From October 2016 to March 2017 the team is joined by Guest Kats Rosie Burbidge and Eibhlin Vardy, and by InternKats Verónica Rodríguez Arguijo, Tian Lu and Hayleigh Bosher.

Friday, 6 March 2015

Can a decision on the VAT Directive mean that there is no general digital exhaustion under EU copyright?

Yesterday was a big IP day at the Court of Justice of the European Union (CJEU), with both the judgment in Copydan (private copying levies) [here] and the Opinion of Advocate General Jääskinen in Saatgut-Treuhandverwaltungs (plant variety rights) [here].

However, while browsing the Curia calendar and press releases, this Kat's attention was drawn to another case which, although not strictly IP-related, might be very relevant IP-wise, especially for copyright aficionados and those (like this Kat) with a thing for digital exhaustion.

It is European Commission v France, a case concerning reduced VAT rates for ebooks [yawn, says Merpel, but she may be wrong: keep reading].

In a nutshell, what happened here is that France and Luxembourg had reduced VAT rates for ebooks, and the Commission was not happy with that. 

The Commission actually claimed that, by setting reduced rates, these Member States acted in breach of their obligations under EU law, ie Article 96 and 98 of the VAT Directive. The CJEU was thus asked to declare that, by applying a reduced VAT rate to the supply of digital (or electronic) books, France failed to fulfil its obligations under Articles 96 and 98 of this directive.

In particular, Article 98(2) of the VAT Directive provides that the reduced rates of VAT may apply only to supplies of goods and services referred to in Annex III to that directive. 


Ben pictured while daydreaming
about VAT rates and copyright
The latter would be inapplicable to ebooks, so the only way these could be eligible for reduced rates would be if they could be considered as "goods". 

But are ebooks more akin to goods or services?

All in all, the Court agreed with the Commission, and held that an ebook is not a good, but rather an "electronically supplied service" within the meaning of the second subparagraph of Article 98(2).

What does all mean copyright-wise? Possibly not much, but perhaps it can be considered as a further hint to support the view that there is no such thing as a general doctrine of digital exhaustion under EU copyright law.

Recital 29 in the preamble to the InfoSoc Directive states in fact that: "The question of exhaustion does not arise in the case of services and on-line services in particular."

Readers will remember that a few weeks ago, the CJEU issued its important decision in Art&Allposters [here]. Although not a case on digital exhaustion, there the Court held that exhaustion under Article 4 of the InfoSoc Directive only applies to the tangible support of a work. By doing so the CJEU appeared to imply that there is no 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], but that the principles expressed therein cannot be extended to other works.

By suggesting yesterday that ebooks are services, rather than goods (although in the context of the VAT Directive), the CJEU appeared to imply that, lacking a change in the law, it may be unwilling in a future case to extend the principles expressed in UsedSoft to digital subject-matter other than software, ie ebooks, videogames, audio/video files, etc.

What do readers think?

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