HOT NEWS: Amsterdam Court of Appeal gives Tom Kabinet three days to shut down

Here's some fresh news from Míchel Olmedo Cuevas, who has been following this development closely:

Earlier today, the Amsterdam Court of Appeal  delivered a ruling stating that, as Tom Kabinet provided a platform where both,legal and illegal used e-books could be resold, the website has to close within the next three days or face a fine of €1,000 a day, up to a maximum of €300,000. 

This decision follows the appeal presented by Nederlands Uitgeversverbond (NUV) and Groep Algemene Uitgevers (GAU), two Dutch collective management societies representing the interests of the literary industry, in which they asked for an immediate closure of the site. At first instance, Judge Pompe decided that the activity carried out by Tom Kabinet was lawful and should be allowed to continue. An analysis on the case by this author can be found here. 

At this stage the closure order can still be lifted if Tom Kabinet finds a way to ensure that their selling systems excludes illegally downloaded files. This should prove to be difficult, given that there are legitimate suppliers that do not provide their e-books with DRM (Digital Rights Management), making them very difficult to track. The current Tom Kabinet system provides the sold files with a watermark, so they cannot be sold more than once at a time and only by the last buyer, a system that Judge Pompe considered to be compliant with the current legal framework. 

Significantly, the court avoided deciding whether exhaustion doctrine should be finally applied to e-books, and left the question for future proceedings, where the competent court could refer questions to the CJEU, and ask the highest instance if exhaustion doctrine should apply to e-books. 

At this instance, the only goal for NUV and GAU was to obtain an injunctive relief while they wait for the final ruling, so there is still a chance for Tom Kabinet to resume their activities after the final ruling is delivered. 

The complete ruling can be read here (in Dutch). Tom Kabinet's website is here.

Intangibles and exhaustion: ReDigi and UsedSoft revisited

Last November, New Zealand intellectual property enthusiast and legal consultant Ken Moon (AJ Park Law) wrote a controversial little piece which this blog hosted on Case 128/11 Oracle v UsedSoft.  Today the 1709 Blog is pleased to welcome him back. The following piece, which is well described by its title, contrasts critically the legal substance and practical consequences of the rulings in ReDigi in the United States and UsedSoft in Europe. Writes Ken:

Excepting Intangibles from Exhaustion of Distribution Right on First Sale: ReDigi versus UsedSoft

As noted by Ben Challis in the 1709 Blog and by Eleonora Rosati on the IPKat, many commentators believe it wrong that a court could decide that first sale exhaustion of the distribution right only applies to copyright works embodied in physical media.  Thus they disagree with the March decision of the US District Court in Capitol Records v ReDigi where online sales of iTunes files were found not to trigger the first sale doctrine and that subsequent resales were infringements of Capitol’s copyright.  They unfavourably contrast that outcome with that in Kirtsaeng v John Wiley & Sons where the Supreme Court held the first sale doctrine did apply to copies of textbooks (paper) even when they had been made (lawfully) abroad and suggest this is evidence of copyright law not keeping up with technology.  In addition, at least from some European commentators holding this view, there is support for the decision of the CJEU in UsedSoft v Oracle which held that multi-seat enterprise software acquired under licence and delivered by download constituted a sale and fell within the scope of the provision for exhaustion of the distribution right in the EU Software Directive 2009. 

In contrast, the present commentator says the analysis of the facts and law by Judge Sullivan in ReDigi was perfectly correct and that the analysis of the facts and law by the CJEU in UsedSoft was totally wrong.  In ReDigi the judge was doing what courts should do and that is apply the law as drafted, which he held to be unambiguous.  If people consider the result to be wrong on policy or any other grounds then the answer is to persuade the lawmakers to change the law. 

On the other hand the CJEU was doing what courts should not do – rewriting the law to align it with what they believed to be EU policy.  They did so even in the face of contrary submissions made by the European Commission, the body responsible for drafting the Directives which were considered by the Court.  Again, if the result that would have been produced on a more literal interpretation of the law was considered contrary to policy then it is for the lawmakers to change the law, not the Court.  Of course, Jeremy has already commented on the IPKat, in his Sandie Shaw post, on the “apparently irreversible shift of legislative power away from the European Council, Commission and Parliament and towards the Court of justice of the European Union”. 

The question nobody seems to be asking is whether it is indisputably correct to assert that exhaustion of the distribution right should apply irrespective of whether works are delivered online or on physical media?  The CJEU took this as a given and did not cite economic analyses, but as mentioned obiter by Judge Sullivan in ReDigi it may not be so clear cut and there are policy arguments that may justify a distinction between tangible and intangible distribution.  He referred to the US Copyright Office’s 2001 report on the Digital Millennium Copyright Act, which said the impact of the first sale doctrine to copyright owners distributing works in physical form was limited, but applying the doctrine to online distribution would have a bigger and unequal impact.  It was noted that physical copies degrade and are less desirable than new ones, unlike “used” copies of digital works which suffer no degradation.  The need to transport physical copies acted as a natural brake which did not exist in the online world where geography was irrelevant.     

Whatever the outcome of such policy arguments may in due course be, legal issues remain to be considered which go to the core of doctrines of exhaustion by first sale. 

The first is the nature of the contract between the copyright owner and the first user of a copy of the copyright work in digital form.  Is it in fact a sale?  In UsedSoft the Oracle contract was drafted as a licence and for the CJEU to find it to be a sale by considering only one term of the contract – the licence was for an unlimited period – is rather unimpressive legal logic, especially as the software was not mass produced for consumer use.  In the well-known 2010 US case Vernor v Autodesk, which involved computer software, the Court of Appeals for the 9^th Circuit applied a three limb test to find a licence was not a sale.  The reasoning was that the contract (i) expressly granted the user a licence, (ii) it restricted the user’s right to transfer the software and (iii) imposed notable use restrictions .  Back in Europe the High Court for England and Wales in London Borough of Southwark v IBM UK Ltd (2011), only one year before UsedSoft, arguably went further than Vernor and quite logically took into account all relevant provisions in the licence before deciding there was no sale.  

Surprisingly this licence-versus-sale issue was not considered in ReDigi, where the case was run on the basis that the iTunes transaction between Apple and the downloader was a sale even though Apple’s agreement doesn’t read like a normal sale contract and that Capitol’s own agreement with Apple was a licence. 

Whatever the legal situation may be for “content” (such as eBooks, sound recordings and films) why should computer software be treated in the same way?  On 2 May the IPKat reported the German Regional Court in Berlin had held that UsedSoft reasoning does not apply to content such as eBooks and audiobooks because the CJEU had anchored their decision on the Software Directive 2009 invoking lex specialis to ignore the InfoSoc Directive 2001 (and the WCT 1996) which clearly was the applicable law for copyright content and does not allow the resale of intangibles . 

But there is more to this issue than the CJEU being hoisted by its own petard.  It has long ago been argued that software is different from literary, artistic and musical works.  It is not for the entertainment or education of humans.  It has a silicon readership rather than a human one.  Software is not just information, not just functional instructions, but instructions for machines and not humans. 

Computer software, unlike content, is digital from creation and is not something analogue in nature which might subsequently be digitised for transport.  Further, it is “read” (by computer hardware) in the same digital form without the need for conversion from digital to analogue format for watching, listening or viewing (by humans).  The software itself is just as intangible when delivered on a physical medium.  The media is not the message.  Further, software has always been distributed under a licence contract, unlike content, which always involved a sale until modes of digital distribution were evolved. 

Should computer software therefore, whether distributed online or on physical media (it always has digital format), ever be subject to first sale exhaustion doctrines?  There seems to be more logic in removing exhaustion of the distribution right for software while retaining it for content than the somewhat bizarre reverse of this which now exists in Germany as a combined result of the CJEU’s decision and the Regional Court’s decision – exhaustion for licence of software; no exhaustion for licence of content.   

Maybe those people who in the 1970s opposed copyright protection for software and favoured sui generis protection such as that proposed in the 1978 WIPO model law (and more recently the 1709 Blog: see Iona Harding's post of 18 March) had a valid point after all.

Supreme Court says copyright law does not protect publishers in discount re-sales

The Supreme Court has ruled that textbooks and other goods made and sold abroad can be re-sold online and in discount stores without violating U.S. copyright law. In a 6-3 opinion, the court overturned a copyright infringement award to publisher John Wiley & Sons against Thai graduate student Supap Kirtsaeng, who used eBay to resell copies of the publisher’s copyrighted books that his relatives first bought in Asia at cut-price rates.  

Kirtsaeng sold $900,000 worth of books published abroad by Wiley and others, and made about $100,000 in profit. The international editions of the textbooks were essentially the same as the more costly American editions. A jury in New York awarded Wiley $600,000 after deciding Kirtsaeng sold copies of eight Wiley textbooks without permission.

The District Court had held that Kirtsaeng could not assert the “first sale” defence because that doctrine does not apply to “foreign-manufactured goods” (even if made abroad with the copyright owner’s permission) and on appeal, a split panel of the Second Circuit agreed with the District Court. The Supreme Court has now said that the "first sale doctrine" applies to copies of a copyrighted work lawfully made abroad.

Enough from me - there are two excellent blogs on the IPKat giving more detail on the judgment and comment - the first by Eleonora Rosati here http://ipkitten.blogspot.co.uk/2013/03/breaking-news-us-supreme-court-decides.html and a guest blog by Miri Frankel here http://ipkitten.blogspot.co.uk/2013/03/licensing-of-digital-copy-does-first.html

Comment from the Washington Post here

And there is now an update by Eleonora Rosati on the IPKat at   http://ipkitten.blogspot.co.uk/2013/03/a-kats-perspective-on-kirtsaeng-why-is.html

And its worth comparing this decision with 2010 case of Costco Wholesale Corp v Omega SA where the Ninth Circuit held that the first sale rule in the US copyright statute did not apply to foreign sales as a matter of law, since that statute lacked extraterritorial application. The Supreme court split 4-4 on appeal - perhaps showing just how difficult this whole area is. 

http://www.supremecourt.gov/opinions/12pdf/11-697_d1o2.pdf

Kirtsaeng v.  John Wiley & Sons   No 11-697 (Decided March 19, 2013)

Does Oracle ruling breach WIPO Copyright Treaty?

Case C-128/11 Oracle v UsedSoft has attracted a good deal of attention and analysis from within Europe, much of it sharply critical -- but it has also been noted by both academics and practitioners from further afield. One such distant source is a respected and seasoned New Zealand lawyer, Ken Moon (AJ Park Law), who has expressed himself as being troubled by it.  His perspective on the case is reproduced here:

"Europe in breach of international copyright treaty 

A recent decision of the European Court of Justice (CJEU) on the licensing model for software transactions, has inadvertently breached the WIPO Copyright Treaty of 1996. There are numerous international treaties governing copyright law, but the treaty which brought copyright law up to date with the internet was the 1996 World Intellectual Property Organisation (WIPO) Copyright Treaty (WCT).

It now appears that a decision from the European Union's highest court, the CJEU, means that the countries of Europe, despite ratifying the WCT in 2001, are now breaching it, although the court itself seems not have realised this.

The Oracle v UsedSoft decision

In July, the CJEU in the case Oracle v UsedSoft decided two things. First, that a software licence was actually a sale and second, that the downloading of the Oracle software over the internet to the licensee "exhausted" a component of Oracle's copyright in the software, namely its exclusive "right to communicate" that copy of the software. This article focuses on the second issue.

UsedSoft GmbH was a German company which marketed "used" software licences and for this purpose purchased licences from Oracle's licensees (including Oracle client-server databank licences) for the purposes of resale on the second hand market.

The CJEU was referred this case by Germany's Federal Supreme Court (BGH) after two prior appeals by UsedSoft, and the CJEU's decision is final and non-appealable.

Finding that a licence is a sale is in conflict with US and Commonwealth decisions, and is controversial in itself, but it is the decision on the exhaustion of copyright issue which offends the WIPO Copyright Treaty.

WIPO Copyright Treaty 1996

Among other things the WCT required member states to incorporate in their copyright law a more comprehensive "right of communication" for copyright owners than had been required previously under the Berne Copyright Convention. This right, contained in Article 8 of WCT, is the "right of communication to the public" and it gives copyright owners the exclusive right to communicate their copyright works to the public. "Communicate" here means communication "by wire or wireless means". It covers "transmission" and, as it was intended to do, covers transmissions of digital and digitised works over the internet. Under Article 22 of WCT no member state could implement Article 8 (or any other Articles) in a manner which amounted to a variation of the Treaty text. The online aspect of this communication right was said to be one of the greatest achievements of the WCT.

In case there was any doubt as to the copyright status of a computer program, Article 4, in line with what was then the law of most countries, expressly confirmed that "computer programs are protected as literary works", "whatever may be the mode or their form of expression" and the right to transfer computer programs was made exclusive to their copyright owner. The Treaty also confirmed in Article 6 an exclusive "right of distribution" which relates to "copies that can be put into circulation as tangible objects". A number of countries had long had a principle of "exhaustion" of the right to distribute copies after their first sale (first sale doctrine). For example, the purchaser of a book would be free to resell the book without breaching the copyright owner's distribution right. The WCT expressly allowed exhaustion of right of distribution (of tangible physical copies) in Article 6(2), but not for the Article 8 right of communication of intangible digital files.

The European Union was one of the sponsors of the right to communicate in the WCT negotiations and ratified the WCT in 2001 by way of the Information Society Directive 2001/29/EC. This obligated the members of the EU to ensure their national copyright law implemented the provisions of the WCT.

Confusing the right to communicate with the right to distribute

The CJEU in the Oracle case, despite the fact that the Oracle software was only transferred to licensees in digital form over the internet, decided that this amounted to distribution and that being the case that the copyright owner's distribution right in each downloaded copy was exhausted. This meant that those copies could be freely "sold" on despite the Oracle licence agreement saying that they could not.

Oracle, the European Commission itself and some EU governments, unsuccessfully argued that the appropriate right that should be considered by the court was the WCT Article 8 communication right and not the Article 6 distribution right which should only apply to physical things. The CJEU relied on the later EU Software Directive 2009/24/EC, which in Article 4(2) confirmed first sale of software exhausted the distribution right and which whether deliberately or by oversight made no reference to the status of the right to communicate after first sale. The ECJ said this software specific law overrode the 2001 general copyright law.

But it is stretching legal logic somewhat to say that because the Software Directive does not refer to the right to communicate then this right is somehow subsumed within the right to distribute to thereby allow the first sale doctrine to apply.

Breach of the WIPO Copyright Treaty

Even if the CJEU reasoning is correct for current EU law, its decision in the Oracle case means that European copyright law does not comply with the WCT Article 8 which does not authorise any exhaustion of the copyright owner's right of communication on first sale, let alone what in reality was a licence and not a sale.

Article 8 of WCT requires that member states of WCT must give to copyright owners the exclusive right to communicate their works to the public by wire or wireless means. Article 4 WCT confirms a computer program is a copyright work. Oracle communicated its software to its licensees. Under the WCT, licensees do not acquire any right to "re-communicate" their Oracle software to third parties. The WCT Article 8 does not allow any member state to make laws which exhaust Oracle's exclusive right to communicate its software. The CJEU has interpreted European Union law to do just that. Such an interpretation means European law is in breach of the WIPO Copyright Treaty.

Impact of the CJEU decision on software licensing

The Oracle decision will severely impact software developers who trade in Europe, especially as all existing licences in Europe will be now classed as sales. For the future the traditional software licensing model will have to be modified (annual royalty fees perhaps?) or replaced with a software as a service model (SAS) with the software resident in the cloud and not with the end user. However while this may mean Europe's breach of the WCT becomes less exposed it cannot cure it. A cure will have to come through a new EU Directive amending the 2009 Software Directive to expressly recite the WCT right to communicate and the denial of any exhaustion of this right by first "sale".

Fortunately, because the CJEU relied on an interpretation of the Software Directive 2009 to override EU copyright law it is hard to see how the Oracle decision could be interpreted to extend to other licensed digital products communicated online such as films and sound recordings. The licensing model for online dissemination of these products should remain viable".

Is Ken right? And has he overstated the significance of this case, or understated it? Do let us --and him -- know what you think.

EMI v ReDigi: US digital music resale hearing begins

On Friday the district court in Manhattan, New York, heard opening arguments by EMI that ReDigi's resale of second-hand MP3s infringes copyright.

Readers may remember that back in October 2011, US company ReDigi was launched. ReDigi's business model is based on the resale of digital content, and it bills itself as being the first legal online marketplace for second-hand digital material. At the time Ben commented on the legal issues that arise from the concept in the US, and sure enough the music industry decided to question those issues in court: in January of this year Capitol Records (a subset of EMI) sued ReDigi for copyright infringement.

In February EMI failed to get summary judgment, meaning that the case has proceeded to a full court hearing, which began on Friday. ReDigi is relying on the "first sale doctrine" (which is similar to the principle of exhaustion in Europe) which it argues applies to digital files in the same way that it applies to CDs and cassettes.

EMI claims that the first sale doctrine does not apply to digital files as the only way to move those files is to make duplicates, and there is no guarantee that the original file has been deleted on resale. EMI says that it owns the "exclusive rights" to manufacture, reproduce, distribute and sell digital versions of the copyright protected works of its artists, and refers to agreements signed with authorised services such as Apple's iTunes and Amazon's MP3 in support of its argument.

ReDigi says that EMI's distribution rights are limited to material objects, and if digital files are judged to be material objects it can invoke the first sale doctrine which permits resales.

A secondary claim by EMI is that 30 second clips of songs offered by ReDigi and stored on users' hard drives constitute another act of unauthorised copying. It will be interesting to see what (if any) impact the Supreme Court of Canada's ruling in SOCAN v Bell will have. In that case the Canadian Supreme Court held that 30 to 90 second music clips offered by online music stores such as Apple constituted fair dealing, which is a more narrow exception than fair use in the US.

ReDigi also argues that the songs are only loaded into a computer's RAM memory so that they "disappear" after the track has stopped playing. That sounds to this blogger like an argument that the copies are temporary; an argument which would not succeed in the UK following the Court of Appeal's judgment in NLA v Meltwater (although the Supreme Court may yet find otherwise).

EMI says that given the widespread piracy of sound recordings it is questionable whether ReDigi can effectively determine that digital files have been legally obtained in the first place. To this ReDigi responds that the only files eligible for resale are those originally downloaded from iTunes and that it excludes from its service tracks which have been ripped from CDs or taken from other stores. This method, it says, allows it to use software to validate ownership.

Finally EMI notes that ReDigi has acknowledged that there is no way to ensure that users do not retain copies of the files they upload. Even though ReDigi's software is designed to run "continuously" in the background to detect songs on any device attached to the user's computers at a later date, users could presumably back content up on an external hard drive or other device.

It is not clear what the outcome of the case would be in Europe. The CJEU's recently held, in UsedSoft, that an author of software cannot oppose the resale of his "used" licences allowing the use of his programs downloaded from the internet. The exclusive right of distribution of a copy of a computer program covered by such a licence is exhausted on its first sale.

Indeed, one 1709 blog reader commented at the time: "Very interesting, I expect software companies will respond by simply moving some of the functionality server-side, but it does hold out the intriguing possibility of re-selling used MP3 files in the EU."

Prior to the CJEU's ruling in UsedSoft, downloading digital content was seen as a service and therefore the principle of exhaustion did not apply. Whether UsedSoft changes that analysis, given that MP3 files are not the same as computer programs, remains to be seen.

Google has written a letter to the New York judge making public its "specific and vital interest" in the outcome of the EMI v ReDigi case, which will set an important precedent in the music industry.

UsedSoft ruling: exhaustion rules okay

The judgment of the Court of Justice of the European Union in Case C-128/11 UsedSoft GmbH v Oracle International Corp was given on Tuesday, while this blogger was offline.  Eleonora Rosati very quickly posted a full and helpful comment on the IPKat, where she is guesting for the next six months, so the following -- based on the Curia media release -- is more or less for the record. According to the media release:

"An author of software cannot oppose the resale of his ‘used’ licences allowing the use of his programs downloaded from the internet

The exclusive right of distribution of a copy of a computer program covered by such a licence is exhausted on its first sale

Oracle develops and distributes, in particular by downloading from the internet, computer programs functioning as ‘client-server software’. The customer downloads a copy of the program directly onto his computer from Oracle’s website. The user right for such a program, which is granted by a licence agreement, includes the right to store a copy of the program permanently on a server and to allow up to 25 users to access it by downloading it to the main memory of their work-station computers. The licence agreement gives the customer a non-transferable user right for an unlimited period, exclusively for his internal business purposes. On the basis of a maintenance agreement, updated versions of the software (updates) and programs for correcting faults (patches) can also be downloaded from Oracle’s website.

UsedSoft is a German undertaking which markets licences acquired from customers of Oracle. Customers of UsedSoft who are not yet in possession of the software download it directly from Oracle’s website after acquiring a ‘used’ licence. Customers who already have that software can purchase a further licence or part of a licence for additional users. In that case they download the software to the main memory of the work stations of those other users.

Oracle brought proceedings against UsedSoft in the German courts, seeking an order for it to cease those practices. The Bundesgerichtshof (Federal Court of Justice, Germany), which has to rule on the dispute as court of final instance, made a reference to the Court of Justice for it to interpret, in this context, the directive on the legal protection of computer programs.

Under that directive, the first sale in the EU of a copy of a computer program by the copyright holder or with his consent exhausts the right of distribution of that copy in the EU. A rightholder who has marketed a copy in the territory of a Member State of the EU thus loses the right to rely on his monopoly of exploitation in order to oppose the resale of that copy. In the present case, Oracle claims that the principle of exhaustion laid down by the directive does not apply to user licences for computer programs downloaded from the internet.

By its judgment delivered today, the Court explains that the principle of exhaustion of the distribution right applies not only where the copyright holder markets copies of his software on a material medium (CD-ROM or DVD) but also where he distributes them by means of downloads from his website.

Where the copyright holder makes available to his customer a copy – tangible or intangible – and at the same time concludes, in return form payment of a fee, a licence agreement granting the customer the right to use that copy for an unlimited period, that rightholder sells the copy to the customer and thus exhausts his exclusive distribution right. Such a transaction involves a transfer of the right of ownership of the copy. Therefore, even if the licence agreement prohibits a further transfer, the rightholder can no longer oppose the resale of that copy.

The Court observes in particular that limiting the application of the principle of the exhaustion of the distribution right solely to copies of computer programs that are sold on a material medium would allow the copyright holder to control the resale of copies downloaded from the internet and to demand further remuneration on the occasion of each new sale, even though the first sale of the copy had already enabled the rightholder to obtain appropriate remuneration. Such a restriction of the resale of copies of computer programs downloaded from the internet would go beyond what is necessary to safeguard the specific subject-matter of the intellectual property concerned.

Moreover, the exhaustion of the distribution right extends to the copy of the computer program sold as corrected and updated by the copyright holder. Even if the maintenance agreement is for a limited period, the functionalities corrected, altered or added on the basis of such an agreement form an integral part of the copy originally downloaded and can be used by the customer for an unlimited period.

The Court points out, however, that if the licence acquired by the first acquirer relates to a greater number of users than he needs, that acquirer is not authorised by the effect of the exhaustion of the distribution right to divide the licence and resell only part of it. 

Furthermore, the Court states that an original acquirer of a tangible or intangible copy of a computer program for which the copyright holder’s right of distribution is exhausted must make the copy downloaded onto his own computer unusable at the time of resale. If he continued to use it, he would infringe the copyright holder’s exclusive right of reproduction of his computer program. In contrast to the exclusive right of distribution, the exclusive right of reproduction is not exhausted by the first sale. However, the directive authorises any reproduction that is necessary for the use of the computer program by the lawful acquirer in accordance with its intended purpose. Such reproduction may not be prohibited by contract.

In this context, the Court’s answer is that any subsequent acquirer of a copy for which the copyright holder’s distribution right is exhausted constitutes such a lawful acquirer. He can therefore download onto his computer the copy sold to him by the first acquirer. Such a download must be regarded as a reproduction of a computer program that is necessary to enable the new acquirer to use the program in accordance with its intended purpose.

Therefore the new acquirer of the user licence, such as a customer of UsedSoft, may, as a lawful acquirer of the corrected and updated copy of the computer program concerned, download that copy from the copyright holder’s website".

If you wondered whatever happened to the well-known proposition that exhaustion only applied to goods and not to intangibles, the Court dealt with it like this:

"62 As to the Commission’s argument that European Union law does not provide for the exhaustion of the distribution right in the case of services, it must be recalled that the objective of the principle of the exhaustion of the right of distribution of works protected by copyright is, in order to avoid partitioning of markets, to limit restrictions of the distribution of those works to what is necessary to safeguard the specific subject-matter of the intellectual property concerned (see, to that effect, Case C‑200/96 Metronome Musik [1998] ECR I‑1953, paragraph 14; Case C‑61/97 FDV [1998] ECR I‑5171, paragraph 13; and Football Association Premier League and Others, paragraph 106).

63 To limit the application, in circumstances such as those at issue in the main proceedings, of the principle of the exhaustion of the distribution right under Article 4(2) of Directive 2009/24 solely to copies of computer programs that are sold on a material medium would allow the copyright holder to control the resale of copies downloaded from the internet and to demand further remuneration on the occasion of each new sale, even though the first sale of the copy had already enabled the rightholder to obtain an appropriate remuneration. Such a restriction of the resale of copies of computer programs downloaded from the internet would go beyond what is necessary to safeguard the specific subject-matter of the intellectual property concerned (see, to that effect, Football Association Premier League and Others, paragraphs 105 and 106)".

For the Advocate General's Opinion click here.

Better late than never: UsedSoft gets the Curia treatment

Yesterday morning, when news broke of Advocate General Bot’s Opinion in Case C-128/11 Axel W. Bierbach (liquidator of UsedSoft GmbH) v Oracle International Corp, many of us were rushing to Google Translate in order to fill in those gaps in our knowledge which resulted from the initial absence on the Court of Justice's Curia website of an English-language text.  This deficiency has since been made doubly good. Not only is the English version now available but, for those who can't be bothered to read it, Curia has kindly provided the press release which appears below:

According to Advocate General Bot, creators of computer programs may oppose the resale of 'used' licences which allow their programs to be downloaded from the internet again

However, he suggests that they may not oppose the resale of 'used' copies, downloaded by their own customers from the internet, given that their exclusive right of distribution relating to those copies is 'exhausted' 

Oracle develops and markets computer software, in particular, by download from the internet, by concluding "licence" agreements with its customers, which provide that the customer receives a non-transferable user right, for internal business purposes and for an unlimited period. UsedSoft is a German company which sells licences bought from Oracle customers. UsedSoft's customers, who are not yet in possession of the Oracle software concerned, download the software directly from Oracle’s website after acquiring the ‘used’ licences. Customers who already have the software and who purchase licences for additional users download the software to the main memory of the workstations of those additional users.

Oracle having brought proceedings against UsedSoft before the German courts to prevent the continuation of these practices, the Bundesgerichtshof (Federal Supreme Court, Germany), which has final jurisdiction over this dispute, referred a question to the Court of Justice in order for it to interpret, in this context, the Directive on the legal protection of computer programs. That directive, which ensures the protection of computer programs by copyright as literary works, provides that the first sale in the EU of a copy of a program by the right holder or with his consent shall "exhaust" the right of distribution within the EU of that copy, with the exception of the right to control further rental of the program. Under this principle, the intellectual property right holder who has marketed a copy in the territory of a Member State loses the right to rely on his monopoly on exploitation in order to oppose the resale of that copy. Whereas UsedSoft claimed that the principle of exhaustion validated the practice of reselling used computer software, Oracle contended, to the contrary, that the principle was not applicable in the event of the downloading of a computer program from the internet, in the absence of a sale of a tangible object.

According to the Advocate General, the principle of exhaustion applies where the right holder, who allowed that copy to  be downloaded from the internet to a data carrier, also granted, for consideration, a right to use that copy for an unlimited period of time. Noting that the marketing of computer software most commonly takes the form of user licences, he considers that an excessively restrictive interpretation of the term "sale", within the meaning of the aforementioned directive, would divest the exhaustion principle of all scope and undermine its effectiveness. He also proposes to define the term "sale" as any act by which a copy of a computer program is made available in the EU, in any form and by any means, for the purposes of being used for an unlimited period and in return for a lump-sum payment. He is therefore of the opinion that a "licence" for the use of software should be considered as a sale where the customer thereby permanently secures the right to use the copy of the computer program in return for a lump sum payment.

He considers, for the same reasons, that a distinction  should not be made between computer programs sold on a CD-ROM or any other tangible article and those sold by download from the internet. In his view, allowing the supplier to control the resale of a copy and demand, in that event, further remuneration, on the sole pretext that  the copy had been downloaded from the internet, would have the effect of extending the right holder's monopoly on the exploitation of that right.

Nevertheless, the Advocate General does not conclude from this that the resale of user licences should be held to be valid. He submits that such resale is precluded since the principle of exhaustion relates to the right of distribution and not the right of reproduction, and the assignment of Oracle's user licences allows UsedSoft's customers to  reproduce the computer program by creating new copies, in particular, by connecting to Oracle's website.

Hence, whereas the resale of a downloaded copy by the first acquirer falls within the ambit of the right of distribution and may be carried out without the consent of the supplier under the principle of exhaustion, the assignment of a user licence, independently of the downloaded copy, allowing the program to be reproduced by creating a new copy by download from the internet, does not fall within the scope of the exhaustion principle.

According to the Advocate General, that practice, which is liable to alter the very substance of copyright, cannot find a basis in the Directive, which only permits the reproduction of the computer program without the consent of the right holder in order to allow a person who already possesses a copy to use the computer program for its intended purposes.

The Advocate General thus concludes that in the event of resale of a licence, the second acquirer cannot rely on exhaustion of the  right to distribute the copy initially downloaded in order to reproduce the computer program by creating a new copy, even if the first acquirer has erased his copy or no longer uses it.

This blogger would expect the Court to take much the same line.

Photo-shoots and inclusion of copyright-protected works: a reader asks

A good example: the Gigi album cover on the
album cover of Pink Floyd's Ummagumma

A reader writes with the following question:

"Does the principle of exhaustion of rights enable someone to prevent a copyright owner from asserting his rights in props which are being for a photo-shoot -- for example where a painting, a sculpture or a book appears in the background on a table in an advertisement? Would there be any kind of defence to a copyright infringement claim?  I mention the exhaustion of rights principle -- but I know that not all rights of a copyright owner are exhausted just because the distribution right may have been exhausted!".

I offered my own answer, and was told that the reader has received advice both that the exhaustion doctrine applies and that it doesn't. On the facts as spelled out here, what do readers think? (Readers from outside the European Union: do please state your jurisdiction).