Question Q240
National Group:
UK
Title:
Exhaustion issues in copyright law
Contributors:
Rachael ANNEAR, Nick CUNNINGHAM, Cam GATTA, Ruth
KELLY, Ari LAAKKONEN, Alex MORGAN, Adam RENDLE,
Charlotte SCOTT, James TUMBRIDGE, Jonathan DC
TURNER, Tess WALDRON
Reporter within
Working Committee:
Kazuhiko YOSHIDA
Date:
19 May 2014
Questions
I.
Current law and practice
The Groups are invited to answer the following questions under their national laws:
Right of distribution
1) Does the copyright law of your country recognise the right of distribution within the
meaning of Article 6, paragraph (1) of WCT? If so, please cite the provisions which set
forth the definition of the right of distribution and recognise such right.
Yes, see ss. 16(1)(b) and 16(2)1 and s. 182 of the Copyright, Designs and Patents Act 1988 (as
amended)(the "CDPA").
Exhaustion of copyright-protected works
2) Does the copyright law of your country recognise the exhaustion of copyright-protected
works after the first sale of the work with the authorisation of the author? Is it recognised
by statutory law or case law?
Yes. The exclusive distribution right in s. 18 CDPA only applies to copies of a work "not
previously put into circulation". Accordingly, although the term is not used, the CDPA distribution
1
Section 16(1)(b): “The owner of the copyright in a work has, in accordance with the following provisions of this
Chapter, the exclusive right to do the following acts in the United Kingdom: … to issue copies of the work to the
public (see section 18)…”
Section 16(2): “Copyright in a work is infringed by a person who without the licence of the copyright owner does,
or authorises another to do, any of the acts restricted by the copyright…”
2
Section 18(1): “The issue to the public of copies of the work is an act restricted by the copyright in every
description of copyright work.”
Section 18(2): “References in this Part to the issue to the public of copies of a work are to: (a) the act of putting
into circulation in the EEA copies not previously put into circulation in the EEA by or with the consent of the
copyright owner; or (b) the act of putting into circulation outside the EEA copies not previously put into circulation
in the EEA or elsewhere.”
Section 18(4): “References in this Part to the issue of copies of a work include the issue of the original.”
1
right is exhausted by a first distribution of a copy “in the EEA by or with the consent of the
copyright owner”.
Similarly, in relation to secondary infringement, s. 27(5) CDPA provides that: “Nothing in
subsection (3) shall be construed as applying to an article which may lawfully be imported into the
United Kingdom by virtue of any enforceable EU right within the meaning of section 2(1) of the
European Communities Act 1972.”
Further, Directive 2001/29/EC on the harmonisation of certain aspects of copyright and related
rights in the information society (the "InfoSoc Directive"), in accordance with which UK law must
be interpreted, expressly recognises the concept of exhaustion:
“Article 3(3): The rights referred to in paragraphs 1 and 2 [communication to the public
and making available] shall not be exhausted by any act of communication to the public or
making available to the public as set out in this Article.
Article 4(2): The distribution right shall not be exhausted within the Community in respect
of the original or copies of the work, except where the first sale or other transfer of
ownership in the Community of that object is made by the rightholder or with his consent.”
3) How does your law treat exhaustion of copyright-protected works?
Exhaustion of the distribution right has traditionally been understood to apply only where tangible
copies of a copyright work (e.g. a musical work stored on a CD) are put into circulation by or with
the consent of the copyright owner, and not where electronic copies are lawfully made available
online. This position is consistent with the InfoSoc Directive (see for example Recitals 28 and 29
(emphasis added)):
“(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 …
(29) The question of exhaustion does not arise in the case of services and online
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.
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.”
In its 2002 consultation on the implementation of the InfoSoc Directive3 the UK Intellectual
Property Office stated, with regard to Article 3(3) (emphasis added):
“No specific action has been taken as a result of paragraph 3 of Article 3, which is
considered to be present simply for avoidance of any doubt on the matter to which it
refers. Exhaustion of rights is a concept normally only associated with the right to control
distribution of tangible copies of protected works”.
This paragraph is aligned with the Agreed Statements to the WIPO Copyright Treaty (discussed
further at Q7, below)
Specifically,
a) Does exhaustion of rights occur for all kinds of works or is exhaustion limited to
certain kinds of works?
3 EC Directive 2001/29/EC on the Harmonisation of Certain Aspects of Copyright and Related Rights in the
Information Society: Consultation Paper on Implementation of the Directive in the United Kingdom, August 2002
(available at http://www.ipo.gov.uk/200121ec.pdf).
2
Under UK law, for copyright to subsist, the relevant work must fall into one of the
categories of work protected by copyright under s. 1 CDPA, namely: (a) original literary,
dramatic, musical or artistic works (which, in the case of literary, dramatic or musical
works have been recorded in some way); (b) sound recordings, films, broadcasts or cable
programmes; and (c) the typographical arrangement of published editions.
Section 18 CDPA does not distinguish between these various categories of work and, as
a result, in theory exhaustion should apply (or not apply) equally to all of them. However,
because the CDPA must be interpreted in light of those EU and international laws which it
is designed to implement, and because those supra-national requirements can treat
different works in different manners, this is not necessarily the case. For example, the UK
copyright law applicable to software (treated as literary works) must be interpreted in
accordance with Directive 2009/24/EC on the legal protection of computer programs (the
"Software Directive"), whereas that relevant to musical works must be interpreted in the
light of the InfoSoc Directive. The practical effect of these distinctions is discussed further
below in Q7and Q9.
b) Which right can be exhausted? Is it (a) the right of distribution, and/or (b) the right of
reproduction, and/or (c) the right of lending and/or renting of copies?
Only the right of distribution is exhausted. The manner in which reproduction rights and
rental and lending rights are defined in UK and EU law mean that they, along with moral
rights, cannot be exhausted. For example, the making of a first copy of a work does not
mean that the recipients of those copies are free to make further reproductions (unless an
exception applies4). Further, the fact that one of the restricted acts protected by copyright
has been exhausted does not have the effect of exhausting any others.
c) What are the requirements for exhaustion of rights to occur? What activities by
rightholders are required for exhaustion to apply? Are licencees/buyers required to
take any positive steps for exhaustion to be applicable?
As noted in Q2, under Article 4(2) InfoSoc Directive, the distribution right is exhausted by
a "first sale or other transfer of ownership in the community… by the rightholder or with
his consent". Further, the effect of the CJEU’s decision in Peek & Cloppenburg KG v
Cassina SpA, C-456/06 is that there can be no exhaustion unless title to the article is
transferred.
Although, as discussed further in Q14 below, there is no unifying definition of what
constitutes a sale under UK law, we consider that its meaning, at least with respect to
software (and possibly in relation to all copyright works), may have been harmonised
across the EU following the CJEUs decision in Oracle v UsedSoft, C-128/11 in which the
following definition was used (at [41]):
"a ‘sale’ is an agreement by which a person, in return for payment, transfers to
another person his rights of ownership in an item of tangible or intangible property
belonging to him."
In UsedSoft, the CJEU applied this analysis to a user licence agreement for software
which provided to customers, in return for payment of a fee, a right to use that copy for an
unlimited period and found that, where the intention of the licensor was "to make the copy
usable by the customer, permanently, in return for payment of a fee designed to enable
the copyright holder to obtain a remuneration corresponding to the economic value of the
copy of the work of which it is the proprietor" (at paragraph [45]), a sale had occurred.
Although this definition was created and applied in in the context of software, there is no
suggestion in the CJEU’s decision that this reasoning should be applied only to the lex
4
For example, the limited rights of reproduction set out in Articles 5 and 6 of the Software Directive.
3
specialis of the Software Directive. Accordingly, we consider it at least arguable that it is
of equal relevance to the corresponding wording in the InfoSoc Directive.
There is no requirement for licensees/buyers5 to take any positive steps for the doctrine of
exhaustion to apply (although, given that the analysis of whether there has been a first
sale depends on the true nature of the transaction, it seems that the licensee/buyer must
enter into an appropriate form of agreement with the licensor/vendor).
d) If the rightholder A distributes lawful copies made by A to people including B, B
purchases a copy from A and sells it to C, and thereafter A cancels the sales
agreement between A and B because of non-payment of the price by B to A, may A
assert his/her copyright against C? May C rely on exhaustion of A´s rights to the work
(or the right of distribution)? In this connection, which party (A or C) will keep the right
of ownership in the tangible copy?
As set out in Q3(c), the question as to whether A can assert his/her copyright against C
depends on whether there has been a "sale or other transfer of ownership in the EEA"
between A and B, which will in turn depend on the nature of the transaction between the
parties and the terms of any contract. For example, applying the transfer of ownership
test set out in Peek, an agreement which provided that title only transferred on payment
would permit A to assert his copyright against C (on the assumption that C were to
commit (or threaten to commit) an act of distribution), as there would have been no first
sale and no exhaustion.
We note that Peek did not involve the kind of retention of title provision under discussion
here and that paragraph 45 of UsedSoft suggests that there may be flexibility as to what
constitutes a ‘sale’ in these contexts. As yet the English court has not considered the
interplay between the two judgments and, accordingly it is not clear whether the usual
principles of English law construction would be applied to decide the question of whether
a sale had occurred or if the CJEU’s UsedSoft test would be followed.
Ownership of the tangible copy as between A and C will be determined by the law of
personal property (rather than copyright). For example, if the Sale of Goods Act 1979
applied, the position would be that C could not acquire better title than B (i.e. C would not
have title to the goods)6.
e) Are there any statutory exceptions to the exhaustion of rights, e.g. transformation of
the work by the licensee/buyer prior to re-selling?
No. So, for example, if a licensee/buyer changed the front cover of a book before reselling it, the owner of the copyright in the book could not rely on its exhausted,
distribution right to prevent that resale, notwithstanding the transformation. However, the
right holder might be able to rely on its reproduction and moral rights, which cannot be
exhausted and may be infringed by the transformation. In addition, if there were
legitimate reasons, trade mark rights could act as a further barrier to resale. These issues
are considered with respect to repair and recycling in Q11.
f) May the exhaustion of rights be waived contractually?
Subject to competition law, and the laws of free movement and restraint of trade, it would
be possible for parties to agree that a purchaser cannot resell what it has bought.
However, if such a clause were agreed, enforceable and breached the right holder’s
remedy would lie only in an action for breach of contract as the first sale to the purchaser
5 We understand the reference to a licensee/buyer to mean that a sale has occurred within the meaning adopted
by the CJEU in UsedSoft. 6 See s. 21(1) Sale of Goods Act 1979.
4
would have exhausted the distribution right. Accordingly, neither the purchaser nor any
subsequent owners could be sued for copyright infringement.
4) What is the rationale/justification under your law for the exhaustion of rights?
The English courts have rarely considered the justification for exhaustion. We note that, at least
domestically, the following overlapping rationales can be advanced:
(a)
when there is a purchase of a physical item which contains a copyright work (e.g. a book or
a DVD), the purchaser's personal property interest in the physical item outweighs the right
holder’s copyright interest in the work embodied in the item;
(b)
to the extent that the purpose of copyright is to provide an adequate reward for the creators
of works without unduly limiting other rights and the free-flow of information, the right holder
obtains sufficient and proportionate remuneration from the first sale and should not receive
further sums from licensing resales;
(c)
any compensation a right holder could obtain from authorising resales would ‘overcompensate’ it relative to the competing interests at stake;
(d)
it would unduly hamper free trade in physical products if right holders could rely on
copyright to restrict the onward transfer of those products; and
(e)
in the words of the CJEU in UsedSoft, to prevent resale without a right holder’s consent,
"would allow the copyright holder to control the resale of copies downloaded from the
internet and to demand further remuneration on the occasion of each new sale, even
though the first sale of the copy had already enabled the rightholder to obtain an
appropriate remuneration. Such a restriction of the resale of copies of computer programs
downloaded from the internet would go beyond what is necessary to safeguard the
specific subject-matter of the intellectual property concerned" (at paragraph [63], emphasis
added).
Accordingly, broadly speaking, the UK justification of the exhaustion doctrine aims to strike a
compromise between a right holder’s interest in its copyright and the competing interests of free
trade and the ownership of physical goods.
Similarly, in the context of cross-border trade in the EU, the justification for exhaustion of rights is
neatly explained by the CJEU in UsedSoft as follows: "the objective of the principle of the
exhaustion of the right of distribution of works protected by copyright is, in order to avoid
partitioning of markets, to limit restrictions of the distribution of those works to what is
necessary to safeguard the specific subject-matter of the intellectual property concerned" (at
paragraph [62], emphasis added).
This analysis depends on striking a suitable balance between the competing interests, such a
balance being, at least in the view of the CJEU, the point at which a right holder obtains
"appropriate remuneration". It is therefore a policy decision in each case as to the point at which,
along a chain of first sale and subsequent resales, the right holder has obtained "appropriate
remuneration". This issue is discussed further in Q15 below.
International exhaustion (specific issue 1)
5) Does your law recognise international exhaustion of copyright?
UK law does not recognise the international exhaustion of copyright. As noted in Q2, the
distribution right will only be exhausted by the first distribution of a copy “in the EEA by or with
the consent of the copyright owner”. As such, copies which may lawfully have been placed on
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the market outside of the EEA (even by or with the consent of the copyright owner) may not
subsequently be freely distributed within the EEA.
As an EU Member State the UK is required to observe the principle of free movement of goods
under Articles 28 to 30 of the Treaty on the Functioning of the European Union (the “TFEU”),
which mandates Community (or EEA) exhaustion. Although Articles 28 to 30 TFEU do not
prohibit any wider principle of exhaustion, the CJEU has held that, under Article 4.2 of the InfoSoc
Directive, Member States are not at liberty to recognise international exhaustion of the distribution
right (Laserdisken APS v Kulturministeriet, C-479/04).
Specifically, if a copyright-protected work stored on a tangible medium (such as CD or
DVD) which was lawfully made and distributed outside your jurisdiction is imported into
and sold in your jurisdiction, may the holder of the copyright in your jurisdiction assert
his/her copyright against such copy?
In these circumstances the owner of copyright may rely on the distribution right to prevent third
party distribution (s.18 CDPA and the InfoSoc Directive). We note here that the importation,
storage or possession of infringing copies are acts of secondary infringement under ss. 22 and 23
CDPA and, accordingly, require the alleged infringer to know (or have reason to believe) that the
works in question are infringing.
It should also be noted that the distribution right is not infringed where there is importation into,
but no sale within, the EEA (for instance if the work is warehoused in the UK but destined for sale
outside the EEA), nor by any onward sale of the work following the first non-infringing sale within
the EEA. Such activities may amount to secondary infringement of the reproduction right (ss. 22
and 23 CDPA), which requires knowledge (or reason to believe) on the part of the infringer that
the work in question is an infringing work.
6) If your law recognises international exhaustion of rights, what is the rationale/justification
under your law for such international exhaustion?
The UK does not recognise international exhaustion of copyrights.
On-line exhaustion (specific issue 2)
7) Does your law recognise on-line exhaustion or exhaustion in the case of downloaded
copies of copyrightable works?
We consider online exhaustion to refer to the inability of a copyright owner to object to the
distribution or importation of a particular copy of his copyright work because it has already been
put on the market (by means of an internet connection) in the EEA.
There are currently no specific provisions in UK statute which distinguish online exhaustion from
the exhaustion of tangible copies. However, we note that the UK government’s proposed new
regulations relating to private copying (the Copyright and Rights in Performances (Personal
Copies For Private Use) Regulations 2014 (the “Personal Copying Regulations”)): (i) envisage
that intangible copies (in the form of permanent downloads) can be “lawfully acquired on a
permanent basis”; and (ii) do not appear to make a distinction between tangible or intangible
forms when setting out the provisions which deal with making personal copies for private use7. In
particular, proposed new s. 28B(8) seems to provide that copyright will not be infringed where a
personal copy is transferred to a third party in circumstances where the transferee does not retain
7
Proposed new s. 28B CDPA, enabling individuals who lawfully own permanent copies of copyright works to
make further copies for private, non-commercial use. 6
a copy8. Accordingly, although not expressly provided for, the Personal Copying Regulations
may be capable of ushering in an implied exhaustion regime for downloads.
Having said this, it seems probable that the Personal Copying Regulations will be challenged by
industry and may well not be implemented in their current form, or at all.
We also note that, in terms of online exhaustion, the following provisions of international and EU
law, which flow down into the UK domestic regime and which expressly acknowledge that the
exhaustion of the distribution right is only applicable to tangible objects (except in the case of
computer programs (see Q7(c)):
(a)
WIPO Copyright Treaty: Article 6 of the WIPO Copyright Treaty (adopted on 20 December
1996) (the “Treaty”) has been interpreted by the joint declaration (dated 11 April 2000) as
limiting exhaustion of the distribution right to tangible objects.
Article 6 of the Treaty
“(1) Authors of literary and artistic works shall enjoy the exclusive right of authorising the
making available to the public of the original and copies of their works through sale or other
transfer of ownership.
(2) Nothing in this Treaty shall affect the freedom of the Contracting Parties to determine
the conditions, if any, under which the exhaustion of the right in paragraph (1) applies after
the first sale or other transfer of ownership of the original or a copy of the work with the
authorisation of the author.”
Agreed statement - concerning Article 6 and 7
“As used in these Articles, the expressions "copies" and "original and copies" being subject
to the right of distribution and the right of rental under the said Articles, refer exclusively to
fixed copies that can be put into circulation as tangible objects.”
(b)
InfoSoc Directive: The Treaty joint declaration has to some extent been captured in
Recitals 28 and 29 of the InfoSoc Directive (see Q3, above). These Recitals would be used
to interpret both the substantive provisions of the InfoSoc Directive and the corresponding
provisions of the CDPA.
However, the Software Directive has been considered by the CJEU in UsedSoft to be a lex
specialis under which exhaustion of the distribution right for software can include an intangible
copy of software that has been downloaded from the internet.
Under which conditions are which kind of rights in different kinds of copyright-protected
works exhausted?
Under UK law exhaustion is only applicable to: (i) the right of the copyright holder to issue copies
(the so called distribution right) (ss. 16 and 18 CDPA); and (ii) secondary infringement of
copyright by importation or possession/dealing (s. 27(5) CDPA).
Under s. 18 CDPA the issue of copies to the public is an act restricted by the copyright in every
description of copyright work.
Although the point has not yet arisen in the UK, since: (i) the domestic copyright regime is, to a
large extent, derived from EU law; and (ii) the UK courts are bound to interpret UK copyright law
questions in line with the jurisprudence of the CJEU, we would expect that the distribution right
would be exhausted for software (whether tangible or intangible) under the conditions in UsedSoft
(see further Q8 below). For tangible copyright works see our response to Q3 above.
8
See, in particular, s. 28B(8): “Copyright in a work is also infringed if an individual, having made a personal copy
of the work, transfers the individual’s own copy of the work to another person (otherwise than on a private and
temporary basis) and, after that transfer and without the licence of the copyright owner, retains any personal
copy”. 7
For intangible copyright works (other than software), we consider that the issue is moot under UK
law and would expect that any questions relating to online exhaustion which fall outside the
application of UsedSoft (in particular if they fall outside or not wholly within the scope of the
Software Directive see Nintendo Co. Ltd and others v PC Box SRL and 9Net Srl, Case C-355/12
as discussed in response to Q9 below) would be referred to the CJEU.
In the alternative, taking a broad interpretation of both the Treaty joint declaration and the InfoSoc
Directive, we consider that the UK court might find that the online transfer of a copyright work is a
service, and not an act of distribution. As such, the relevant right would be the right of the
copyright holder to communicate his work to the public (under ss. 16 and 20 CDPA), which is not
a right that can be exhausted9.
8) Are rights exhausted in a perpetual or non-perpetual licence? Are "re-sellers" of digital
copies allowed to further re-sell such digital copies under the circumstances described in
UsedSoft v. Oracle? Can multi-user-licences be split up and sold separately?
The general conditions for exhaustion in the UK have been set out above in our responses to Q2
and Q3. In respect of the online distribution of software, there are no UK specific judgments (or
statutory provisions) on the point. However since: (i) copyright with regard to computer programs
is harmonised within the EU under the provisions of the Software Directive; and (ii) the domestic
courts are bound to interpret UK copyright questions in line with the jurisprudence of the CJEU,
we would expect the position in the UK to be the same as in UsedSoft. In respect of exhaustion
in relation to other types of copyright work please see our response to Q9 below.
If the question of online exhaustion of a downloaded piece of software arose in the UK, in line
with the judgement in UsedSoft, we would expect the domestic court to find:
(a)
the right of distribution of a copy of a computer program will be exhausted if the copyright
holder has authorised, even free of charge, the downloading of that copy from the internet
in circumstances where: (i) the copyright holder has received remuneration corresponding
to the economic value of the copy of the work; and (ii) the user has been granted a
perpetual licence to use that copy;
(b)
a re-seller of a copy of a computer program in which the right of distribution has been
exhausted would be permitted to sell such copy provided that such re-seller makes his/her
copy of the computer program unusable at the time of resale; and
(c)
multi-user licences cannot be split up and sold separately because the condition specified
in (b) will not be satisfied.
9) Is a distinction made for each kind of copyright-protected work (computer programs,
music files, e-books and videos)?
As noted in response to the preceding questions: (i) for copyright to subsist, the relevant work
must fall into one of the categories of work protected by copyright under UK law; (ii) in the UK, ss.
16 and 18 CDPA provide the owner of every type of copyright work with the exclusive right to
issue copies to the public and for exhaustion of that right following first distribution in the EEA; (iii)
no distinction is made between different types of copyright-protected works (or the media onto
which they are incorporated); and (iv) there is nothing in s. 18 CDPA to suggest that software
should be treated differently to other types of copyright work. However, as set out in Q7, under
Community law the protection of copyright in software derives from the Software Directive
whereas the protection of other copyright works derives from the InfoSoc Directive.
There is no UK case law concerning the online distribution of software or other copyright works.
As discussed at Q7 above, we would expect a UK court to hold that s. 18 CDPA applies to the
online transmission of electronic copies of software in accordance with the conditions set out in
9
See Article 3 of the InfoSoc Directive.
8
UsedSoft. However, it is unclear whether s. 18 CDPA would be interpreted as applying to the
online transmission of electronic copies of other copyright works. The planned private copying
exception scheduled to be introduced on 1 June 2014 (see Q7) excludes software but appears to
deliberately keep all options open for other types of work. In particular, the transfer to another of
the original copy purchased by the individual (including, it appears, any copy acquired by means
of an online download) is permitted as long as all other further copies of the work made by the
transferee are then deleted. We do not believe that this proposed legislation necessarily bring in
online exhaustion through the back door, but we do consider that it provides flexibility in the event
online exhaustion is deemed to apply to copyright works other than computer programs.
As a matter of policy, the UK government’s February 2014 response to the European
Commission’s December 2013 Public Consultation on the review of the EU copyright rules10
notes that the ability to resell can encourage initial purchases and the adoption of new
technologies, and that exhaustion can be reflected in market prices to recompense displaced
sales. However, the UK government also acknowledges that more research is required to fully
understand the overall economic implications of digital resale markets before introducing online
exhaustion for all copyright works.
The only CJEU case law directly dealing with the online distribution of copyright works is
UsedSoft. The principle articulated by the CJEU in UsedSoft (that restrictions on resale are
unjustified where there has been the functional equivalent of a sale in return for commensurate
economic compensation) seems, in principle, equally applicable to all types of copyright work.
However, the CJEU in UsedSoft did not have to opine on copyright works governed by the
InfoSoc Directive because the Software Directive, and particularly Article 4(2) providing for
exhaustion of computer programs on first sale, was held to be a lex specialis11. The CJEU’s
decision was also heavily influenced by the specific language of the Software Directive, including
Article 1(2) (which refers to the “expression in any form of a computer program”) and Recital 7
(which states that computer programs include “programs in any form, including those which are
incorporated into hardware”) and the fact that Article 4(2) Software Directive, dealing with
exhaustion, does not differentiate between tangible and intangible copies of software.
If the UsedSoft reasoning applies only to software then its application may be very narrow:
although not an online distribution case, the CJEU in Nintendo v PC Box reiterated the lex
specialis nature of the Software Directive and stated that the protection offered under it is limited
to pure computer programs. As a result, complex matter such as video games, which comprise
not only a computer program but also graphic and sound elements, are protectable in part and as
a whole work under the InfoSoc Directive rather than the Software Directive.
The potential justification for treating other copyright works either the same as, or differently from,
software are set out at the answer to Q10 below.
10) If your exhaustion regime for digital works differs from that for analogue works, what is
the rationale/justification for such difference?
In the UK no distinction is drawn between digital and analogue works as such. Rather the
distinction is between the distribution of copyright works on tangible media and acts of electronic
transmission equivalent in their effect to distribution (such as downloading a new copy online).
As outlined at Q2 above, the exhaustion regime for tangible copyright works - including digital
products supplied on ‘traditional’ physical media such as CDs and DVDs - is straightforward: the
right of distribution is exhausted on first sale of the physical media incorporating the copyright
work with the authorisation of the copyright owner within the EEA (Article 4 of the InfoSoc
Directive and s. 18(3) CDPA).
However (and as discussed at Q9 above), with the exception of software, it is currently unclear
whether an online transmission equivalent in effect to the distribution of a tangible work will
exhaust the distribution right in that work. Part of the uncertainty concerns whether the online
10
Available at http://www.ipo.gov.uk/response-eucopyrightrules.pdf.
Article 1(2)(a) of the InfoSoc Directive provides that the InfoSoc Directive “leave[s] intact and…in no way
affect[s] existing…provisions [of European law] relating to…the legal protection of computer programs.”
11
9
supply of a copyright work amounts to a distribution of that work or should be viewed as a
communication to the public (or the provision of an online service).
If the former analysis is correct then the principle of exhaustion will apply in the normal way. On
the other hand, if downloads are viewed as online services, then Recital 29 of the InfoSoc
Directive (together with Article 3) indicates that “the question of exhaustion does not arise”
because “unlike…where the intellectual property is incorporated in a material medium….every
online service is…an act which should be subject to authorisation”. Further, Recitals 28 and 29
appear to link exhaustion only with the distribution of copyright works in tangible form, a position
that is in alignment with the wording of the Treaty and the agreed statements concerning Articles
6 and 7, which the InfoSoc Directive was intended to implement (see Q7 above). Finally, it
should be remembered that the InfoSoc Directive contains, in Recital 23 and Article 3, an
extremely wide definition of “communication to the public”12, which could easily encompass the
technological processes necessary for a copy of a work to be downloaded.
Despite the points outlined above, our view is that there remains sufficient ambiguity in the
wording of Recital 29 to allow for an exhaustion of the distribution right in the context of online
supply. In this regard we believe that the use of the word “service” permits an interpretation
which excludes “goods” (and digital downloads) from its scope. In support of this position we
note the doubts of Advocate-General Kokott in FAPL v QC Leisure, 3 February 2011, Cases
C‑403/08 and C‑429/08 as to whether all digital transmissions of copyright works should be
considered online services13. Insofar as Recital 28 is concerned, its silence on the subject of
exhaustion following online distribution could be explained as an unforeseen result of the fact that
its drafting predates the technological developments that now make online distribution so
prevalent. We acknowledge that the Treaty wording is more difficult to reason around, but the
Treaty contains no indication that software is to be treated differently to other copyright works and
this did not prevent the CJEU from reaching its decision in UsedSoft.
Another potential obstacle to exhaustion following online distribution of works other than software
comes from the fact that that each act of online distribution requires the creation of a new copy.
Article 5(1) Software Directive provides that a lawful acquirer of a computer program may copy
that program where this is necessary to use the program in accordance with its intended purpose.
This enabled the CJEU in UsedSoft to find that the new acquirer of a lawfully resold computer
program could download the program (thereby copying it). There is no equivalent provision in the
InfoSoc Directive, so any reproduction necessary for the resale of digital material would still
amount to infringement, unless the copyright-owner’s consent could be implied.
Exhaustion of copyright-protected works in case of recycling and repair of goods
(specific issue 3)
11) In the case of recycling or repair of goods which are copyright-protected works, to what
extent may one recycle or repair such goods without infringing (1) the right of
reproduction, (2) the right of adaptation, the right of arrangement and/or other alteration
rights; or (3) the right to integrity?
As alluded to above (in Q3(e)), UK copyright law has distinct provisions governing the economic14
and moral15 rights conferred by copyright.
12
“This Directive should harmonise further the author's right of communication to the public. This right should be
understood in a broad sense covering all communication to the public not present at the place where the
communication originates. This right should cover any such transmission or retransmission of a work to the public
by wire or wireless means, including broadcasting. This right should not cover any other acts.” 13
See, in particular, §185 where, albeit in the context of the principle of the free movement of goods (and not
whether a download was a communication to the public or a distribution), Advocate-General Kokott noted that
“other services”, including computer software, musical works, e-books and films “do not differ significantly from
goods”.
14
Including the excusive rights of reproduction, distribution, communication etc. (sometimes referred to as
economic copyright)
15
Including rights of integrity, paternity etc. 10
(a)
Recycling. So far as we are aware, UK courts have not considered copyright in relation to
recycling. We consider that UK courts will hold, in line with EU Directives and Treaty
provisions as interpreted by the CJEU, that where copyright-protected goods have been
placed on the market in the EEA by or with the consent of the owner of the copyright or a
person economically connected with the owner, the economic copyright in relation to those
goods is exhausted and cannot be invoked to prevent their being recycled. On the other
hand, copyright could be invoked in relation to the import of goods into the EEA for (or
following) recycling, even if they were placed on the market outside the EEA by or with the
consent of the copyright owner.
This exhaustion of copyright would not exhaust other rights including the moral rights
conferred by copyright and rights in respect of trade marks. Accordingly, an author would,
in principle, be entitled to invoke a moral right (right of integrity) to object to mutilation or
distortion of the work in the course of recycling if it is prejudicial to his/her reputation, unless
the right has been waived or an exception applies (as, for example, in the case of computer
programs). Similarly, the owner of a trade mark would be entitled to object to its use in
relation to a recycled product if there were legitimate reasons for opposing further dealings,
for example where the condition of the product had been changed since it was placed on
the market.
(b)
Repair. Exhaustion of copyright in relation to the repair of goods using replacement parts
and the manufacture of those parts had been considered at length by UK courts prior to the
InfoSoc Directive. In British Leyland v Armstrong [1986] AC 577, a majority of the House of
Lords held that the manufacturer of a motor vehicle could not derogate from the rights of
ownership granted when it sold the vehicle by exercising copyright in the design of parts to
prevent the manufacture of replacement parts which might be required by purchasers to
continue using it. In a subsequent decision, Canon v Green Cartridge [1997] AC 728,
concerning printer cartridges, the Privy Council held that the Armstrong case turned on its
specific facts and that the decision was not of general application. A further decision of the
High Court in Mars v Teknowledge [2000] FSR 138 confirmed that Armstrong would not be
regarded as having general application outside cases of abuse of monopoly power.
Article 5(3)(l) of the InfoSoc Directive permits EU Member States to provide for exceptions
and limitations to copyright protection in the case of use of a copyright work for repair of
equipment, but in accordance with Article 5(5), such an exception or limitation may only be
applied in certain special cases, which do not conflict with normal exploitation of the work or
other subject-matter and do not unreasonably prejudice the legitimate interests of the right
holder. This option has not been exploited in domestic legislation, but it could be argued
that the UK law (as explained in Canon and Mars) accords with it.
We think that where repair involves the copying of a part of a work which is original in itself,
in the sense that it represents an individual intellectual creation of its author, the UK court
would now hold such repair to amount to an infringement of copyright unless the
infringement proceedings were thought to be an abuse of dominant position (contrary to
Article 102 of the TFEU or Chapter 2 of the Competition Act 1998), or to amount to cartel
behaviour (contrary to Article 101 of the TFEU or Chapter 1 of the Competition Act 1998).
The position regarding computer programs is different. Article 5(1) of the Software
Directive provides that, in the absence of specific contractual provisions, the right holder
cannot object to copying and adaptation which is necessary for use of the software in
accordance with its intended purpose, including error correction. The CJEU’s UsedSoft
decision appears to confirm that this entitlement can be passed on to a subsequent
purchaser. Article 5(1) is implemented in UK legislation by s. 50C CDPA, which we
consider would be interpreted in line with the Software Directive and the decision of the
CJEU in UsedSoft.
II.
Policy considerations and proposals for improvements of the current law
11
12) How should the law treat exhaustion of rights?
As the UK government has recently recognised, in its response to the European Commission's
Review of the EU copyright rules16 (emphasis added):
“As regards the resale of copies, the UK notes that traditional secondary markets for goods
can encourage both initial purchase and adoption of technologies, and the prospect of sale on
the secondary market may be factored in to an initial decision to buy and to market prices. …
a sophisticated analysis of the overall economic implications of digital resale markets
is required, and this would be an area suitable for further research”.
This statement was made in the context of digital resale, but we consider that the wish for "a
sophisticated analysis of the overall economic implications" is equally necessary when policies
concerning the exhaustion of rights in all products are in issue, both tangible and intangible.
Specifically,
a) Should exhaustion of rights occur for all kinds of works or should exhaustion be
limited to certain kinds of works?
In principle (and as noted above at Q4), because the justification/rationale of exhaustion is
based on a context-specific balancing of competing interests, that balance may be struck
differently in relation to different kinds of works. Hypothetically, if it is more difficult for the
owner of a musical work to realise the economic value of his/her copyright on a first sale
than it is for the proprietor of the copyright in a literary work, it could be argued that there
should be no exhaustion on first sale of music. However, if this analysis is applied to a CD,
for example (which contains music, lyrics, sound recordings and performances), if the
distribution right in the music were not exhausted on first sale but the distribution in the
lyrics were exhausted, resale could nevertheless be prevented by the owner of the
copyright in the music. This would disturb the balance that had been struck in relation to
the lyrics and suggests that it is impractical to limit exhaustion to certain kinds of works.
In fact, UK law has historically taken the position that exhaustion should apply equally to all
kinds of works. However, as discussed elsewhere in our responses, it is arguable that the
CJEU’s UsedSoft decision, which is binding on domestic courts, has introduced a different
approach for software as opposed to other categories of copyright work17.
b) Which right(s) should be exhausted?
The distribution right only. There is no basis in EU or international law for other exclusive
rights to be exhausted on the basis of a first exploitation of those rights.
c) What should be the requirements for exhaustion of rights to occur?
See our response to Q15 below. In the offline context, the requirements for exhaustion
which are particularly relevant are:
16
See footnote 10.
In this regard we note that there is international law support for distinguishing between different types of work
when considering exhaustion. See, for example, Article 6(2) of the Treaty: "Nothing in this Treaty shall affect the
freedom of Contracting Parties to determine the conditions, if any, under which the exhaustion of the right in
paragraph (1) applies after the first sale or other transfer of ownership of the original or a copy of the work with the
authorization of the author."
17
12
i)
adequate consideration: the transfer of the article itself (not the intellectual
property it contains) is for consideration which includes the value of the copy of the
intellectual property received (i.e. it is not intended that additional consideration will
be received by the seller for that article) - this is the most important factor, as it
reflects the justification/rationale for exhaustion;
ii)
no right to call for return: the seller has no right to call for the return or destruction
of the article;
iii)
no restrictions on user type: there are no conditions as to the type of user of the
article (such as a student); and
iv)
a whole copy: the purchaser has a copy of the whole of the article (whether
tangible or intangible) that is more than temporary.
d) Should copyright be exhausted even if the first sale of a copy by which exhaustion
occurs is cancelled due to non-payment of the sales price or similar circumstance?
No. In contexts where the first seller has not received the economic value of the article, the
rationale for exhaustion suggests that exhaustion should not apply.
This analysis does, however, introduce a risk for those who receive the article from the first
(non-paying) purchaser (e.g. where there is a distribution chain, ending in a retail store). If
the first sale is cancelled because of non-payment and the distribution right is not
exhausted as a result, each subsequent distribution (including by the retail store at the end
of the supply chain) is arguably an infringement. This outcome is inconsistent with the
knowledge requirement contained in the secondary infringement provisions of the CDPA
because, in the scenario outlined, the retailer’s acts would likely be ‘innocent’ (i.e. without
knowledge), but could nonetheless amount to an infringement. In our view, if the
distribution right were not exhausted in circumstances where a sale was cancelled due to
non-payment, a safe harbour for ‘innocent’ infringers should be introduced.
International exhaustion (specific issue 1)
13) Should there be international exhaustion of copyrights?
No, because copyright affords a mechanism whereby the price of a product may be controlled to
an extent by a manufacturer, subject to many other factors. This is necessary because economic
conditions in national markets vary widely. If traders were able to arbitrage products between
markets, global prices would tend towards an average. That would be advantageous to
consumers in more developed economies but disadvantageous to those in less-developed
economies.
With respect to the principle of Community exhaustion we note that: (i) the EEA is founded on the
principle (inter alia) that price should be transparent within its borders; and (ii) the economies
within it are broadly comparable (although recent events have shown that a divergence of open
and linked economies can cause economic and social problems).
On-line exhaustion (specific issue 2)
14) Should there be on-line exhaustion of downloaded copies? In your view, are downloaded
copies fully comparable with copies stored on tangible data media?
13
In our view, online exhaustion should be permitted in principle, subject to appropriate conditions
(see further Q15 below). Our reason for adopting this position is simply that exhaustion should
be determined by reference to the conditions under which an article is supplied, and not by its
method of delivery. The issue is essentially one of policy, which (as explored briefly below) we
consider to be in favour of permitting online exhaustion (subject to appropriate conditions) for
reasons of legal certainty.
If this model were adopted, rights holders would, in principle, have the ability to amend their
commercial models in line with consumer demand. For instance, rights holders could move to
providing software as a service and access to music or e-books on a limited time basis so that the
conditions set out in our response to Q15 below would not be satisfied and the distribution right
would not be exhausted.
Exhaustion is the compromise between competition law principles (including the principle of the
free movement of goods) and intellectual property rights. It developed out of the recognition that
the inherent territoriality of intellectual property rights, and the right for intellectual property
owners to control imports, creates tensions with competition law and the development of markets.
The principle of exhaustion is designed to prevent unjustified monopoly control of intellectual
property rights by rights holders and in particular (for the EU) prevent unjustified fragmentation of
the internal market by restricting cross border trade. The balance has already been reached for
tangible goods on the basis that once an article which embodies a copyright work is sold, the
rights holder should not be able to control further distribution of that article.
With appropriate conditions (as set out in our response to Q15 below) there is no reason that this
principle cannot be applied to intangible forms in a way that does not undermine the existing
justification and is future proof for developments in technology. We view our approach, including
the subsequent (and possibly inevitable) alterations to the commercial models of rights holders,
as preferable to an attempt to solve a gap in technology (such as the ability to track copies with
unique identifiers and confirm that copies have been deleted from systems - the so called
‘forward and delete’ problem), and capable of providing consumers and rights holders with both a
logical structure and legal certainty.
There is no single approach to the question of exhaustion internationally (although considerations
of competition and free movement are common themes) and (as evidenced by the 2011 WIPO
study Interface between exhaustion of intellectual property rights and competition law) there is
nothing in international law that provides guidance for WIPO Member States as to how to use
exhaustion to address anti-competitive practices in the field of intellectual property18.
One of the legal arguments raised against permitting online exhaustion is that an online
distribution (such as a download) is better characterised as a service rather than the transfer of a
good, because there is no transfer of ownership, and as such it is logical for exhaustion not to
apply. Whilst this distinction has some attraction it is not sustainable. Certainly some copyright
works made available online can be properly characterised as a service e.g. software as a
service, or streaming of a film where a permanent copy is not downloaded by the user. However,
the distinction is less clear for acts of online distribution where the user acquires a permanent
downloaded copy19.
Under UK law, there is no single definition of a transfer of ownership: it is not a term of art but a
term that takes its meaning from its context. Furthermore, there is no clear distinction in EU law
between goods and services and the case law of the CJEU is again often context specific. There
is no reason, therefore, why an act of online distribution (such as a download) should be
characterised as a service, rather than a good, or as not transferring ownership. This question of
online exhaustion is not one that can be solved by reference to existing principles of contract law,
or even property law, but is something that must be decided consistently with the greater policy
objectives. As the Advocate General noted in FAPL20:
“admittedly some services differ from goods in that they cannot be re-used per se, for
example the services provided by hairdressers. With the payment for the provision of the
18
Available at http://www.wipo.int/edocs/mdocs/mdocs/en/cdip_4/cdip_4_4rev_study_inf_2.pdf.
See further our answer to Q10. 20
At §§184 and 185. See further footnote 13. 19
14
service the economic value is realised, but the service cannot be passed on as such. In
this sense, there is actually no scope for an exhaustion of the right to the services. Other
services, by contrast, do not differ significantly from goods. Computer software, musical
works, e-books, films etc. which are downloaded from the internet can easily be passed
on in electronic form. This is also illustrated by the fact that additional digital rights
management measures are needed to prevent them being passed on. In these areas
such a strict delimitation of the two fundamental freedoms would be arbitrary.”
These arguments about transfer of ownership have already been had in some jurisdictions in
relation to copyright works delivered on tangible media and it is not clear why the particular issues
should be different for intangible media. For example, in the USA, in Burke & Van Heusen Inc v
Arrow Drug Inc.21 it was recognised that “the ultimate question … under the first sale doctrine was
whether or not there had been such a disposition of the copyrighted article that it may fairly be
said that the copyright proprietor has received his reward for its use”. Further, in the USA,
although a case concerning insolvency rather than exhaustion, in Microsoft Corp v DAK
Industries Inc22 the court found that even though the agreement was characterised as a licence,
with royalties, it was in fact, a lump sum sale of software units with staged payments.
Another legal argument commonly raised against online exhaustion is that the principle of
exhaustion only applies because there is a separation in property ownership between the media
on which the copyright work is incorporated and the copyright work itself and therefore (because
an intangible work cannot be said to have a property right separable from the copyright work
itself) there is no place for exhaustion for an intangible article incorporating a copyright work.
Exhaustion accordingly recognises the distinction between the low value media (that can be
freely distributed) and the copyright which remains with the rights holder. However, there is no
clear justification for exhaustion only to apply to tangible articles on the basis of a separation of
ownership and we consider it a fiction to suppose that the distribution of a tangible article occurs
for any reason other than the intellectual property rights incorporated on it. The real reason for
exhaustion is that competition law (and free movement) has put a limit on the control a rights
holder can have on its rights which (it is submitted) should apply equally to tangible as well as
intangible articles.
The most common policy argument raised against online exhaustion is that intangible copies do
not degrade and therefore rights holders would find it difficult to price the article with the
knowledge that there could be a ‘perfect’ second hand market. This is not, in our view,
substantial enough to mean that a rights holder should, once it has received appropriate
consideration for the article, be able to continue to get additional compensation for that article if it
is on-sold (in accordance with the conditions outlined in our response to Q15 below). As noted in
FAPL the rights holders should ensure appropriate remuneration and not rely on partitioning of
the markets to obtain an extra premium. This is particularly so when you consider that a secondhand market in intangible copies could incentivise innovation (e.g. new songs, new versions of
software, new games, new editions of books). There is not sufficient justification to allow
developments in technology to set back the balance between consumers and rights holders. The
risks of the ease of copying have existed for decades in relation to tangible copies so it is hard to
understand why this fact should now be permitted to justify an altering of the balance between
rights holders and consumers. As the UK has noted in its response to the European
Commission’s consultation on the Review of the EU Copyright Rules23: “a traditional secondary
market for goods can encourage both initial purchase and adoption of technologies and the
prospect of sale on the secondary market may be factored into an initial decision to buy and to
market prices. There seems to be no reason why this should not be the case for digital copies,
except for the ‘forward and delete’ issue noted by the consultation”.
The issue with incidental copying, in order to distribute copies, is one which is recognised in
relation to the use of intangible media currently so it should not present an additional barrier to
otherwise lawful use.
21
233 F.Supp 881, 884 (ED Pa F164).
66 F3d 1091 (9th Cir. 1995). 23
See footnote 10.
22
15
As noted in Q4 and Q12, the balance to be struck between competition law considerations and
intellectual property rights is a question of policy. Such policy decisions are not made in isolation
but need to take into account what the market may bear. In this regard, we recognise that the
above represents a relatively absolutist approach that might not align well with the current
business models of rights holders. In particular, it is not clear how customers who are used to
‘purchasing’ downloaded works at a certain price point would react to the sort of tiered system
that we envisage developing (i.e. a pricing model which is dependent on the term of any licence
acquired and which allows for a permanent sale at a maximum price point, representing the
whole value of the article). However, we note that the traditional ‘ownership’ paradigm can be
successfully adapted in the digital environment (see, for example, the Spotify premium
membership model). These issues are discussed further at Q15 and Q16.
15) If there should be on-line exhaustion, under which conditions should different kinds of
rights be exhausted?
In principle, we consider that exhaustion of the distribution right should not be determined by the
method of delivery of an article but by reference to the conditions under which the article is
supplied.
In particular, in our view, the distribution right/right to issue copies to the public (and no other
rights) should be exhausted where, regardless of contractual restrictions, the following conditions
are met:
(a)
adequate consideration: the transfer of the article (not the intellectual property in that
article but the article itself) is for consideration which represents the value of the article (i.e.
it is not intended that additional consideration will be received by the seller for that article);
(b)
perpetual use: the article is intended to be used perpetually without fear of permission to
use it being revoked;
(c)
no right to call for return: the seller has no right to call for the return or destruction of the
article;
(d)
no restrictions on user type: there are no conditions as to the type of user of the article
(such as a student); and
(e)
a whole copy: the purchaser has a copy of the whole of the article (whether tangible or
intangible) that is more than temporary (i.e. not the copying of part of the article that takes
place for the purposes of streaming).
To support this analysis: (i) incidental copying would need to be permitted provided that it was for
the purposes of achieving a lawful distribution; and (ii) the supply of an article online (which meets
the conditions set out above) should be considered an act of distribution by the copyright owner
and not an act of communication to the public.
Should there be any differences between downloading a work and streaming it?
Yes. The streaming of a work would not satisfy the condition that the purchaser needs to have a
copy of the whole article (that is more than temporary) so the distribution rights in a work that is
streamed should not be exhausted.
Should rights be exhausted in a perpetual or non-perpetual licence?
The distribution right should only be exhausted in a perpetual licence if the other conditions are
satisfied. The distribution right should not be exhausted in a limited term/non-perpetual licence.
16
Should "re-sellers" of digital copies be allowed to further re-sell such digital copies?
The purchaser of a digital article in which the distribution right has been exhausted (as per the
conditions set out above) should be permitted to re-sell that digital article provided that after the
resale the re-seller no longer has access to a copy of the digital article.
Should multi-user-licences be split up and sold separately?
Multi-user licences should not be capable of being split up and sold separately on the basis of
exhaustion of the distribution right because the re-seller would retain a copy of the digital article
after sale.
16) Should a distinction be made for each type of copyright-protected work (e.g. computer
programs, music, books and films)?
In summary, we consider that exhaustion of the distribution right should not be determined either
by the type of copyright work or by the method of its delivery. In principle, all types of copyright
work should be exhausted where they are distributed either online or via physical media under
conditions tantamount to sale in return for compensation commensurate with an exhaustion of the
distribution right and the concept of a sale should be “interpreted in a uniform manner throughout
the…European Union” (UsedSoft). However, as explored below, it is likely to be economically
unworkable to distribute some types of works in a manner which should lead to exhaustion of the
distribution right. This is because the price for the initial distribution would have to be extremely
high to adequately compensate lost sales. For these works, alternative dissemination models
such as personal or limited term licences may be preferable. The conditions attached to such
dissemination should be made very clear to consumers.
In our opinion, distinguishing between distribution online and distribution via physical media per
se appears arbitrary (cf Advocate-General Kokott’s opinion in FAPL). As noted by the CJEU in
UsedSoft, the sale of copyright works via tangible media and online distribution are functionally
equivalent: it “makes no difference” to the purchaser whether copyright works are distributed
online or via a CD-ROM or DVD. This is truer still if private copying from one type of medium to
another is permitted. Distinguishing between types of copyright work is equally impractical. The
CJEU’s decision in Nintendo highlights the difficulty in attempting to distinguish between different
types of copyright protected works, many of which are complex works comprising an amalgam of
different copyright-protected parts.
However (and as noted above in Q14) many difficulties remain in ensuring that restrictions on
distribution are tailored to adequately and proportionately safeguard the rights of copyright
owners. For payment for the original distribution to be economically adequate, and to ensure the
exclusive right of reproduction is not infringed, the original copy must be rendered unusable at the
point of resale (the ‘forward and delete’ issue). This will be difficult to police, although we note
that the problem already exists following distribution of digital works on physical media. While it
may be easier to add technical protection measures to physical media, the use of product keys,
unique identifiers or other technological developments should enable copyright owners to
maintain some control. The ReDigi model and recent patent applications by Apple and Amazon
for online, second-hand digital product marketplaces suggest that these difficulties are not
insurmountable. Any such technological protection measures would be stringently protected
under Article 6 InfoSoc Directive (implemented in the UK at ss. 296 to 296ZF CDPA).
Nevertheless, for certain types of copyright work a distribution model that leads to online
exhaustion is unlikely to be economically workable. Digital works are used, reproduced and
resold without any observable loss in quality. For copyright works that could be enjoyed and
resold by users within short timeframes (such as e-books, audiobooks and films), the initial price
would have to be very high to adequately compensate the rights holder for exhaustion of the
distribution right. Otherwise, the rapid creation of a market in second-hand ‘perfect’ copies would
17
soon prevent the copyright owner from selling further new copies. There would also be a
perceptible (though smaller) impact on the monetisation of copyright works which are typically
held by consumers for longer periods of time, but which can be enjoyed in the same format many
decades later (such as music). The value of music recordings many years post-production was
recently recognised in the European Union by the amendment to Directive 2011/77/EU on the
term of protection of copyright and certain related rights (the “Term Directive”), extending
protection from 50 to 70 years from the date of first publication or communication to the public. In
this respect, software is different because there is unlikely to be a perpetual market for resales:
software is continually developed and quickly becomes outdated unless maintenance services
and upgrades are purchased. Moreover, if a resale market leads to more users purchasing
maintenance services then the copyright owner also benefits, which is not true of other types of
copyright work.
As set out at Q15, we propose that the conditions of exhaustion are clarified and universalized for
all types of copyright works whether distributed online or via physical media. The market can
then be left to set the appropriate conditions of dissemination for different types of copyright
works. For certain works, such as e-books, a personal licence, limited term licence or streaming
model may be required to enable products to be priced appropriately. It may even be preferable
to introduce a more complex system enabling copyright owners to recoup some of the value of
resales (in a similar vein to the artist’s resale right). The digital market-place patents filed by
Apple and Amazon are directed towards this approach.
Crucially, any conditions of
dissemination, including restrictions on resale, must be clear regardless of the medium on which
the copyright work is distributed. Consumer education campaigns may also be required to
explain the dissemination model and the conditions attached.
Exhaustion of copyright-protected works in case of recycling or repair of goods
(specific issue 3)
17) To what extent should one be able to recycle or repair goods which are copyrightable
works without infringing (1) the right of reproduction, (2) the right of adaptation,
arrangement and other alteration rights; and (3) the right to integrity?
(a)
Recycling. We consider that recycling should normally be permitted by economic
copyright within a region where economic conditions are broadly similar, bearing in mind
the general desirability of conserving the earth’s resources. Moral rights (right of integrity)
and trade marks should be used to protect the reputation of an author or trade mark owner
if it is jeopardised in the circumstances.
However, copyright owners should be permitted to resist the movement of copies of their
copyright works (whether recycled or not) from areas in which much lower prices prevail to
areas in which higher prices prevail, so that they can make their products available at lower
prices in markets where higher prices cannot be afforded, thereby achieving a more
efficient allocation of economic resources.
(b)
III.
Repair. We consider that the copyright owner should be able to invoke copyright in relation
to repairs of products which involve reproduction of a protected work or part of a work, if it
wishes to do so. It should be able to decide in the context of the nature of the product, the
market, the competition and its overall commercial strategy what approach is in the best
interest of its stakeholders and its customers.
Proposals for harmonisation
18) Should exhaustion of rights as set forth in Question 12 above generally be harmonised?
Please provide your reasons.
18
We understand this question to be targeted at whether there should be harmonisation of the
‘internal’ exhaustion position across contracting states i.e. whether first sales within each
contracting state should exhaust the distribution right. We do not understand the question to be
targeted at whether there should be harmonisation of the exhaustion across borders i.e. whether
a first sale in contracting state A exhausts the distribution right in contracting state B.
As discussed above in relation to the justification/rationale for exhaustion, whether exhaustion
should apply is a context-specific balancing exercise between competing interests. It could
therefore be difficult to provide for harmonised solutions to that balancing exercise that would be
appropriate for the circumstances within each contracting state.
There are benefits of harmonisation - whether or not the harmonised position is that exhaustion
should apply equally across all contracting states. For example, it would assist right holders to
set consistent prices across contracting states, as they would be able consistently to price in (or
not) the effects of resale into their sales prices.
19) Should international exhaustion of rights be harmonised or not? Please provide your
reasons.
Yes, provided that the harmonised position is that there is no international exhaustion of rights,
save as may be agreed now or in future under international treaties establishing economic
alliances such as the EEA. By this we mean that international resales should not be permitted
but that all individual purchasers should acquire the same rights with respect to a lawfully
acquired copy of a work no matter which jurisdiction they happen to acquire it in.
The arguments set out in Q13 hold good for manufacturers in all economies, whether less or
more developed; indeed it may be of most benefit to manufacturers in less developed economies.
20) Should on-line exhaustion of rights be harmonised? Please provide your reasons.
Yes, the law should be harmonised such that the right to distribute all copyright works online is
exhausted after first transfer of ownership in accordance with the conditions set out in Q15 within
the relevant territory. Where copyright works are to be disseminated otherwise than by way of
transfer of ownership, the conditions of dissemination and restrictions on further resale should be
made very transparent. This should clarify the position for businesses and consumers worldwide
and make distribution of copyright works easier to police.
Exhaustion should only occur following transfer of ownership within the relevant territory as
determined by each jurisdiction - in the UK the distribution right will be exhausted following a
transfer of ownership with the copyright owner’s consent within the EEA.
21) Should exhaustion of rights in case of recycling and repair of goods be harmonised?
Please provide your reasons.
(a)
Recycling. We consider that harmonisation would have marginal impact, provided that it
did not enable a substantial trade between different economic regions undermining
desirable price discrimination between substantially different markets.
(b)
Repair. We think that harmonisation is desirable, since the efficiency of manufacture of
replacement parts may be promoted by economies of scale and global competition.
Harmonisation will facilitate decisions by copyright owners as to how best to use their
copyright in the interests of their stakeholders and customers.
With regard to Questions 18 through 21, if you note that harmonisation is desirable, we will
assume that harmonisation should be as your proposals for improvements of the current law
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as described in your answers to Questions 12 through 17. If that is not the case, please
explain.
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