Dutch copyright succumbs to aging as exhaustion extends to e-books

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.

Legal context

The whole intellectual property community had to wait a long time for one of these Justin Bieber-like decisions (you love them, you hate them or you simply don′t care) following from the Court of Justice of the European Union (CJEU) in UsedSoft (C-128/11) and, it has to be said, it fully discharged its duty when it stated that the exhaustion doctrine was applicable to downloaded software which lacked tangible support. The court did this mainly by applying the exemptions to recital 29 of the Copyright Directive (Directive 2001/29) contained in recital 7 and Article 4(2) of the Software Directive (codified by Directive 2009/24).

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.

Facts

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.

Analysis

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.

Another reason why the criteria derived from UsedSoft could not be extended, according to the Dutch association, was that the CJEU relied upon recital 7 and Article 4(2) of the Software Directive, which treated digital and physical software as being legally equivalent, and on the applicability of the first sale doctrine to software. In this respect, the NUV and GAU interpreted that, since books are different from e-books in many ways, such as format variety, presentation, usability and durability, the same result could not be reached in this case.

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.

Practical significance

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.

E-books distinguished from software, not exhausted

Author: Emma Linklater (European University Institute, Florence)

Case No 4 O 191/11, Landgericht (German Regional Court) Bielefeld, 5 March 2013

Journal of Intellectual Property Law & Practice (2013), doi: 10.1093/jiplp/jpt124, first published online: July 23, 2013

According to the German Regional Court of Bielefeld, the Court of Justice of the European Union's (CJEU's) UsedSoft decision is not applicable to the resale of other digital content, and contractual provisions restricting use, insofar as they prohibit resale of downloaded e-books and audio books, do not place a disproportionate disadvantage on consumers.

Legal context

German and EU copyright provisions

Article 4(2) of the Information Society (InfoSoc) Directive provides for the exhaustion of the copyright holder's distribution right and is implemented by s 17(2) of the German Copyright Act (Urheberrechtsgesetz; UrhG). Although the UrhG makes no distinction between tangibles and intangibles, the InfoSoc Directive's Recital 29 does, expressly rejecting the exhaustion of ‘services, and online services in particular’.

On 3 July 2012, the CJEU responded to a preliminary reference in Case C-128/11 Usedsoft v Oracle relating to this issue in the context of digitally downloaded software. In this case, the CJEU found the specific Software Directive to be the applicable legal instrument, overriding the more general InfoSoc Directive.

Article 4(1) of the Software Directive gives rights holders the exclusive right to authorize reproduction, adaptation and distribution to the public. Article 4(2) provides that upon first sale of a copy of a computer program in the Community, the distribution right is exhausted. Article 5(1) stipulates that no authorization by the rights holder is required for reproduction or adaptation of the program where necessary for use by the lawful acquirer in accordance with its intended purpose. The CJEU held that the distribution right could be exhausted where the copyright holder has authorized a download of software via the internet, and that a second or subsequent acquirer could become a ‘lawful acquirer’. The provision of Article 5(1) enabled that lawful acquirer to make a copy of the file, without infringing the rights holder's reproduction right.

German contract law

Under s 307(1) of the German Civil Code, contract terms must not unreasonably disadvantage consumers contrary to the requirement of good faith. Under s 307(2)(II), an unreasonable disadvantage is presumed to exist if the contract limits the essential rights inherent in the nature of the contract to such an extent that attainment of the purpose of the contract is jeopardized.

Facts

The defendant, an unnamed retailer, operates a website selling media in both physical and intangible (downloadable e-book and audio book) formats. Article 10(3) of the terms and conditions for sale provided that ‘the customer acquires the simple, non-transferable right to use the title offered for personal use only’. Additionally, the consumer's ability to copy, modify, transfer, make publically available, resell or use the download for commercial purposes was restricted.

The applicant, a German ‘umbrella’ consumer organization (Verbraucherzentrale Bundesverband; VZBZ), alleged that the contract clauses restricting use unreasonably disadvantaged consumers. The placement of e-books and audiobooks on the website and the use of ‘physical goods’ language employed would lead consumers to download them in good faith that they would have the same usage rights as for print books or CDs. Further, the contract terms went against the exhaustion principle set out in s 17(2) UrhG. Relying on UsedSoft, the applicant submitted that exhaustion should apply to both tangibles and intangibles alike, the decisive factor being that the contract concerns a marketable, tradable commodity.

Analysis

The court dismissed the action as unfounded. Looking first at the consumer contract at issue, the court found that the primary purpose of the contract with the defendant was to enable the consumer to ‘use’ the desired content; the defendant is therefore only contractually responsible for facilitating the download so that the content can be stored on the consumer's local disk to be accessed at will. Thus, from a contractual perspective, the contract's purpose is not endangered by limiting further sale or use. From the consumer's perspective, the court reasoned that, because consumers know about the piracy problem and since digital copies do not degrade with use, they expect that they will not be allowed to pass on their copies and anticipate that all they will get from the contract is the ability to download the content and the right to its personal use. According to the court, the terms are clear and precise so as not to mislead the consumer into thinking that he is getting a right that can be assimilated to a property right in a physical object.

In this case, the defendant's interest in preventing an uncontrollable and potentially infringing secondary market outweighed the consumer interest in establishing such a market. Since digital files can be transmitted instantly, without loss of quality, there is a strong economic risk for the defendant. However, no forward-and-delete technologies (as employed by Usedsoft or Redigi) were mentioned in this case. Accordingly, the consumer interest here was in accessing the download and in attaining a copy to read or listen to at will—not in being able to sell the file. Further, due to the lower price of downloadable e-books and audio books, ‘the average consumer’ should be satisfied with having the file for personal use.

Moving to the exhaustion issue, the court reiterated that Community exhaustion applies to the distribution right. The downloading of the file, however, creates a local copy and is therefore an act of reproduction. For a downloaded file to be legally resold, a further copy must be made; the distribution right must be exhausted, but also the acquirer must have the right to reproduce a copy to enable use. Referring to Usedsoft, it emphasized that the conclusions in that case were specific to the Software Directive because, through Article 5(1), reproduction without authorization is possible where necessary for use of by the lawful acquirer. In UsedSoft, the CJEU did not provide for the exhaustion of the reproduction right itself, but it was the combination of exhaustion of the distribution right and Article 5(1) which enabled resale of the downloaded software. The InfoSoc Directive, on the other hand, does not provide for such scenarios. Without an equivalent of Article 5(1), even if the distribution right could be exhausted the necessity of producing a reproduction copy to use the downloaded e-book or audio book would be an infringement.

Lastly, the court found that prohibiting copying by a third party or resale of the e-book or audio book file does not depart from the essential spirit of s 44a para 1 UrhG. The download and duplication here were intended and did not arise ‘incidentally during a technological process’.

Practical significance

One practical element—if not from a copyright perspective then from a business one—is the acceptance by the court that a lower price equals fewer rights, and that this is acceptable from a consumer perspective. This may be a relief to the publishing industry, but also contains a warning that for restrictions to personal use only to be warranted, there needs to be a consumer benefit in the form of increased accessibility through affordability.

Unfortunately, the significance of this decision is also limited by the lack of any reference to forward-and-delete technologies, which were seemingly not on the court's horizon. This limits the scope of the court's finding that the interest in preserving the rights holders' monopoly outweighs the consumer interest in allowing resale, since with such technologies, the rights holders’ interests can be preserved without an impact on piracy (ie one that one user's copy will be re-circulated). Further questions may be raised on appeal about the ‘reasonable consumer’ approach adopted: To assume that all consumers are aware of the contractual limitations of their downloaded content likely paints a simplified picture, since the growing number of business models promoting lending, sharing and cross-platform access have created a hazy grey-zone where ‘personal use’ is starting to be less clear.

Undoubtedly, the real significance of this decision comes more from its topicality than its substance. It essentially upholds the status quo; however, with the applicants set to appeal and against the backdrop of Redigi (see Case No 4 O 191/11, Landgericht [German Regional Court] Bielefeld, 5 March 2013] in the USA and the recent patents for ‘forward-and-delete’ technologies granted to tech giants Amazon and Apple, the issue of digital exhaustion does not look likely to go away this easily. Although there is little way that a regional court would have found UsedSoft to apply outside the (limited) context of the Software Directive, a judgment such as this making its way through the European legal system (again bearing in mind the music industry equivalent in the USA) could signal alarm bells in the minds of policymakers on both sides of the Atlantic. Although politicians have seemingly opted to keep silent on this issue for the moment, they are unlikely to be able to do so for long.