End of the road for the secondary market in e-books and video games?


In recent months, perhaps more than ever, life has moved online. Some people spend their time reading e-books or playing video games. Can they later resell or exchange such “used” works? A recent ruling by the Court of Justice throws into doubt the secondary trading in digital goods.

Nederlands Uitgeversverbond v Tom Kabinet Internet BV (Case C‑263/18), judgment of the Court of Justice of 19 December 2019

Does an e-book have a material medium?

Tom Kabinet Internet BV et al. (hereinforth Tom Kabinet), a Dutch company, operated a “reading club” selling “second-hand” e-books to persons registered on its website. Tom Kabinet first acquired the e-books from official distributors or users. Users who wanted to sell a second-hand e-book to the company had to delete their copy of the book. The company secured the e-books acquired in this way using a digital watermark to confirm the legality of the copy. However, two publishers’ associations objected to Tom Kabinet’s activity, regarding it as a violation of copyright law.

The district court in The Hague submitted a request for a preliminary ruling to the Court of Justice of the European Union, which turned on the legal classification of Tom Kabinet’s activity under the Information Society Directive (2001/29/EC). The referring court asked whether making available and downloading of e-books falls within:

  • The notion of “communication to the public” under Art. 3(1) of Directive 2001/29/EC, or
  • The notion of “distribution to the public” under Art. 4(1) of the Directive 2001/29/EC.

The answer to this question is crucial because it determines whether Tom Kabinet can rely on the notion of exhaustion of copyright.

Exhaustion of copyright means that once a tangible copy of a work has first been sold or otherwise disposed of, the copyright holder loses the possibility of controlling the subsequent fate of that copy. In the analogue, brick-and-mortar world, the buyer of a physical CD or book can listen to the CD or read the book, and then dispose of that copy without the need to obtain the author’s consent. The buyer can for example resell the disc or book on an auction website, or donate it to a public library. As a rule, the author cannot oppose such actions.

But the situation in Tom Kabinet was somewhat different. What Tom Kabinet provided to its subscribers was not print copies of books, but e-books, i.e. digital files. The fundamental issue was thus whether the rule of exhaustion can be applied to an e-book as in the case of print books.

To answer this question, we must refer to Directive 2001/29/EC and two legal situations governed by the directive: the right of communication to the public and the right of distribution:

art 3

Art. 4 expressly refers to the “original” and “copies” of a work, thus alluding to the tangible medium of the work. This article refers to the sale of a specific object, which means transfer of ownership of an item. A digital file (which is what an e-book constitutes) lacks a tangible medium and thus cannot be regarded as a good for legal purposes. Consequently, because of its intangible form, a digital file cannot be the subject of transfer of ownership. Moreover, the intangible form of a digital work means that it is not easy to determine with certainty whether transfer of ownership of such a digital file has occurred. A digital file, including an e-book, is rather a record of data, which potentially may be protected by rights other than a right of ownership.

Both Advocate General Maciej Szpunar and the Court of Justice also stressed that equalising tangible and intangible copies of works in this respect was not the intention of the EU legislature when it adopted Directive 2001/29/EU. The aim was to distinguish digital distribution (Art. 3) from physical distribution (Art. 4).

As an e-book is only a data file, and not a copy of a work within the meaning of Art. 4 of the directive, it is not subject to the rule of exhaustion. Making an e-book available to the public and facilitating download of the e-book does not fall within the concept of the right of distribution under Art. 4(1). Further, secondary trading in e-books requires the consent of the rightholder (author or publisher), as making e-books available to the public should be assessed under Art. 3 of the directive, which excludes exhaustion of rights in this respect.

E-books and computer programs—different rules

Both the advocate general and the court took a different position on exhaustion of rights to e-books than that expressed in the earlier EU case law on computer programs. In 2012 the Court of Justice held that the sale of a computer program on a material medium and sale of the program by downloading it online have the same economic effect and should be treated the same way. In both instances, exhaustion of the copyright occurs (UsedSoft, C-128/11). Transfer of a copy of a computer program, whether via a material medium or by download, accompanied by a licence to use the program for an indefinite period, is equivalent to transfer of ownership of that copy, and consequently sale of that copy within the meaning of Art. 4(2) of the Computer Programs Directive (2009/24/EC). From an economic perspective, online supply of a copy of a computer program is the functional equivalent of supply of the material medium.

As EU law recognises the rule of exhaustion with respect to computer programs, which contributed to the development of a secondary market in software, it seemed that the Court of Justice might apply a similar rule to e-books. But the advocate general and the court did not take that view. An e-book, they found, is not just a computer program. It is a complex matter, including both a protected literary work and a computer program incidental to the literary work. An e-book is protected due to its content, which is its fundamental element, and the computer program merely enables reading of the e-book.

Tom Kabinet and the secondary market for video games

The ruling by the Court of Justice in Tom Kabinet may prove interesting for the video game industry and the secondary market for video games. A video game is a complex work in which (similar to or even more than in the case of an e-book) other protected elements occur alongside the computer program. As the court held in C-355/12, Nintendo, video games “constitute complex matter comprising not only a computer program but also graphic and sound elements, which, although encrypted in computer language, have a unique creative value which cannot be reduced to that encryption. In so far as the parts of a videogame, in this case, the graphic and sound elements, are part of its originality, they are protected, together with the entire work, by copyright in the context of the system established by Directive 2001/29.”

As for their manner of sale, video games may be found in boxed versions as well as digital (online) versions. The Tom Kabinet case thus forces us to ask whether the secondary trade in games in digital form is lawful.

In this context, the judgment issued in September 2019 by a court in Paris in UFC–Que Choisir v Valve Corp., a dispute between a French consumer organisation and the operator of the game distribution platform Steam over whether users of the Steam platform could resell video games they purchased online, has attracted the attention of many commentators. The French court held that the rule of exhaustion applies to video games under both Directive 2001/29/EC and the Computer Programs Directive 2009/24/EC. Exhaustion should thus apply to both material copies of a work and to digital works. Downloading a video game file and installing the game on a computer creates a copy of the game, and thus it is permissible to apply the rule of exhaustion. The French court also pointed out that although Valve alleged that it was providing subscription-based services, in reality its model for operating the platform resembled the sale of video games: the user obtained access to the video game for an indefinite period in exchange for payment in advance of a one-time fee.

It should be pointed out that the French court handed down its ruling before issuance of the Tom Kabinet judgment by the Court of Justice, and thus the French court might have reasoned differently if Tom Kabinet had already been decided.

The case law from the Polish courts should also be noted. In the judgment of 7 May 2014 (case no. I ACa 1663/13), the Warsaw Court of Appeal held that a digital record on its own could be equated with a copy (egzemplarz). The notion of a “copy” as used in the Polish Act on Copyright and Related Rights may include not only material (physical) copies of a work, but also versions made accessible to the public in electronic form (e.g. in a computer network) (Łódź Court of Appeal judgments of 4 February 2016, case no. I ACa 1107/15, and 5 January 2017, case no. I ACa 830/16).

Thus if a case involving second-hand sale of e-books were heard in Poland, it cannot be excluded that the court would allow the rule of exhaustion to be applied. However, in light of the ruling in Tom Kabinet, the line of decisions admitting the existence of a digital copy, and thus exhaustion of the copyright to the work embodied in that copy, allowing the same copy to be resold, may not survive. Like the judgment of the French court, the judgments of the Polish courts cited above were issued prior to the judgment by the Court of Justice in Tom Kabinet.

Summary

The ruling by the Court of Justice in Tom Kabinet reinforces the division in the approach to traditional works and digital works. With respect to traditional boxed sales of video games, the rule of exhaustion can be applied, allowing resale of such a “used” game. But this does not appear permissible with respect to video games offered online, where resale of “used” games may infringe copyright. Unfortunately, the approach of the advocate general and the Court of Justice in Tom Kabinet means a continuation of the dualism in treatment of digital works and analogue works, which does not contribute to legal clarity or help the law keep current with the challenges of the digital world.

Dr Monika A. Górska, attorney-at-law, Intellectual Property practice, Wardyński & Partners