Dutch court refers questions to CJEU on e-lending and digital exhaustion, and another Dutch reference on digital resale may be just about to follow

The Tom Kabinet portal
A few days ago Future of Copyright reported that the Court of Appeal of The Hague has decided to seek guidance from the Court of Justice of the European Union (CJEU) as regards a couple of copyright-related matters of topical interest right now, these being e-lending and digital exhaustion. 

This Kat has learned from a Dutch Katfriend who wishes to remain anonymous but nonetheless tweets as 'Pacta sunt servanda' (@TreatyNotifierthat it is Court of First Instance of The Hague (Rechtbank Den Haag), not the the Court of Appeal, which has decided to refer the case. It has done so in the context of proceedings between the Dutch Association of Public Libraries (Vereniging van Openbare Bibliotheken) and Stichting Leenrecht (this a collection agency designated by the Dutch government for payments of lends, which it then redistributes to rights holders via a separate organisation named LIRA).

Although the questions have yet to be finalised [the parties have time until 1 October to make comments], so far they read as follows (in Dutch of course):

"1. Dienen de artikelen 1 lid 1, 2 lid 1 sub b en 6 lid 1 Lrl aldus te worden uitgelegd dat onder “uitlening” als daar bedoeld mede is te verstaan het voor gebruik ter beschikking stellen
- voor een beperkte tijd
- zonder direct of indirect economisch of commercieel voordeel
- op afstand
- door middel van downloaden
- op basis van een one user once [sic!] copy model
- via voor het publiek toegankelijke instellingen
van een kopie in digitale vorm van auteursrechtelijk beschermde romans, verhalenbundels, biografieën, reisverslagen, kinderboeken en jeugdliteratuur?
[can lending ebooks on a one-user-one-copy basis be regarded as lending under the Rental Directive? 'Pacta' explains that in its ruling the 
Rechtbank Den Haag said that lending can be interpreted as: i) the term in normal use (according to the judge: transferring temporarily the "beschikkingsmacht" (the power to do things with it) to someone) which would (again according to the judge) not apply to ebooks in this case, as one version would remain stored on the servers of the library; or ii) is defined by Article 2(1)(b) of the Rental Directive: making available for use (....), which is technique-independent (and thus would apply to ebooks)]

2. Als vraag 1. bevestigend moet worden beantwoord, geldt voor de toepassing van de uitleenexceptie in de zin van artikel 6 Lrl de eis dat het door de instelling uitgeleende exemplaar van het werk in het verkeer is gebracht door een eerste verkoop of andere eigendomsovergang van dat exemplaar in de Unie door de rechthebbende of met zijn toestemming in de zin van artikel 4 lid 2 Arl?
[if so, is it required for the use of the public library exception, that the work has entered into circulation through a first sale (...) of that copy in the Union by the rights holder or with his consent? 'Pacta''s comment is: the question focuses on whether sale is a requirement as at the moment ebooks are formally never truly sold, but they are rented for an indefinite duration; and whether exhaustion of the distribution right is a requirement for the application of the lending exception. The judge is quite clear that the answer should be in the negative as there is no reason to assume that exhaustion is a requirement for application of lending under the Rental Directive]

3. Als vraag 2. ontkennend moet worden beantwoord, stelt artikel 6 Lrl andere eisen aan de herkomst van het uitgeleende exemplaar, zoals bijvoorbeeld de eis dat het uitgeleende exemplaar is verkregen uit legale bron?

4. Als vraag 2. bevestigend moet worden beantwoord, dient artikel 4 lid 2 Arl aldus te worden uitgelegd dat onder de eerste verkoop of andere eigendomsovergang van materiaal als daar bedoeld mede wordt verstaan het op afstand door middel van downloaden voor gebruik voor onbeperkte tijd ter beschikking stellen van een digitale kopie van auteursrechtelijk beschermde romans, verhalenbundels, biografieën, reisverslagen, kinderboeken en jeugdliteratuur?"
[This question, only to be answered if sale is a requirement regarding lending+lending exception in the Rental Directive, concerns whether the distribution right is exhausted when the library downloads (and thus formally rents for indefinite duration) the ebook. In other words: should ‘obtaining’ an ebook be regarded a sale within the Rental directive? The judge appeared inclined to respond in the negative though]

Apparently, this may not be the only new reference from The Netherlands, as another one in the context of litigation arisen as regards a digital marketplace for second-hand ebooks may follow soon. Still 'Pacta' explains what this other case is about:

"Tom Kabinet (www.tomkabinet.nl) started in July this year (covered in many Dutch media; also covered here) a digital marketplace for second-hand ebooks using EPUB (the usual ebook standard for most apps/suppliers but not, for example, Kindle).

Sellers create an account (which includes a bank account number for receiving earnings) and can upload ebooks onto the site. They agree to deleting their own personal copies from their own device(s) and confirm that they had legally obtained them [this is very similar to the functioning of ReDigi (a "pre-owned digital marketplace" for music, software, ebooks and audiobooks), which was at the centre of an interesting US decision last year (here and here) which denied the applicability of the first sale doctrine (the US equivalent to EU exhaustion) to digital subject-matter].

Buyers may buy ebooks, which they download from the site; and to which Tom Kabinet attaches a “visitable and invisible” digital watermark “hash”, which enables its identification should it surface on, say, a piracy-oriented website.
Think-outside-the-box solutions
may not always
be appreciated at first

Upon launching the website, Tom Kabinet sent letters to publishers explaining the initiative and inviting them to support it. It is not completely surprising that they didn’t. Two organisations representing publishers (Nederlandse Uitgeversverbond and Groep Algemene Uitgevers) filed instead a “kort geding”, ie a legal action seeking a verdict on short notice based on what the likely judgement would be in a fully fledged court case. They sought an order that would require Tom to stop its service, amongst others because Tom could not guarantee that the seller would remove his/her own copy. They further indicated that storing the ebook was an act of reproduction action and a communication to the public; and that Tom was facilitating the distribution of illegal ebooks. 

In its verdict on 21 July last the 
Rechtbank Amsterdam (Court of First Instance of Amsterdam) made a few interesting remarks: (1) there was no evidence of bad faith on the side of Tom Kabinet; (2) there was uncertainty surrounding the applicability of the principle of exhaustion and the Court did not feel like following certain German decisions [on which see further below]; (3) the judge declined to say which of the parties was “right” regarding the legality of Tom Kabinet's initiative in light of the existing legal uncertainty (specifically mentioning the potential questions in the public libraries case), and held instead that Tom maintained a defendable position that probably only in a fully fledged court case could be assessed. 

There may be two further steps after a verdict of this kind. A “kort geding” can be appealed (spoed appel; accelerated appeal) which will result again in a “kort geding”-like session”. Both parties furthermore may start a fully fledged court case (a “bodemzaak”). The news is that last week the publishers indeed filed the accelerated appeal. No bodemzaak has been started yet, but the publishers keep this option open.

Now how will this action end up at the CJEU? Not at the spoedappel stage as that is too time-critical. But it may happen in the possible bodemzaak. Assuming the verdict will be upheld on spoedappel; I think the bodemzaak will be started by the publishers as the stakes are simply too high and the legal uncertainty too big. As this is a matter of principle and Dutch judges are quite keen on seeking guidance from the CJEU, 
I think it is highly likely there will be a reference for a preliminary ruling mainly regarding exhaustion, unless ... the answer to question 2 of the CJEU reference made last week in Vereniging van Openbare Bibliotheken (VOB) v Stichting Leenrecht answers the exhaustion question in such a way that it is also applicable here.

Thanks so much 'Pacta' for this helpful insight! Now, why are e-lending and digital exhaustion so controversial?

But can you hide under an ebook?

Future of Copyright explains that public libraries started lending ebooks to their users last January. However, the legal position of ebook lending in The Netherlands is unclear at the moment. Since the current lending provision is not specifically addressed at ebooks, it is debatable whether ebooks fall within the scope of the provision. Moreover, the provision is not applicable to software. The question arises whether ebooks could be considered software. Therefore, libraries that want to include ebooks in their catalogue have to sign contracts on the lending conditions with every separate rights holder.

IPKat readers might also remember that in its draft White Paper [leaked by the IPKat here - by the way: a White Paper from the Commission was is expected this month: does anyone have any info in this respect?] the Commission expressed the view that, despite the overall unclear legal regulation of e-lending, a legislative initiative in this area would be premature.

Digital exhaustion

In the wake of the post-UsedSoft [here] stress disorder, it is unclear whether there might be digital exhaustion for copyright-protected subject-matter other than software. Incidentally, that was a case where the principle “pacta sunt servanda” was somehow disregarded, as the CJEU held that a licence may be actually considered a sale if certain conditions are met.

Hereby we rule:
no digital exhaustion 

beyond software!
Last year the IPKat had a poll with its readers, and the result was that the majority (61%) of respondents thinks that, when given the opportunity to address this issue, the CJEU would say that exhaustion of the right of distribution as per Article 4(2) of Directive 2001/29 (the InfoSoc Directive) encompasses both tangible and intangible copies.

However, both German courts and Advocate General (AG) Cruz Villalón disagreed with this conclusion.

Earlier this year the Court of Appeal of Hamm ruled [here and here] in fact that the right of distribution is not subject to exhaustion when it comes to digital subject-matter [audiobooks in that case] other than software. The court denied the applicability of the principles expressed in UsedSoft - "whether directly or by analogy" - beyond the (narrow) confines of the Software Directive, which is to be considered as lex specialis in relation to the provisions of the InfoSoc Directive. In so doing, the Hamm judges upheld the earlier decision of the Regional Court of Bielefeld [here]

Coming to AG Cruz Villalón, in his Opinion last week in Case C-419/13 Art & Allposters International BV v Stichting Pictoright [here] he appeared to suggest that the InfoSoc Directive is all about tangible - not also intangible - exhaustion. 

When interpreting the meaning of 'object' in Article 4(2) of that directive, he held the view that this term does not refer to the copyright-protected work, but rather its material support. According to the AG, this interpretation would be confirmed by Recital 28 to the InfoSoc Directive, which states that copyright protection "includes the exclusive right to control distribution of the work incorporated in a tangible article" and "the first sale ... of the original of a work or copies thereof by the rightholder or with its consent exhausts the right to control resale of that object", with a clear reference to the need for a tangible support.

In light of the above, it is thus apparent that whether the InfoSoc Directive allows digital exhaustion is fairly controversial at the moment, so a clarification from the CJEU would be welcome indeed.

UPDATE: the post has been amended to reflect Barbara Stratton (@B_Stratton1) 's observations, for which Pacta and this Kat are grateful.
Dutch court refers questions to CJEU on e-lending and digital exhaustion, and another Dutch reference on digital resale may be just about to follow Dutch court refers questions to CJEU on e-lending and digital exhaustion, and another Dutch reference on digital resale may be just about to follow Reviewed by Eleonora Rosati on Monday, September 15, 2014 Rating: 5

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