Saturday, 10 December 2016

The CEIPI Publishes An Opinion on the EU Commission’s Copyright Reform Proposal


The Center for International Intellectual Property Studies (CEIPI) which is part of my alma mater, the University of Strasbourg, published on November 28, 2016 its Opinion on the European Commission’s copyright reform proposal (the Opinion). The Opinion, which was written by Professor Christophe Geiger, PhD candidate Oleksandr Bulayenko, and Senior Researcher Giancarlo Frosio, focuses on the introduction of neighbouring rights for press publishers in EU law. It argues that the recent Directive proposal would make it harder to reach the Digital Single market. The authors of the Opinion conclude by recommending “to refrain from advancing this legislative action.” The CEIPI sent its Opinion to the EU Commission on December 2.


What Are the Commission’s Proposals re Neighbouring Rignts??

The Commission adopted in May 2015 its Digital Single Market Strategy, which goal is to reduce the differences between the copyright regimes of the Member States and to allow works to be widely accessed online across the EU.

Following a consultation on the role of publishers in the copyright value chain, which the European Commission had launched on March 23, 2016, the Commission introduced on September 14, 2016 its Proposal for a Directive of the European Parliament and of the Council on Copyright in the Digital Single Market (the Proposal).

The Opinion concentrates on the neighboring rights that the Proposal would give to publishers. The Impact Assessment on the modernization of EU copyright rules, also published by the Commission on September 14, provides a helpful overview of the rights provided to the publishers in various member States (see Part 3/3, p. 189-192).

The Opinion cites the example of the German law on Authors’ and Neighbouring Rights which gives some exclusive neighbouring rights to press publishers, such as making available for commercial purpose any publications and parts thereof. This, as noted in the Opinion, takes “only individual words or the smallest text excerpts” out of the scope of the law (Opinion p. 6). A Spanish law provides press publishers the right to be remunerated for making available online non-significant fragments of their publications. The Opinion notes that the legality of this right has been questioned, for example here (Opinion p. 6).

The Opinion notes that they are tensions between press publishers and online service providers in several countries, Belgium, France and Italy. Such tensions have been addressed by signing agreements, not by enacting new laws. For instance, a financial fund financed by Google has been put in place in France. It is intended to provide financial support for projects of publishers of political and general information sites. A similar Italian fund is also financed by Google, which also finances the EU Digital News Initiative (Opinion p. 7).

Article 11(1) of the Proposal directs Member States to provide publishers of press publications with the neighboring rights provided for in Article 2 and Article 3(2) of Directive 2001/29/EC for the digital use of their press publications. This means that the “publisher’s neignboring rights would encompass the right of reproduction and making available to the public for digital uses” (Opinion p. 11).

Under Article 12 of the Proposal, Member States could provide a publisher, to whom an author has transferred or licensed a right, the right to share the compensation for the uses of the work made under an exception or limitation to the transferred or licensed right.

The authors of the Opinion note that the combination of these two articles may give publishers two revenue streams, if both copyright and neighboring rights have the same exceptions and limitations: the publishers would receive a revenue both as holders of the neighbouring rights  and as transferees or licensees of authors’rights (Opinion p. 12).

The Proposal Would Make it Harder to Reach the Digital Single Market

Member States have each their own copyright and neighbouring rights laws. The Opinion states that:

“the Impact Assessment fails to explain how an additional layer of 28 national rights might promote the Digital Single Market. Rather the proposal poses further challenges related to the territoriality of rights and their fragmentation” (Opinion p. 8).

This is a concern, especially since the Proposal “does not pre-empt the re-emergence of new national legislation extending rights of press publishers. Member States still remain free to create other neighbouring rights in their national law” (Opinion p. 8). The authors point out that our own Eleonora Rosati has questioned the lawfulness under EU law of allowing Member States to create neighbouring rights.

The authors of the Opinion are also concerned by the facts that the exceptions and limitations to authors’ rights, which are currently applicable to those rights in the Member States, may not be equally applied to the neighbouring rights. For instance, national laws could regulate differently when and if such exceptions can be overridden by contract or technical protection measures (Opinion p. 9).

Allowing Member States to each create their own neighboring rights and even expanding them could fragmentize the Digital Single Market, and thus hurt it. The authors of the Opinion advocate instead for the enactment of a unitary right (Opinion p. 9).

Proposal Would Reduce the Economic Value of Creative Works

The authors of the Opinion argue that if more economic actors can share the revenues of creative activities, the authors may lose part of their revenue, as the financial pie is not getting bigger even while more guests are invited to partake. The “pie theory” explains that “new royalties stemming from neighbouring rights are going to be distributed at the expense of those receiving royalties from authors rights today” (Opinion p. 11, citing this recent article by Joseph Pomianowski).


There is a chance that publishers from other sectors than the press, such as music publishers, would request neighbouring rights, which could further reduce authors’revenue (Opinion p. 9). Granting rights to more actors “will decrease the economic value of each rights” (Opinion p. 10). However, the “pie” is not getting bigger (Opinion p. 12).

No Causal Link Between Publishers’ Revenues and Granting them Neighbouring Rights

Publishers generally hold the economic rights of authors, under various legal schemes, such as contract or work for hire (Opinion p. 13). Not every publisher believes it must have neighboring rights, and some have even argued that they are not necessary. Even if publishers are sometimes called into court if a work has been infringed, granting them neighbouring rights “will not change the burden of proof for proving ownership of authors’ rights in court” (Opinion p. 14). For these reasons, there is no “causal link supporting the introduction of new rights” (Opinion p. 14).

The Scope of Protection is Overbroad

The authors of the Opinion are troubled by the fact that the Proposal “does not limit the subject matter to works and uses presently protected by authors’ rights.” Even unoriginal works could be protected by neighbouring rights (Opinion p. 16). Works from the public domain could be protected as well, and works published under a public copyright licenses could be restricted by such rights (Opinion p. 17). Restricting the public’s use of works in the public domain “imping[es] greatly on freedom of expression and democratization.” This would have repercussions on the ability of people of lesser means to disseminate their speech and would instead favor big corporations (Opinion p.17). The Authors also argue that the proposed term of protection, 20 years, is “way too long” (Opinion p. 18). 

The authors conclude that introducing neighbouring rights for press publishers will create new EU copyright issues instead of solving them.

The Opinion is a very interesting read, and this is both my impartial blogger opinion and my hometown partial Alsatian opinion.


European Commission Image is courtesy of Flickr user Kevin White under a CC BY-NC-ND 2.0 license.

Friday, 9 December 2016

CJEU GS Media decision finds its first application in Germany

GS Media finds its first application
in Germany
A few weeks ago on The IPKat I reported that a Swedish court has been likely the first in Europe to apply the September decision of the Court of Justice of the European Union (CJEU) in GS Media [here and here].

After Sweden, it is now the turn of Germany, as 1709 Blog friend Mirko Brüß (Rasch) explains.

Here's what Mirko writes:

"UFOs, creative commons and hyperlinks!

The Regional Court of Hamburg (Landgericht) has just provided us with a decision that appears to be the first ruling from Germany to apply the GS Media principles [Case no. 310 O 402/16]

The court came to the conclusion that (commercial) linking to unauthorized content is infringing, even when it is quite hard to determine the infringing nature of the work that is being linked to.

The claimant in this case is a photographer who took a picture of a public building. He then uploaded this picture on the “Wikimedia Commons” platform, using a Creative Commons (CC) licence (note that the judgment does not expressly indicate which license was used). This picture was then modified by an unknown third person, who added UFOs to the picture that appear to be flying above the building. This new picture was uploaded by the third person on his website.

The defendant operates a website where he publishes and sells educational material that he creates. In the imprint of this website, the defendant posted a sentence that included the word “UFO”, which linked to the modified “UFO-Version” of the claimant’s picture. Clicking on the word “UFO” a new browser window in which the “UFO-Version” of the picture was shown would be opened. 

The photographer deemed that this constituted an infringing use of his work and brought the defendant to court.

The Hamburg court noted at the outset that the original picture is a protected work within the German Law on Copyright and Related Rights (UrhG) and that the claimant owned the rights to this work, including the right of communication to the public within § 19a UrhG. The court then moved directly to the GS Media decision and quoted paras 32-43 and paras 47-53, stating that the principles set therein would be applicable to the case at hand.

Since linking to content that has been published with the rightholder’s consent is not an infringement per se and the original picture was available on the “Wikimedia Commons” platform with the consent of the claimant (under a CC licence), the court looked into the question of whether the derived version was lsawful or not. 

It determined that the “UFO-Version” of the picture that was hosted on the third party’s website was infringing. 

While the CC licence used by the claimant allowed for modifications of the original work and also the making available of such modified works, the terms of the licence also required attribution and an indication that the work had been modified. Since the “UFO-Version” was hosted on the third party’s website without the necessary attribution and indication of modification, the CC licence was forfeited. Thus, the court found that the use of the modified picture on the third party’s website was infringing. 

From there, the court looked into the requirements of “infringing linking” after the GS Media decision. It interpreted GS Media in a way that hyperlinking is only potentially infringing in case of culpable conduct or negligence. This is derived from the CJEU’s requirement that the person using the link did not know, or could not reasonably have known, about the unlicensed nature of the publication of the work in question. If the link is provided for financial gain, such knowledge must be presumed.

... here it is rather about
the pursuit of profit
Here, the court wondered whether indeed the specific link must be provided “for financial gain” or if it is sufficient that the link is provided on a website that is operated for financial gain. Looking at the CJEU’s reasons, the Hamburg court went for the latter option [note by Eleonora: this addresses a point left ambiguous by GS Media]. The judges understood the criterion in a broad sense, because the CJEU used this to distinguish between cases where the person using the link needs to verify if the work he links to is infringing or not and other cases, where no such checks are necessary. It appears that the court believed that it is reasonable to ask any operator of a “commercial website” to check the legality of the works he links to.

The defendant stated that he was aware of the GS Media decision, but did not agree with it arguing that its application would infringe his fundamental rights. This argument did not persuade the judges, since the CJEU decision did provide the necessary balance of all the affected fundamental rights. Thus, the defendant was unable to rebut the presumption of knowledge that the content linked to was unlawful.

Finding that the defendant operated a website for commercial gain on which he had linked to a work that was not (in this form) published with the rightholder’s consent, the court concluded in the sense that the defendant had infringed the claimant’s right of communication to the public."

Thanks so much Mirko for this thorough review of yet another interesting decision from Germany!

Tuesday, 6 December 2016

Wild Boys Sometimes Lose It: Duran Duran fail to reclaim their US copyright

This post is by David Brophy writing on the IPKat

A few weeks after his eighteenth birthday, Duran Duran co-founder Nick Rhodes signed a music publishing agreement assigning his existing and future copyrights to a publisher, as did the other band members. None of them was aged more than 21 at the time.


Had they taken advice from a copyright lawyer at the time (1980), one can imagine a conversation along the following lines:

Duran Duran: Please please tell me now: Is there something I should know? Is there something I should say?
 Lawyer: You mean, is there something you should say, before your copyright goes away?
Duran Duran: That's funny, for a lawyer. But we didn't agree to pay you a hundred quid for your songwriting talents. What do you think about this contract?
Nick Rhodes, co-founder of Duran Duran (photo: Eva RinaldiCC BY_SA 2.0)
Lawyer: Well, you're agreeing here to assign all of your existing and future copyrights worldwide for their full term. That's pretty standard stuff. But there's a new Copyright Act in the United States, just two years old, and it will allow you to reclaim your copyright from the publishers after 35 years. Which is nice, though it does rather assume anyone will be buying your records in 2015 (no offence). 
Duran Duran: Eh thanks. What exactly should we do? 
Lawyer: When the 35 year mark is approaching, you'll simply serve a notice on the publisher. Tell them you want your copyright back, lodge a copy of the Notice with the Copyright Office and hey presto it will revert to you. So in your contract, you could include a clause stating that the assignment is without prejudice to your rights under section 203 of the US Copyright Act to terminate the assignment of the US copyright. 
Duran Duran: They'll never go for it. Have you seen our haircuts? They won't change their standard contract for us. And if they don't sign us up, nobody will.
Lawyer: Well don't worry about it. When Congress was passing the law, they had unequal relationships like that in mind. Here's what they say in House Report 94–1476 introducing the law: 
"A provision of this sort is needed because of the unequal bargaining position of authors, resulting in part from the impossibility of determining a work’s value until it has been exploited ... Instead of being automatic, as is theoretically the case under the present renewal provision, the termination of a transfer or license under section 203 would require the serving of an advance notice within specified time limits and under specified conditions. However, although affirmative action is needed to effect a termination, the right to take this action cannot be waived in advance or contracted away."  
And it's right here in section 203(5): "Termination of the grant [of a transfer or licence of copyright] may be effected notwithstanding any agreement to the contrary, including an agreement to make a will or to make any future grant." So basically, it doesn't matter what you sign now. You can't contract away the right to claim the copyright back when the time comes. 
Duran Duran: Cool. Now about your fees. We've been thinking. Maybe we can cut you in on the royalties for our first three albums instead? 
Lawyer: Thank you, but my understanding is that you have never even been inside a recording studio. I think I'd prefer the hundred pounds we agreed on. In cash please, boys.
Factual background

This conversation never happened of course, and indeed we don't know if the band took any advice or knew about the possibility of claiming the US copyright back in the future. What we do know is the band members signed a music publishing agreement assigning the "entire copyrights" in their existing and future works for the "full term" of the copyrights, to Gloucester Place Music Ltd (then called Tritec Music Ltd, and now part of the Sony/ATV group).


In 2014, with the 35 year point approaching, band members Nick Rhodes, Simon Le Bon, John Taylor, Andy Taylor and Roger Taylor, duly served Notices under section 203 in respect of 37 songs, including most of their best-known works like "Girls on Film", "Rio", "Hungry Like The Wolf" and "Is There Something I Should Know?".


Gloucester Place Music responded by seeking a determination from the English High Court that such Notices, if not retracted, would represent a breach of contract, i.e. by improperly terminating an assignmentwhich the band members had no right to do.


Effect of contractual agreement


Mr Justice Arnold has decided in favour of the publisher and against the band members. The case is Gloucester Place Music Ltd v Le Bon & Ors [2016] EWHC 3091 (Ch). His decision is based on the fact that the contract was made under English law, and on its proper interpretation the parties are assumed to have been aware when entering into the Agreements, at least in general terms, of the effect of section 203, and to have nevertheless contracted away the US copyright for its full term. He summarised at [44]:



"The language of clause 3(a) is wide and general. Particularly when read together with clause 4, I consider that what the language would have conveyed to a reasonable person having the relevant background knowledge was that the parties' intention was that the "entire copyrights" in the Compositions should vest, and remain vested, in the Claimant for the "full term" of the copyrights. That implicitly precludes the Group Members from exercising rights under US law which have the result that the Claimant's ownership of the copyrights is brought to an end prior to their expiry. Moreover, this interpretation is reinforced by clause 6(b), by which the Group Members promised not to transfer any interest in the copyrights to any other person, which I read in context as meaning any person other than the Claimant. (This is clearer from the wording of clause 6(b) of the Service Company Music Publishing Agreements, which refers to "any person, firm or corporation other than Tritec".) In effect, what the Group Members have done by exercising their rights of termination is to transfer the reversionary interest in the copyrights from the Claimant to themselves."
The reference to "a reasonable person having the relevant background knowledge" was held to include some knowledge of US copyright law. In other words, someone signing a contract such as this was assumed to know, at least in general terms, about the possibility of reclaiming copyright in the US.

Insofar as it goes, this may be a pretty unremarkable interpretation of a contract under English law. But what about the fact that under US law the right to terminate the assignment cannot be contracted away?


Conflict with US law


Arnold J. noted the US law aspect but pointed to the fact that Article 7(1) of the Rome Convention, which provides for effect to be given to the mandatory rules of the law of another country with which the situation has a close connection, does not have the force of law in the United Kingdom by virtue of section 2(2) of the Contracts (Applicable Law) Act 1990.


The issues of US law were treated as questions of fact. No expert evidence had been provided as to the meaning of the US statute, nor had permission been sought to do so. So efffectively they were never brought properly before the court.


The solicitor for the defendants (i.e. the band members and their service companies) had made a statement in his witness statement that:



"As a consequence of Section 203, a US Court would not allow a claim for damages for breach of a contractual agreement because the statutory termination right supersedes any contractual right. This applies whether that contract was governed under English or US law." 
The defendants argued that this was admissible evidence, and was unchallenged. Arnold J had little time for this argument. It was no more than a statement of case with which they could expect the other side to take issue at trial. It was a statement made by an English solicitor who, he noted, claimed no expertise in US law, with no basis given and no citation of any decided cases supporting the assertion, and nor did it address whether the position was the same in the period 1980-1983.

To the IPKat it appears that this failure to introduce evidence as to US law represented a major oversight by the defendants, or at least a very risky assumption that the point was self-evident. This Kat cannot tell whether the outcome would have changed if the judge had evidence that the position as stated by the solicitor was both correct as to the law now and at the relevant time, but the failure to adduce this evidence undermined the defendants' reliance on the US law point.


Nick Rhodes, commenting on the judgment, said "We are shocked that English contract law is being used to overturn artists’ rights in another territory. If left untested, this judgment sets a very bad precedent for all songwriters of our era and so we are deciding how properly to proceed."


The IPKat would like to see the case appealed, and would prefer to see artists free to exercise their statutory rights, but is less convinced that the decision sets a "very bad precedent". A future litigant who introduces strong expert evidence on the US law point would at the minimum ensure that the court would have to consider afresh the conflict of laws question.


Rhodes also commented that the band members signed the agreement as "unsuspecting teenagers ... when we knew no better". This bears out the "unequal relationship" rationale for section 203, and is another reason why it would be extremely interesting to see the US law point properly considered.


Arnold J's decision serves a salutory purpose, reminding anyone signing a publishing agreement that the court will interpret the agreement from the viewpoint of a reasonable person with the necessary background information, including some knowledge of copyright law. This makes obtaining good advice all the more critical when the bargaining position is unequal. 


Posted By David Brophy to The IPKat on 12/06/2016 

Monday, 5 December 2016

THE COPYKAT

This CopyKat from David Liao

Duran Duran lose copyright battle: Under US copyright law, songwriters have an inalienable right to call for a reversion of copyright after 35 years, a provision introduced to help address the imbalance of negotiating power artists tend to have early on in their careers. 1990’s group Duran Duran had sought to use this right to reclaim copyright in their first three albums, Duran Duran, Rio, and Seven and the Ragged Tiger, effectively terminating their agreement with publishers Gloucester Place Music (owned by Sony/ATV via their takeover of EMI Music Publishing). However in a High Court ruling last week, Mr Justice Arnold ruled “not without hesitation” that the contractual interpretation suggested by Gloucester Place was the correct one, and that the “parties' intention was that the 'entire copyrights' in the compositions should vest, and remain vested, in the claimant (Gloucester Place) for the 'full term' of the copyrights.” As such, Duran Duran would have to withdraw its application to have their copyright reverted. The effect of this is to allow English contract law to override statutory rights in another jurisdiction, and sets a troubling precedent for other UK songwriters as a test case.  We wait to hear whether the group will be granted leave appeal.

Symposium - ‘Harmonising European Intermediary Liability in Copyright’. The Institute for Information Law (IViR) of the University of Amsterdam is organising a one-day academic symposium on European intermediary liability on 14 January 2017: In view of the new EU copyright reform package, the symposium will examine the issues surrounding intermediary liability in copyright in Europe, including the extent of duties and remedies which are appropriate to impose on intermediaries and the conditions to govern these. Moving beyond the current safe harbour regime, it will explore avenues towards the adoption of a substantive European system. Spaces are limited and registration is required – see here for more details.

Jersey Boys: The creators of hit musical “Jersey Boys” have been held by a jury in Nevada to have infringed copyright in an unpublished book. The claimant (Donna Corbello) is the widow of Rex Woodward, who had co-written an autobiography with founding member of the Four Seasons Tommy DeVito (as previously covered here on the 1709 Blog). Despite Judge Robert Jones previously noting that historical works are entitled to lesser protection than works of fiction, which suggests only Woodward's expression of these facts or his “unique selection and arrangement” of otherwise unprotectable elements would attract copyright protection, there were eleven similarities identified between the manuscript and the musical. It was not indicated which specific parts of the autobiography were copied but these similarities include the dialogue surrounding songs, the characterisation of individuals, and the description of scenes. It was also decided that the copied material contributed 10% to the show’s success. Damages will be determined at a late trial and a spokesman for the show has told NBC 4 New York “Jersey Boys” plans to appeal this decision – stay tuned.

Getty Images: Getty Images has had a copyright case dismissed without prejudice. Previously covered here by the 1709 Blog, Getty had threatened photographer Carol Highsmith via License Compliance Services (LCS) for copyright licence infringement. Ironically the image in question was one of Highsmith’s own - she had donated it to the Library of Congress, and Getty and its affiliates were subsequently discovered to have made available more than 18,000 of her other photographs. Highsmith responded with a copyright claim of statutory damages of almost $500m. These claims were, however, recently dismissed in a New York District Court, along with other claims that Getty and LCS had charged licensing fees and collected settlements from purported infringers for images they had no right to represent.

Tuesday, 29 November 2016

Corporations Have No Moral Rights over Works in France, Even if They Commissioned It

The French Cour de cassation, France’s highest judiciary court, held on November 16 that a corporation cannot have moral rights over a work, even if it had commissioned the work or if the work was created by one of its employees.  

Article L. 111-1 of the French intellectual property Code (CPI) gives authors both patrimonial and moral rights. Moral rights, which are perpetual, inalienable and imprescriptible, are the right of respect for the author’s name and status, and the right of the respect of the integrity of the work.
In this case, an advertising agency, which rights now belongs to the Maetva corporation, had commissioned a corporation, G. studio, to take photographs of watches to illustrate a catalog published by the Pierre L. corporation, a watchmaker.
The Pierre L.corporation used these photographs a year later for a new advertising campaign, which was featured on bus stops, magazines and online. G. studio found this new use to be infringing, as it claimed that it had only sold the rights in the photographs for their use in the catalog. G. studio sued the Pierre L. corporation for copyright infringement and Pierre L. called Maetva into the proceedings.
As you can see, no physical person is part of the procedure, only corporations. The issue of which corporation owned the patrimonial rights of the photographs was debated in the lower courts, and the Court of appeals found that they belonged to G. studio, as did thus, necessarily, the moral rights
The Cour de cassation refused to rule on the issue of patrimonial rights, arguing that reviewing them would impinge on the exclusive rights of the lower courts to estimate the amount of prejudice. However, it ruled on the issue of moral rights ownership. For the Court, the author, if the author is a physical person, enjoys an inalienable right to respect for his name, his quality and his work. Therefore, even if the author created the work as part of an employment contract, “neither the existence of a contract of employment nor ownership of the material support of the work are likely to confer on the corporation employing the author the enjoyment of that right.” The Cour de cassation did not send the case back to the Court of appeals for remand, as there is no need to estimate the amount in damages for violation of the moral rights, as these rights simply do not belong to G. studio.
Corporations cannot own the moral rights of a work under French law, even if they commissioned it, even if the work was created by an employee, and even if they own the patrimonial rights. The moral rights to the photographs at stake belong to the physical person who took them: whoever she is, she was not a party to this lawsuit. For the sake of this discussion, let’s add that if is true that the photographs were used without mentioning her name, she would have the right to sue Pierre L. for failing to disclose her name, as this is a violation of her moral right to paternity of a work.
Even if the photographer had signed a contract transferring all her rights to the pictures, the contract could not have transferred her moral rights, even if the contract would have explicitly, but illegally, mentioned them as being ceded, because moral rights cannot be transferred under French law.
This case should serve as a warning for corporations acquiring the patrimonial rights of a work in a country which recognizes perpetual and inalienable moral tights, such as France, that the physical person who took the picture retains his moral rights forever. This is the case even if the law of the contract is the law of a country which does not recognize such rights, as in the U.S.; see for instance Paris Court of appeals, February 1, 1989, (D. 1990. 52).



Image is courtesy of Flickr user Flash Columbia  under a CC BY-NC 2.0 license.

Monday, 28 November 2016

Limiting the principle of exhaustion? CJEU prohibits the resale of back-up copies of computer programs

Roosa Tarkiainen
Last month the Court of Justice of the European Union (CJEU) issued its decision in Microsoft, a reference for a preliminary ruling from Latvia concerning the principle of digital exhaustion as applied to computer programmes. 

At the time of the decision, this blog did not comment on it. Thankfully, one of my talented students at the University of Southampton, Roosa Tarkiainen, has come to rescue.

Here's what Roosa writes:

“In its decision on 12 October 2016 the Court of Justice of the European Union (CJEU) held that the acquirer of a copy of a computer program accompanied by an unlimited user licence is not entitled to provide a back-up copy of that program to a new acquirer without the authorisation of the rightholder under Article 4(a) and (c), and Article 5(1) and (2) of Council Directive 91/250/EEC of 14 May 1991 on the legal protection of computer programs. 

This reference for a preliminary ruling from the Criminal Law Division of the Riga Regional Court concerned the interpretation of Article 4(2), and Article 5(1) and (2) of Directive 2009/24 (‘the Software Directive’). Article 10 of the Software Directive repealed the earlier Directive 91/250/EEC of May 1991 on the legal protection of computer programs. The dispute in the main proceedings concerns offences allegedly committed between 28 December 2001 and 22 December 2004. As the Software Directive entered into force five years after the latest date of the offences, the Court in its ruling considered the equivalent provisions of Directive 91/250/EEC instead. 

Background

This reference arose in the context of a dispute between two Latvian nationals, Mr Ranks and Mr Vasiļevičs (‘the defendants’), and Microsoft. The defendants were charged with having sold thousands of copies of various copyright-protected computer software and programs published by Microsoft between 2001 and 2004. The copies had been allegedly bought by the defendants from individuals as used copies, then incorporated into a material medium other than the original material medium, and finally sold through online marketplace www.eBay.com.

The defendants were charged for the unlawful sale, as part of a criminal organisation, of objects protected by copyright. They were found guilty at first instance of all relevant offences under Latvian criminal law and ordered to pay partial compensation.

All parties to the proceedings appealed to the Criminal Law Division of the Riga Regional Court, which set aside the first instance judgment on finding the defendants guilty of the unlawful sale of objects protected by copyright.

The decision was appealed to the Supreme Court which set aside the judgment of the preceding court and referred the case back to that court for re-examination. In the course of the re-examination, the defendants asked the Riga Regional Court to refer questions to the CJEU on the interpretation of Article 4(2), and Article 5(1) and (2) of the Software Directive in the context of the unlawful sale of objects protected by copyright.

The Riga Regional Court asked whether under Articles 5(1) and 4(2) an individual can rely upon the exhaustion of the right to distribute a copy of the program where he has acquired that program with a used licence on a non-original risk where the original disk is damaged and the first purchaser no longer uses it. If the answer to the first question is in the affirmative, then whether that individual has, in reliance of the exhaustion of the distribution right, the right to resell that computer program on a non-original disk to a third person under Article 4(2) and 5(2). 

AG Saugmandsgaard Øe
What the court said

Following the Opinion of Advocate General Saugmandsgaard Øe, the Court began by confirming that the dispute is covered by Directive 91/250 and not by Directive 2009/24. Article 4(c) of Directive 2009/24 contains the rule of exhaustion of the distribution right which provides that the resale of a copy of a program by an initial acquirer on a material medium, accompanied by an unlimited licence for the use of that program, cannot be opposed by the holder of the copyright who sold it in the European Union.

The Court upheld the rule under Article 4(c) following UsedSoft, but quickly dismissed Microsoft’s submission, referred to as the “strict” approach by the Advocate General Saugmandsgaard Øe, ie that the provision applies only to the original material. This is because the rule of exhaustion of distribution concerns the program itself, and makes no distinction between tangible and intangible forms of the copy.

The Court then reasserted the right of reproduction contained in Article 4(a) of the directive, confirming that a lawful acquirer may resell a copy of a computer program provided that it does not adversely affect the reproduction right in the underlying work. This means that the resale has to be authorised by the holder of the copyright, or fall under the exceptions in Articles 5 and 6 of the directive. Under what the Advocate General categorised as the “liberal” approach, the defendants submitted that the rule of exhaustion allows the resale of a copy of a computer program on a non-original material medium if the original medium has been damaged. This is given that that the conditions in UsedSoft, namely that there is an unlimited licence for the use of that program and any other copies are made unusable at the time of resale, are satisfied.

The Court confirmed that in that case, the making of a copy of a computer program on a non-original medium would fall under the exceptions in Articles 5(1) and (2) and would therefore be authorised. Of these exceptions, Article 5(1) provides that a rightholder’s authorisation is not required where any reproduction of the program is necessary for its use, and article 5(2) allows for the making of back-up copies provided that the copy is made by a person that has a right to use that program, and provided that the back-up copy is necessary for that use.

With regard to Article 5(1), the Court distinguished UsedSoft from the present case on factual grounds in that there is nothing to suggest that the defendants initially purchased and downloaded copies of the programs from the rightholder’s website which would have satisfied a reproduction necessary for the use of the program. Nonetheless, the Court went on the affirm that the initial acquirer of a copy of a computer program – where the copyright holder’s distribution right is exhausted under Article 4(c) – is authorised to resell a copy but must make any copy in his possession unusable at the time of its resale. 

More importantly, however, the Court, referring (without much further elaboration) to Painer that Article 5(2) on the other hand must be given a strict interpretation. Having said that, it confirmed that the back-up copy can be only used to meet the sole needs of the person with the right to use that program. This meant that a back-up copy of the program cannot be resold to a third party even if the original one is lost or damaged.  

Following from the above analysis, the Court finally concluded that, under Articles 4(a) and (c), and 5(1) and (2) of Directive 91/250, an initial acquirer is permitted to resell a copy of a computer program because of the principle of exhaustion of the exclusive distribution right of the rightholder. However, that initial acquirer is not permitted to make a back-up copy and sell that back-up copy, even if the original copy initially delivered to him has been lost or destroyed. 

Non-digital exhaustion
Implications of the decision

The decision in the present case raises the question as to whether allowing the resale of the original copy and prohibiting the sale of a back-up copy undermines the principle of exhaustion in relation to computer programs and software. In theory, the substance of a back-up copy is identical to that of the original. 

Therefore by selling a back-up copy, the acquirer is in essence selling the exact same product as he would be if he was selling the original. By creating the barrier to the secondary market for back-ups, it could be thus argued that the exhaustion of the right of distribution becomes redundant. 

However the decision of the Court is justified exactly because of this indistinguishable nature of the back-up programs. Following the Advocate General’s view, the inability to distinguish different types of copies makes it more difficult to combat counterfeits on secondary markets. Prohibiting the sale of back-up copies could thus limit the quantity of unlawful substance on the market, although it may not have been the most technologically efficient method of doing so. Furthermore, the Court was not in the position to depart from the requirement of strict interpretation of the exception in Article 5(2). 

Nonetheless, the decision is significant in that it confirmed the rule in UsedSoft that distribution rights in computer programs are extinguished upon sale, allowing for the creation of a secondary market for these programs under Article 4(c) of the Software Directive. Although questionable on technical grounds, the Court was ultimately carrying out the difficult balancing act between giving effect to free movement in the internal market through the principle of exhaustion, and protecting the rightholder – in this case from being undercut by criminal activities.” 

Thanks so much Roosa!