Author: Míchel Olmedo Cuevas (Ecija Law & Technology)
Nederlands Uitgeversverbond and Groep Algemene Uitgevers v Tom Kabinet, Case C/13/567567/KG ZA 14-795 SP/MV, District Court of Amsterdam, 21 July 2014
Journal of Intellectual Property Law & Practice (2014) doi: 10.1093/jiplp/jpu200, first published online: October 26, 2014
The District Court of Amsterdam recently concluded that, from now on, ebooks are equivalent to paper books, thus becoming susceptible to resale under the exhaustion principle by application of the UsedSoft decision (C-128/11) of the Court of Justice of the European Union.
Irrespective of personal opinions on the outcome of the UsedSoft case, the lack of a defined scope for the application of its doctrine, has left both scholars and national courts a wide margin for interpretation. For some, it was clear that this decision only affected software, while for others, it could apply to all kinds of computer files (eg music, games, video). One further group considered that its application would depend on the specific licence and its terms, depending in great measure on the use of terms like ‘sale’ or ‘purchase’.
The case discussed here thus presented itself as one of the best opportunities to find out the scope of UsedSoft according to a European national judge, especially bearing in mind that software reseller ReDigi has recently obtained a US patent for its new business process, which could see its market expanded to e-books, films and more.
In June 2014, Dutch internet service provider Tom Kabinet began operating through the website www.tomkabinet.nl, providing its customers with a marketplace where they could either sell or buy used e-books at a lower price. After taking notice of its actions, the Nederlands Uitgeversverbond (NUV), the Dutch Publishers Association and Groep Algemene Uitgevers (GAU), the General Publishers Group, sent letters to Tom Kabinet, requesting that it immediately cease and desist from such operations, imposing a deadline of 2 PM on 27 June 2014.
Tom Kabinet promptly replied, stating that it would be impossible to meet this deadline, and suggesting a meeting between the parties to try and build bridges between their opposing positions. Failing to comply with the requests from NUV and GAU, the latter decided to take the matter into court.
The claims of NUV and GAU
The position of these associations was clear: the second-hand e-books Tom Kabinet was selling were not resaleable. They based their claim on their understanding that UsedSoft could not be applied to the scenario at hand, since the court only decided on an Open Source Software (OSS) licence, the one Oracle was using for the software that was being resold, whereas not all e-books sold in The Netherlands were subject to licences even similar to those, thus rendering the UsedSoft decision inapplicable.
Finally, the claimants argued that the rights of the publishers were being infringed because all e-books were stored on Tom Kabinet's servers, thus performing two acts of reproduction without proper authorization (one being the uploading, the other downloading). This was not the case in UsedSoft, because only the licence was transferred, and the software was directly downloaded from the original page, instead of downloading the program installer from the UsedSoft page.
Tom Kabinet's defence
The defendant first raised some procedural exceptions, which are not relevant to this analysis and which were all rejected, except for the exception relating to the inadmissibility of the inclusion of other societies related to the group listed in the claim presented by NUV and GAU, which was granted.
Tom Kabinet also argued that the only e-books that were resaleable via its website were in epub format and files without Digital Rights Management (DRM-free). Tom Kabinet also provided a list of online stores that sold e-books with those characteristics, and all those stores were legitimate shops in accordance with the general conditions established by the Dutch Home Shopping Organization (Nederlandse Thuiswinkel Organisatie). Further, the defendant considered that, as in the UsedSoft decision, the content was acquired through a licence of indefinite duration for a one-time fee; the purchase thus became an ordinary sale and, as such, might fall within the scope of the CJEU ruling.
Regarding its sale process, the defendant maintained that its software scanned each uploaded e-book in order to verify that it had not previously been sold by the same user, asking that user to remove the file if he had done so. If the e-book went through this process and was deemed compliant, Tom Kabinet would provide a watermark for the file. This would not necessarily stop illegal sales through other platforms, but would do so on the defendant's.
Lastly, Tom Kabinet submitted that it had not, strictly speaking, committed any act of reproduction: uploading the file by the seller contravened neither the Copyright Act nor the Copyright Directive.
Findings of the court
Judge Pompe began his conclusions with a summary of the further exposition of NUV and GAU as to why UsedSoft should not be applicable to the scenario at hand. Even though the judge conceded that it might be the case, he added that it might be the other way around, since the CJEU did not give a concrete ruling on how wide the scope of the UsedSoft decision was. From the judge's point of view, even though some German courts had gone so far as to restrict the applicability of the ruling to software, there is no definite answer until the CJEU gives a ruling itself, most likely through a matter referred for a preliminary ruling from the court in The Hague.
The judge considered para 62 of UsedSoft to be very important. There, the court responded to the argument of the European Commission on how the European Union law did not provide for the exhaustion right in case of services, explaining that the exhaustion principle (or first sale doctrine) is constructed so as to limit the application of restrictions only to cases where it is necessary to safeguard the object of the intellectual property, in order to avoid the extension of exhaustion to cases in which such additional protection is not necessary.
In judge Pompe's eyes, the business model used by Tom Kabinet did not contravene the law, even less so if it is taken into account that the platform put measures in place to prevent illegal commerce with copyright works, like abstaining from accepting DRM-protected files, compensating right holders and providing a watermark.
After all these considerations, the judge granted the website permission to carry on with its business and imposed costs on NUV and GAU.
With the publishers′ associations planning to appeal, it is not easy to know if the findings of these proceedings will be overturned or if the matter will be referred to the CJEU for a preliminary ruling, but it is nonetheless another step in the same direction as that taken by the Higher Regional Court in Frankfurt am Main when deciding that the splitting-up of licences was legitimate.
There are many who could easily contest the ruling by stating that second-hand sale is only applicable to the physical work, because such sale is based on the loss of value, which can be of two kinds: subjective value (such as gifts from a former lover or a game that has become boring after being played a hundred times) or objective value (mostly by ageing or accidental damage). In the case of digital works, many claim that there is no loss of objective value, because the file stays the same. This assertion is arguable because, as has happened in the physical world with VHS and DVD, when a superior competitor appears, the loss of value is inevitable. This has been seen with the emergence of new music and video formats, such as FLAC and MKV, which leave older formats obsolete and thus thus subject to a loss of objective value.
Having said that, if European courts follow the path drawn by these rulings, one can only expect a wave of online second-hand markets to compete against ReDigi, UsedSoft and Tom Kabinet for the resale of all kinds of unwanted digital files. Maybe it is time for the self-same companies that commercialize the products to offer buy-back programs for the unwanted digital files as an alternative for the users to reselling them because, once the exhaustion train gets in motion, it is going to be really difficult to stop.