digital resale what does the future now hold?

© 2012 Edwards Wildman Palmer LLP & Edwards Wildman Palmer UK LLP

Digital Resale: What does the future now hold?Gareth DicksonEdwards Wildman Palmer UK LLP

December 10, 2014

The CJEU tackles copyright for software

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The Good The Bad The Ugly

©Rent the work to

the public

Copy the work

Make an adaptation

Perform, show, play the work in

publicIssues

copies to the public

Communicate the work to the public

Exclusive rights

Two important pieces of legislation

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♦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 (InfoSoc Directive / Copyright Directive)

♦Directive 2009/24/EC of the European Parliament and of the Council of 23 April 2009 on the legal protection of computer programs (Software Directive / Computer Programs Directive)

InfoSoc Directive 2001

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Recital 28:The first sale in the Community of the original of a work … exhausts the right to control resale of that object

Recital 29:The question of exhaustion does not arise in the case of on-line services. This also applies with regard to a material copy of a work made by a user of such a service

Recital 50:Articles 5 and 6 of [Dir 91/250/EEC] exclusively determine exceptions to the exclusive rights applicable to computer programs

Article 4: “authors [shall have] the exclusive right to authorise or prohibit any form of distribution to the public by sale or otherwise … The distribution right shall not be exhausted … except where the first sale or other transfer of ownership in the Community of that object is made by the rightholder”

Software Directive 2009

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Recital 1:The content of Council Directive 91/250/EEC of 14 May 1991 on the legal protection of computer programs has been amended. In the interests of clarity and rationality the said Directive should be codified

Software Directive 2009

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Article 8:“The provisions of this Directive shall be without prejudice to any other legal provisions such as … the law of contract”

Article 4(2):The first sale in the Community of a copy of a program by the rightholder or with his consent shall exhaust the distribution right within the Community of that copy

FACTS: Case C‑128/11 UsedSoft v. Oracle

♦ UsedSoft acquired and resold licences for software, including Oracle software

♦ Some Oracle software had been downloaded from the Internet and was supported by a maintenance agreement

♦ Software was made available in blocks of 25 licences

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FACTS: Case C‑128/11 UsedSoft v. Oracle

♦ Software was licensed on the following terms:

“With the payment for services you receive, exclusively for your internal business purposes, for an unlimited period a non-exclusive non-transferable user right free of charge for everything that Oracle develops and makes available to you on the basis of this agreement.”

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QUESTION: Case C‑128/11 UsedSoft v. Oracle

♦ Central question was:

“Is the right to distribute a copy of a computer program exhausted in accordance with the first half-sentence of Article 4(2) of Directive 2009/24 when the acquirer has made the copy with the rightholder’s consent by downloading the program from the internet onto a data carrier?”

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Case C‑128/11 UsedSoft v. Oracle

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42. “According to a commonly accepted definition, a ‘sale’ is an agreement by which a person, in return for payment, transfers to another person his rights of ownership in an item of tangible or intangible property belonging to him”

72. Distribution right is exhausted under Article 4(2) “if the copyright holder who has authorised, even free of charge, the downloading of that copy from the internet onto a data carrier has also conferred, in return for payment of a fee intended to enable him to obtain a remuneration corresponding to the economic value of the copy of the work of which he is the proprietor, a right to use that copy for an unlimited period.”

Grand Chamber: UsedSoft (paragraphs 42 and 72)


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♦ Creates a number of difficulties:

♦ Licence and sale are separate transactions with separate consequences, employed to facilitate different business models

♦ What is an “item of intangible property”? How does one transfer “rights of ownership” in items of intangible property?


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♦ What about consistency between the InfoSoc Directive and Software Directive?

♦ “However, even supposing that Article 4(2) of Directive 2001/29, interpreted in the light of recitals 28 and 29 in its preamble and in the light of the Copyright Treaty, which Directive 2001/29 aims to implement … indicated that, for the works covered by that directive, the exhaustion of the distribution right concerned only tangible objects, that would not be capable of affecting the interpretation of Article 4(2) of Directive 2009/24, having regard to the different intention expressed by the European Union legislature in the specific context of that directive.


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Recital 13: “…the acts of loading and running necessary for the use of a copy of a program which has been lawfully acquired, and the act of correction of its errors, may not be prohibited by contract”

Recital 13: “In the absence of specific contractual provisions, including when a copy has been sold, any other act necessary for the use of a copy of a program may be performed in accordance with its intended purpose by a lawful acquirer”

Article 4(1)(a): “…in so far as loading, displaying, running, transmission or storage of the computer program necessitate [permanent or temporary] reproduction, such acts shall be subject to authorisation”

Article 5(1): “In the absence of specific contractual provisions, the acts referred to in [Art 4(1)(a)] shall not require authorisation where they are necessary for the use of the computer program by the lawful acquirer in accordance with its intended purpose, including for error correction”

Reproduction right


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Paragraph 81: “in the event of a resale of the copy of the computer program by the first acquirer, the new acquirer will be able, in accordance with Article 5(1) of Directive 2009/24, to download onto his computer the copy sold to him by the first acquirer. Such a download must be regarded as a reproduction of a computer program that is necessary to enable the new acquirer to use the program in accordance with its intended purpose”

Reproduction right


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♦ If there is positive for rights owners it is the requirement that a reseller must “make his own copy unusable at the time of its resale.”

♦ How can that be policed?♦ Paragraph 79: CJEU admits it “may prove difficult”, but no

different for CD and DVD sales, and that in both cases the distributor may “make use of technical protective measures such as product keys”

♦ Paragraph 87: copyright holder is entitled “to ensure by all technical means at his disposal that the copy still in the hands of the reseller is made unusable”

♦ Does Nintendo v. PC Box impact this?

Digital resale markets: here we come?

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♦ Potential for a whole new marketplace in ebooks, MP3s, movie downloads, videogames

♦ Early excitement has proved premature

♦ Uncertainty over application of UsedSoft reasoning to InfoSoc Directive

♦ Uncertainty over what constitutes a “computer program” under UsedSoft

How far does UsedSoft go?

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Limited to “computer programs” as literary works (NB: VZBZ (Bielefeld))

Art 1(2); Recital 7:

Program’s “expression” “in any form”, including as incorporated into hardware, as well as preparatory design work “provided that a computer program can result from it at a later stage”

Recital 3:

“computer program technology can accordingly be considered as being of fundamental importance for the Community’s industrial development”

Case C-393/09 Bezpečnostní softwarová asociace (C-406/10 SAS v. World Programming Ltd):

Elements of a program, such as GUI and functionality, are not a program’s “expression”. Therefore they are outside the Software Directive.


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Nintendo v. PC Box

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If computer games are not “computer programs”, then what is?

AG Sharpston: “Where complex intellectual works comprising both computer programs and other material are concerned – and where the two cannot be separated – it seems to me that the greater, and not the lesser, protection should be accorded”.

Nintendo v. PC Box

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If computer games are not “computer programs”, then what is?

CJEU: “The protection offered by [the Software Directive] is limited to computer programs. [V]ideogames…constitute complex matter comprising not only a computer program but also graphic and sound elements, which, although encrypted in computer language, have a unique creative value which cannot be reduced to that encryption. In so far as … the graphic and sound elements are part of its originality, they are protected, together with the entire work, by copyright in the context of the system established by [the Copyright Directive]”.

Case C-458/13 Nintendo v. Grund

♦ Question specifically addressed relationship between Software Directive and InfoSoc Directive where TPM protected software as well as other works

♦ Seems to have been pre-empted by Nintendo v. PC Box

♦ CJEU cleared it off its register by order of the President

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Some Conclusions

♦ Combined works are governed by InfoSoc Directive, not Software Directive

♦ UsedSoft of limited precedential value to development of digital secondary market

♦ Might InfoSoc Directive be interpreted in a way that achieves the same aims as UsedSoft?

♦ Practical ways around UsedSoft rationale: term-limited offerings; SaaS / cloud-based services; TPM

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Live issues

♦ D visits an e-commerce website and sees that the latest release of his favourite MMORPG will be available for download, lawfully, at half-price for the three days following its release.

♦ D downloads the game, but completes it in a few days. D burns it to DVD and sells it to a friend, E. E plays it, even though D never deletes it and begins playing it again a few months later.

♦ Is E liable for copyright infringement?

Thank YouGareth Dickson

England and Wales, New York

[email protected]

+44 (0)207 556 4470

digital resale what does the future now hold?

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