CJEU’s Advocate General Finds No Resale Right for Digital Files

Advocate General Maciej Szpunar of the European Court of Justice (CJEU) rendered an opinion last week in a closely-watched case involving the sale of “used” e-books. AG Szpunar is one of the CJEU’s legal experts who write opinions when the court is asked to rule on a novel point of law. Their opinions are not binding on the court, but the court is known to adopt their conclusions the majority of the time. His opinion was that sales of “used” digital files should not be legal without permission from the copyright owner.

Back in 2014, Nederlands Uitgeversverbond (NUV) and Groep Algemene Uitgevers (GAU), two Dutch book publishing trade associations, sued Tom Kabinet, an online marketplace for “used” e-books. Unlike in the U.S., most e-books in the Netherlands are DRM-free; Tom Kabinet only accepts DRM-free e-books in EPUB format (which means that it won’t accept e-books from Amazon or Apple). Tom Kabinet adds digital watermarks to the files to identify them as having been uploaded to the site and to help curb abuses. It also requires users to delete their files once they have uploaded them, but it doesn’t enforce that in any technical way.

The district court in the Netherlands found for NUV and GAU, and enjoined Tom Kabinet. Tom Kabinet then shifted its model from a standard e-commerce site to a “reading club” that sells e-books for “credits,” and it appealed. Last year, the Court of The Hague–which is also handling a similar case involving library e-book lending–opted to refer a set of questions of law to the CJEU. Once the CJEU decides these questions, the Dutch courts will decide the case. The questions have to do with interpretation of EU Directive 2009/29/EC, known as the InfoSoc (Information Society) Directive.

The main question that the CJEU has to decide is this: does the sale of a “used” digital file implicate the right of distribution or not? In EU law, the principle of exhaustion–the equivalent to first sale in U.S. law–only applies to the right of distribution, not to other rights such as reproduction and communication to the public. So if resale of digital files doesn’t implicate distribution, then exhaustion doesn’t apply, and there is no resale right for downloaded digital files.

The AG found–correctly–that in the Tom Kabinet system, sellers of e-books make copies of the files they bought and distribute those copies; they do not distribute the original files. In other words, the right of distribution doesn’t apply. The rest of his opinion flowed from there. He found that the only right that applies in the system to the files that were originally purchased is reproduction. And he found that such reproductions aren’t covered under the exceptions in EU law for incidental or transient copies. Ergo, the copyright owner’s exclusive rights in those files aren’t exhausted when they are resold, so the only way to resell digital files legally is if the copyright owner explicitly gives permission.

The CJEU ruled, in Oracle v. UsedSoft (2012), that it was legal to resell files containing computer software, but that the ruling applied only to software. In his opinion, AG Szpunar reiterated the reasons why the CJEU decided to treat software as a special case. He rejected Tom Kabinet’s argument that e-books are software and therefore should be covered under UsedSoft.*

AG Szpunar also analyzed the effect of a digital exhaustion law on the balance of interests inherent in copyright law and found that the “clear benefits for consumers”–including increased competition, lower prices, and more platform independence–are outweighed by the deleterious effect it would have on copyright holders. Although his conclusion didn’t depend on this analysis, it’s worth noting that the analysis uses a double standard: he says that consumer benefits such as lower prices and increased competition “relate to aspects of general economic policy … which may … be taken into consideration by the legislature but … should not guide decisions of a judicial nature,” but on the other hand, it’s relevant to the court that “[t]he parallel second-hand market is … likely to affect the interests of the copyright holders much more than the market for second-hand tangible objects.”

There’s an obvious parallel to the Capitol Records v. ReDigi case in the United States involving resale of “used” digital music files. And AG Szpunar’s opinion has much in common with Judge Pierre Leval’s opinion last year in the ReDigi appeal to the Second Circuit. Judge Leval also found that resale of digital files in ReDigi’s system required reproduction but did not involve distribution of the original files, and that first sale applies only to distribution, not reproduction. (Judge Leval did not, however, reach AG Szpunar’s finding that all digital resale schemes must necessarily make reproductions; he left room for the possibility that a digital resale system could function without copying the original files as part of the resale operation. ReDigi has designed such a system but is enjoined from launching it.)

AG Szpunar also concurred with Judge Leval’s rejection of defendants’ arguments that courts should establish digital first sale/exhaustion rights for the sake of consistency with rights on physical objects. As Judge Leval stated, “[t]he copyright statute is a patchwork, sometimes varying from clause to clause”, and legislatures rather than courts are the places to go to rectify those kinds of supposed inconsistencies.

One interesting difference between the Tom Kabinet and ReDigi systems is that while Tom Kabinet doesn’t do anything to verify that users have deleted their files when they sell them, ReDigi did. ReDigi implemented a form of “forward-and-delete” functionality that the U.S. Copyright Office discussed in its Section 104 Report to Congress in 2001. The Copyright Office said that forward-and-delete functionality was necessary in a digital resale system, but it could not be relied on to be sufficiently robust against hacks, persistent, economical, and easy to use; and therefore that digital first sale wasn’t a good idea. Judge Leval noted that ReDigi’s system was a good faith effort but held that it did not displace the fact that the system made unauthorized reproductions. AG Szpunar simply said that “[a]lthough, … after the content has been downloaded by the purchaser, the seller is under an obligation to delete his own copy, compliance with that obligation is difficult to verify, especially among individuals.” In other words, the Copyright Office’s Section 104 Report stands, 18 years hence, as a prescient last word on the practicability of digital resale.

By the way, I’ll be giving a talk about digital first sale on Thursday, October 10 at the Brigham Young University Copyright & Trademark Symposium in Provo, Utah.

(Hat tip to Eleonora Rosati of Stockholm University and The IPKat.)

*The CJEU’s main argument for treating software differently from literary, musical, or visual works was that software is meant to be run on a computer, and therefore is more like a tool than an artistic work, while artistic works are meant to be exposed to people, even if the process of exposing them to people involves digital devices such as CD players.

Some of the other arguments for this have not withstood the passage of time very well. One is the argument that software is meant to run perpetually over a long period, while for traditional copyrighted works, as AG Szpunar says, “… the usefulness is often exhausted, so to speak, after a single reading, hearing or viewing[; t]he user is therefore prepared to dispose of his copy of the work after the first occasion on which he is acquainted with it, having thereby fully satisfied his needs in connection with the work.” Nowadays people tend to buy music files because they want to listen to them repeatedly; otherwise they would access them on YouTube or Spotify. Another such argument is that software tends to become obsolete while digital artistic content endures: anyone who has ATRAC audio, DIVX video, or LIT ebook files might disagree.

AG Szpunar did note that “downloading with a permanent right of use as a mode of supplying online content is in the process of being relegated to the past,” and that “[b]y recognising the rule of exhaustion of the right of distribution in the internet environment, the Court would thus resolve a problem that does not really need to be resolved and that to a large extent belongs to the past.” In other words, the ship has resaled.

One comment

  1. […] Advocate General for the European Court of Justice says unlike physical books, there’s no right of resale for e-copies we buy. Will the court agree? Will US courts decide the same in similar […]

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