[Guest post] UFC-Que Choisir v. Valve: Game over for a second-hand dematerialized video game market in France

The IPKat has received and is pleased to host the following guest post by Katfriends Jean-Sébastien Mariez and Laura Godfrin (both Momentum Avocats), discussing a very recent ruling of the French Supreme Court regarding second-hand markets for digital goods. Here is what they write:

UFC-Que Choisir v. Valve: Game over for a second-hand dematerialized video game market in France

by Jean-Sébastien Mariez and Laura Godfrin

In its ruling dated October 23, 2024, the French Supreme Court (Cour de cassation) upheld the Court of Appeal’s decision and decided against the second-hand sale of video games distributed online, confirming the possibility for Valve to legally prohibit Steam subscribers from transferring purchased video games to third parties.

After years of judicial battle between the French consumer group UFC Que Choisir and the Steam video game platform – the French Supreme Court, in line with EU case law – has definitively denied the extension of the principle of exhaustion to digital copies of works protected under the InfoSoc Directive 2001/29/EC, and in particular to digital copies of video games.

What happened?

Back in 2015, UFC Que Choisir, a French association defending consumer rights, initiated judicial proceedings against the international tech company Valve Corporation, which operates the Steam video game platform. In essence, UFC argued that multiple terms of the Subscriber Agreement would infringe (1) consumer protection rules; (2) personal data protection rules; and (3) intellectual property rules.

In its judgment issued in September 2019, the First Instance Court granted nearly all UFC’s claims. In particular, UFC Que Choisir argued that clause 1C of the Subscriber Agreement, prohibiting the resale of video games, was unlawful by alleging incompatibility with the EU principle of free movement of goods and the principle of exhaustion of the right of distribution under copyright. The latter (also known as ‘first sale doctrine’ in the United States) provides that a copyright owner’s right of distribution in the original or a copy of a work is ‘exhausted’ on its first lawful sale by the copyright owner.

The issue in this case was to determine if such a doctrine could apply to any support, whether tangible or intangible, and more specifically, to downloaded video games.

In its 2019 judgment, the Paris Court of First Instance ruled that the doctrine of exhaustion applies regardless of the distribution method of the video game, whether tangible or not. As a consequence, the court found that Valve could not lawfully prevent Steam subscribers from transferring purchased video games to third parties.

The reasoning of the First Instance Court can be summarized as follows:

• According to the First Instance Court, video games combine elements of software and other types of protected works. As a consequence, both Directive 2001/29/EC and the Software Directive 2009/24/EC apply to video games. And the court noted that both directives lay down the principle of exhaustion, without making a distinction between material and immaterial copies. Given the above, the First Instance Court then concluded that the doctrine of exhaustion applies regardless of the distribution method of the video game, whether tangible or not.
• In the view of the court, this conclusion was also substantiated by the UsedSoft case (C-128/11) where the Court of Justice of the European Union (CJEU) ruled that the principle of exhaustion of rights applied to software licences, even if the software is downloaded from the Internet.

The Court of Appeal's twist in line with CJEU case law

However, in its decision dated October 21, 2022, the Court of Appeal decided to overturn the first instance decision by ruling that the principle of copyright exhaustion does NOT apply to digital copies of video games.

IPKat-approved video game

The reasoning of the Court is based on the ruling of the CJEU of December 19, 2019 issued in the Tom Kabinet case (C‑263/18) [IPKat here]. The issue in that case was to determine if the exhaustion doctrine could apply to the resale of second-hand digital books. In line with the Opinion of the Advocate General, the CJEU denied the direct application of the principle in the case of the resale of e-books, regulated under the InfoSoc Directive 2001/29/EC. Looking in particular at the intention of the EU legislature regarding the relevant provisions of the InfoSoc Directive 2001/29/EC and the WIPO Copyright Treaty, the CJEU concluded that the rule of exhaustion should be reserved for the distribution of tangible goods only. Applying it to dematerialized goods would likely have a negative effect on the rightsholders as such goods will never deteriorate with use and so remain perfect substitutes for the original copies. Above all, exhaustion is expressly precluded by Article 3(3) of the InfoSoc Directive 2001/29 for the right of communication/making available to the public.

The CJEU carefully emphasized that the Tom Kabinet decision is not inconsistent with the UsedSoft decision, but rather that the InfoSoc Directive 2001/29/EC and the Software Directive 2009/24/EC lead to distinct solutions. According to the CJEU, the digital exhaustion doctrine as stipulated in the UsedSoft decision should only apply to intangible copies of software.

But what about video games?

In light of the decision in Tom Kabinet, the Court of Appeal ruled that, like e-books, dematerialized video games cannot be resold as second-hand.

To reach such a solution, the Court of Appeal ruled that the protection of video games cannot be assimilated to simple computer programs. In line with the CJEU decision in the Nintendo case (C-355/12) [IPKat here and here], video games are “complex works” composed not only of software, but also graphics and sound elements. As a consequence, the Software Directive 2009/24 (lex specialis for software) as well as the UsedSoft case law mentioned above, are not applicable to video games. On the contrary, video games are entitled to protection as a whole under the InfoSoc Directive 2001/29. Consequently, the Court of appeal ruled that the principle of copyright exhaustion does NOT apply to digital copies of video games.

French Supreme Court signals the end of the second-hand dematerialized video game market

The Supreme Court’s decision is quite straightforward:

• Contrary to the Software Directive 2009/24/EC (only applicable to software), which assimilates tangible and dematerialized copies of computer programs so that the doctrine of exhaustion concerns all such copies, the InfoSoc Directive 2001/29 (which concerns general copyright rules) limits the doctrine of exhaustion to tangible copies of protected works only.
• As the CJEU held in Nintendo case (C-355/12), a video game is not only a computer program, “but a complex work in that it includes software components as well as numerous other elements such as graphics, music, sound elements, a storyline and characters.” In so far as these “numerous other elements” are part of its originality, they are protected, together with the entire work, by copyright by the InfoSoc Directive 2001/29.

Given the above, the French Supreme Court confirmed the reasoning the Paris Court of Appeal and put an end to the discussion regarding unlicensed second-hand dematerialized video game markets.

Last but not least, the French Supreme Court refused to refer the matter to the CJEU for a preliminary ruling, as the correct application of EU law left no room for reasonable doubt.

Final thoughts

Even if this solution is not surprising given the recent EU case law, and in particular the Tom Kabinet decision, the decision of the French Supreme Court ends the judicial battle between UFC Que Choisir and the Steam video game platform, which had initially paved the way for a second-hand dematerialized video game market in France by extending the solution issued in the UsedSoft case to all intangible goods likely to be resold second-hand.

According to this decision, it is thus clear that:

• First, the principle of exhaustion, laid down in both the Software Directive and the InfoSoc Directive are NOT to be interpreted identically: contrary to the Software Directive, the exhaustion principle in the InfoSoc Directive refers exclusively to tangible goods and cannot be extended to dematerialized works.
• Secondly, given the “complex nature” of video games, they are protected by copyright in the context of the InfoSoc Directive which prevails over the Software Directive. Consequently, the application of the rules of exhaustion to digital copies is excluded for dematerialized video games.

With this ruling, the French Supreme Court thus consolidates the position of video game publishers by confirming the possibility of prohibiting the resale of video games online, thus closing the door to second-hand resale when they are distributed in a dematerialized form.