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Thursday, 22 January 2015

BREAKING NEWS: CJEU says exhaustion only applies to the tangible medium of a work (so no such thing as a digital exhaustion?)

Today's an important day for EU copyright at the Court of Justice of the European Union (CJEU). The Court has in fact just issued its much-awaited 50-paragraph decision in Case C-419/13 Art&Allposters.

Readers will remember that this was a complex reference for a preliminary ruling from the Dutch Supreme Court encompassing a number of topical issues, notably: (1) the right of adaptation; and (2) exhaustion of the distribution right under Article 4 of the InfoSoc Directive.

Today the Court ruled that:
  • With regard to the adaptation right, it is true that the InfoSoc Directive does not mention it. However, a situation like the one at hand, ie paper poster and canvas transfer of copyright-protected works, falls within the scope of Article 4(1) of the InfoSoc Directive;
  • Exhaustion of the right of distribution under under Article 4(2) of the InfoSoc Directive only applies to the tangible support of a work.

The background proceedings concern the unauthorised making and selling by Art&Allposters of altered versions of copyright-protected artworks, whose rights are managed by collecting society Pictoright. Art&Allposters used authorised posters of the artworks in question to transfer the images on canvas first, and sell them afterwards over the internet. It is worth adding that this process involved, first, the placing of a special cover on the poster and, secondly the transfer of the image from the poster to the canvas by means of a chemical process. 

Following an unsuccessful outcome at first instance, Pictoright won before the ’s-Hertogenbosch Court of Appeal. This court relied on the 1979 Poortvliet judgment to exclude that the right of distribution had been exhausted as per Article 12b of the Dutch Copyright Act and Article 4(2) of the InfoSoc Directive.

The litigation eventually reached the Supreme Court, that decided to stay the proceedings and seek guidance from the Court of Justice of the European Union (CJEU) as to the following:

1. Does Article 4 of the [InfoSoc] Directive govern the answer to the question whether the distribution right of the copyright holder may be exercised with regard to the reproduction of a copyright-protected work which has been sold and delivered within the European Economic Area by or with the consent of the rightholder in the case where that reproduction had subsequently undergone an alteration in respect of its form and is again brought into circulation in that form?

2(a). If the answer to Question 1 is in the affirmative, does the fact that there has been an alteration as referred to in Question 1 have any bearing on the answer to the question whether exhaustion within the terms of Article 4(2) of the Copyright Directive is hindered or interrupted?

2(b). If the answer to Question 2(a) is in the affirmative, what criteria should then be applied in order to determine whether an alteration exists in respect of the form of the reproduction which hinders or interrupts exhaustion within the terms of Article 4(2) of the Copyright Directive?

2(c). Do those criteria leave room for the criterion developed in Netherlands national law to the effect that there is no longer any question of exhaustion on the sole ground that the reseller has given the reproductions a different form and has disseminated them among the public in that form (judgment of the Hoge Raad of 19 January 1979 in Poortvliet, NJ 1979/412)?

The AG Opinion

Last September Advocate General (AG) Cruz Villalon issued his Opinion [not yet available in English, but commented here], in which he took position as regards two fairly controversial issues under EU copyright.

First, he held the view that - contrary to the position of the EU Commission - the right of adaptation has not been generally harmonised at the EU level.

Only analogically exhausted ...
Secondly, he stated that the right of distribution can only be exhausted in relation to the tangible support of a work, not also its (as the AG called it) corpus mysticum. In other words, the AG appeared to suggest that, not only can there be just analogue exhaustion under the InfoSoc Directive, but exhaustion is to be interpreted strictly. For instance, the one pending before the Dutch Supreme Court would not be a case where exhaustion even comes into consideration, on grounds that the alteration by Art&Allposters was particularly relevant and concerned the same support which was used for the original artworks.

The CJEU decision

In its judgment the CJEU followed the AG Opinion, though not in relation to the issue of the right of adaptation. 

Notably, the Court relied on Recital 28 to the InfoSoc Directive and the WIPO Copyright Treaty to hold the view that exhaustion of the distribution right only applies to tangible objects:

"[T]he EU legislature, by using the terms ‘tangible article’ and ‘that object’, wished to give authors control over the initial marketing in the European Union of each tangible object incorporating their intellectual creation. That finding, as the European Commission correctly states, is supported by international law, and in particular by the WIPO Copyright Treaty, in the light of which Directive 2001/29 must be interpreted as far as possible ... Article 6(1) of that Treaty provides that authors of literary and artistic works are to enjoy the exclusive right of authorising the making available to the public of the original and copies of their works through sale or other transfer of ownership. In that regard, the significance of the term ‘copy’ was explained by the Contracting Parties by an agreed statement concerning Articles 6 and 7 of the Treaty adopted by the Diplomatic Conference of 20 December 1996, at which the Treaty itself was also adopted. According to that statement, ‘the expressions “copies” and “original and copies” being subject to the right of distribution and the right of rental under the said Articles, refer exclusively to fixed copies that can be put into circulation as tangible objects’. Accordingly, it should be found that 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 copyright holder’s consent.[paras 37 to 40]

... But InfoSoc adaptable
This said, the Court considered whether the fact that the object, which was marketed with the copyright holder’s consent, has undergone subsequent alterations to its physical medium has an impact on exhaustion of the distribution right. The CJEU concluded that "the consent of the copyright holder does not cover the distribution of an object incorporating his work if that object has been altered after its initial marketing in such a way that it constitutes a new reproduction of that work. In such an event, the distribution right of such an object is exhausted only upon the first sale or transfer of ownership of that new object with the consent of the rightholder." [para 46]
All in all:
"Article 4(2) of Directive 2001/29 must be interpreted as meaning that the rule of exhaustion of the distribution right set out in Article 4(2) of Directive 2001/29 does not apply in a situation where a reproduction of a protected work, after having been marketed in the European Union with the copyright holder’s consent, has undergone an alteration of its medium, such as the transfer of that reproduction from a paper poster onto a canvas, and is placed on the market again in its new form." [para 49]
In a nutshell

Of course this case was not about digital exhaustion. However, by suggesting that exhaustion under Article 4 of the InfoSoc Directive only applies to the tangible support of a work, the Court appeared to imply that there is no such thing as a general digital exhaustion under EU copyright. In other words: the decision in UsedSoft [on which see Katposts here and 1709 Blog posts here] was possible only because of the lex specialis nature of the Software Directive [which the CJEU itself re-affimerd in Nintendo, here here and here]

Readers will be aware that earlier this week, the Amsterdam Court of Appeal issued a ruling against second-hand ebook seller Tom Kabinet [here], although it refrained from addressing the issue of whether the InfoSoc Directive allows such thing as a digital exhaustion.

At this stage this Kat notes that the Art&Allposters ruling may have provided a (partial) response to this thorny issue, yet the last word in this respect is probably yet to be said, whether at the judicial or policy levels. 

A more detailed analysis of today's ruling will follow shortly, so: stay tuned! 


Thomas Dillon said...

The confirmation that Usedsoft applies only to software is valuable, but I cannot agree with just about anything else the Court says. The question of EU law (not, I accept, Dutch law, which may still have been infringed) was whether there was a new act of reproduction. Where the original ink is transferred to another support without changing its form, no new reproduction has occurred. This has been explained in the US: C. M. Paula Co. v. Logan 355 F.Supp. 189 (1973); cf Peker v Masters Collection 96 F. Supp. 2d 216. The CJEU also resurrects its idea that the author's remuneration must be "reasonable", which is without legislative basis. The point about IP is surely that the market decides how much to pay.

Anonymous said...

This judgment really makes no sense. If I were to reframe a poster by putting it on a nice new backing and in an expensive frame - all at my effort and expense, not the copyright owner's - then would I also be expected to pay the copyright owner? The situation is practically identical.

Andy J said...

I tend to agree with Anon @08.51 that the reasoning behind the decision on the exhaustion of rights seems somewhat counter-intuitive. The court seems to be saying that if one takes, for example, an oil painting by a famous artist, the 'essence' of the painting which attracts the protection of copyright, resides in the canvas substrate, and not in the oil paint which records the creativity of the artist.
And of course we still have the continuing uncertainty about the exhaustion of rights for intangible works which are not not software, such as ebooks, and lawfully obtained digital music and video files.

Sebastian F S said...

Eleonora, I am not sure whether the court looks at "tangible article" and "that object" in a way that the exhaustion principle applies to tangible objects only.

Para 37 and 40 state that exhaustion of the distribution right applies to the tangible object - but that does not exclude that it can apply to digital objects too (the decision itself doesn't cite AG Cruz' opinion AFAIK)?

That said, it could have been nice to have clarification or obiter dictum re: digital exhaustion in InfoSoc...


Eleonora Rosati said...

@Sebastian: this is the interpretation provided by those who think that UsedSoft should be extended to the InfoSoc Directive. However, by framing exhaustion within the notion of tangible support, to me this decision makes it very difficult to say that there is digital exhaustion under the InfoSoc Directive. Yet, it is true that the CJEU did not expressly say a thing in this respect ...

Mark said...

Eleonora, when you do your fuller write-up could you explore further the ramifications for resale of physical goods? Personally I think digital exhaustion is a red herring here. More important to me would seem to be the impact on people's freedom to repurpose objects and make new things out of them - often highly creative acts in themselves. Where does this leave the "maker movement", people who sell repurposed goods on Etsy, etc? As the anonymous commmenter above said, where does it leave picture reframers?

Also, on the judgment itself, how on earth does transferring ink from one surface to another result in a higher quality work? And if there is a quality improvement, shouldn't the person who made that improvement be the one who deserves to be remunerated for it?

There is much in this judgment which would seem to stand in the way of creativity rather than promote it.

Eleonora Rosati said...

@Mark: I agree with you. Plus, the judgment seems to imply that it is only OK to create a work from scratch, which is not true at all in copyright terms.

Anonymous said...

Not only do I think that Mark's comment of digital exhaustion being a red herring is wrong, I would posit that digital exhaustion will be THE critical point of debate - and not only for copyright, but for patent as well.

The digital age threatens the very foundations of Intellectual Property - trying to pooh pooh it and place it to the side does no one any favors.

Sebastian F S said...

@Eleonora fully agree! Still, it seems like there is a backdoor open that the court didn't want to close entirely...

@Mark, interesting aspects re maker movement. Re quality ?

James Plotkin said...

The Supreme Court of Canada dealt with an identical issue (to the adaptation question) in Théberge v. Galerie d'Art du Petit Champlain Inc. In that case the Court espouse the notion of format shifting as not infringing copyright so long as there was no copy made.

As for the digital exhaustion, does this not create a distinction in the scope of protection afforded digital versus non-digital works? This clearly offends the notion of technological neutrality which makes a lot of sense in the copyright context.

Andy J said...

@James Plotkin.
I haven't looked up the case you cite, so forgive me if I have this wrong, but format shifting is not really the same as exhaustion of rights (at least not when viewed from the European perspective). Under EU law private users may, exceptionally, make copies of their legally owned media (whether analog or digital) for the purposes of format shifting, presuming of course no DRM is in place, and the work concerned is not software.
As for your second paragraph, I wholeheartedly agree that copyright protection should be independent of the technical media, but one has to wonder sometimes how tech savvy the judges of the CJEU are.

Anonymous said...

James Plotkin,

One problem (among many) is that the nature of digital works is that the act of local copying is inherent.

The world wide web really does not magically transport you to the place of the original digital content.

Each and every act involved with the digital world is an act in which copies of the original are replicated locally.

Understanding what is actually going on is therefor critical when one considers how the impact of "digital" must be squared with existing IP law.

When you buy a "digital" anything, there is no transport of an original digital work to you, but rather, a local digital copy is generated. You really only "buy" your local copy.

Even more problematic, is that your local copy must be itself re-copied every time you "access" it.

The meaning of "ownership," "selling," and "exhaustion" simply have not been fully nor adequately 'translated' into the new reality.

If "exhaustion" retains its traditional meaning that the copyright owner has been given his asked for remuneration for the exchange of an "item" and that the receiver of that "item" then has full control over that "item," then because copying is a fundamental and necessary act for use of that "item," then the exhaustion necessarily releases any and all control over said copying.

Of course, the fallout of this is that said copying of a digital work also brings about unlimited and perfectly seamless duplication that eviscerates the market of that first original. I would add that there exists no real ability to control this duplication apart from the necessary duplication that must be allowed with the digital work.

And I would also proffer that is a business model issue.

So we are faced with clinging to an old business model or eviscerating the meaning of exhaustion.

Like it or not, the digital world advances (and as I have also posted, this advance imminently implicates not just copyright protection, but patent protection as well - how can you realistically enforce the exclusionary right to prevent "making" when the actual infringer is the end user sitting at home with her 3D printer making something from pure data? Do you give legal effect to pure data? Do you chase the "deep pocket" somewhere other than the end user?

These are very real - and I would put it - THE critical questions that need to be answered.

Andy J said...

Anon @16:46.
Copyright law per se is not the means by which a rights owner's rights should be enforced; it merely provides the framework which allows a rightspowner to establish that infringement has taken place and that therefore they are entitled to some form of civil remedy. In more egregious cases the criminal law may also be involved.
But even in the pre-digital age, copying a book with a photocopier, or an record with with a tape recorder were just as difficult to polce as the digital copying to which you refer. The difference lies in the scale (which is as much to do with the internet as it is to the digital technologies per se), so I agree with James Plotkin that the courts should approach the subject of exhaustion of rights in exactly the same way, irrespective of the technological process involved.
To that extent, differentiating between software (a sub-set of literary works) and other types of eligible works just makes the law unnecessarily opaque and unwieldy.

Anonymous said...

Andy J,

Thank you for the response.

I cannot discern your meaning though in your first sentence. You seem to be wanting to insert some additional thought that is untethered to the points that I am making.

Aside from that, you miss the fundamental nature of copying involved in digital works. It simply is not merely enough to say "a copy could be made with older items," - as it is mandatory that a copy is inherently made with digital items - such action is just NOT separable.

In fact, your reply proves my point, as it is most assuredly NOT just a matter of scale.

Thus your conclusion of "just mak[ing] the law unnecessarily opaque and unwieldy" does not reach.

Andy J said...

Hi anon @19:00.
The first sentence of my previous post was not as clear as I had hoped. My argument is that if there are deficiencies in a format (such as a digital file which is intangible) it is not the job of copyright to impose different limitations or reduced rights of ownership on the lawful purchasers of such products, just because the opportunities for copying are potentially greater.
Your other point about the inevitable necessity of making intermediate copies of digital files in order to consume them (when they are downloaded or held in the cache of a device etc) is already addressed in the InfoSoc Directive 2001/29 Art 5.1 and confirmed by the CJEU in PRCA v NLA C‑360/13.

Andy J said...

I'm soory that the link in my previous comment seems to be corrupted. Hopefully this new link should work, but in case it doesn't, I've included the text of the url:

Anonymous said...

Andy J,

As this happens to me at times, the link is not corrupted per se, but one must remember to add an extra space between a typed hyperlink and the punctuation at the end of a sentence (or between a hyperlink and open or closing parentheticals).

For example:
hyperlink_Period vs hyperlinkPeriod

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