UK Court of Appeal Rules: Microsoft Cannot Use Copyright to Stifle Second-Hand Market

On 7 July 2026, the Court of Appeal of England and Wales handed down its final judgment in JJH Enterprises Limited (trading as Value Licensing) v Microsoft, dismissing all of Microsoft's appellate claims.

The claimant, Value Licensing ("VL"), is a broker specialising in the trade of second-hand software licences. Its business model consists of acquiring unused software licence slots from large enterprise customers holding Microsoft volume "perpetual licences" (i.e., one-time purchase authorisations, not subscription-based), and then splitting and reselling those licences to smaller and medium-sized enterprises in need. VL does not provide end-users with physical installation media or installation packages; it merely supplies the activation keys originally issued by Microsoft to the original volume purchasers. End-users then download the software directly from Microsoft's official website and activate it using those keys.

In order to curb the proliferation of the second-hand licence market, Microsoft had included contractual clauses prohibiting resale in its licence agreements with customers, and gradually shifted its product offerings from a "perpetual licence" model to a "subscription" model, thereby eliminating the possibility of secondary transactions altogether.

VL argued that Microsoft's conduct constituted an abuse of a dominant market position, in breach of Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU). VL accordingly brought proceedings before the UK Competition Appeal Tribunal (CAT), claiming damages covering the period from 1 January 2014 to 31 December 2022, with territorial scope including the UK and the entire European Economic Area (including the EU).

Faced with the antitrust allegations, Microsoft did not directly respond to whether its commercial conduct amounted to monopolisation; instead, it raised a copyright infringement defence. Microsoft contended that VL's resale of Microsoft software licences, being unauthorised by Microsoft, constituted infringement of Microsoft's copyright. It further argued that if VL was engaged in unlawful conduct, then VL had no standing to assert that Microsoft had violated competition law, and accordingly VL's antitrust claim should be dismissed in its entirety.

In September 2025, a panel of three judges of the Competition Appeal Tribunal heard the copyright preliminary issues, and in November 2025 rendered its decision, ruling in VL's favour on all copyright points. Microsoft appealed. On 7 July 2026, the Court of Appeal unanimously dismissed all of Microsoft's appeals.

The core disputes in the case centred on two issues.

First, the exhaustion of copyright in non-program works (icons and graphical user interfaces). EU copyright law has two parallel directive regimes. The Software Directive (Directive 2009/24/EC) applies specifically to computer programs. Under the case law of the Court of Justice of the European Union (CJEU), the first sale of a copy – whether tangible (on disk) or intangible (by download) – triggers exhaustion of the distribution right, meaning the rightholder may not control subsequent resale of that copy. The InfoSoc Copyright Directive (Directive 2001/29/EC), on the other hand, applies to general works of literature and art (including graphic works, text, etc.). Under prior case law, the distribution right in intangible copies is not exhausted – meaning that resale of second-hand e-books is not protected by the exhaustion principle.

Microsoft's products comprise both computer programs and graphical works such as icons and user interfaces. Microsoft argued that since digital copies of graphical works are not subject to exhaustion, VL's resale of software packages containing those graphical works constituted infringement of Microsoft's copyright in its "non-program works".

The Court of Appeal, drawing on prior case law, first held that the characterisation of a "composite object" should be determined by the "overall economic function and nature" of that object, rather than by mechanically dissecting its constituent elements and applying different directives to each. The Court of Appeal adopted the findings of fact of the Competition Appeal Tribunal, noting that the fundamental purpose of acquiring Microsoft Office/Windows is to obtain the functionality of a "desktop operating system" or "office productivity suite", rather than to acquire the icons, clipart, fonts, or interface elements themselves. The non-program works are merely ancillary or incidental to the core programs.

Accordingly, the composite subject matter in this case is, in substance, a "computer program", with the non-program works being merely accessory. Since the core program falls within the Software Directive and its copyright has been exhausted by first sale, the copyright in the ancillary non-program works is likewise exhausted.

Second, the question of volume licences. Microsoft relied on the statement in the UsedSoft judgment that "if the first acquirer purchases more licences than he actually needs, he cannot split the right of use," and argued that volume licences could in no event be split and resold.

The Court of Appeal carefully analysed the technical architecture of the UsedSoft case, noting that the Oracle software in that case was based on a "client-server" architecture: the company installed a single copy of the software on a central server, and 25 employees remotely accessed that server to use it. Under that model, the "25 user permissions" were an indivisible whole tied to the same server copy; it was technically impossible to resell 10 of those permissions separately. In contrast, the Microsoft Windows/Office products in the present case operate under a "stand-alone copy" model: each user installs the software independently on their local computer hard drive and runs it without affecting others. The 1,000 licences purchased by a large enterprise are, in technical architecture, independent of each other, equivalent to 1,000 separate physical disks.

The court further approached the question from the perspective of economic equivalence. If tangible goods (1,000 disks) can be split and resold, then economically equivalent digital copies (1,000 separate download keys) should likewise be permitted to be split and resold. Any differential legal treatment of different forms of sale must be based on objective justification.

On these grounds, the three Lord Justices of Appeal unanimously held: the substantive appeal on the preliminary issues is dismissed. With all copyright obstacles now fully cleared, the CAT will proceed to hear the substantive antitrust merits of VL's claim against Microsoft. China Intellectual Property Lawyer Network will continue to follow further developments.