Can warehouse storage of copyright-infringing products be considered an act of distribution? AG Campos advises CJEU to rule 'yes'

Old Town in Stockholm
Can the right of distribution under Article 4 of the InfoSoc Directive come into consideration in relation, not just to the sale of counterfeit garments bearing a copyright-protected motif, but also the storage of such garments in a warehouse? More generally: how far does the control of the copyright holder go in relation to unauthorized uses of their works?

Readers will remember that over time the Court of Justice of the European Union (CJEU) has interpreted expansively the scope of, inter alia, the right of distribution, and got to the point of holding - in Dimensione Direct Sales [Katposts here] - that even the advertisement for sale (not necessarily followed by an actual sale) of a copyright work may fall within the scope of Article 4.

In a context of this kind, as a result, the questions that the Swedish Supreme Court has referred in Syed, C-572/17 are not surprising:
When goods bearing a protected motif are unlawfully offered for sale in a shop, can there also be an infringement of the author's exclusive right of distribution under Article 4(1) of Directive 2001/29 as regards goods with identical motifs, which are held in storage by the person offering the goods for sale? Is it relevant whether the goods are held in a storage facility connected with the shop or in another location?
Yesterday, Advocate General (AG) Campos Sánchez-Bordona delivered his Opinion [not yet available in English], in which he answered the first question in the affirmative and the second in the negative.

Let's see what happened and how he reasoned.

Background

Mr Syed had a shop in the Old Town of Stockholm (Gamla Stan), in which he sold counterfeit items (clothing and accessories) carrying rock decorative motifs. Counterfeits were also held at a warehouse next to the shop and a warehouse in the southern part of Stockholm. He was criminally prosecuted and found liable for both trade mark and copyright infringement. As regards copyright, Syed was held liable not just for the items sold in his shop, but also for those held at the warehouses. However, the first instance court rules out that the latter would be relevant from a criminal standpoint.

The decision was appealed, and the Swedish Patents and Market Court of Appeal excluded any liability of Syed for copyright infringement in relation to the items held at the warehouses.

The public prosecutor appealed this new decision to the Swedish Supreme Court, which decided to stay the proceedings and make a referral to the CJEU. In any case, the top court in this country held the view that the right of distribution within Article 4 of the InfoSoc Directive would also include preparatory acts for the sale of a copyright work or copy thereof, including warehouse storage, and that it is not required that a sale actually takes place (this is also the position that Swedish Government took at the time of transposing the InfoSoc Directive into this Member State's own law).

All this would be in line [as it is indeed] with CJEU case law, notably the recent decision in Dimensione Direct Sales. According to the EU Commission, however, it would not be correct to say that mere storage at a warehouse falls within the scope of the right of distribution, because in that case the CJEU did not go that far.

The AG Opinion

The AG clarified at the outset that criminal liability in copyright cases is not something that has been harmonized at the EU level, so the only guidance that the CJEU may provide in relation to this referral concerns the right of distribution within Article 4 of the InfoSoc Directive. The consequences that would arise from a finding of unauthorized distribution of copyright content - including the provision of criminal sanctions - are a matter for national legislatures to define.

CJEU case law

Having provided these preliminary remarks, the AG reviewed CJEU case law on the right of distribution.

In Peek & Cloppenburg the CJEU adopted a rather narrow reading of what would qualify as 'distribution': in cases other then sale, only acts that exclusively imply a transfer of ownership of the copyright work/copy would qualify as distribution. 

However, since then, the CJEU has broadened the concept of distribution. It did so in Donner and Dimensione Direct Sales [and, I would say, also in Blomqvist]distribution to the public is characterized by a series of acts going, at the very least, from the conclusion of a contract of sale to the performance thereof by delivery to a member of the public. In Dimensione Direct Sales, the Court reached the conclusion that the holder of the right of distribution is entitled to control not just the actual distribution of the original or copies of a protected work, but also preparatory acts, including repressing third-party unauthorized advertisements for sale of copyright works or works protected by related rights. It follows that a copyright holder is entitled to prevent even the unauthorized advertisement for sale of their works or copies thereof.

From all this it follows that a trader is responsible for all the acts, including preparatory ones, necessary to finalize a distribution to the public.


Kats like Linka do not like leaving the house,
so shopping in the cold is out of the question
Warehouse storage

In light of all this, the core of the issue is whether warehouse storage of copyright-infringing garments and accessories falls within this concept of distribution. 

The AG reviewed the concept of distribution in light of international law (Article 6 of the WIPO Copyright Treaty), and concluded that an 'offer for sale' (which falls within the concept of distribution, as per - at least - more recent case law) [para 55; the translation from Italian is mine]
is not limited to products on display in a certain commercial setting, but also includes identical products, temporarily stored at a warehouse facility of the seller and ready to replace the products that have been sold. 
It follows [para 57] that
the right to oppose the distribution of products carrying copyright infringing reproductions extends not just to the items on sale in a shop, but also to those products that carry the same reproductions, held at the warehouses of the seller and awaiting to be moved to the shop. 
According to the AG, said interpretation of Article 4:
  • Is in line with international law (Article 6 of the WIPO Copyright Treaty);
  • Is in line with the objectives of the InfoSoc Directive, notably to guarantee a high level of protection; and
  • Allows to guarantee the effet utile of Article 4, which is to prevent the commercialization of copyright-infringing items and recognize the preventive nature of InfoSoc economic rights. 

The AG rejected the test proposed by the Commission (deemed 'excessively formalistic' and rigid), and excluded that it is of any relevance to take into account the proximity or lack thereof of the warehouse to the shop.


Comment

In light of existing CJEU case law on the right of distribution, the conclusion achieved by AG Campos seemed to be only possible one. It would be surprising - though definitely possible - if the CJEU ruled otherwise.

The AG was also correct to link the interpretation proposed to the Court to the objective of ensuring a 'high level of protection', the reference to which has invariably resulted - over time - with an expansive reading of the scope of harmonized economic rights.
Can warehouse storage of copyright-infringing products be considered an act of distribution? AG Campos advises CJEU to rule 'yes' Can warehouse storage of copyright-infringing products be considered an act of distribution? AG Campos advises CJEU to rule 'yes' Reviewed by Eleonora Rosati on Thursday, October 04, 2018 Rating: 5

1 comment:

pajz said...

I disagree. This is materially different from Dimensione Direct Sales. The true purpose of the distribution right is to shield the copyright owner from undue interference with the market for his product. Once you offer the product to the public - particularly if you do it in such a way that a member of the public can conclude the contract of sale by accepting the offer (rec. 27) - that interference has already materialized. This is the natural limitation to the CJEU's holding in Dimensione Direct Sales that "acts or steps preceding the conclusion of a contract of sale may also fall within the concept of distribution" (rec. 26).

Here, the public sphere was not entered. The warehoused counterfeit does not affect the market in any way, and it is entirely speculative if it ever will. It was never offered on the market, and it may just as well go straight to the dumpster if the owner at some point realises that, say, there is a lack of demand. To consider this an infringement of the distribution right would mean to rest an economic right solely on the basis of subjective intent -- and in that this case differs crucially from Dimensione Direct Sales.

The CJEU should answer the question in the negative. The proper tool to address this issue is the reproduction right. The distribution right should not be a sort of annex to the reproduction right that adds an additional sanction to people who reproduce with an intention that we particularly disapprove of.

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