I have Windows 7 Ultimate Retail on a PC and upgraded the PC to 10 for free. There is a 10 entitlement based on my 7 license and associated with that PC. While I'm using the free 10 license on that PC, I'm not supposed to be using the 7 license on any other PC (incidentally, what happens if you do that?).
Supposing I sell the hardware, and then install my 7 license on a new set of hardware. Then the person who I sold the old to installs 10, and it will immediately activate because it has a digital entitlement. An entitlement based off of my 7 retail license, which I'm still using on a different machine. Does this mean there will be an activation conflict? Will someone get deactivated or fail to activate? If so, who?
There won't be any activation problems. When you have a retail license for Windows you have two options when you sell the computer:
1. Remove Windows from it, sell it without Windows installed, and keep your retail Windows license for use on another computer.
OR
2. Sell it with the Windows installed and provide the buyer with the retail license and product key for Windows.
It is not your problem that Microsoft has not provided a way to permanently deactivate Windows 10 on the computer you are selling and, therefore, if you choose to sell it bare with no Windows installed on it, it may affect your ability to use your Windows 7 product key in only one way - the next time you use your Windows 7 product key you might have to use phone activation and tell the computer voice that you have it installed on only one computer. And that would happen regardless of whether or not you upgraded the previous computer to Windows 10 because Microsoft has never provided a way to move the record of activation from their servers (all you can do is remove the product key from the local computer).
If the buyer installs Windows 10 on it and uses the old digital license to run it without their own license for Windows, it is the buyer that is responsible for that, not you. On Microsoft activation servers - the digital license for Windows 10 from an upgrade is tied only to the computer it was installed on - not to the Windows 7/8/8.1 license that it came from. It is only repeated use of the actual Windows 7/8/8.1 product key that gets it flagged to require phone in activation - not the repeated activation of Windows 10 with it's own digital license.
Yeah - it is worth noting the EULA says you can transfer a windows 10 to new pc if retail or you upgraded from retail, and only says you have to remove it from old PC. So long as OP does that, OP is in full compliance with EULA.
In fact, I do not know of a way of removing a digital licence once established. I did an experiment on a pc that was upgraded from window 8.1 retail that now had a digital licence.
I used slmgr /upk to remove the product key licence whilst in windows 10 and then reinstalled 8.1. It did not activate.
I then reinstalled windows 10 and it did activate. So my conclusion is that slmgr /upk does not work for digital licences (although I had little doubt that it would work).
You almost get the impression MS do not really care, so long as it meets it vision to reach one billion installs.