differently under the laws rendering the sections of the EULA dealing with re-selling the license void. But I am not a lawyer and am only speculating here.
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David Lawrence Studying BA Illustration, University of Westminster8 years ago
Another problem which arises here is the rarity of games. If I walk in to my local Game there is a chance, however slim, I can pick up a pre-owned copy of (say) Shadow of the Colossus. This game can no longer be bought new at retail, it isnt produced anywhere, the only availability is the second hand market.
Would the publisher create more product for launch if pre-owned didnt exist? Undoubtedly they would. Would the price come down? Probably not, and if it did it would be marginal.
Anyone know if publishers have thought of discussing a time-delay on trade ins with retailers? Like... "we (publishers) wont bother you in the courts (retail) if you dont trade in XXXX until at least two weeks after its initial release"
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Jason Sartor Copy editor/Videographer, Florida Today8 years ago
This ruling came from the 9th circuit - the most overturned appeals court in the U.S.

2007 - The 9th Circuit also has a long-running streak as the most overturned, which went unbroken this year. The Supreme Court reviewed 22 cases from the 9th Circuit last term, and it reversed or vacated 19 times.
[link url=http://articles.latimes.com/2007/jul/11/opinion/oe-fitzpatrick11
]http://articles.latimes.com/2007/jul/11/...[/link]

2009 - laws set by the West's powerful appeals court were overturned in 15 of the 16 cases reviewed this term by the U.S. Supreme Court.

Read more: [link url=http://www.post-gazette.com/pg/09186/981662-176.stm#ixzz0zXBcUNaQ
]http://www.post-gazette.com/pg/09186/981...[/link]

High probability this ruling will be overturned too.
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Richard Gardner Artist, Crytek8 years ago
Its both a positive and negative, these days I generally buy all my boxed games new or on Steam. When I was a teenager I used to only get used games simply because I couldn't afford new ones.

In terms of publishers making more money, well that's also good for developers and in turn better for creativity. Games like Vanquish wouldn't be on the edge of a sword from been developed and it could make things more predictable in terms of sales.

Also with more profits over a long period it could mean games that are over shadowed like Alan Wake could potentially still make a big return over a long period of time.

Edited 1 times. Last edit by Richard Gardner on 15th September 2010 7:14am

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James Prendergast Research Chemist 8 years ago
@ Richard:

In terms of publishers making more money, well that's also good for developers and in turn better for creativity. Games like Vanquish wouldn't be on the edge of a sword from been developed and it could make things more predictable in terms of sales.


Maybe i'm too cynical but aren't these things always on a sliding scale? i.e. You make more money so more money is expected to be made. I think there's as much creativity and opportunity in the industry as there was 10 years ago... those factors appear to be price/revenue independent from the outside but games that are considered risky/risqué and fringe ideas will always find trouble getting green-lit.

Edited 1 times. Last edit by James Prendergast on 15th September 2010 8:09am

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Stephen Woollard Online Infrastructure Specialist, Electronic Arts8 years ago
I don't think any publisher has an issue with Joe Bloggs selling his used copy of "Uber Dungeon Raiders of Doom 4" on ebay. The issue is that we now have a situation where retailers are ordering less copies of new games because they know some folks will buy a game, play it through, take it back and trade it in, sometimes the same day.

The retailer can then take that game, sell it "pre-owned" for maybe £5 less than the retail price and that's 100% profit for them.

Instead of ordering for example 500 copies of a new game, they order 250 and resell them over and over and the publisher doesn't see a penny of those sales. The argument that cheaper "pre-owned" games means more people will buy it is completely irrelevant for the publisher because they don't see any of that sale - the only people that benefit from used game sales are retailers. Even consumers don't benefit all that much because in many cases the used games are being sold only marginally cheaper than a new copy.

I notice the specialist retailers are quick to bemoan the "unfairness" of supermarkets using games as a loss leader, but when it comes to them raking in profits on used games that's all fine. I wonder if they would feel the same way if Tesco or Asda started selling used games...
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Alex Chapman Partner - Head of Interactive Media, Sheridans Solicitors8 years ago
Worth mentioning that the US case is very US specific.

In the EU the EU Software Directive states that:

The first sale in the Community of a copy of a program by the rightholder or with his consent shall exhaust the distribution right within the Community of that copy, with the exception of the right to control further rental of the program or a copy thereof.

The "distribution right" includes the right ti sell.

Therefore EU law specifically permits the sale of second hand games.

Edited 1 times. Last edit by Alex Chapman on 15th September 2010 1:52pm

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Jas Purewal Partner, Purewal & Partners8 years ago
@Alex - agreed the EU Software Directive is going to be relevant, but I do wonder whether it might still be more complicated than that. What if the courts were to hold that exhaustion of rights doesn't arise because games software is licensed and not sold? That is in effect what the US appeal court found in Autocad, despite their parallel First Sale doctrine.

Edited 1 times. Last edit by Jas Purewal on 15th September 2010 3:10pm

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Jas Purewal Partner, Purewal & Partners8 years ago
@Jason -

That's a very good point and one that perhaps doesn't come out clearly enough in this piece - there's always the possibility that the matter will be overturned on appeal - assuming of course that someone takes up the financial burden of mounting an appeal...
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