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Tom Kabinet (C‑263/18) – Regulation of Copyrights on Digital Work in the EU

Introduction

Managing digital copyrights is a challenging task. Currently, the protection of artistic and literary work is harmonized in the European Union (EU) under the InfoSoc Directive[1]. The InfoSoc Directive was enacted in 2001 to implement into European law the WIPO (World Intellectual Property Rights Organization) Copyright Treaty (1996) – of which the EU is a signatory party.[2] According to the recitals of the InfoSoc Directive, the aims of implementation are to protect competition in the internal market and to harmonize the copyright laws of the Member states.[3] It is recognized that the technological developments in information society bring about new vectors for creation, production, and exploitation, along with various social, societal, and cultural implications. [4] However, the Directive also maintains that no new concepts for the protection of intellectual property are needed.[5]

Today, we will take a look at the Court of Justice of the European Unions (CJEUs) landmark ruling in Tom Kabinet (C‑263/18)[6] from December 2019. The basic issue of the case is whether it should be illegal to resell legally acquired e-books. As we will look more into later, the CJEU found in another landmark ruling UsedSoft (C-128/11)[7] that software programs could be resold by the original acquirer of the program under certain conditions. Whether the principles established in UsedSoft (C-128/11) applied to e-books was finally resolved with the CJEU’s ruling in Tom Kabinet (C‑263/18).

Before I get further into the Court’s decision, some essential concepts regarding copyright law in the EU should be understood by the reader. I will therefore start out by describing the meaning of the principle of exhaustion which is a generally accepted principle across land borders and legal systems. I will then move on to the important distinction in the InfoSoc Directive between the right to present a work and the right to distribute a work. Then, I will describe the factual background to the Tom Kabinet (C‑263/18), and finally, examine the important points of the Court’s decision.

The Principle of Exhaustion – Article 4 (2)

Exhaustion implies that once a work protected by copyright has been lawfully placed in circulation with the copyright holder’s consent, the copyright holder can no longer object to that copy being resold by the person who has acquired it. [8] If the rule of exhaustion did not exist, it would constitute a copyright infringement to resell used products such as clothes, cars, books, etc.

The reasoning behind the principle of exhaustion is well-founded and clear. However, in the light of the digital development and the emergence of more and more digital products, upholding the principle of exhaustion gets more complex. If we imagine a buyer of an e-book could resell the e-book over and over again to other buyers and still keep the original copy for personal use, the core rationale behind copyrights – to encourage and reward intellectual creations – would be strongly compromised. On the other hand, modern DRM-technologies (Digital Rights Management-technologies) allow copyright holders to exercise a very firm control on the use which purchasers make of their works.[9]

Two Ways of Making Copyright Protected Work Available to the Public – Article 3 and Article 4

Making his or her original work available to the public is the sole right of the copyright holder – which makes a lot of sense. If anyone else could make the right-holder’s protected work available to the public, it would not be possible to profit financially from creative work.  It normally gives rise to remuneration to the right-holder’s each time a member of the public has accessed their work.[10]  In European copyright law, we distinguish between two ways of making copyright protected work available to the public. The first way is by representation, the second way is by distribution.

A representation traditionally involves that the copyright holder organizes an event that is open to the public where the audience is physically present at the place and time chosen by the copyright holder. Such a representation could be a theater, an opera, an art exhibition, or a cinema screening. [11] Article 3 of the InfoSoc directive concerns a specific kind of representation, the right of communication to the public, which includes making the work available to the public in such a way that “the members of the public may access the work from a place and at a time individually chosen by them” (Article 3 (1)). In the representations covered by Article 3, the copyrighted work is not presented directly in front of the audience, but from a distance. Such communications could be a radio- or TV transmission where the copyrighted work can be enjoyed by the audience from the comfort of their homes. Streaming services like Netflix or Spotify also fall within the scope of rights of communication under Article 3, as the streaming services can be accessed on-demand, which means from a place and a time chosen by the individual viewer/listener, and not the copyright holder.

The right of communication to the public in Article 3 shall not be exhausted pursuant to Article 3 (3). For instance, you are not allowed to play music from Spotify in a public store, unless you compensate the right holders. Streaming the music in a public store would be a representation of the right-holder’s work, as you rebroadcast the communication to your customer base. Practically, you would have to pay your local collection society a fee to legally use the music. Similarly, you are never allowed to broadcast music from a live concert, the art from an exhibition, or the movie from a cinema screening without expressive consent from the right holder.

The second way of making the work available to the public is by distribution. When a copy of a work is distributed through a sale or a leasing agreement, the end-user has acquired a copy that he may enjoy independently of the copyright holder’s intention.[12] After the distribution, the copyright holder is no longer able to control or monetize each access to the work which is why the remuneration must be organized differently.[13] Either as a one-time-payment or payment by installment for a specified period of time.

In regards to the InfoSoc directive, the authors of original work have the exclusive right under Article 4 (1) “to authorise or prohibit any form of distribution to the public by sale or otherwise.” However, copyright holder’s distribution rights under Article 4, are subject to the principle of exhaustion. It follows from Article 4 (2) that the distribution rights are exhausted “where the first sale or other transfer of ownership in the Community of that object is made by the rightholder or with his consent.” As already mentioned, this practically means that when a copy of a work is brought into circulation, the copy can be resold by the original acquirer.

The major legal issue that the CJEU took a stance on Tom Kabinet (C‑263/18) concerned whether the sale of e-books belonged under the rights of communication (Article 3) or the right to distribution (Article 4) in the InfoSoc Directive. If the former is the case, the e-books cannot be resold, if the latter is the case, they can, due to the principle of exhaustion.

Tom Kabinet (C263/18) – Background

Tom Kabinet Internet BV (Tom Kabinet) was a Dutch firm that operated an online service consisting in a virtual market for “second-hand” e-books.[14] In 2015, Tom Kabinet established “Tom’s reading club”. Tom’s reading club offered its members access to download “used” e-books in return for a small sum of money. The “used” e-books were either purchased by Tom Kabinet or donated to them free of charge by members of the club. The members of Tom’s reading club earned credits when they donated an e-book which allowed the members to buy other books. When Tom Kabinet bought or was donated e-books from members, it required that the members deleted their own copies. Additionally, Tom Kabinet placed digital watermarks on the copies it sold to ensure that the copies were legally acquired.

Tom Kabinet’s business model was inspired by the CJEU landmark ruling in UsedSoft (C-128/11) from 2012, where the CJEU found that the rule of exhaustion applied to the first-time sale of computer software.  If a customer downloads a copy of a software program and enters into a Full License agreement in which the customer receives the right to use that copy for an unlimited period of time in return for a payment of a fee, such a transaction amount to a “sale” (a distribution) as it involves a transfer of the right of ownership.[15] Under such circumstances, the copyright holder cannot oppose further transfer of the program even if the license agreement prohibits it.[16] The only condition on part of the original acquirer of the license is that he/she must make his own copy unusable at the time of its resale.[17] According to the CJEU, it is the copyright holder’s responsibility to make use of technical protective measures to ensure that the reseller’s copy of the software program is in fact made unusable after the resale.[18]

The ruling by the CJEU in UsedSoft (C-128/11) was made under Articles 4(2) of the Software Directive which corresponds to Article 4 (2) of the InfoSoc Directive.[19] Until the decision in the Tom Kabinet (C‑263/18), it was unclear whether the principles of the ruling applied to digital copies by analogy. The company Tom Kabinet assumed that it did, as it followed from their general terms and conditions (translated from Dutch to English)[20]:

“New E-books are offered online (elsewhere) by webshops and publishers, among others, and can be downloaded by buyers after payment. They then download a copy of the E-book with the permission of the rightholder(s) (the author and any other rightholders). Tom Kabinet assumes – by analogy with the case law of the Court of Justice of the European Union on standard software – that after the sale of this first copy of an E-book the rightholder does not have the right to prohibit the further distribution of that copy within the European Union. By analogy with the Court’s case law on standard software, Tom Kabinet also assumes that the sale of an E-book can legally be regarded as a contract of sale. In other words: Tom Kabinet assumes that an E-book, once “legally” purchased, may be resold or donated, without permission of the owner of that E-book. However, this is subject to a condition. The seller of an E-book must disable or delete any copy of the E-book at the time of sale. There may therefore only be one copy of the copy in question in circulation.”

The Court’s Decision in Tom Kabinet

Do you think offering an e-book for download should be considered a communication of the work under Article 3 or a distribution of the work under Article 4? The CJEU in the Tom Kabinet (C263/18) arrived at the conclusion that the sale of an e-book falls under the right of communication to the public (Article 3) thus out-ruling the principle of exhaustion.

The CJEU concluded that the wording of Article 3 and Article 4 in the InfoSoc Directive could not answer the question in itself, and opted for a contextual and teleological interpretation of its provisions (looking at the objective and purpose behind the provisions), backed by a set of economic considerations.[21]

CJEU based their decision on five main legal arguments: (1) the corresponding provisions in the WIPO Copyright Treaty (Article 8 and in Article 6(1)), (2) the explanatory memorandum to the InfoSoc Directive[22], (3) the recitals of the InfoSoc Directive, (4) a number of paragraphs from the UsedSoft (C-128/11), and (5) other EU case law.  I will elaborate further on (4) and (5) in the sections below.

(1) Article 6 (1) of the WIPO Copyright Treaty concerns “Right of Distribution” and corresponds with Article 4 (1) in the InfoSoc Directive. Article 6 uses expressions such as “copies” and “original and copies”. According to CJEU, it is apparent from the wording of the provision that it exclusively refers to fixed copies that can be put into circulation as tangible objects, not the distribution of intangible works such as e-books.[23]

(2)  Similarly to CJEUs interpretation, the EU Commission noted in the explanatory memorandum to the InfoSoc Directive that the Member states were of the view that interactive on-demand transmission (..) should be covered by the right to control communication to the public while stating that it was generally accepted that the distribution right, which applies exclusively to the distribution of physical copies, does not cover such transmission.[24]

(3) By interpreting the aim of the directive as set out in the preamble to the InfoSoc Directive, further evidence supports the conclusion by CJEU. For example, recital (25) states that the “author’s right of communication to the public (..) should be interpreted in a broad sense (..)” and recital (29) states that “the question of exhaustion does not arise in the case of services and on-line services in particular”.[25]

(4)  In regards to the conclusion of the UsedSoft (C-128/11) case where it was concluded that the rights to computer programs, even without a “tangible medium”, could be exhausted, the CJEU argued in line with the Advocate General’s Opinion that “an e-book is not a computer program, and it is not appropriate therefore to apply the specific provisions of Directive 2009/24 [the Software Directive].”

(5) Finally, the CJEU supported their interpretation of the provisions on established EU case law that deals with the concept of “making work available to the public” under Article 3 (1).

The Difference Between Computer Programs and E-books

The CJEU made three main arguments in Tom Kabinet (C‑263/18) to support the conclusion that e-books should not be equated with computer programs in regards to the principle of exhaustion.

First, the Court in UsedSoft (C‑128/11) expressly stated that “Directive 2009/24 [the Software Directive], which concerns specifically the protection of computer programs, constitutes a lex specialis in relation to Directive 2001/29 [the InfoSoc Directive].[26] Lex specialis is a doctrine of law which states that a law governing a specific subject matter overrides a law that only governs general matters.[27] According to CJEU in Tom Kabinet (C‑263/18), the EU legislator clearly intended “to assimilate the protection of (..) tangible and intangible copies of computer programs, so that the exhaustion of the distribution right under Article 4(2) of Directive 2009/24 concerns all such copies.”[28] However, a general assimilation of tangible and intangible copies of work – such as printed books and e-books – was not desired in the InfoSoc Directive by the EU legislator.[29]

Second, the Court noted in UsedSoft (C‑128/11) that,” from an economic point of view, the sale of a computer program on a material medium and the sale of a computer program by downloading from the internet are similar (..)”.[30]  The same logic does not apply to e-books. E-books, in contrast to printed books, “do not deteriorate with use, and used copies are therefore perfect substitutes for new copies. In addition, exchanging such copies requires neither additional effort nor additional cost, so that a parallel second-hand market would be likely to affect the interests of the copyright holders in obtaining appropriate reward for their works much more than the market for second-hand tangible objects.”[31]

Thirdly, the object of copyright protection is not the same for e-books and computer programs. E-books are essentially digital files protected because of their content.[32] Computer programs on the other hand are sequences of instructions intended to be executed by a machine (a computer).[33] The interest for the user of the computer program does not arise from reading the content of the program but from the functioning of the machine. As pointed out by the Advocate General AG Szpunar: “For the user, reading lines of a program code would be as useful as drinking a glass of diesel oil instead of pouring it into the tank of his vehicle.” [34]

“Making Available to the Public” in EU Case Law

The Dutch district court that referred the case to the CJEU, resonated that the supply of an e-book as in the circumstances of Tom Kabinet (C‑263/18), did not satisfy the conditions for a communication to the public, within the meaning of Article 3 (1). The referring Court noted that there was no communication of the actual content of the books to the public, as the e-books were only made available to a single member of the reading club at the time.[35]

In that regard, the CJEU noted – not surprisingly – derived from previous case law[36] that a “communication to the public” involved two cumulative criteria: (1) an act of communication of a work and (2) the communication of that work to a public.[37] Furthermore, the CJEU found that a “communication to the public” within the meaning of Article 3 (1) of the InfoSoc Directive covers any transmission or retransmission of a work that members of the public may access from a place and at a time individually chosen by them (as mentioned in the beginning communication to the public in the InfoSoc Directive is a representation of the work).[38]

The CJEU ascertained that Tom Kabinet made the e-books available to anyone who was registered with the reading club’s website and that the e-books could be accessed from a place and at a time individually chosen by the member. [39] On this background, the first criterium was fulfilled as Tom Kabinet’s e-book service constituted an act of communication to the public.

Under the second criterium, to satisfy the conditions for a communication to the public under Article 3 (1), the communication also has to be directed to the public.  The CJEU found in accordance with established case law that a communication is public if it is being directed at an indeterminate number of potential recipients.[40] The second criterium is also fulfilled when several unrelated persons may have individual access, from different places and at different times, to a work on a publicly available website.[41]

The CJEU emphasized that any interested person could become a member of the reading club and that no technical measure on the club’s platform ensured that only one member could access the work at a time.[42] Additionally, the communication of the e-books was directed to a new public, which means to persons that were not already taken into account by the copyright holders when they authorized the initial communication of their work to the public.[43]

Regeneration of the work – Article 2

A final consideration that should be addressed was pointed in the Opinion of Advocate General A.G. Szpunar. Article 2 of the InfoSoc Directive concerns the copyright holder’s reproduction right. Article (2) stipulates that only the right-holder of the work has the “exclusive right to authorise or prohibit direct or indirect, temporary or permanent reproduction by any means and in any form, in whole or in part.”

Every time a user downloads a copy of an e-book, a reproduction of the work is stored on the computer’s hard disk. Such as reproduction resembles an act of distribution.[44] This form of reproduction of the work is made with the consent of the copyright holder as an essential element of downloading a copy of an-book. However, the consent does not cover the reproductions that would be necessary for the subsequent transmission when the copy of the work is resold.[45]

Conclusion

The most important takeaway from this post should be that rights to digital works covered by the InfoSoc Directive are not subject to exhaustion. This means that you are not allowed to resell digital work without permission from the copyright holder. In my opinion, it seems fairly clear from Tom Kabinet (C‑263/18) that CJEUs denial of digital exhaustion applies all digital works under the InfoSoc directive such as music, movies, audiobooks, and games, except for computer programs which are separately regulated. However, it is widely claimed that the debate on digital exhaustion is anything but exhausted in respect of the scope of Article 3 (1), and the distinction between communication vs. distribution.[46]

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[1] Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society.

[2] Ibid. (15).

[3] Ibid. (1).

[4] Ibid. (5) and (8).

[5] Ibid. (5).

[6] ECLI:EU:C:2019:1111 (19 December 2019).

[7] ECLI:EU:C:2012:407 (3 July 2012).

[8] Opinion of Advocate General A.G. Spuzar delivered on 10 September 2019 Case C-263/18, (1).

[9] Ibid. (6).

[10] Ibid. (28).

[11] Ibid. (26).

[12] Ibid. (30).

[13] Ibid.

[14] C‑263/18 (21).

[15] https://www.linklaters.com/es-es/insights/publications/tmt-news/tmt-news-november-2012/eu—usedsoft-v-oracle-ecj-approves-sale-of-used-software (opened 15-11-2020)

[16] Ibid.

[17] C-128/11 (71).

[18] Ibid. (79) and (87).

[19] Directive 2009/24/EC of the European Parliament and of the Council of 23 April 2009 on the legal protection of computer programs.

[20] https://www.timelex.eu/en/blog/you-cant-just-resell-e-book (opened 14-11-2020).

[21] http://copyrightblog.kluweriplaw.com/2020/05/19/is-the-digital-exhaustion-debate-really-exhausted-some-afterthoughts-on-the-grand-chamber-decision-in-tom-kabinet-c-263-18/ (18-11-2020).

[22] The explanatory memorandum in the proposal for a European Parliament and Council Directive on the harmonisation of certain aspects of copyright and related rights in the Information Society of 10 December 1997 (COM(97) 628 final.

[23] C‑263/18) (40)

[24] Ibid. (43).

[25] Ibid. (49) and (51).

[26] Ibid. 55.

[27] https://definitions.uslegal.com/l/lex-specialis/ (opened 17-11-2020).

[28] C‑263/18 (55).

[29] Ibid. (56).

[30] Ibid. (57).

[31] Ibid. (58).

[32] Ibid. (59)

[33] Opinion of Advocate General Spuzar (57).

[34] Ibid.

[35] (C‑263/18) (60).

[36] See e.g. Stichting Brein, C‑610/15, EU:C:2017:456.

[37] (C‑263/18) (61).

[38] Ibid. (62) and (64).

[39] Ibid. (65).

[40] Ibid. (66), see also e.g. SGAE, C‑306/05, EU:C:2006:764, paragraph 37.

[41] Ibid. (67)

[42] Ibid. (69).

[43] Ibid. (70) and (71).

[44] Opinion of Advocate General A.G. Spuzar (32).

[45] Ibid. (47).

[46] http://copyrightblog.kluweriplaw.com/2020/05/19/is-the-digital-exhaustion-debate-really-exhausted-some-afterthoughts-on-the-grand-chamber-decision-in-tom-kabinet-c-263-18/ (opened 18-11-2020).  See more on the discussion: Peter Mezei (2020): The Doctrine of Exhaustion in Limbo Critical Remarks on the CJEU’s Tom Kabinet Ruling.

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