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Does "Exhaustion" Apply to Digital Products?

24 August 2012
The principle of exhaustion of rights in goods placed on the internal market in the European Union is well established.  However, in the digital age, how does this principle apply to digital products, which are for all intents and purposes, the same as products sold on the high street; the only difference being they are delivered in a different format?

The freedom to provide and access pan-European services is a current "hot topic" for the European Commission.  Following the European Court of Justice's (CJEU) decision in FAPL v QC Leisure last year, it is likely that the ability of rights holders to control the distribution and redistribution of their products will be revisited as new digital business models continue to emerge.

In the ruling of Oracle v UsedSoft handed down by the CJEU in early July 2012, the issue of downloaded software was addressed.  The CJEU ruled that the principle of exhaustion within the EU does apply equally to digital downloads of computer programs, as to software stored on a tangible medium (such as a CD-ROM).  The transfer of a copy of a computer program, together with a perpetual user licence, amounts to a 'first sale' of the computer program.

This is the case, even though the sale of the download requires another copy to be made (either by the first owner providing the second owner with a digital copy or by the second owner downloading a second copy from the copyright owner's website).  Reproduction is, in itself, an act restricted by copyright which is not exhausted by the sale of the original download.  However, the CJEU considered that Article 5(1) of the Computer Software Directive permits such a reproduction by enabling a "lawful acquirer" to reproduce a computer program in permanent or temporary form provided it is "necessary for the use of the computer program….in accordance with its intended purpose".  The CJEU ruled that an acquirer of second-hand software is a "lawful acquirer", but that the original acquirer must make his copy unusable from the point of resale. 

Interestingly, the CJEU also clarified that it is not possible to prevent a resale by agreement. 

An interesting question is whether this same rationale can be applied to other species of copyright works such as e-books.  Such content is governed by the Information Society Directive, which does not provide for an exception akin to Article 5(1) of the Computer Software Directive.  In addition, the Recitals expressly state that the question of exhaustion does not arise in the case of services, including online services.  The CJEU did consider these Recitals in the UsedSoft ruling, but felt that it was clear that the provisions of the Computer Software Directive (which, for the purposes of computer software, override the InfoSoc Directive) do not distinguish between tangible and intangible media. 

Therefore, it appears that other copyright works which are in a downloadable form (e-books for example), are outside of the scope of the principle of exhaustion.  At the same time, digital businesses will no doubt be mindful of the fact that the EC is currently focussed on the sharing of content across borders and greater access for consumers throughout the EU.  This is likely to drive a change towards a pan-European licensing landscape.

Danielle Amor

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