Waiting for a lower court to rein in resale? You’d sooner herd cats

From enthusiastic and talented Katfriend and Phd researcher at the European University Institute (Florence) Emma Linklater comes news of an interesting German ruling which touches upon many topics which are dear to IPKat readers, including eBooks, digital resale (eg here), the InfoSoc and Software directives, and the controversial decision of the Court of Justice of the European Union (CJEU) in Case C-128/11 Oracle v UsedSoft (here). 

Here's what Emma has to say:

March was a busy month for digital resale with a largely-unnoticed ruling from the ‘Landgericht Bielefeld’ (German Regional Court) on downloads of eBooks and audiobooks and the much anticipated ReDigi ruling of the US District Court for the Southern District of New York on digital music [noted here and here]. 

If we face facts, neither the German decision nor ReDigi bring us any legal surprises – in fact they’re pretty predictable given the legal landscapes on both sides of the Atlantic. Both blow digital exhaustion out the water for the time being. But call this guest Kat a dreamer, she’s still not so sure who will get the cream if this resale kerfuffle works its way up the court systems or legislature.

 

This post focuses on the German decision, available here für deutsch sprechende Katzen only. 

In short, the German Court reiterated that the CJEU in UsedSoft considered the Software Directive as lex specialis and because the more general InfoSoc Directive, applicable to downloadable eBooks and audiobooks, explicitly disallows resale of intangibles the CJEU’s reasoning cannot be transferred. Ultimately, the Court underlined that for precedential purposes, UsedSoft can only be used where the Software Directive applies; the reasoning is not applicable to other digital content.

Although not revelatory from a legal perspective, there are some interesting parts to the German decision stemming from the consumer-focussed analysis the Court makes. The applicant was an ‘umbrella’ consumer organisation which considered that purchasers were unreasonably disadvantaged by contractual clauses limiting what they could do with their downloads, in particular as regards further ‘lending and resale’. The complaint centred firstly on the ‘product placement’ of downloadable eBooks and audiobooks in the same menu as print books and secondly on the contractual clauses which used ‘physical’ product language (‘sale’, ‘purchase price’, ‘delivery’) but restricted use. Essentially, they argued that this deceived consumers into thinking they would have the same usage rights over digital purchases as for physical ones, that this was unreasonable, and that such divergences should be remedied by allowing for digital exhaustion (thereby bringing the contract in line with one for physical goods). 

The Court disagreed. 

UsedSoft: You can resell all legally
purchased software but can't get
your claws into a second-paw
ebook

With some rather sweeping generalisations, it considered that consumers were well aware of the media-hyped piracy problem. Consumers know, it said, that digital files can be passed along more easily and without them having to delete their own copy, thus facilitating infringement. With this knowledge, consumers expect their usage of digital files to be restricted.  (Perhaps the Court is unaware that some publishers (e.g. O’Reilly) do currently allow resale of eBooks, which could muddy the waters for consumers?).

The Court also made an interesting point on price: 

“Given the lower price of an audiobook, or e-book compared to the physical work, the average customer will be satisfied with the use of the file for his own purposes only.”  

To the present author, this can be read as a signal to publishers (note that in Germany publishers set eBook and audiobook prices by de facto extension of the print book law) that the price of eBooks has to be lower than for print books - only then will the average consumer be satisfied with the restricted use. It’s a predictable pity the Court doesn’t say what price point makes a satisfied customer, but perhaps this could be seen as a Court-mandated warning that publishers should not price as they would for the print market.

It's a good idea to know thy enemy,
but you thought you were
buying a book?
Nope, you're licensing an eBook.
Easy slip of the tongue, iTunes.

Also, Court seems to assume that the consumer will illegally try to pass on his eBook or audiobook to multiple other parties without letting go of his own file. No mention is made of ‘forward and delete’ methods to reign in resale. 

In a sense, the plea to permit exhaustion in this case is therefore more extensive than in both UsedSoft and ReDigi where the defendants used such technologies to bring digital exhaustion closer to the resale of physical goods; only one legally obtained copy could be resold, so the first sale channel was not completely eroded. The Court – and the parties - here seemed unaware of such technologies which are becoming a business priority for retailers and, in the view of this guest Kat, could be used influence the future legal landscape too. This is for two reasons – one innocent, and one not quite so.

Firstly, both ReDigi and the German consumer organisation have indicated they will appeal. The innocent unfolding of events in Europe would be through a preliminary reference to the CJEU on the combined application of recital 29 and Art. 4(2) of the Infosoc Directive (disallowing exhaustion of intangibles). This could force a rethink based on the changing technological landscape: adopted in 2001, the Infosoc Directive could not foresee the closer assimilation of physical and digital channels through the use of ‘forward and delete’ methods. An evolutionary approach to the law could therefore see some change. However, a more contrived vision could leave legislators looking like they swallowed a canary. A cynic's view would be that the entry of big shot tomcats Apple and Amazon with their patents granted earlier this year could lead policymakers at all levels to scramble to amend the digital exhaustion ‘problem’ to cater for their wants.

In the US, Maria Pallante has already called on Congress to update the first sale doctrine [here and here]. Whether with innocent, or not-so-innocent, motives, it is submitted that assimilating physical to digital markets should not be done without querying whether e-exhaustion is really needed to preserve the balance between copyright holders and the public interest. Do we need resale to be contented consumer kittens? Or, as the German Court seemed to indicate, should we be satisfied with the increased accessibility and affordability offered to us through licensing (rather than outright sales) models? 

From where this Kat sits, exhaustion, though exhausting, is certainly not exhausted.