Impacts of the CJEU's e-book decision on the trade with digital goods | Austria

Legal Background

May you resell a book that you have previously purchased? Of course. However, from a copyright perspective the reasoning is not as easy as one might think, since purchasing a copyrighted work like a book means purchasing the paper but not the rights to the content, which is the intellectual property of the author. In respect of such intellectual property the author has certain exclusive rights. Thus, it is forbidden to publish the book on the internet, for example, since this would interfere with the author's exclusive rights. In fact, reselling a copyrighted work is generally an act that requires the author's consent, since the author has the exclusive right of distribution. To avoid such undue restriction of trade, Art. 4 para. 2 Directive 2001/29 (InfoSoc Directive) as well as Art. 4 para. 2 Directive 2009/24 (Software Directive) stipulate the so-called first sale or exhaustion doctrine, pursuant to which a copyright holder's distribution right will be exhausted where the first sale or other transfer of ownership in the Community of a copy of that work is made by the copyright holder or with his consent. Thus, a physical carrier like a book may be resold (but not copied or publicly made available) without the rightsholder's consent. It has, however, for a long time remained unclear to which extent this would also apply to works that are sold not in the form of a physical medium (such as a CD-ROM) but rather by offering them for download.

As smartphones, e-readers and higher internet speeds have become ever more abundant and important parts of our lives, such means of distribution have also become increasingly popular due to their convenience. Computer games and e-books alongside plain software are, thus, routinely obtained from online sources nowadays. But does the European first sale doctrine still apply in such circumstances? May such digital goods be resold without the rightsholder's consent?

The CJEU's UsedSoft decision

For software this has been answered by the CJEU in the famous UsedSoft[1] and Ranks[2] decisions, pursuant to which the distribution rights in software could also be exhausted by offering them for download if the following criteria are met:

• The copyright holder received remuneration corresponding to the economic value of that copy of his work;
• The respective licence had originally been granted by that rightsholder to the first acquirer for an unlimited period;
• The reseller ensures by all technical means at his disposal that the copy still in the hands of the reseller is made unusable.

Most importantly, a copyright holder could not limit this digital exhaustion by contractual means but would even have to hold the work available for download for future acquirers of the program.[3]

As copyright in software is largely governed by the Software Directive, it is still open to discussion whether the findings of UsedSoft and Ranks could be transposed to copyrighted works governed in general by the InfoSoc Directive.

The CJEU's recent e-books decision

The CJEU now had to decide on this question in a case regarding the reselling of e-books online. In the subject case[4], Tom Cabinet operated an e-book reading club, which in return for payment offered its members "second-hand" e-books which had been either purchased by Tom Kabinet or donated to it free of charge by members. In the latter case, those members were required to provide the download link for the book and declare that they have not kept a copy. Tom Kabinet then uploaded the e-book from the retailer's website and placed its own digital watermark on it, which served as confirmation that it was a legally acquired copy.

Tom Kabinet claimed that the copyright holder's distribution right in the e-books was exhausted pursuant to the digital exhaustion doctrine as laid out in the UsedSoft decision and that such exhaustion would also cover the online reselling of these e-books.

• No distribution by digital transmission

The CJEU, however, held that any communication to the public of a work other than the distribution of physical copies does not fall under the concept of "distribution to the public", which triggers exhaustion.

Offering second-hand works for download could therefore never be qualified as distribution (in respect to which exhaustion would apply) but rather as a communication to the public pursuant to Art. 3 InfoSoc Directive, which is not covered by the first sale doctrine.

• Implications of the UsedSoft decision limited to Software

The CJEU's assessment seems to contradict its prior assessment in the UsedSoft decision pursuant to which the existence of a transfer of ownership changes an act of communication to the public provided for in Art. 3 InfoSoc Directive into an act of distribution referred to in Art. 4 of that Directive.[5]

The CJEU, therefore, explicitly distinguished between software as covered by the Software Directive and other works protected by the InfoSoc Directive. The wide digital exhaustion doctrine as stipulated in the UsedSoft and Ranks decisions would only apply to software as the Software Directive specifically concerns the protection of computer programs, which for the purpose of exhaustion makes no distinction between tangible and intangible copies of a work and constitutes a lex specialis in relation to the InfoSoc Directive.[6] Such assimilation of tangible and intangible copies of works would not have been desired by the EU legislature when it adopted the InfoSoc Directive.[7]

In this regard, the CJEU held that especially Recitals 28 and 29 of the InfoSoc Directive clearly stipulate that exhaustion would only apply to tangible works explicitly excluding any exhaustion in conjunction with works transmitted online.

It can be reasoned from these conclusions of the CJEU that the concept of "distribution" is to be construed differently with regards to the Software Directive and the InfoSoc Directive.

• Elements of complex products are not to be assessed individually

Lastly the CJEU briefly held that the assertion that at least parts of an e-book might qualify as computer programs would not change anything in its assessment. Referring to a similar assessment on the nature of video games in a prior decision[8], the CJEU held that even if an e-book would contain a computer program, such a program would only be incidental in relation to the work contained in such a product (in the subject case: the book) and thus would fall in its entirety under the InfoSoc Directive.[9]

It is thus clear that the digital exhaustion doctrine for software as laid out in the UsedSoft and Ranks decisions does not extend to works that – alongside software – predominantly consist of other kinds of works (such as music, literature or visual arts).

Impacts

Considering that digital content is increasingly provided in the form of streaming and subscription services (and thus rather leased than "sold"), the CJEU's decision might have a declining practical impact.

Overall, however, the decision is an important clarification on the scope of digital exhaustion, as it clearly stipulates that a rightsholder's distribution right cannot be exhausted as regards any works distributed in intangible form predominantly not consisting of software (e.g. music, e-books, audiobooks, videos or photos).

In connection with the now reiterated case law on a uniform legal qualification of complex products, this could have implications for all products containing other kinds of works besides software, as a careful assessment must now be made of whether such software could be considered merely incidental to the main product, in which case digital exhaustion would not apply.

The economically most important example for this likely would be video games, as video games only in part consist of software, but also of musical and graphical works and works of literature (dialogues and story) falling within the scope of the InfoSoc Directive and have already been held as a complex product exclusively falling under the InfoSoc Directive.[10] Until only recently, video games were mostly sold on a physical medium (e.g. Blue-Ray-DVDs). The "classical" exhaustion pursuant to Art. 4 para. 2 InfoSoc Directive would then apply regardless to that physical carrier. Meanwhile, however, video games are increasingly sold as download keys for redemption at video game distribution services or directly held for download by such services. Only recently the Paris Court of First Instance[11] applied the first sale doctrine to computer games sold via download on a very popular distribution service and ruled contradicting contractual provisions as null and void. In light of the present decision, such an assessment might no longer be valid.

[1] CJEU 3 July 2012 C‑128/11, UsedSoft.

[2] CJEU 12 October 2016 C‑166/15, Ranks.

[3] CJEU 12 October 2016 C‑166/15, Ranks, paragraph 50.

[4] CJEU 19 December 2019 C-263/18, Nederlands Uitgeversverbond und Groep Algemene Uitgevers.

[5] CJEU 3 July 2012 C‑128/11, UsedSoft, paragraph 52.

[6] paragraph 53; CJEU 3 July 2012 C‑128/11, UsedSoft, paragraph 58.

[7] paragraph 56.

[8] CJEU 23 January 2014 C-355/12, Nintendo and Others, paragraph 23.

[9] paragraph 59.

[10] CJEU 23 January 2014 C-355/12, Nintendo and Others, paragraph 23.

[11] ipkitten.blogspot.com/2019/10/guest-post-paris-court-on-digital.html - retrieved on 20 January 2020