Before delving into the detail, a brief recap to provide some context:
- Exhaustion: what is it again? Under copyright, the exhaustion principle limits the rights-holder’s exclusive right to distribute a protected work, where the distribution right is ‘exhausted’ following the first (authorised) sale of the work, i.e. the rights-holder can no longer prevent further distribution of that work. The underlying rationale is to strike an appropriate balance between the rights-holder’s interests and the free circulation of goods.
- Why is exhaustion such a hot topic? In the EU, the CJEU's controversial ruling in Case C-128/11 UsedSoft gave rise to limited circumstances where downloaded computer software could be lawfully re-sold on the basis that the distribution right under the Software Directive had been exhausted. There is legal uncertainty on how the UsedSoft ruling applies to other types of digital content, in particular, e-books and videogames, parts of which may fall to be protected under both the Software Directive and the InfoSoc Directive. In contrast, the current position under US law following Capital Records v Redigi Inc 934 F.Supp.2d 640 is that there is no first sale defence (i.e. exhaustion) for digital files.
- What was Art & Allposters about? The case concerns the scope of the exhaustion principle under the Information Society Directive in circumstances where a company uses a chemical process to transfer the ink from a paper poster (of a famous art work) onto canvas. The issue was whether the rights-holder’s consent was required to distribute the resulting canvas-based work created from the poster version via the ink transfer process. It is important to note that this case concerns exhaustion under the InfoSoc Directive, and not the Software Directive (which was the subject of the UsedSoft decision).
- where there is a "change" to the physical medium on which the work is incorporated (e.g. from paper to canvas), the distribution right is not exhausted in respect of that second work because it is now incorporated on a different physical medium.
- such a "change" to the physical medium may result in a new reproduction of the work which potentially infringes the author’s reproduction right, and thus requires a separate authorisation.
What does a 'change' to the physical medium look like?
One question that leaps out from the ruling is what constitutes a sufficient ‘change’ to the physical medium into which a work is incorporated, such that it results in a new reproduction of the work for which the distribution right is not exhausted (and for which potential liability under the reproduction right may arise).
A key aspect in this regard is the CJEU’s observation (at ) that, “What is important is whether the altered object itself, taken as a whole, is, physically, the object that was placed onto the market with the consent of the rightholder.”
On the facts, the CJEU considered it irrelevant that the actual ink on the poster was transferred onto the canvas (as argued by the defendant): this did not affect the outcome that the canvas-based work, taken as a whole, was physically different to the poster work which the rights-holder had authorised to be put onto the market (and consequently, the distribution right in the canvas-based work was not exhausted by the first authorised sale of the poster-work).
On the basis of this limited guidance, we are therefore left to interpret what the CJEU meant by “taken as a whole”, and national courts will need to draw their own conclusions as to when a new reproduction occurs on the facts of each case.
What are the broader implications of the Art & Allposters ruling?
The CJEU's ruling will be directly relevant to stakeholders involved in the exploitation of copyright works (in particular, artistic and literary works) produced on physical, tangible objects. This could affect manufacturers, distributors and retailers of a wide range of goods sold in gift shops, galleries, home furnishing outlets etc. which incorporate copyright works.
It is reasonably clear that for artistic and literary works (protected under the Information Society Directive), the exhaustion principle is tied to the physical medium on which the work is expressed, whether that be paper, canvas, glass or a stone tablet. Licensees will need to ensure that their intended uses of the licensed copyright works on different physical media are adequately covered in the licence terms to mitigate the risk of future challenge by the licensor (and similar considerations apply in the relation to any assignment of rights).
It is also worth noting that the issues raised in Art & Allposters have been the subject of legal proceedings elsewhere: see for example the 2002 case before the Supreme Court of Canada of Théberge v Galerie d'Art du Petit Champlain Inc 2002 SCC 34 (regarding an almost identical transfer process from a paper poster to canvas) and before the US District Court (N.D. Texas) in CM Paula Company v. Logan, 355 F. Supp. 189 (regarding the transfer of copyright designs from greeting cards and note pads onto ceramic plaques).
Does Art & Allposters affect 'online exhaustion' following UsedSoft?
Leaving aside this Kat's personal views on the
However, the Art & Allposters ruling does highlight the curious position in the EU, where the scope of the exhaustion principle differs depending upon whether the work falls to be protected by the Software Directive or the InfoSoc Directive:
- For works protected under the InfoSoc Directive: the exhaustion principle is inherently tied to the physical medium on which the work is expressed. There is a strong inference that exhaustion was not intended to apply to works distributed via online, intangible means, such as by download;
- For works protected under the Software Directive, the exhaustion principle can apply to computer software that is distributed via download (as well as distribution on a physical medium) provided that certain conditions are fulfilled (e.g. there is a 'sale' which is broadly interpreted to include the grant of a right to use the software for an unlimited period for a fee that corresponds to the economic value of the work; original acquirer must make his/her own copy unusable at the time of the resale)
This is the result of a series of CJEU judgments (primarily: C-393/09 BSA [see here], C-406/10 SAS Institute [see here] and C-355/12 Nintendo [see here]) which cumulatively have desiccated the scope of protection under the Software Directive to the source code, object code, and any preparatory design material of a computer program. Other creative components expressed by a computer program such as the graphic user interface, sound elements, data file formats and programming languages fall to be protected under the InfoSoc Directive (provided that they constitute their author's intellectual creation).
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