Microsoft failed to persuade that ValueLicensing breached copyright rules through its bulk resale of the tech giant’s software licenses, the UK’s specialised competition court ruled Wednesday.

JJH Enterprises, trading as ValueLicensing, filed a lawsuit in 2021 after it said Microsoft had broken UK and EU competition rules through customer deals that stifled the supply and resale of pre-owned licenses for, primarily, its best-selling Windows operating system and the Office productivity suite.

According to the claim, ValueLicensing says Microsoft abused its market dominance and conducted anticompetitive agreements in squeezing the market for one-off, perpetual licenses through a push for businesses to take up Microsoft’s own cloud-based subscription model, sold under the name M365.

However, according to ValueLicensing, in May 2023 Microsoft then advanced a “new” case that it was not lawful to resell pre-owned Office and Windows software at all.

In a ruling Wednesday, the Competition Appeal Tribunal said it came to a unanimous verdict, which favoured ValueLicensing.

The copyright matter was heard at a two-day trial in September as “preliminary issues”; ones that have the potential to end proceedings early.

In September, ValueLicensing told the court it was tasked to determine points relating to “copyright exhaustion” over bulk licenses of software and works consisting of both computer program elements and non-program elements.

The company argued that distribution rights in the copy of a computer program are exhausted on the first sale of that copy, and the rights-holder can’t prevent any further distribution of that copy.

Microsoft disagreed with ValueLicensing’s arguments.

In a ruling on Wednesday, the CAT made two findings.

First, that exhaustion under the UK’s Software Directive operates by law and is “not limited by contractual terms” in Microsoft’s enterprise agreements. Further, that the distribution and reproduction rights “enjoyed by Microsoft in their products do not prevent the subdivision and resale of licenses obtained by the first acquirer.”

Second, that the first online sale of Microsoft Windows and Microsoft Office in electronic form exhausts the distribution and/or reproduction right “in all works supplied and inevitably downloaded as part of those products,” to the extent those works are “distributed, downloaded and copied in accordance with the intended purpose” for which the programs were first sold.

ValueLicensing buys in bulk pre-owned — often older — Microsoft software licenses, and then resells them to business and enterprise customers. But it argues that Microsoft’s behaviour caused it hundreds of millions of pounds in lost revenue, therefore it must be compensated for the loss.

Microsoft denies the allegations in the claim, including that its activities amount to an abuse under competition rules.

At the end of last year, ValueLicensing failed in its bid to strike out parts of Microsoft’s defence to fight the lawsuit.