Since the Court of Justice of the European Union (CJEU) rendered its well-recognized decision on the exhaustion of software rights in 2012 (CJEU, judgment of 3 July 2012 , Case Ref.: C-128/11 – UsedSoft), there is a lively discussion whether and under which conditions rights to digital works are subject to the principle of exhaustion. The reason why one may have differing views to this question is that the CJEU, in its UsedSoft decision, primarily relied on Article 4 (2) of the Directive 2009/24 on the legal protection of computer programs (“Software Directive”). Whereas, the re-use of digital works has pretty much the same economic impact on the rightholder no matter whether it is software, an e-book or any other type of digital content we talk about. The legal regimes differ substantially in terms of the exhaustion of rights.

The new matter put before the CJEU for a preliminary ruling now concerns the digital use of “copyright-protected novels, collections of short stories, biographies, travelogues, children’s books and youth literature” (see Case Ref.: C-174/15). Thus, there is a good chance that the Luxembourg judges will now look at the matter of digital exhaustion on a larger scale. However, the first aspect to review is whether the notion of ‘lending’ may also include the typical reproduction of the work in the course of a download.

Background

The case at issue is currently pending before the Rechtbank Den Haag in the Netherlands. The Dutch judges are sitting over the matter that, in essence, deals with making available digital works by way of a download option on a non-profit basis for a limited period of time. Accordingly, the merits of the case fall within the scope of the Directive 2006/115 on rental right and lending right and on certain rights related to copyright in the field of intellectual property (“Rental Directive“).

In detail, it is for the judges to decide under which conditions Member States may impose a statutory limitation upon the rightholder’s exclusive lending right set out in Article 6 of the Directive 2006/115.  However, the Dutch court apparently assumes that the question whether or not rights to the works at issue are exhausted yet might be of relevance in the overall context. Therefore, three out of the four questions referred to the CJEU relate to Article 4 (2) of the Directive 2001/29 on the harmonisation of certain aspects of copyright and related rights in the information society (“InfoSoc Directive“). This provision holds the exhaustion principle and reads as follows:

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.”

The Questions

The following questions have been referred for a preliminary ruling:

  1. Are Articles 1 (1), 2 (1) (b) and 6 (1) of Directive 2006/115 to be construed as meaning that ‘lending’ as referred to in those provisions also means making copyright-protected novels, collections of short stories, biographies, travelogues, children’s books and youth literature available for use, not for direct or indirect economic or commercial advantage, via a publicly accessible establishment:
    • by placing a digital copy (reproduction A) on the server of the establishment and enabling a user to reproduce that copy by downloading it on to his/her own computer (reproduction B), – in such a way that the copy made by the user when downloading (reproduction B) is no longer usable after a limited period, and
    • in such a way that other users cannot download the copy (reproduction A) on to their computers during that period?
  2. If Question 1 is to be answered in the affirmative: does Article 6 of Directive 2006/115 and/or any other provision of EU law preclude Member States from imposing on the application of the restriction on the lending right included in Article 6 of Directive 2006/115 a condition that the copy of the work made available by the establishment (reproduction A) must have been brought into circulation by an initial sale or other transfer of ownership of that copy within the European Union by the rightholder or with his consent within the meaning of Article 4(2) of Directive 2001/29?
  3. If Question 2 is to be answered in the negative: does Article 6 of Directive 2006/115 lay down other requirements for the source of the copy (reproduction A) provided by the establishment, for instance the requirement that the copy was obtained from a lawful source?
  4. If Question 2 is to be answered in the affirmative: is Article 4 (2) of Directive 2001/29 to be construed as meaning that the initial sale or other transfer of ownership of material as referred to in that provision also means making available remotely by downloading, for use for an unlimited period, a digital copy of copyright-protected novels, collections of short stories, biographies, travelogues, children’s books and youth literature?

Summary

The matter at issue raises a number of questions that are not only of legal interest but are also of far-reaching economic impact. Of course, we want copyright-protected works to be able to freely circulate within the European Internal Market. This is equally true for the target Digital Single Market (Link to Commission Paper). In this context, it is the exhaustion principle that safeguards the respective merchantability. However, it is equally crucial to make sure that rightholders receive a fair compensation depicting the actual detriment they suffer from such free digital circulation of their works.