BREAKING: CJEU rules that the provision of ebooks is an act of communication to the public (so there is NO digital exhaustion under the InfoSoc Directive)

Does EU copyright law allow the establishment of second-hand markets for subject matter (other than software) in digital format? 

This is the question that the Court of Justice of the European Union (CJEU) substantially answered this morning when it handed down its much-awaited judgment [not yet available on the Curia website] in Tom Kabinet, C-263/18.

The answer of the Court is that there is NO such thing as 'digital exhaustion' of the right of distribution under Article 4 of the InfoSoc Directive. More specifically, the provision of ebooks falls within the scope of the right of communication to the public, in relation to which there is no possibility of exhaustion (see Article 3(3)).

The decision substantially follows the Opinion that Advocate General (AG) Szpunar issued a little over 3 months ago [Katpost here].

As explained in the official press release:

The Court found that the supply by downloading, for permanent use, of an e-book is not covered by the right of ‘distribution to the public’ provided for by Article 4(1) of Directive 2001/29, but that it is covered by the right of ‘communication to the public’ provided for in Article 3(1) of that directive, in which case exhaustion is excluded under paragraph 3 of that article. 

In support of that finding, the Court concluded in particular from the World Intellectual Property Organisation (WIPO) Copyright Treaty underlying that directive, and from the travaux préparatoires for the directive, that the EU legislature had intended that rule of exhaustion to be reserved for the distribution of tangible objects, such as books on a material medium. By contrast, the application of that rule of exhaustion to e-books would be likely to affect the interests of rightholders in obtaining appropriate reward much more than in the case of books on a material medium, since dematerialised digital copies of e-books do not deteriorate with use and are, therefore, perfect substitutes for new copies on any second-hand market. 

As regards more specifically the concept of ‘communication to the public’, the Court indicated that this should be understood in a broad sense covering all communication to the public not present at the place where the communication originates and, thus, any such transmission or retransmission of a work to the public by wire or wireless means. That concept involves two cumulative criteria, namely an act of communication of a work and the communication of that work to a public. 

As regards the first criterion, it is apparent from the explanatory memorandum in the proposal for Directive 2001/29 that ‘the critical act is the “making available of the work to the public”, thus the offering [of] a work on a publicly accessible site, which precedes the stage of its actual “on-demand transmission”’, and that ‘it is not relevant whether any person actually has retrieved it or not’. Thus, according to the Court, the making available of the works concerned to anyone who is registered with the reading club’s website must be considered a ‘communication’ of a work, irrespective of whether the person concerned avails himself or herself of that opportunity by actually retrieving the e-book from that website. 

So far as concerns the second criterion, account should be taken not only of the number of persons able to access the same work at the same time, but also of how many of them may access it in succession. In the present case, according to the Court, the number of persons who may have access, at the same time or in succession, to the same work via the reading club’s platform is substantial. Consequently, subject to verification by the referring court taking into account all the relevant information, the work in question must be regarded as being communicated to a public. 

The Court also held that, in order to be categorised as a communication to the public, a protected work must be communicated using specific technical means, different from those previously used or, failing that, to a new public, that is to say, to a public that was not already taken into account by the copyright holders when they authorised the initial communication of their work to the public. In the present case, since the making available of an e-book is generally accompanied by a user licence authorising the user who has downloaded the e-book concerned only to read that e-book from his or her own equipment, it must be held that a communication such as that effected by Tom Kabinet is made to a public that was not already taken into account by the copyright holders and, therefore, to a new public.

Analogically exhausted Kat

Comment

Back in 2012, the CJEU issued its UsedSoft judgment, ruling that it is possible to resell lawful copies of computer programs downloaded from the internet, if the contractual operation at issue is tantamount to a sale (it was formally a 'licence' in the background national proceedings, though with the characteristics of a 'sale').

In the aftermath of UsedSoft - which, in itself, appeared a rather bold decision on the side of the Court - a question arose whether the same conclusion could be reached for other copyright subject matter in digital format, including e-books, audiobooks, music and audiovisual files, etc. That is: works protected under the InfoSoc Directive, rather than the Software Directive (the interpretation of which was at issue in UsedSoft).

In 2014, the Court of Appeal of Hamm (Germany) excluded that the right of distribution under the InfoSoc Directive, as transposed into German law, could be exhausted in the case of audiobooks. 

Taking a different view, in that same year the District Court of Amsterdam ruled at first instance in Tom Kabinet and concluded that the right of distribution would be exhausted following the first lawful sale of copies of e-books. The decision of the Amsterdam court was appealed to the Court of The Hague. This court held that the provider of second-hand e-books, Tom Kabinet, would not be liable for unauthorized acts of communication to the public under the Dutch equivalent of Article 3(1) of the InfoSoc Directive. However, it is unclear whether it could invoke the digital exhaustion of the right of distribution in relation to its e-book trade. Hence, the court in The Hague decided to seek guidance from the CJEU.

In my view, today's CJEU decision is correct from a legal standpoint for a number of reasons.

First, Recital 28 in the preamble to the InfoSoc Directive appears to link the right within Article 4 of the InfoSoc Directive to the ‘right to control distribution of the work incorporated in a tangible article’ (emphasis added). 

Second, Recital 29 in the preamble to the same directive clarifies that ‘[t]he question of exhaustion does not arise in the case of services and on-line services in particular’. In relation to this recital, in its follow-up to the 1995 Green Paper, the European Commission noted how ‘a large consensus exists that no exhaustion of rights occurs in respect of works and other subject matter exploited on-line, as this qualifies as a service.’ 

Third, in relation to the right of communication/making available to the public, Article 3(3) of the InfoSoc Directive rules out that this right be subject to exhaustion. 

Fourth, it should be recalled once again that, by adopting the InfoSoc Directive, EU legislature transposed into the EU legal order the WIPO Internet Treaties. The agreed statements to Article 6 of the WIPO Copyright Treaty provide that the expressions ‘copies’ and ‘original and copies’ in the context of the right of distribution exclusively refer to fixed copies that may be put into circulation as tangible objects.

Finally, since its early case law, the CJEU has been careful in drawing a distinction between the right of distribution, which would be subject to exhaustion, and other rights for which no exhaustion would occur. For instance, in Coditel, the Court did not find that requiring payment of a fee for each public performance of a film would be contrary to EU law. A similar distinction between the consequences of the first sale of a copyright work or a copy thereof for the exhaustion of the right of distribution and other economic rights was also made in Warner Brothers and Metronome Video and Tournier. 

As I discuss at greater length in Copyright and the Court of Justice of the European Union, some indirect guidance re the lack of digital exhaustion under the InfoSoc Directive can be also drawn from more recent case law, including Art & Allposters International [Katposts here] and Vereniging Openbare Bibliotheken [Katposts here], as well as some tax cases. Indeed, in Commission v France [Katpost here], the CJEU considered that ebooks may be classified as services, rather than goods under the VAT Directive. For the purpose of Article 98(2) of that directive, an ebook is not a good, but rather an ‘electronically supplied service’. This may suggest that, indeed, the provision of an ebook qualifies as an act of communication to the public, rather than as an act of distribution.

A more detailed analysis will follow after the text of the judgment becomes available.

[UPDATE AT 10:09 am GMT: THE TEXT OF THE JUDGMENT IS NOW AVAILABLE HERE]