On the 10th of September 2019, Advocate General Szpunar delivered his opinion on whether the well-established principle of exhaustion of copyright’s distribution rights applies to the first authorized sale of an e-book, in the context of a request for a preliminary ruling by the CJEU from the Rechtbank Den Haag (District Court, The Hague, Netherlands), Case C-263/18, Nederlands Uitgeversverbond and Groep Algemene Uitgevers vs Tom Kabinet Internet BV, Tom Kabinet Holding BV and Tom Kabinet Uitgeverij BV.

The principle of exhaustion provides that the right-holder’s distribution right is considered ‘exhausted’ upon the moment that the copyrighted work is first lawfully sold. In turn, it signifies that a copyright holder has no right to prohibit the resale of his works, commonly referred to as ‘the second-hand market’.

The defendant, a Dutch company supplying e-books through an online market on their website, had encouraged individuals to sell their e-books onto their website in exchange for credit which could have been used to buy other ‘second-hand’ e-books. The e-books would be resold for a cheaper price than that charged by the official distributors. Once the used e-books were sold, the defendant company would impose upon the sellers further changes, such as the deletion of such digital copy, and the addition of a watermark to ensure the authenticity of the original copy.

Two Dutch associations, Nederlands Uitgeversverbond (‘NUV’) and Groep Algemene Uitgevers (‘GAU’), brought an action against the defendant company for alleged infringement of copyright which was dismissed by the Dutch District Court and Court of Appeal. The referring Hague District Court was unsure as to whether the act of downloading e-books for an unlimited period of time constituted an ‘act of distribution’ in the terms of the Directive 2001/29 (‘Copyright Directive’).

The questions posed in the preliminary reference primarily concern:

  • Whether the supply of e-books by downloading them online for permanent use classifies as exhaustion of distribution in the terms of the Copyright Directive.
  • Whether the copyright is exhausted by such a supply made with the right-holder’s consent.
  • Whether the subsequent acts of reproduction of the e-books are lawful.

The applicants and other involved parties further asked whether the acts in question are covered by the right of communication to the public, provided for in the Copyright Directive.

Szpunar considered all these questions collectively, due to their common focus on whether the act of reselling copyrighted works by means of downloading should be considered distribution. In such case, the consent of the author in the initial sale should exhaust the copyright. Classifying those same acts as being covered by the right to communication to the public would automatically exclude the right of distribution, and vice-versa. The public therefore has two main forms of access to copyrighted works, encompassed by the right of communication, and the right of distribution of the copyright holder.

The first form is the traditional representation of the work to the public by the copyright holder. In the past, this would require the public to be present at a particular place and time, chosen by the author, who would display for instance a play or exhibition. The introduction of television and radio broadcasting meant that the public may access such works at a distance, however still at particularly set times. This however changed with on-demand television services and the internet, as now the public may select the place and time in which they may view such works. The manner of rendering such protected works accessible to the public has become a critical right to copyright proprietors due to the implications on remuneration.

The second method in which the public may access copyrighted works is by purchasing copies of such works or the original. Once the individual purchasing the work has remunerated the owner of the copyright, that owner loses all control over monetisation of the work. Therefore, the owner must be content with the initial remuneration, and has no right to further profit should the work be resold.

Szpunar admits that the form of supply of goods contemplated in the present case does not clearly classify under one of the two aforementioned forms of typical public access. The e-books disputed in this case are made available to the public, however individuals may, with the authorisation of the copyright holder, reproduce a copy of that work by downloading it. Therefore, the act of downloading creates a copy which exists independently from that which the author made publicly available. In this aspect, the act of downloading is more similar to distribution, however a hybrid between these two rights would seem more logical.

Szpunar interpreted the Copyright Directive to consider virtual acts such as downloading to classify under the right of communication to the public, whereas the right of distribution and the rule of exhaustion are limited to tangible copies. E-books are essentially digital files, hence there can be no clear transfer or delineation of ownership. This renders the determination as to whether exhaustion of the right of distribution occurred very complex to ascertain.  

The act itself of reproduction of the digital files creates copies, which prima facie excludes the application of the rule of exhaustion. Each time a copy is created, Szpunar interprets EU law to require the copyright holder to consent to each form of reproduction. This is because the initial consent given to the original purchaser does not extend to other potential purchasers.

Szpunar maintained that at the current stages of EU law, it does not yet make sense to categorise the act of supplying copyright-protected works through downloads as exhaustion of that copyright. He asserts that although for the sake of uniformity (as well as due to economic implications of second-hand markets) it may be tempting to classify these acts in such a manner, there is no proper legal ground for such classification.

The advancements in technology have shifted the balance between the interests of the copyright holders, and the interests of the users of the works. The rule of exhaustion has traditionally restored the balance between the two, however it is now uncertain how such rule could be adjusted to suit the purposes of digital content.

Szpunar is doubtful as to the rule of exhaustion’s potential in rectifying this issue of copyright in digital content. He believes that digital copies do not deteriorate with use, and that therefore, of their very essence, are by no means different to the original copy provided by the copyright holder. This would adversely affect copyright holders, as perfect copies of their work may be resold (for cheaper prices) indefinitely, leaving them with considerably less sales, and far less remuneration.

By recognising the rule of exhaustion of the right of distribution as applying to digital content, Szpunar deduces that the Court of Justice of the European Union (‘CJEU’) would be attempting to rectify an issue which does not necessarily need to be resolved. He even considers this point of law to be potentially antiquated, due to new modes of accessing virtual content such as ‘streaming’ and subscriptions.

Crucially, as his conclusion, AG Szpunar opined that the supply of e-books by downloading online for permanent use is not covered by the distribution right within the meaning of Article 4 of the Copyright Directive but is covered by the right of communication to the public within the meaning of Article 3(1).

Article written by Dr Terence Cassar, Dr Sean Xerri de Caro and Legal Trainee Camille Pellicano.

For more information or assistance on copyright and intellectual property law kindly contact Dr Ian Gauci on igauci@gtgadvocates.com or Dr Terence Cassar on tcassar@gtgadvocates.com.  

This article is not intended to impart legal advice and readers are asked to seek verification of statements made before acting on them.

Disclaimer This article is not intended to impart legal advice and readers are asked to seek verification of statements made before acting on them.
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