The Rise And (partial) Fall Of Digital Exhaustion As The CJEU Hits The ...

In a fresh and highly-anticipated judgment (C-263/18, ”Tom Kabinet”), the Grand Chamber of the Court of Justice of the European Union (”CJEU”) ruled that the sale of second-hand e-books does not constitute ”distribution” but ”communication to the public” and found that there was no exhaustion under the Information Society Directive (2001/29/EC) (”InfoSoc Directive”).

Where it all began – the digital exhaustion debate

Over the last decade, digital exhaustion has been a highly debated issue in the European UnionIn 2012, the CJEU handed down an important judgment in the UsedSoft case (C‑128/11), in which it concluded that the right of distribution related to a computer program had been exhausted under 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”). In its 2015 judgment in Art & Allposters (C-419/13), the CJEU held that exhaustion of the right of distribution can take place only when it concerns the unaltered, tangible form of a protected work.

Tom Kabinet arose as a request for a preliminary ruling from the CJEU in a copyright lawsuit brought by two Dutch copyright organizations, Nederlands Uitgeversverbond (NUV) and Groep Algemene Uitgevers (GAU), against Tom Kabinet, a company operating an online ”reading club” and acting as an e-book trader. NUV and GAU applied for an injunction at the rechtbank Den Haag (District Court of The Hague) to prohibit Tom Kabinet from infringing the copyright of NUV’s and GAU’s affiliates by making available or reproducing e-books. NUV and GAU considered Tom Kabinet to be engaged in making an unauthorized communication of e-books to the public.

In its interim judgment, the District Court of The Hague held that the e-books at issue were to be classified as ”works” within the meaning of the InfoSoc Directive. The District Court also held that in circumstances such as those at issue in the main proceedings, Tom Kabinet’s actions did not constitute ”communication to the public” of those works within the meaning of the InfoSoc Directive. However, by making a request for a preliminary ruling to the CJEU, the District Court decided to seek clarification on whether remotely making available e-books subject to a charge and for an unlimited period may constitute an act of ”distribution” under the InfoSoc Directive and whether the right of distribution may be exhausted as stipulated in the directive.

The CJEU hits the brakes and rules against exhaustion

After months of deliberation, the Grand Chamber of CJEU handed down its judgment on 19 December 2019. Upon considering the circumstances and facts of the case, the CJEU reformulated the legal question to concern whether the actions of Tom Kabinet constitute ”communication to the public” within the meaning of Article 3(1) of the InfoSoc Directive, or ”distribution” under Article 4(1) of the directive.

In its judgment, which to a great extent followed the opinion of the Advocate General, the CJEU held that supplying an e-book to the public for permanent use by downloading constitutes ”communication to the public” within the meaning of Article 3(1) of the InfoSoc Directive.

In its reasoning, the CJEU referred to the Copyright Treaty of the World Intellectual Property Organisation (”WIPO Copyright Treaty”). The CJEU held that the concepts of ”communication to the public” and ”distribution” referred to in Article 3(1) and in Article 4(1) of the InfoSoc Directive must, so far as possible, be interpreted in accordance with the definitions contained in the WIPO Copyright Treaty. According to the WIPO Copyright Treaty as well as the explanatory memorandum of the proposal for the InfoSoc Directive, exhaustion of the right of distribution refers exclusively to fixed copies which can be put into circulation as tangible objects.

Hence, the intention underlying the directive was that any communication to the public other than the distribution of physical copies of the work should be covered, not by the concept of ”distribution”, but instead by that of ”communication to the public”. In this case, the conditions of ”communication to the public” were fulfilled firstly, because Tom Kabinet made the copyright-protected works available to anyone who registered on the reading club’s website. Secondly, as the website did not have any technical restrictions on the number of downloadable copies or the time period during which the copies could be used by a registered user, the number of persons who could either simultaneously or successively gain access to the copyrighted works via the website was substantial. Unlike physical books, e-books do not deteriorate with use and exchanging such copies requires neither additional effort nor additional cost. Therefore, the CJEU held that a parallel second-hand market for digital copies would be likely to affect the interests of the copyright holders in obtaining appropriate reward for their works much more than the corresponding market for second-hand tangible objects.

Essentially based on these grounds, the Grand Chamber of the CJEU held that under the InfoSoc Directive, the actions of Tom Kabinet should be considered to constitute ”communication to the public”. Consequently, there was no exhaustion, since right of communication to the public cannot be exhausted under the InfoSoc Directive.

What is left for the concept of exhaustion in the digital age?

An interesting point to raise is how Tom Kabinet initially looked quite different when in light of the questions submitted to the CJEU, but essentially morphed into a question of whether there was ”distribution” or ”communication to the public”.  This is what the CJEU wanted to answer, even when this is not what the referring court actually asked.

Also, how are the facts in UsedSoft different from Tom Kabinet? In both cases, the relevant material was downloaded from a website. When considered from the point of view of legal certainty, is it really justified and desirable to conclude that there was ”distribution” and exhaustion in one case and ”communication to the public” and no exhaustion in the other?

Further, is it possible that an important factual consideration was left open or even (intentionally or unintentionally) disregarded by the CJEU? Namely, for a used e-book to be made available, a copy must have been uploaded to the website. Hence one would think that there must have been a reproduction at some point. It is of course not possible to make a physical book available in its original form on a website. The referring court asked a question related to the reproduction right, but CJEU did not want to answer it. It is difficult to see how the reproduction right could be exhausted, since that would quite severely undermine the legitimate interest of a copyright holder. This can be easily illustrated by an example: If someone could buy a CD and then reproduce an unlimited amount of that CD and resell them since the first copy was exhausted, this would have a serious negative affect the market for the original CD and cannot be permissible. Thus, there are quite strong grounds for arguing that the reproduction right cannot reasonably be exhausted at all, even if the CJEU did not answer this question in Tom Kabinet. This line of argumentation can nevertheless be supported for example by the findings of the CJEU in Art & Allposters (C-419/13). It should be noted that the concept of exhaustion relates to a certain lawfully purchased single copy and not to reproductions of such copies. One who has lawfully purchased a copy can for example sell the one particular copy that he has bought and in light of this it makes sense that it is the distribution right in particular which can be exhausted. But if the used book was reproduced before it was uploaded, the copy on Tom Kabinet’s website would not be the same copy and it could be argued that no rights related to this new copy would have been exhausted.

Further, tangible objects need to be distinguished from non-tangible under the InfoSoc Directive; the distribution right under said directive relates to tangible, physical objects. This of course significantly narrows the scope of potential exhaustion in today’s digital world where most of the products are non-tangible. If the act is considered to be ”distribution” under the Software Directive, it may, in light of UsedSoft, still be possible that there would be exhaustion. However, if the act constitutes ”communication to the public” under the InfoSoc directive, there will likely not be any exhaustion in light of the judgment in Tom Kabinet.

So, what is left after the judgment in Tom Kabinet, is there any exhaustion to speak of in the digital age in the EU? The answer is yes. But after the ruling in Tom Kabinet, one needs to be very diligent when considering whether exhaustion has in fact taken place. In the EU, exhaustion should not be viewed as a general concept based on which all relevant rights would be ruled out. Rather, it will be of pivotal importance to ask exactly which right it is which has allegedly exhausted and under which directive should the facts be assessed?

There are still quite a few interesting points left for debate and the saga of digital exhaustion is likely to go on, even if the plot has been somewhat altered by the ruling in Tom Kabinet.