In JJH Enterprises Limited (trading as ValueLicensing) v Microsoft Corporation and others [2026] EWCA Civ 872 the Court of Appeal dismissed Microsoft's appeals in the long-running dispute brought by ValueLicensing (“VL”).
At the heart of the case is VL’s allegation that Microsoft’s licensing strategy, including its transition of customers from perpetual licences to subscription-based products such as Microsoft 365, reduced the availability of licences on the secondary market and harmed competition. Microsoft denies those allegations.
Although the decision does not determine whether Microsoft infringed competition law, it addresses important questions at the centre of copyright and software licensing law. The claim is commercially significant because its outcome could affect how major software providers manage legacy perpetual licences and how large organisations approach the value and transferability of those licences within their IT estates. The judgment also provides useful guidance on the powers of the Competition Appeal Tribunal (“CAT”) to determine copyright (or other) issues forming part of an infringement of competition law claim.
Background
Cloud computing changed the norms of software contracting, and customers' expectations of the rights they would hold in licensed products.
- In the ancien regime prior to about 2004, copies of computer programs were usually purchased for installation and use on designated machines, and the customer was granted a right by the owner of copyright in the software to use it on that machine (for the permitted purposes) forevermore.
- Subsequently, improvements in Cloud networking speed, reliability, and security, have encouraged the distribution of remotely maintained software products by online access ("software as a service", or "SaaS"). SaaS is usually licensed by subscription – the customer pays to access and use the software and for the provider to keep it secure and up to date; if the customer doesn't renew its subscription, it loses its rights to use the software.
- Technology change and convenience are insufficient, however, to void perpetual rights that have already been granted; perpetual licences are perpetual, and many perpetual licences of Microsoft products were granted.
What became of those perpetual licences, and what is their legal and commercial context now?
The present case
VL was a reseller of second-hand perpetual licences for Microsoft software products, including Microsoft Windows and Microsoft Office. It alleges that Microsoft’s licensing and migration strategy restricted the supply of perpetual licences available for resale, reducing competition in the secondary software licensing market and caused it loss. Microsoft denies those allegations.
Before the substantive competition issues could be determined, the CAT was required to address several preliminary questions as part of the claim relating to copyright law and the exhaustion of distribution rights in software (JJH Enterprises Ltd (t/a ValueLicensing) v Microsoft Corporation [2025] CAT 75). Microsoft appealed the CAT's conclusions on those issues and applied for a ruling that the CAT had no jurisdiction over the claim insofar as it raised copyright issues.
Copyright exhaustion and software resale
The appeal concerned the principle of copyright exhaustion.
The doctrine of copyright exhaustion in relation to the sale of software licences was developed by the Court of Justice of the European Union (“CJEU”)'s decision in UsedSoft GmbH v Oracle International Corp (Case C-128/11) (“UsedSoft”). In this case, the CJEU held that a perpetual software licence granted for a one-off fee constitutes a “sale” to the licensee for the purposes of Directive 2009/24/EC (the “Software Directive”), exhausting the copyright holder’s distribution right in the relevant copy of the software, and enabling lawful resale by the licensee.
Microsoft argued that its software products comprise both computer programs and a range of non-program copyright works, including graphics, icons, fonts and help files. It contended that, even if its rights in the computer program elements were exhausted, the status of the copyrights in the other works was governed by Directive 2001/29/EC (the “InfoSoc Directive”) and were not therefore exhausted in the relevant circumstances.
The Court of Appeal disagreed. It upheld the CAT's conclusion that the products should be assessed as a whole and that the software-specific exhaustion regime under the Software Directive applied to Microsoft’s software products on the basis these were in “substance a computer program, and that the other works were incidental or had mere accessory character”.
The Court of Appeal also rejected Microsoft's argument that certain volume licences could not be sub-divided and resold in smaller quantities. The Court drew a distinction with software accessed through centralised client-server systems, as the licences in issue comprised multiple independently usable licences.
Importantly, the CAT held that once Microsoft had first sold the relevant software licences, exhaustion operated by law. That meant Microsoft could not rely on contractual restrictions to prevent resale where the legal conditions for exhaustion were otherwise met. As the CAT put it, a rights owner “cannot contract out of the legal effect of exhaustion”.
The Court of Appeal confirms the CAT's jurisdiction
The Court of Appeal rejected the argument that the CAT had no jurisdiction over the claim insofar as it raised copyright issues. It held that any issue which it is necessary to decide in order to resolve a claim for an alleged infringement of competition law falls within the CAT's jurisdiction as part of its statutory jurisdiction under section 47A of the Competition Act 1998.
Why does the judgment matter?
The decision has implications extending beyond the software resale market.
First, it confirms that restrictions in perpetual software licences will not necessarily prevent resale where the relevant copyright rights have been exhausted. Technology suppliers seeking to maintain control over the downstream distribution of software after first sale should therefore consider carefully whether those restrictions are effective as a matter of copyright law, rather than assuming the contract wording is determinative.
Secondly, the judgment may be welcomed by organisations holding large volumes of perpetual software licences. While the precise legal requirements remain fact-specific, the decision provides further support for the proposition that unused licences may retain transferable value in certain circumstances.
Thirdly, the judgment provides further clarification on the scope of the doctrine of copyright exhaustion in relation to software established in UsedSoft. The Court confirmed that software products containing both computer programs and non-program copyrighted works, such as graphical user interfaces and icons, may fall within the Software Directive exhaustion regime where the software component is the predominant element of the product.
Finally, from a procedural perspective, the judgment confirms the breadth of the CAT's role in competition litigation. Parties bringing or defending competition claims should expect the CAT to determine related legal issues where necessary to resolve the dispute, rather than referring those questions to other courts.
What happens next?
The substantive competition claim will now continue before the CAT.
The key question remains whether Microsoft's licensing and migration strategy unlawfully restricted competition and caused loss to VL. The Court of Appeal has expressed no view on that issue.
Nevertheless, the judgment is likely to be closely examined by software suppliers, resellers and competition practitioners alike. It represents a significant appellate decision concerning copyright exhaustion in relation to software since UsedSoft and provides important guidance on the CAT's ability to determine interconnected issues of competition, copyright and contract law.
