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 9th 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.
