Microsoft has advanced a provocative legal argument that threatens to upend the decades-old European market for second‑hand software licences. In a preliminary issues trial that opened this week before the UK’s Competition Appeal Tribunal, the company contends that reselling pre‑owned copies of Office and Windows is unlawful — not because of classic anti‑piracy concerns, but because copyright in non‑program elements such as graphical user interfaces, fonts, and design assets places those components outside the Software Directive’s exhaustion rules. If the tribunal accepts this construction, the entire resale market for Microsoft’s flagship productivity and operating systems could be retroactively invalidated, a prospect that has sent shockwaves through resellers, public‑sector buyers, and competition lawyers alike.

The dispute dates back to a complaint filed by UK‑based reseller ValueLicensing, which built its business on acquiring surplus perpetual licences from organisations and reselling them at a discount. ValueLicensing alleges that Microsoft deliberately shrank the pool of available second‑hand licences by offering customers generous discounts on subscription agreements in exchange for the surrender or forfeiture of their perpetual licences. According to the reseller, those practices — embedded in contract clauses and commercial incentives — constituted an abuse of dominant market position, ultimately costing it around £270 million in lost profits.

What began as a classic competition‑law claim has now morphed into something far broader. In May 2025 the CAT agreed with Microsoft that a set of discrete copyright questions should be resolved first, because the company’s defence rests heavily on the assertion that a significant portion of Office and Windows simply cannot be resold without the rightsholder’s consent. The preliminary issues trial, which started on 9 September 2025, aims to determine whether the Software Directive’s principle of exhaustion applies to a modern, hybrid software product or only to its executable code.

To appreciate the radical nature of Microsoft’s argument, one must step back to two landmark rulings from the Court of Justice of the European Union. In UsedSoft (C‑128/11, 2012), the court held that the distribution right in a copy of a computer program is exhausted once the rightsholder has received appropriate remuneration for that copy, even when the copy is downloaded. Resellers can therefore legitimately sell on perpetual licences provided the original acquirer makes its copy unusable. That judgment became the bedrock of a flourishing secondary market across Europe.

Five years later, Tom Kabinet (C‑263/18, 2019) drew a sharp distinction. The CJEU ruled that e‑books, unlike software, are distributed via “communication to the public” rather than by a physical or download‑equivalent distribution, and therefore exhaustion does not apply to them. Crucially, the court emphasised that the Software Directive is a lex specialis for computer programs, treating them differently from other digital content on functional and economic grounds.

Microsoft now seeks to transplant that line directly into the anatomy of its own products. Its legal team argues that Office and Windows are not pure computer programs but amalgams of functional code and protected creative works — the “non‑program elements” such as the layout, icons, animations, fonts, templates, and even the “look and feel”. Those elements, they submit, are protected by general copyright under the Information Society Directive, not by the Software Directive. Because exhaustion does not apply to such works, any resale that necessarily involves copying or communicating those elements to a new user would infringe copyright unless expressly authorised.

A “Remarkable Coincidence” or Long‑Planned Defence?

ValueLicensing’s founder Jonathan Horley has pointedly noted the shift in Microsoft’s litigation stance. “It’s a remarkable coincidence,” he said, “that their defence against ValueLicensing has changed so dramatically from being a defence of ‘we didn’t do it’ to a defence of ‘the market should never have existed.’” The reseller insists that the secondary market has operated lawfully for nearly two decades, with transactions conducted in millions of licences and endorsed in commercial practice and legal commentary alike. To now claim that every one of those sales was tainted by copyright infringement is, in ValueLicensing’s view, a cynical attempt to escape competition scrutiny by upending the legal foundation beneath the claimant’s feet.

The CAT’s Procedural Steer: Keeping It All Together

Microsoft has already tried, and failed, to hive off these copyright issues into separate proceedings. In a ruling delivered in May 2025, the CAT rejected the company’s argument that the tribunal lacked jurisdiction to determine copyright matters, holding that its statutory remit over competition claims necessarily allowed it to resolve incidental legal questions that are central to the pleaded case. The decision was pragmatically aimed at avoiding a costly and time‑consuming fragmentation of litigation across the High Court and the specialist tribunal.

At the same time, the CAT has ordered extensive disclosure of internal Microsoft documents relating to the design of its licensing incentives and the surrender clauses. Those documents, which have been the subject of repeated privilege arguments, are expected to shed light on whether the company consciously pursued a policy of suppressing the secondary market. For ValueLicensing, the contents may help prove the kind of exclusionary intent that competition law prohibits; for Microsoft, they could support a narrative that any effects on the secondary market were incidental to legitimate commercial strategies.

What Is at Stake: Three Scenarios

The outcome of the PI trial will ripple far beyond the two parties in this case. Three broad scenarios are plausible.

  1. Narrow defeat for Microsoft — resale survives. The CAT finds that the Software Directive and UsedSoft continue to govern the resale of software programmes as a whole, and that Microsoft’s attempt to carve out non‑program elements is too broad to be consistent with EU law. The secondary market would endure, and ValueLicensing would press on with its competition claim, relying on the factual evidence unearthed in disclosure.
  2. Partial win for Microsoft — limited restriction on specific elements. The tribunal accepts that certain creative or non‑program elements enjoy separate copyright protection and are not exhausted. The result would be a fractured market: some licence types remain freely tradable while others become legally contested, driving up compliance costs and uncertainty for resellers and buyers alike.
  3. Broad victory for Microsoft — secondary market materially restricted. A sweeping ruling that excludes a wide swath of Microsoft’s products from the exhaustion framework would decimate the second‑hand market overnight. Resellers would be unable to sell many perpetual licences legally, corporate purchasers would lose access to a key source of cost‑saving software, and regulators who are already scrutinising Microsoft’s licensing practices would likely intervene. This is the most disruptive outcome, and therefore the one the CAT will approach with the greatest caution.

Parallel Litigation and Regulatory Spotlight

The ValueLicensing case is far from Microsoft’s only legal headache in the UK. An opt‑out class action led by Alexander Wolfson accuses the company of abusing its dominance through similar licensing conduct, with damages potentially running into the billions. Separately, Dr Maria Luisa Stasi is pursuing a claim alleging that Microsoft penalises customers who run Windows Server on competing cloud platforms like AWS and Google Cloud, effectively steering them toward Azure. Both cases are before the CAT, and a ruling in the ValueLicensing PI trial that narrows or eliminates the exhaustion defence could spill over into those proceedings, strengthening the claimants’ hands.

Meanwhile, the UK’s Competition and Markets Authority has been investigating Microsoft’s cloud licensing practices, and the European Commission continues to monitor digital markets enforcement. A court decision that effectively kills the secondary market would almost certainly provoke regulatory action, whether in the form of market investigations, interim measures, or legislative reform.

Practical Fallout for Resellers, Buyers, and the Industry

For the hundreds of resellers that operate in the pre‑owned software market — and the thousands of organisations that rely on discounted licences — the current uncertainty demands immediate action.

  • Audit and preserve records. Every licence acquisition, assignment, and surrender communication must be carefully catalogued. The CAT’s disclosure process has shown that documentary evidence can be decisive in establishing whether a resale complied with the UsedSoft conditions.
  • Segregate contested inventory. Resellers should identify licence types (perpetual vs. subscription vs. OEM) whose provenance may be challenged and consider legal checks before sale.
  • Review historical contracts. Public bodies and large corporates should examine past agreements that offered subscription discounts in exchange for perpetual licence surrender. Such documents are now central to the litigation, and organisations need to understand their exposure.
  • Model procurement risks. Enterprises that depend on secondary licences should stress‑test their IT budgets against a scenario where those licences become unavailable or legally risky, and explore alternative procurement channels.
  • Monitor the CAT closely. Forthcoming rulings will directly influence contract drafting, compliance practices, and even the viability of certain business models.

This clash is about more than the fate of a single reseller. It crystallises a fundamental tension between the proprietary rights of software authors and the functioning of competitive downstream markets. The Software Directive was drafted at a time when programs were largely monolithic, locally installed products. Today’s suites are multimedia hybrids, and courts are being asked to decide whether the legal framework should evolve to reflect that complexity.

If Microsoft’s argument succeeds, it could set a template for other rightsholders to embed non‑program creative works into their software and thereby insulate the whole product from resale. That would not only shrink the second‑hand market but also tilt the balance further toward subscription and cloud‑based models that give vendors even greater control over licensing terms. Conversely, a reaffirmation of the exhausted‑copy principle would reinforce the legal foundation for a competitive secondary market, keeping downward pressure on prices and giving enterprises genuine choice.

The CAT’s eventual judgment will not be the final word. An appeal to the Court of Appeal, and potentially a reference to the Court of Justice of the EU (since UK law still draws on EU jurisprudence in this area), is almost certain. Whatever the outcome, the decision will be studied closely in jurisdictions from Germany to Singapore, shaping global approaches to software copyright and competition.

What Comes Next

The preliminary issues trial is expected to run for several days, with a reserved judgment likely to follow before the end of 2025. In the meantime, the disclosure battles continue, and the broader competition claim awaits its turn behind the copyright gateway. For Microsoft, the PI trial represents both an opportunity to strike out massive parts of the claim and a gamble that could backfire if the CAT concludes that the company is attempting to rewrite EU exhaustion law through creative legal argument rather than legislative change. For ValueLicensing, it is a chance not only to pursue damages but to defend the very legitimacy of the market it helped build.

When the tribunal delivers its answer, it will be a landmark moment. Either it will preserve a vibrant secondary market that has saved European businesses billions, or it will hand software publishers a powerful new tool to lock down perpetual licences — and with them, the future of software ownership.