Nexus: Tom Kabinet

[Guest post] Paris Court on digital exhaustion and videogames

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Subscribers to a videogame distribution platform should be able to resell their videogames, a French court of first instance has ruled [full decision in French here]. Katfriend Simon Geiregat (Ghent University), aka GerryKat, reports. Here's what he writes:

Paris Court on digital exhaustion and videogames

by Simon Geiregat

The judgment of the Paris Court of First Instance is based on both the [2001/29] InfoSoc Directive and the [2009/24] Software Directive. General conditions preventing resale were found null and void.

The CJEU Grand Chamber will soon clarify whether the copyright exhaustion rule applies to downloaded works protected by the InfoSoc Directive, and can thus be resold. That decision will come none too soon, because 7 human years (i.e. 44 cat years) have passed since the same Grand Chamber upheld in UsedSoft that downloaded software is indeed subject to that copyright exhaustion (aka first-sale) doctrine in the EU/EEA.

AG Szpunar has delivered his long-awaited opinion on the topic in the CJEU Tom Kabinet case on 10 September [Katpost here]. In line with the majority of German courts, he concluded that in current EU law, there is no place for second-hand downloadable e-books. Exactly one week after the AG’s opinion was published, the Tribunal de Grande Instance de Paris (Paris Court of First Instance) rules that a videogame distribution platform should entitle its subscribers to resell the games they paid for. The platform owners expressed their intention to appeal.

Background

In the case at hand, French consumer organisation UFC-Que Choisir sued international tech company Valve. The defendant runs Steam, a very popular, subscription-based distribution platform for videogames. UFC argued that multiple terms of the Steam Subscriber Agreement [latest version here] would infringe French law on unfair terms in consumer contracts, the General Data Protection Regulation (GDPR) and copyright law. In a 74-page judgment, the Court allowed almost all UFC’s claims.

Non-IP issues

The Court upheld that various terms in the Steam Subscriber Agreement and privacy policy were illicit and/or amounted to unfair terms [see Directive 93/13] and held them void. Many were considered unfair due to a lack of transparency, some because they substantially caused a significant imbalance in the parties’ rights and obligations to the detriment of the consumer. Still others ran against statutory law.

User-generated content

Valve is not entitled to use any copyright-protected content generated by its users, the Court continued. Steam’s Subscriber Agreement lays down that users grant the platform owners “the worldwide, non-exclusive right to use, reproduce, modify, create derivative works from, distribute […] and otherwise communicate, and publicly display and publicly perform” content generated and made available by its users, without remuneration and for a period as long as the IP rights on that content persist. That content includes comments and feedback, but also mods, i.e. programmed software alterations users make to change aspects of videogames.

According to the judgment, Steam’s contractual terms on user-generated content were contrary to French copyright (contract) law and were therefore illicit and unfair. The court reached that conclusion because the law requires the beneficiary of a copyright transfer to specify the works subject to transfer, to spell out the exact rights transferred and its limitations in time and space [art. L131-3 IP code], and Valve has not done so.

Copyright contract law is hardly harmonised in the EU. France is among the EU Member States that traditionally provide for strong protection of authors that enter into contracts. Hence, French courts are often strict in relation to copyright contracts. Nonetheless, the Paris judgment is peculiar. First, one may wonder what else the platform owner could have stipulated in order to define the object (all user-generated content), the exploitation rights (use, reproduce, modify, create derivatives, distribute…) and limitations (worldwide and during the full term of protection) of the transaction. Second and more importantly, the court classified the terms cited as a transfer (cession) of rights whereas the granting of a “non-exclusive right” rather amounts to licensing. For copyright licences, French statutory law does not lay down stringent rules like those for transfers.

IPKat-approved:
a videogame in which you can play as a Kat

Digital exhaustion

Last but not least, the Paris Court found that Valve cannot lawfully prevent Stream subscribers from transferring purchased videogames to third parties. Terms in the Subscriber Agreement that prevent this would thus be null and void.

Videogames combine elements of software and other types of protected works. Therefore, it has been long being discussed which EU copyright instrument(s) should apply to videogames: the lex generalis Infosoc Directive and/or the lex specialis [UsedSoft §51] Software Directive? The latter applies to all forms of computer programs, while the former is without prejudice to the latter. According to the judgment rendered, this means that both directives apply to videogames.

The Court continued by pointing out how both directives (art. 4.2) use similar wording to provide authors with a distribution right and to limit that right by an exhaustion rule. It correctly observed that the exhaustion rules in those directives are meant to safeguard the free movement of goods in the EU internal market. Next, it found that neither directive distinguishes between “material works and immaterial works”. It then noted that downloading a videogame file on a user’s computer constitutes a copy of a work pursuant to both directives. Thus, that work was made available with the right-holder’s consent. Hence, that rightholder can no longer control the distribution of that work (sic).

Finally, the Court scrutinised the Steam Subscriber Agreement, which (art. 1.C) lays down that platform user accounts and subscriptions are personal, non-resalable, non-licensable and non-transferable. Valve argued that their platform merely provides online services to users, and that they do not offer games for sale, legally speaking. The court quashed that reasoning by pointing out that Valve describes Steam as more than just a “sales platform” and as the market leader “in videogame distribution”. Using that terms, the Court found that Valve itself “confesses” that it sells games. In conclusion, art. 1.C runs against the exhaustion rule and is therefore void.

Comment

Having studied the complex digital exhaustion topic as a PhD theme, this humble cat cannot help mewing some critical views on this judgment. The focus will be on the reasoning, rather than the outcome of the case: as an IP law specialist, one is either a digital exhaustion believer (aka UsedSoft lover, e-resale warrior, digital property fanatic) or a non-believer, and there are equally fine arguments for both schools of thought.

First, it is striking that the Court smoothly concluded that the distribution right and exhaustion rule in the Software and InfoSoc Directive are to be interpreted identically. The InfoSoc Directive was designed to implement the 1996 WCT in the EU. In order to govern digital transmissions, the Directive introduces the right of “making available to the public of their works in such a way that members of the public may access them from a place and at a time individually chosen by them” for authors as part of the right of communication to the public. Pursuant to its recital 29, the exhaustion issue “does not arise in the case of… on-line services”. Taking into account the WCT’s preliminary works and the Agreed Statements, it is therefore arguable that distribution and exhaustion in the InfoSoc Directive “refer exclusively to fixed copies that can be put into circulation as tangible objects” – which probably describes what the Paris Court means by “material work”. By contrast, the original Software Directive predates the WCT, and is silent on online transfers since it spells out neither a making available right nor a right of communication to the public. Thus, the latter directive leaves more room to argue that its distribution right is broader and also encompasses digital transmissions.

Second, the judgment omits any references to the pending Tom Kabinet case and the panoply of legal arguments on digital exhaustion voiced for over a decade. Moreover, it is a pity that the Court refused to refer two very interesting preliminary questions to the CJEU. Both concerned the exhaustion rules in articles 4.2 of the Infosoc and Software Directives. In the first place, the claimant wanted the CJEU to clarify that these provisions authorize any standing party to bring actions to annul contractual clauses with the object/effect to prevent the resale of copies of works or computer programs that were already sold with the copyright-holder’s consent. In the second place, UFC wanted to clarify whether the distribution right of a digital videogame copy is exhausted after the rightholder has authorised the downloading of that copy in return for a fee corresponding to its economic value, allowing its acquirer to use the videogame on a medium via the Internet. As curiosity is this cat’s very nature, we can only hope the appellate court does refer these questions to Luxemburg.

Lastly, the Paris Court applied the UsedSoft doctrine although not all of the CJEU’s criteria were necessarily met. It was not clear whether the videogame purchases on Steam allow users to download a copy of that game on their device and bring about a bring about a right to use that copy for an unlimited period. The suggested preliminary questions rather gives the impression that at least some games can only be played online.

Although not debated in the very judgment, this raises an interesting issue for further exploration. Except for works to create derivative works (e.g. photographs), various digital works and computer programs are no longer available for permanent download, nor do they come with a usage right for an unlimited period (or, perhaps more accurate: for a period that corresponds to the term of IP protection). Indeed, “digital content” is increasingly made available through a subscription-based model. Hence, cases like UsedSoft and Tom Kabinet might soon be hopelessly obsolete. Yet, rather than an end, perhaps this economic shift marks the beginning of a new, broader debate. As we are all increasingly purchasing subscriptions to the detriment of more permanent assets, the question will inevitably arise as to the extent and how the law ought to warrant that users (consumers, SMEs…) are entitled to transfer their paid-for contractual rights to standardised digital services to third parties in order to prevent lock-in. In this respect, it is interesting how this Paris case was dealt with mainly from a consumer contract law perspective. Perhaps consumer law, rather than IP law, may prove to be better placed to tackle the debate “formerly known as digital exhaustion”.

AG Szpunar advises CJEU to rule that internet downloads of ebooks are covered by right of communication to the public, not distribution (so, no, there is no digital exhaustion under InfoSoc Directive)

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Is it possible or not to create second-hand digital marketplaces for, say, audio and ebooks, digital music, games, etc?

This is the question at the heart of the referral to the Court of Justice of the European Union (CJEU) in Tom Kabinet, C-263/18 [here].

As readers know, the CJEU has already found - in UsedSoft - that there is such thing as 'digital exhaustion' in relation to software under the Software Directive. However, that piece of legislation is both lex specialis and has a rather narrow field of application (for instance, it does not cover videogames, as the CJEU clarified in Nintendo).

Hence, in the aftermath of the UsedSoft ruling, it has remained unclear whether the same consequences envisaged in relation to the first lawful sale of the copy of a computer program could extend to subject matter protected under the InfoSoc Directive.

Certain national courts have attempted to tackle all this, though have done so with diverging outcomes.

For instance, in 2014, the Court of Appeal of Hamm in Germany excluded that the right of distribution under the InfoSoc Directive, as transposed into German law, could be exhausted in the case of audiobooks (OLG Hamm, 22 U 60/13).

Taking a different view, in that same year the District Court of Amsterdam concluded that the right of distribution would be exhausted following the first lawful sale of copies of ebooks (Rechtbank Amsterdam, C/13/567567 / KG ZA 14-795 SP/MV, NL:RBAMS:2014:4360). The decision of the Amsterdam court was appealed to the Court of The Hague. This court held that the provider of second-hand e-books, Tom Kabinet, would not be liable for unauthorized acts of communication to the public under the Dutch equivalent of Article 3(1) of the InfoSoc Directive. However, it is unclear whether it could invoke the digital exhaustion of the right of distribution in relation to its e-book trade. Hence, the court in The Hague decided to seek guidance from the CJEU.

This morning, Advocate General Szpunar issued his much-awaited Opinion in this case, in which he advised the CJEU to rule that, despite the presence of arguments - of both a legal and teleological nature - that support the availability of digital exhaustion under the InfoSoc Directive, "as EU law now stands, the arguments to the contrary should prevail." As such,

the supply of e-books by downloading online for permanent use is not covered by the distribution right within the meaning of Article 4 of that directive but is covered by the right of communication to the public within the meaning of Article 3(1) of that directive.

The conclusion of the AG, as it will be discussed further in what follows, appears correct. He divided his analysis into two parts: first, he considered the objective, wording and context of relevant legislative provisions; second, he reviewed earlier CJEU case law.

The law

Distribution or, rather, communication to the public? A teleological interpretation

The AG noted nearly at the outset that this referral goes beyond the right of distribution, as it requires consideration of whether the supply of ebooks by online downloads is something else in the first place, ie an act of communication to the public, which - under Article 3(3) - shall not be subject to exhaustion.

After recalling the differences in the public's possible enjoyment of protected subject matter, the AG turned to the WIPO Copyright Treaty to recall how its drafters were well aware of the "mixed nature of downloading". As a result, an umbrella solution was adopted, "which, while giving priority to the right of communication to the public, does not preclude the application of the distribution right." The AG also noted the wording of the agreed statement to Article 6 and 7 therein, which limits the application of those provisions to ‘fixed copies that can be put into circulation as tangible objects’.

In all this, the InfoSoc Directive is the implementation into the EU legal order of, inter alia, the WIPO Copyright Treaty. According to the AG,

In adopting that directive, the EU legislature seems to have clearly taken a position in favour of the right of communication to the public being applicable to the supply of works by downloading online and also of the right of distribution, and therefore of the exhaustion of that right, being limited solely to tangible copies. More specifically, downloading is covered by the right to make works available to the public, provided for in Article 3(2) of that directive.

In support of all this, the AG recalled the wording (as well the ambiguities thereof) of recitals 24, 25, 28 and 29 in the preamble to the directive. From them it would appear "clearly" "the demarcation line which the EU legislature intended to draw between the right of public communication (in the form of making available to the public) and the right of distribution. Thus the right of communication to the public applies to all forms of online exploitation of the works, as much to those not linked to a copy as to those based on the creation of such a copy."

This said, would there be a communication 'to the public' if only a single copy could be purchased? AG Szpunar noted that "[w]hat matters is not the number of persons to whom the communication is made but the fact that the person at the origin of that communication addresses his offer to persons not belonging to his private circle. In that case, a single acquirer may therefore constitute a public."

Will Luciano be able to sell
the content of his Kindle after all?

Concepts in Article 4 of the InfoSoc Directive: a literal interpretation

According to the AG, not only would a teleological interpretation like the one above prevent the application of Article 4 to the scenario at issue, but also a literal interpretation thereof would lead in the same direction.

In fact, authors have the right to authorize the distribution of their work 'by sale or otherwise', ie by a transfer of ownership. However:

It is difficult to speak of ownership in the context of a digital file;
The making available of works by downloading online requires a multitude of conventions specifying the parties’ rights and obligations: "Those conventions come within the scope of freedom of contract and I do not think that any recognition of the rule of the exhaustion of the distribution rule could limit that freedom. Thus, unlike the situation that prevails for tangible objects, in the case of dematerialised works supplied online it would never be easy to state with certainty whether or not there has been a transfer of ownership and therefore exhaustion of the right of distribution, as the parties to the contract are able to define in different ways the modes of use of the copy of the work."

The right of reproduction: contextual interpretation

Finally, also the right of reproduction would prevent application of exhaustion in a case like the one at issue:

Any downloading of a digital file consists in the creation of a copy of that file on the receiving computer. The creation of that copy constitutes an act of reproduction subject to the exclusive right of the copyright holder over the work contained in the file in question.

More specifically:

In the case of the supply of works by downloading online, the copy of the work by its original purchaser is made with the consent of the copyright holder, as an essential element of that form of making available to the public. However, that consent does not cover the reproductions that would be necessary for the subsequent transmission when the copy of the work is resold.
Nor can those reproductions be considered to be covered by the rule of the exhaustion of the right of distribution. Such a conclusion would be tantamount to recognising the exhaustion of the right of reproduction. But that right cannot be exhausted. Thus, any reproduction that accompanies the resale of a work in digital form must either be authorised by the holder of the exclusive right of reproduction or come under an exception to that exclusive right.

In all this, Article 5 does not contain any exception that would apply in a case like the one at issue, not even Article 5(1).

Case law

The AG reviewed earlier case law, notably the UsedSoft decision and noted how, not only the legislative instruments at issue (Software and InfoSoc directives), but also the peculiarities of relevant subject matter would be different.

First, unlike for computer programs, for subject matter like literary or musical works the medium in which they are made available is not irrelevant. Second, while a computer program is a tool, InfoSoc-type works are not. Third, while for literary, musical or cinematographic works the usefulness is often exhausted, so to speak, after a single reading, hearing or viewing, the same is not true for computer programs. Finally, computer programs are subject to rapid obsolescence, which is not the case of InfoSoc-type works.

In all this, the Software Directive - unlike the InfoSoc Directive - does not contemplate a right of communication/making available to the public, nor does it mention that the rule of exhaustion should be limited to copies incorporated in a tangible medium. Finally, Article 5(1) of the Software Directive contains an exception to the right of reproduction which the InfoSoc Directive does not envisage.

The AG also considered Vereniging Openbare Bibliotheken and case law on linking.

He rejected the idea that CJEU case law is inconsistent, noting that:

in the absence of full regulation by means of legislation as regards that rule, the diversity of judicial solutions is justified, and even inevitable, in the case of different factual situations, governed by different legislative acts and pursuing specific objectives. To my mind, the desire for consistency cannot on its own serve as a basis for judicial recognition of the rule of exhaustion.

Even if there are "many arguments" that can be advanced in favour of digital exhaustion, EU law is not there, and likely there is no need for it go there either:

By 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.

The CJEU should thus rule in the sense that the activities of an undertaking like Tom Kabinet are not covered by Article 4(2) of the InfoSoc Directive.

Sadly stuck with all these games to play ...
Comment

As mentioned, the Opinion of AG Szpunar appears absolutely correct, and the CJEU should follow it unless it opts for a policy-driven response to a problem which, as the AG himself acknowledged, "to a large extent belongs to the past". In fact, with streaming on the rise, the role of internet downloads might be progressively fading in the (technological) past.

In all this, there are two main points worth noting.

The first is that, similarly to what AG Szpunar had done in his Opinion in VCAST (a case concerning - formally - private copying) [here and here], the referral has now somewhat mutated from being all about to distribution to being about communication to the public.

The second is that, as the AG correctly discussed, the analysis under the InfoSoc and Software directives cannot be the same, for a number of reasons:

Recital 28 in the preamble to the InfoSoc Directive appears to link the right within Article 4 of the InfoSoc Directive to the ‘right to control distribution of the work incorporated in a tangible article’.
Recital 29 clarifies that ‘[t]he question of exhaustion does not arise in the case of services and on-line services in particular’.
In relation to the right of communication/making available to the public, Article 3(3) of the InfoSoc Directive rules out that this right be subject to exhaustion.
It should be recalled once again that, by adopting the InfoSoc Directive, EU legislature transposed into the EU legal order the WIPO Internet Treaties. The agreed statements to Article 6 of the WIPO Copyright Treaty provide that the expressions ‘copies’ and ‘original and copies’ in the context of the right of distribution exclusively refer to fixed copies that may be put into circulation as tangible objects.
Since its early case law, the CJEU has been careful in drawing a distinction between the right of distribution, which would be subject to exhaustion, and other rights for which no exhaustion would occur. For instance, as early as 1982, in Coditel, the Court did not find that requiring payment of a fee for each public performance of a film would be contrary to EU law. A similar distinction between the consequences of the first sale of a copyright work or a copy thereof for the exhaustion of the right of distribution and other economic rights was also made in Metronome and Tournier.

Let's now see what the CJEU decides.

Nexus

[Guest post] Paris Court on digital exhaustion and videogames

AG Szpunar advises CJEU to rule that internet downloads of ebooks are covered by right of communication to the public, not distribution (so, no, there is no digital exhaustion under InfoSoc Directive)

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