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Secondhand software set to ‘explode’

– As chief of computer systems for Berliner Volksbank, Joerg Bauske has long been dismayed at the amount he spends on software. Now, he says, he’s found an easy way to cut costs dramatically: by buying used programs.

Bauske plans to upgrade the regional savings bank’s copies of Microsoft’s Windows Server with secondhand copies bought from a broker called Preo Software.

The move was eased by a July ruling from the European Union’s highest court paving the way for sales of pre-owned software.

Bauske had some experience in the matter, having bought secondhand copies of Microsoft Office and Adobe Photoshop in 2006 and 2007, when the legality of such deals was less clear.

“We’ve had to be certain that the savings outweigh the legal risks,” Bauske said. “Now there’s less reason to be concerned.”

On July 3, the European Court of Justice ruled in a case brought by Oracle seeking to prevent UsedSoft GmbH in Munich from reselling software licenses. The court said developers can’t forbid resale of programs and updates downloaded from the Internet, expanding earlier case law permitting the sale of secondhand software delivered on disk.

“Software vendors have every reason to worry,” said Ray Wang, chief executive officer of Constellation Research, a technology adviser whose client roster includes Microsoft and Adobe Systems.

Companies spend $250 billion to $275 billion on business software annually, Wang estimates. The total potential value of programs that might find buyers could exceed $1 trillion, Wang said, though the market today is much smaller: In Germany, one of the biggest markets, less than $131 million of corporate software was resold last year, according to traders.

UsedSoft has seen demand triple since the July decision, Chief Executive Officer Peter Schneider said. The verdict “will make the market explode,” he said.

Also fueling the resale business is an injunction from a Hamburg court last month forbidding Microsoft from warning potential buyers of used programs that such deals were illegal unless it approved them.

Trading used business software isn’t quite as seamless as selling secondhand video games on eBay. Sellers contact companies like UsedSoft with the programs and number of licenses they want to sell.

Buyers similarly contact brokers with requests for specific programs.

If brokers have the licenses, they quote a price, which is typically 30 percent to 70 percent of the original cost. The buyer can then use the license information to download the program from the software maker’s website.

The intermediaries usually take a cut of about 30 percent of the deal, said Boris Voege, co-founder and sales chief at Preo. A notary’s certification testifying that the programs have been deleted from the seller’s computers is often required to complete a deal.

Since not all companies want the latest versions of programs, the process helps sellers make money from an asset that would otherwise be discarded.

“When Microsoft introduced Office 2007, demand for Office 2003 was skyrocketing because companies were used to it,” said Dirk Lynen, CEO of 2ndsoft GmbH, a used software broker in the German city of Aachen.

In the United States, most software contracts forbid resale, and there haven’t been any decisive challenges to such clauses in court, said Eben Moglen, a Columbia Law School professor and founder of the Software Freedom Law Center.

Still, U.S. companies can tap the market via European subsidiaries.

The European decision confirmed the rule across the region that a vendor’s right to control what happens to software expires with the first sale, much as with physical goods.