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.


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.


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.

The $1 billion question: can you answer it?

If you are off on your holidays this August and are fed up with crossword puzzles, sudokus and all the other intellectual trivia with which to keep yourself amused, why not try your hand at this year's JIPLP competition? The details, which can also be found on the JIPLP website, are reproduced below:

The $1 billion question

Enter our JIPLP competition for 2013 and you could win a year’s free subscription to JIPLP. All you have to do is send us your account of which 5 intellectual properties you would invest $1 billion in and why.
This should be a short piece of writing (between 500-600 words). It should explain who you are (contributor, board member, subscriber etc) and what 5 intellectual properties (or fewer) you would invest in if you were given $1 billion. Entries will be judged by the JIPLP team and prizes will be awarded for those entries demonstrating good financial acumen, for being creatively written, with style and panache and also for how humorous the piece is. The winning entries will be published on the JIPLP blog.
The winning entries will be decided upon by JIPLP editor Jeremy Phillips and the JIPLP Team at OUP. Entries should be between 500-600 words, and be submitted by 31st October 2013. The winning entries will be announced on 6th January 2014. Entries to be submitted to Christopher.wogan@oup.com
What prizes are available:
Financial Acumen - £500 of OUP books and a year's free personal sub to JIPLP
Creativity and Style - £250 of OUP books and a year's free personal sub to JIPLP
Humour - £250 of OUP books and a year's free personal sub to JIPLP
The winning pieces will be published on the JIPLP blog.
Who decides it
JIPLP editor Jeremy Phillips and the JIPLP Team at OUP

Date of award
6th January 2014

Closing date for entries
31st October 2013

Format of entries
Entries to be between 500-600 words
Criteria for judging
Entries will be judged by the JIPLP team and prizes awarded for demonstrating good financial acumen, for being creatively written, with style and panache, and also for how humorous the piece is.
Do have a go!

Miscellaneous matters

"Metaphors, law and digital phenomena: the Swedish pirate bay court case" is the title of a piece by Stefan Larsson PhD, LLM, aresearcher in Sociology of Law, Lund University, Sweden.  It's published in one of JIPLP's sister journals, the International Journal of Law and Information Technology (IJLIT), which you can learn all about here. According to the abstract:
"This article uses conceptual metaphor theory to develop the concept of ‘skeumorphs’ (reuse of old concepts for new phenomena) in order to analyse the Swedish The Pirate Bay court case. In line with conceptual metaphor theory, which states that abstract thinking is largely metaphorical, the article argues that this is true also for digital phenomena that, thus, are largely understood through metaphors and skeumorphs. Also, when attempting to understand and conceptualize new digital phenomena such as The Pirate Bay (TPB), law in a digital society is inevitably affected. Hence, new phenomena can be fought over in a ‘battle of metaphors’, in the TPB court case, for example, evidenced by the arguments of seeing TPB as ‘a platform’, ‘bulletin board’, or an ‘impure search engine’. This, here argued, was of key relevance for the outcome of the case".
Readers will appreciate that this is an imaginatively academic approach to the Swedish Pirate Bay litigation.  JIPLP itself welcomes more practical pieces in the happy knowledge that anyone who wants to write or read about skeumorphs has only to turn to IJLIT in order to do so.


Here's a little reminder about submitting pieces for publication:

  • * If you've not yet seen a copy of JIPLP, ask to inspect a sample issue so you can see what the articles and current intelligence notes look like before you do so.  If you wouldn't turn up at a party or an important meeting without checking what you should be wearing, so why should you think of submitting an article for publication without troubling to see what it should look like?

  • * It's always best to check with JIPLP before writing a piece, in case we have already accepted an article on the same subject. You can easily do so by emailing our Commissioning Editor, Sarah Harris, at sarah.harris@oup.com and asking her.

  • * Like many other journals, JIPLP has been using an online submission called Manuscript Central and has done so for some years. Please use it! If you submit anything for publication by emailing it to any member of the JIPLP team, this will only slow the publication process down since whoever receives your email and attachment will have to email you back to ask you to submit it online. Manuscript Central is not there to vex, annoy and inconvenience authors -- it is actually there for their benefit and protection, since it ensures that no article is ever "lost in the system" and that all  members of the editorial and production team can gain access to it with equal facility.

Here's another reminder: JIPLP has a highly productive relationship with leading German IP periodical GRUR Int., which you can read all about here.  One of the benefits for JIPLP contributors is that, each month, two pieces from JIPLP (usually one article and one current intelligence note) are selected for publication in GRUR Int. too, thus giving the author a large and well-informed readership beyond that of JIPLP itself.

Picking out the bad boys

Here's the Editorial to the August 2013 issue of JIPLP.  For once it's not guest-edited by a member of the JIPLP editorial board but is actually written by the Editor in Chief, Jeremy Phillips. It runs like this:
We live in a topsy-turvy world in which things have a habit of changing. Forty years ago, back in the early 1970s, it was unthinkable that the mighty edifice of the Soviet Union might crumble, that same-sex marriage might be legitimized, that a Pope might be elected from outside Italy or that China might be out-competing her western competitors in the free market. Popular songs still recognizably had words, telephones were attached by wires to unmoving sockets, a long-playing gramophone record offered the convenience of 20 minutes or thereabouts in listening time before it required attention and most people still depended for their news on the publication and purchase of daily newspapers.

In intellectual property terms, it may appear that there have been far fewer changes, and the changes which we have seen have been far less radical. The major moves towards harmonization and closer co-operation between nations from which we now benefit were either in their prototype phase or at any rate on the agenda four decades ago, and commercial activities such as brand licensing, business format franchising, character merchandising and technology transfer were not markedly different from the form they take today. Likewise, in the field of dispute resolution, the reform of tortuously slow and undesirably expensive litigation has taken place at a snail's pace and, while arbitration and mediation may become more or less fashionable, they are not radically different now from the form they took in 1973.

There is, however, one area in which change has been substantial: that is in our characterization of ‘good guys’ and ‘bad guys’. Back in 1973, it was easy to identify each, and our sympathies lay, quite properly, with intellectual property owners as the ‘good guys’. Was it not they who fought, tirelessly and at great cost, to stem the tide of counterfeit and infringing products? Was it not they who ploughed their resources, their effort, their vision into the development of new products and services and the creation of entire new industrial and commercial sectors?

How things have changed! Within almost every field of commercial endeavour, the IP owners are on the defensive.

Pharmaceutical companies, once praised for their fight against illness and disease, are now castigated as profiteers who play to the ailments of the rich man's world while neglecting the conditions suffered by the poor in developing nations who cannot afford their products; they are also excoriated for seeking to prevent the free movement of goods between countries in which they have no patent protection. Owners of brands for consumer goods are held responsible for the often unspeakable and dangerous conditions in which labourers toil to make their products. Copyright collecting societies are condemned for seeking to extract unreasonable royalties for the use of their members' works, notwithstanding the sums actually received by their members. And now patent owners face the wrath of President Barack Obama if they fit the description of ‘non-practising entities’, better known by their derogatory label of patent trolls.

Meanwhile, things are looking up for infringers, if they are not quite everyone's darling, nor are they the bogeymen they once were. Suppliers of counterfeit products to poverty-stricken African jurisdictions are seen as providing a welcome service to the consumer who cannot come close to affording the ‘real thing’. Traders in grey goods are viewed as merely taking advantage of the competitive conditions of the free market, even if the goods in which they trade do have an unfortunate habit of entering markets for which they were destined, should the IP owner take his eye off them. Copyright infringement in the era of the internet has almost become a duty and the notion that the law should be changed to reflect what people actually do—a notion that would seem preposterous in many other fields of human conduct—is openly discussed and endorsed.

The clock cannot be turned back. Nor can we reject the new technologies that have brought us so many benefits. However, we should ask ourselves why, as a society, so many of us appear more preoccupied with the alleged sins of the intellectual property owners who have brought us so many benefits, rather than condemn and seek to eradicate the harmful conduct of those whom the law classifies as infringers.

August 2013 JIPLP now online: here are the contents

Thanks to the tireless efforts of the JIPLP production team, toiling away in Oxford's sweltering heat to bring you the best IP materials ahead of time, the August 2013 issue of JIPLP is now available in full online. Subscribers can access it in full; non-subscribers can purchase limited-time access on a per-item basis. The Editorial will be published in full on this weblog later today.

This is what the August issue contains:


Current Intelligence


From GRUR Int.

IP in Review