Exhaustion of copyright and sale of altered products: CJEU rules in Allposters

The Court of Justice of the European Union ruled yesterday that the consent of a copyright holder does not cover the distribution of an object incorporating his work where that object has been altered after its initial marketing to such an extent that it constitutes a new reproduction of that work. The ruling is in Case C‑419/13, Art & Allposters International BV v Stichting Pictoright, a request for a preliminary ruling from the Hoge Raad der Nederlanden (the Supreme Court in The Netherlands).

The ruling deals with the exhaustion of the distribution right in copyright protected works under InfoSoc Directive 2001/29, Article 4 of which reads like this:

Distribution right

1. Member States shall provide for authors, in respect of the original of their works or of copies thereof, the exclusive right to authorise or prohibit any form of distribution to the public by sale or otherwise.

2. The distribution right shall not be exhausted within the Community in respect of the original or copies of the work, except where the first sale or other transfer of ownership in the Community of that object is made by the rightholder or with his consent.

Significantly, the InfoSoc Directive does not contain a proviso found in European trade mark legislation, notably in Article 7(2) of the Trade Mark Directive 2008/95, that exhaustion shall not apply

where there exist legitimate reasons for the proprietor to oppose further commercialisation of the goods, especially where the condition of the goods is changed or impaired after they have been put on  the market.

The facts of our case, in short, run like this:

Allposters, through its websites, markets posters and other reproductions depicting the works of famous painters, which are covered by the copyright exploited by Pictoright. Among other products, Allposters offers its clients reproductions in the form of posters, framed posters, posters on wood and images on canvases. In order to produce an image on canvas, a synthetic coating (laminate) is first applied [by Allposters] to a paper poster depicting the chosen work [for which the copyright is managed by Pictoright]. Next, the image on the poster is transferred from the paper to a canvas by means of a chemical process. Finally, that canvas is stretched over a wooden frame. The image of the work disappears from the paper backing during the process. 

The Hoge Raad der Nederlanden referred the following questions to the CJEU for a preliminary ruling:

‘(1) Does Article 4 of Directive 2001/29 govern the answer to the question whether the distribution right of the copyright holder may be exercised with regard to the reproduction of a copyright-protected work which has been sold and delivered within the [EEA] by or with the consent of the rightholder in the case where that reproduction had subsequently undergone an alteration in respect of its form and is again brought into circulation in that form?

(2) (a) If the answer to Question 1 is in the affirmative, does the fact that there has been an alteration as referred to in Question 1 have any bearing on the answer to the question whether exhaustion within the terms of Article 4(2) of [Directive 2001/29] is hindered or interrupted?

(b) If the answer to Question 2(a) is in the affirmative, what criteria should then be applied in order to determine whether an alteration exists in respect of the form of the reproduction which hinders or interrupts exhaustion within the terms of Article 4(2) of [Directive 2001/29]?

(c) Do those criteria leave room for the criterion developed in Netherlands national law to the effect that there is no longer any question of exhaustion on the sole ground that the reseller has given the reproductions a different form and has disseminated them among the public in that form (judgment of the Hoge Raad of 19 January 1979 in Poortvliet, NJ 1979/412)?’

Yesterday the CJEU answered this battery of questions with some brevity:

Article 4(2) of Directive 2001/29 ... must be interpreted as meaning that the rule of exhaustion of the distribution right set out in Article 4(2) of Directive 2001/29 does not apply in a situation where a reproduction of a protected work, after having been marketed in the European Union with the copyright holder’s consent, has undergone an alteration of its medium, such as the transfer of that reproduction from a paper poster onto a canvas, and is placed on the market again in its new form.

A rather fuller note on this decision by fellow blogger Eleonora, also summarising the not-yet-in-English Opinion of the Advocate General, can be found on the IPKat here (Eleonora has promised more to come ...).  Meanwhile, this blogger will confine himself to the observations that (i) the CJEU appears to have reached the same conclusion as would have been reached in an action for trade mark infringement, notwithstanding the absence of a specific provision along the lines of Article 7(2) of the Trade Mark Directive and that (ii) the term 'moral rights' appears just once, incidentally, in the ruling, while it seems that this ruling will be of particular use and interest to those seeking to resist the distribution of tangible products on the basis of infringement of the right to object to distortion or mutilation of their original works.

This case, whatever you may think of the decision, is another example of the CJEU's new, speedy approach to dealing with references for rulings from national courts.  The reference was only made in July 2013, so the whole issue has been turned round in 18 months. Only a few years ago it was rare for a ruling in an intellectual property case to be issued within 22 months.

Katpoll on UsedSoft and a question: is the UK legitimising second-hand marketplaces via private copying?

The Katpoll on Case C-128/11 UsedSoft v Oracle is now closed (background here). The IPKat and this blogger wish to thank the 107 readers who answered the following question:

IS THE CJEU LIKELY TO EXTEND THE USEDSOFT RULING TO WORKS OTHER THAN SOFTWARE?

A broad majority (57% - 61 votes) thinks that, yes, when given the opportunity to address this issue the Court of Justice of the European Union (CJEU) will say that exhaustion of the right of distribution as per Article 4(2) of Directive 2001/29 (the InfoSoc Directive) encompasses both tangible and intangible copies.

A tiny fraction (27% - 29 votes) of readers believes that the ruling in UsedSoft will not be extended to intangible copies of works other than software.

Finally, 17 voters (15%) feel that the answer will really depend on whether the CJEU approves of the IP owner's conduct.

This blogger's original post on the IPKat also attracted a few comments. One of them was particularly interesting, as an anonymous reader suggested that "If you vote "no" here then you need to reply to the UK IPO drafting consultation regarding private copying before the 17 July, as the proposed wording is designed to import UsedSoft into the rest of copyright."

As UK-based readers will probably know, following HM Government's announcement last December, a few weeks ago the UK Intellectual Property Office (IPO) published draft secondary legislation for technical review on some proposed exceptions to copyright (see here and here).

Among other things, the IPO has included a new draft exception on private copying (this is an exception that the UK did not adopt when it transposed the InfoSoc Directive into national law).

It is proposed that new Section 28B of the UK Copyright, Designs and Patents Act 1988 (CDPA) reads as follows:

Things will change, as the UK is
introducing a specific exception

(1) Copyright is not infringed where an individual uses a copy of a copyright work lawfully acquired by him to make a further copy of that work provided that: 

(a) the further copy is made for that individual’s private use for ends that are neither directly nor indirectly commercial;

(b) the copy from which the further copy is made is held by the individual on a permanent basis (for example it is not a copy that is rented to the individual for a specified period or borrowed from a library); and 

[(c)the making of the further copy does not involve the circumvention of effective technological measures applied to the copy from which it is made.] 

(2) Copyright is infringed where an individual who has made a further copy of a copyright work pursuant to subsection (1): 

(a) permanently transfers the copy to another person; or 

(b) permanently transfers the copy from which it is made without destroying the 

further copy and the further copy shall in those circumstances be treated as an infringing copy. [This echoes the UsedSoft ruling, in particular paras 70 ff]

(3) Nothing in subsection (2) prevents an individual from storing a further copy made pursuant to subsection (1) in an electronic storage facility accessed by means of the internet or similar means, where that facility is provided for his sole private use. [This is intended to allow storage in the cloud]

(4) To the extent that the term of any contract purports to restrict or prevent the doing of any act which would otherwise be permitted by this section, that term is unenforceable.”.

How could you ever think
of reselling his songs?

According to the IPO, the proposed private copying exception "would allow people to copy a CD from their music collection onto their mp3 player or phone. However it would not allow them to make [further] copies of their CDs and give them to other people." 

But can the same be said also with regard to original (not "further") copies?

Current wording of Section 28A(2)(b) appears to be such as to allow an individual to make a further copy (for non-commercial ends) of a work and then transfer the original copy to another person, provided that he/she destroys the duplicate. 

To some extent, this might legitimise the model proposed by pre-owned digital marketplaces like ReDigi, with the difference that the latter

(1) is all about "original" (not "further") copies, and
(2) requires the original (not the "further") copy to be erased.

As discussed in earlier posts (here) ReDigi, which was launched in 2011, is based on the possibility for users to sell their own music library and/or buy pre-owned music. ReDigi takes a small cut from every transaction made on its site. Songs sell for an average of about 60 cents, compared with a typical 99 cents on iTunes. First-time users are requested to download proprietary software, which verifies if a file was bought legally. If the song checks out, it is then erased from the seller's hard drive and uploaded to ReDigi's computer servers. This system is said to prevent sellers from reinstalling a sold song to their computer, and offers users the chance to check their libraries for illegal music.

A few months ago, a US court held ReDigi liable of copyright infringement and - among other things - denied applicability of the first sale doctrine (the US equivalent to the principle of exhaustion), in that "the first sale defense is limited to material items, like records, that the copyright owner put into the stream of commerce."(1709 Blog report here, ReDigi CEO interview here).

As mentioned, to fall within the proposed UK private copying exception, it is required that “the further copy is made for that individual’s private use for ends that are neither directly nor indirectly commercial.” However, what draft Section 28A(2)(b) appears to legitimise is the transfer of the original copy (ie the iTunes song), and commercial/non-commercial considerations might be intended to encompass solely the "further copy".

If the above proved correct, then the UK would legitimise second-hand digital marketplaces via copyright exceptions (private copying), rather than exclusive rights and the principle of exhaustion.

How far will exhaustion go after UsedSoft? Do let us know!

Calling all exhaustion fans! The IPKat has just launched a poll to gather readers' opinion as to whether the ruling of the Court of Justice of the European Union (CJEU) in Case C-128/11 UsedSoft v Oracle (see Katposts here and 1709 Blog posts here) is likely to be extended to subject-matter other than software.

As 1709 Blog readers will remember, in that case decided almost a year ago the CJEU ruled that 

"Article 4(2) of Directive 2009/24/EC of the European Parliament and of the Council of 23 April 2009 on the legal protection of computer programs must be interpreted as meaning that the right of distribution of a copy of a computer program is exhausted if the copyright holder who has authorised, even free of charge, the downloading of that copy from the internet onto a data carrier has also conferred, in return for payment of a fee intended to enable him to obtain a remuneration corresponding to the economic value of the copy of the work of which he is the proprietor, a right to use that copy for an unlimited period."

Pro- vs anti-exhaustion: who will win?

A few months ago a German court held (see Katpost here) that, because of the nature of the Directive 2009/24 (the Software Directive) as lex specialis, the reasoning in UsedSoft could not be applied to other subject-matter (downloadable ebooks and audiobooks in that case). 

However, from the mini-poll that this blogger ran while in Oxford to attend the ATRIP Congress, there seems to be growing belief that the CJEU, when given the opportunity to do so, would rule that exhaustion does indeed apply to digital works other than software.

The main arguments to support this conclusion are CJEU's overriding concerns with ensuring free movement within EU internal market and the fact that ebooks, downloadable audiobooks, digital music are not really "on-line services" for which "the question of exhaustion does not arise" (see Recital 29 to the InfoSoc Directive).

Do vote in the Exhaustion Katpoll!

This blogger is however slightly concerned whether this might be really the case, in that the Court made it quite clear that its conclusion descended from the special nature of the Software Directive. Furthermore, one of the aims of the InfoSoc Directive was to transpose the WIPO Copyright Treaty into EU legal order. The right of distribution as per Article 6 of the Treaty concerns just tangible - not also intangible - copies. Hence, is it possible to say that exhaustion as per Article 4(2) of the InfoSoc Directive applies only to tangible copies?

You have time until Friday 5 July to cast your vote, by clicking your chosen button on the left-hand side of the IPKat content bar. 

Collateral damage to open source model? CJEU reasoning in Usedsoft v Oracle

Our friend and correspondent Ken Moon (IP consultant, AJ Park, New Zealand) writes to tell us that he has now had an opportunity to consider the effect of the Court of Justice of the European Union (CJEU) reasoning in Case C-128/11 UsedSoft v Oracle on open source software licences (and for free software licences). Says Ken, it seems to him that the judgment, if taken literally, may blow the open source model out of the water. The following guest post is a short note of Ken's reasoning on the subject:

In UsedSoft v Oracle the CJEU held that (i) Oracle's software licence was a contract of sale and, (ii) the downloading of the software from Oracle’s website by the licensee (now considered a purchaser) exhausted Oracle’s right of distribution in relation to the copy that came into the possession of the licensee.  The outcome of these findings was that Oracle software delivered by download could be resold by the ‘licensee’.  The Oracle licence was a proprietary licence, but will the UsedSoft decision also impact disadvantageously on free or open source software licences? 

Take the various versions of the GNU General Public Licence as examples.  First, the licence as such is granted for the full term of copyright – life of last surviving author plus 70 years – long enough in itself, and the licence envisages software copies being transferred in perpetuity.    Second, licensees are given the right to charge for each copy of the modified (or unmodified) software they distribute and of course downstream recipients in such circumstances will make payment for their copy.  As the Free Software Foundation says, ‘free’ as in ‘free speech’, not as in ‘free beer’. 

Applying the reasoning the CJEU used in UsedSoft, software copies distributed for payment under the GPL will be ‘sales’.  The CJEU used the stipulated duration of the licence and transfer of ownership in the downloaded copies as tests to determine that Oracle’s purported licence was in fact a sale thereby allowing the Court to ignore the express terms of the licence agreement. 

 This creates two problems for open source licensing.  The restrictions in such licences (in the GPL terms ranging from the obligation to preserve and insert legal notices to patent neutralising requirements) will be ignored by the courts as being inappropriate to a sale transaction.  More ominously, the terms allowing the ‘licensee’ to make and distribute as many copies as desired and to modify and distribute modifications to the software must also be disregarded for the same reason.    

But the raison d'être of the free software philosophy is that recipients must be able to make further copies (not just the temporary copies of binary code made during the running of the software) and modify the software.  This mandates a licence (under copyright) and a deemed sale contract does not and cannot grant such rights any more than does a sale of a book. The failure of the CJEU to accord recognition of a software licence agreement and give effect to its terms is lamentable in itself, but more significantly for open source licences is the failure to appreciate that the terms of a licence may grant more rights to a user than occurs on a sale.  Where does the UsedSoft logic now leave the prior decisions of German courts [http://gpl-violations.org/news.html ] , which have upheld and enforced the terms of free and open source software licences?