Tuesday's decision of the EU Court of Justice in UsedSoft has set the software industry aflutter by largely giving the green light to resale of permanent software licences, regardless of whether the original provision of the software was on a physical medium such as CD or DVD or was downloaded, so long as the original purchaser renders its copy unusable.The principle applied in UsedSoft is that the original transaction 'exhausts' the rightsowner's ability to control further dealings with the copy. The Court has held that this even extends to permitting a resale of the bare licence, where the purchaser owner downloads a new copy of the software from the rightsowner's website. For fuller details of the decision see here.
But buried in the middle of the judgment is what at first sight appears potentially to be an even more radical statement, suggesting that the same principle may apply not just to computer programs but to all copyright works. At paragraph 52 the Court states:
"the existence of a transfer of ownership changes an 'act of communication to the public' provided for in Article 3 of [the Copyright in the Information Society directive] into an act of distribution referred to in Article 4 of the [Infosoc] directive which, if the conditions in Article 4(2) of the [Infosoc] directive are satisfied, can, like a 'first sale' of a copy of a program' referred to in Article 4(2) of [the Software] Directive 2009/24, give rise to exhaustion of the distribution right."
The key statement is that an act of communication to the public 'changes' into an act of distribution if there is a transfer of ownership. The court said that transfer of ownership includes a download from the internet where the rightsholder 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".
The Infosoc Directive specifically states that an act of communication to the public does not give rise to exhaustion. But if there is no act of communication to the public because it has changed into an act of distribution, then it would seem that the 'no exhaustion' exception can be sidestepped.
In principle the broad economic test of transfer of ownership applied in UsedSoft could then also be applied to works within the Infosoc Directive, such as music and video.This could suggest that fully paid-for permanently licensed authorised downloads under the Infosoc Directive, such as of music and video, are capable of being exhausted thus allowing purchasers to transfer them like secondhand CDs or DVDs. The bright line for exhaustion would then seem to be not between physical copies and downloads, but between downloads (when they satisfy the economic value test described above) and streaming or other service-type online offerings.
"(28) Copyright protection under this Directive includes the exclusive right to control distribution of the work incorporated in a tangible article. The first sale in the Community of the original of a work or copies thereof by the rightholder or with his consent exhausts the right to control resale of that object in the Community. This right should not be exhausted in respect of the original or of copies thereof sold by the rightholder or with his consent outside the Community."
(29) The question of exhaustion does not arise in the case of services and on-line services in particular. This also applies with regard to a material copy of a work or other subject-matter made by a user of such a service with the consent of the rightholder. Therefore, the same applies to rental and lending of the original and copies of works or other subject-matter which are services by nature. Unlike CD-ROM or CD-I, where the intellectual property is incorporated in a material medium, namely an item of goods, every on-line service is in fact an act which should be subject to authorisation where the copyright or related right so provides."
This apparent distinction between tangible and non-tangible is reflected in the reference in Article 4(2) of the Infosoc Directive to the distribution right being exhausted on first sale or other transfer of ownership within the EU of an 'object'.
The Advocate General in his Opinion discussed these provisions of the InfoSoc Directive and concluded that they did not prevent a download being regarded as a distribution capable of being exhausted. If that is right, then UsedSoft could admit of a possibility not mentioned in recitals (28) and (29), that of an online download that is not in the nature of a service.
Ultimately the Court in UsedSoft based its decision on the narrower ground of the Software Directive being a lex specialis that takes precedence over the lex generalis of the Infosoc Directive. In doing so it left open, albeit in somewhat sceptical terms, the possibility that the exhaustion of the distribution right under the Infosoc Directive concerns only tangible objects: "even supposing" that to be right "that would not be capable of affecting the interpretation of Article 4(2) of the Software Directive, having regard to the different intention expressed by the European Union legislature in the specific context of that directive".
At a more general level the distinction between tangible and non-tangible is the very distinction that the Court in UsedSoft has rejected in favour of an economic value test.
The Court in UsedSoft did make a distinction between computer programs and works under the Infosoc Directive. It said:"The use of a computer program, unlike the use of other works protected by copyright, generally requires its reproduction."