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Online exhaustion of copyright and the second-hand market

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11/03/2015

Article 4(2) of the Information Society Directive [1] provides that the exclusive distribution right of a copyright owner shall not be exhausted within the EU, in respect of the original or copies of the work, except where the first sale or other transfer of ownership in the EU is made by the rights holder or with its consent. The rights holder’s exclusive right to distribute the copyright-protected work becomes exhausted upon that first authorised sale or transfer of ownership.

In Art & Allposters International BV v Stichting Pictoright [2], the defendant sold posters on canvas. The claimant brought proceedings for copyright infringement on the basis that the canvas transfers reproduced its copyright-protected works without its consent. After having worked its way through the Dutch courts, the case was referred to the Court of Justice of the European Union (CJEU) for a preliminary ruling.

The issue before the Court was whether the exhaustion of the distribution right set out in Article 4(2) applied to the situation where a reproduction of the copyright-protected work, after it has been marketed in the EU with the rights holder’s consent, underwent an alteration in form – in this case from a paper poster to a canvas – and was placed on the market again in that new form.

In this case, it was undisputed that the posters had been placed on the market as posters with the rights holder’s consent. The issue was whether the alteration of the medium impacted on the exhaustion of the exclusive distribution right.

The Court ruled that the exhaustion of the distribution right applies to the tangible object into which a protected work or its copy is incorporated if it has been placed onto the market with the rights holder’s consent. It added that the replacement of the medium resulted in the creation of a new object incorporating the image of the protected work. This was sufficient to constitute a new reproduction of the work which was covered by the exclusive right of the author and therefore required his authorisation. In other words, the consent of the rights holder did not extend to the distribution of the work in the altered form. The owner’s right accordingly had not become exhausted.

The ruling has obvious implications for those involved in the exploitation of copyright works, particularly artistic works, produced on physical, tangible objects.

It is worth contrasting this with the position in respect of copyright in software.

How the doctrine of exhaustion of rights applies in the context of copyright in software was considered by the CJEU in UsedSoft v Oracle [3]. In that case, the Court held that an author of software cannot oppose the resale of his ‘used’ licenses allowing the use of his programs downloaded from the internet.

The Court stated that it made no difference whether the customer obtains a material medium with the software on it – such as a CD-ROM or DVD – or if the software is downloaded directly from a website. The principle of exhaustion under the Legal Protection of Computer Programs Directive [4] applies equally to tangible and intangible copies of software programs, as the wording of the Directive does not differentiate between the two. Therefore, software distribution by download triggered the principle and equated to a ‘sale’ of the software.

The Court’s ruling in UsedSoft left unclear how the doctrine of exhaustion of rights may be applied in respect of other forms of digital content, such as e-books or videogames, which may be subject to different legislation, such as the Information Society Directive.

It is not obvious that the ruling in Art & Allposters can be transferred to the digital environment, as the Court of Justice made clear in its UsedSoft ruling that the Information Society Directive did not apply in that case and instead it is the Software Directive alone which falls to be considered in such cases. This makes it very important in deciding whether the copyright material in question falls within the Software Directive or the Information Society Directive. In the latter case, the exhaustion of rights principle is dependent upon the physical medium in which the work is expressed and it may be that exhaustion does not apply to downloads; in the former case, it clearly can apply to downloads.

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[1] Directive 2001/29/EC
[2] Case C 419/13
[3] Case C 128/11
[4] Directive 2009/24/EC

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