Digital Digital Exhaustion
- Introduction
Today, the growing utilization of advanced technology in digital copies has attracted many consumers around the world. Researchers have pinpointed that the digital revolution has resulted in a level of unimagined affordability and convenience by the past generations of users.[1] Different scholars and critics have further raised concerns that there is a need for a harmonization process for copyrights as well as related rights to ensure proper distribution and use of digital copies. This concept emanates from the fact that governments worldwide have encountered challenges in coming up with copyright laws. Such laws would be necessary since governments need to maintain their pace with the ever-rising ability of technology to protect author and different copyright owners from infringement (Afori, 2008, p.275).[2] Therefore, the core aim of this paper will be to examine the concept of digital exhaustion by reviewing the relevant judicial, policy, and legislative sources. The paper will focus on the UsedSoft v Oracle, C-128/11 case while analysing whether exhaustion of the right of distribution is, and should be, also available in relation to digital copies of other types of works.
- The Decision of UsedSoft by the ECJ
- The Description of the Case
The Court of Justice of the European Union’s (CJEU) UsedSoft decision plays a critical function in the classification and the real nature of agreements regarding the standard software delivery in the contract law part. Customers of Oracle International Corporation (from now on: Oracle) got the permission of downloading the software from the internet after which they would save it on their data carriers. They were also permitted to download and save the updated versions of the software as ‘‘updates’’ and programs to do troubleshooting as ‘patches’[3]. If requested by the customer, the program could also have an alternative of being supplied on a DVD or CD-ROM. In a literal perspective, Oracle provided its customers with the right to make use of the program. Such rights include the payment for services a customer receives, and exclusively, for the internal business purposes. It was also meant for an unlimited period of a non-exclusive non-transferable consumer; the right free of charge for everything that Oracle develops.[4] Additionally, the rights are applied to the agreement.
The German Federal Supreme Court considered the fact that Oracle offered the user rights that were non-transferable.[5] The relevance of this condition is that the defendant, UsedSoft GmbH (UsedSoft), assisted the third parties to replace the customers of Oracle and to download the software that was relevant on their own. After this process, they saved the software on data carriers which they possessed.[6] In this case, the critical question that needed to be addressed was if the contractual exclusion of the transferability of rights of the user was legal or rather void based on Directive 2009/24. This situation depicted the effort of the European Chief Justice, ECJ, to counter the interpretation of Article 4(2) of the Directive, which provides an explicit statement that, in the Community of a copy of a program by the right holder, the first sale need to exhaust the right of distribution within the Community of such a copy.[7] Today, the problem of the case is that Oracle’s clients have not handed over their own copy, or rather acquired the data carrier. Instead, the third party downloaded the original software or the updated version from Oracle’s website.
- ECJ’s Analysis
In the first place, there is a necessity to examine whether the right of the distribution of a computer program copy undergoes exhaustion in line with the first half-sentence of Article 4(2) of Directive 2009/24. This situation is analyzed based on when the acquirer makes the copy with the consent of the right holder through the program downloaded from the internet and saving it on a data carrier.[8] At this stance, the ECJ has established that the holder of the copyright itself, in such a case Oracle, requires ensuring the availability of the copy to its customers in the European Union (EU). This condition covers those whose intention is to utilize a copy of the computer program by downloading it from its website.[9] In the second case, the ECJ offers the definition of “sale” on the basis of the Directive 2009/24, in line with an autonomous and commonly accepted definition.[10] This accepted description considers such a term as an agreement by which a person, as a result of payment, makes transfers to another individual the rights of ownership in tangible or intangible property which belongs to him or her. Moreover, the ECJ makes a conclusion that exhaustion, in the perspective of Article 4(2) of Directive 2009/24, has to comprise transferring of the right of ownership in such copy.
- Software Directives and Legal Conditions
The decision of ECJ revolves around the interpretation of the secondary European law, which possesses a binding impact on the courts in all Member States of European Union (EU). This regulation may also have an influence on the legal assessment of software agreements amidst legal practitioners and researchers in the offing.[11] In pursuit of full coverage of the legal problems associated with the nature of software agreements, there is a necessity of first offering an overview of the way these agreements have attained the legal classification in selected European jurisdictions.[12] Hilty, Koklu, and Hafenbradl further identify the countries where legal statuses have occurred include France, England, and German.[13] This situation precedes the highlighting of the differences that are relevant to the legal condition in the United States.
- The Description of the European Law
In this perspective, software agreements have no codification in appearing in the primary or secondary European law. In spite of this situation, some provisions exist and have an effect on such agreements and in Acts 4 and 5 of Directive 2009/24 or the successive legislation to Directive 91/250. While Article 4 of Directive 2009/24 offers a definition of the scope of the exclusive rights of the copyright holder in computer programs, Article 5 of Directive 2009/24 defines the exceptions to such rights of exclusion.[14] To this end, the concept of InfoSoc Directive 2001/29 is also relevant since it relates to the scope of exclusive rights to the distribution of the works that are copyright-protected and to the exhaustion of such rights.[15] The two tasks have a particular influence on the software agreements. Additionally, standards concerning software agreements, and on software license agreements, in particular, are not captured in the European law.
- The Selected Jurisdictions in the EU
- France, England, Germany, and Netherlands
The legal discussion in France is much more sophisticated in spite of the fact that the French civil law has no specific rules concerning software agreements. Also, the French law indicates that the agreements regarding the delivery of standard software appears in classifications in various ways, typically as the contracts of genuine IP, as sui generis contracts, or nominating contracts.[16] On the other hand, most of the France lawyers assess the agreements concerning the delivery of standard software to have taken the form of IP agreements. The regulation of the IP agreements occurs in the ‘‘Code de la Proprie´te´ Intellectuelle,’’ implying the Intellectual Property Act, CPI, as a ‘license’ and a ‘cession’.[17] While license is described as the granting of a user right, a cession refers to the transfer of rights. In the context of industrial property, the two concepts are understood as a sales contract as well as a renting agreement. Thus, there has to be an understanding that both referrals to nominate contracts are general in nature, but practically, they are not mostly used in the copyright protected software. As a result, a cession and a license have remained to be genuine IP contracts based on the CPI, which does not dependent on any reference to nominate contracts. However, there is a possibility that French courts, especially those related to the case law of the German Federal Supreme Court, mostly focus on the sales portion of the software agreement in conflicts.[18] Notably, the individual disputes always occur as defective performance or non-performance of contractual obligations, but not to questions regarding the issues of copyright law. Thus, the French Supreme Court has largely fallen into the category of the standard software delivery as a sale, despite the fact that it rather pragmatically establishes a cession of economic rights in some occasions which are related to the protected task.
Moreover, the analysis of the nature of the legal status of software agreements in Germany seems to be highly emotional and controversial. Nonetheless, the intensity of the analysis appears to be interesting since the arguments concerning the legal status of the software agreement are mostly restricted to the German perspective of the legal concepts.[19] Such perceptions, in turn, merely possess limited impacts on the European or global discussions. Furthermore, Germany falls into the category of the most crucial markets in Europe for producing the software products.[20] Based on this observation, it is important to briefly examine the assessment of software agreements from a point of view of German law. Nevertheless, German civil law lacks the capacity to offer specific standards for agreements on software.
Several scholars, as well as the Federal Supreme Court, believe that agreements on the standard software delivery need to be in the class of nominate contracts in the context of “Bu¨rgerliches Gesetzbuch” or rather, German Civil Code BGB.[21] Consequently, their assessment is considered as the provisions for sales agreements or the actual sales of goods or in the German Civil Code which at least work analogously. Some critics have presented this form of software agreements as the rights of sale agreement. The additional nominate contracts such as the rental agreements get mentioned occasionally. Also, Hilty et al. (2013) argue that classifying a software agreement as an IP agreement, especially as a license, does not exist in the minds of the legal experts.[22]
In English law point of view, the legal nature of software agreements has a different implication in the England law. This contract law traditionally appears as a common law era, which also has specific requirements regarding the software agreements.[23] In the same country, Case law also has no capability of providing sufficient orientation concerning the approach of dealing with the agreements of software, because only a few cases have attained the court proceedings level, and particularly the High Court proceedings. This situation implies that the parties concerned with the software agreements most often make efforts to replace the applicable legal terms in the context of the law of contract by individually agreed requirements. Further, the inclusion of the “express terms” parties primarily attempts to ensure the stipulation of all the potential legal issues which occur in practice.[24] As a result, the legal classification of software agreements is of less practical importance in English law. Nevertheless, the debates on the standard software agreements and the classification of software have seemed to be controversial.
Under legal terms, the concept of software has been considered as a good or service. On the other hand, the transfer of the property of software has been difficult in software agreements that are standardized, where the assumption under the legal concept of “good” is deemed to collapse from the very beginning of the legal processes.[25] Regarding the term a “service,” the definition may be applicable if the establishment of the individually customized software is a critical legal consideration. In the context of the delivery of standard software, and particularly where there is no fixing of the software on a physical data carrier as it is the case with a download, the assessment of this contract is predominantly considered as a license agreement.[26] However, there still exist various courts whose classification of the software form of agreements as sales agreements in the England law perspective.
In the Netherlands, there has been the incorporation of the Software Directive under the Dutch Copyright Act, which included the principle of exhaustion as well as the statutory license right principle. It is worth noting that the Dutch Supreme Court has already covered the exhaustion principle for work that is copyrighted in the1950s.[27] Several case laws on exhaustion have been conducted, although there are only few case laws on the exhaustion in line with software. An illustration of this scenario is seen in 2002 when the Court of First Instance in The Hague was requested to make a ruling concerning the legalization of the use of used software where there is no EULA. The case revolved around Van Spijker who bought several discs having proprietary flight simulation software from a trustee who was bankrupt. In this case, the buyer had not entered EULA and as well the software vendor (Van der Schaaf) resisted using the software. This judgment appeared to be interesting as the right of the statutory license right was granted to the buyer of the original data carrier with the used software.[28] However, it sounds more astonishing to realize that the application of the principle of exhaustion principle cannot be influenced by the terms that are restrictive in the EULA perspective. Consequently, such a judgment raised arguments among many legal commentators that software vendors who tend to shun the exhaustion principle, and thus the statutory license concept, might have a reservation of the title to the data carriers of the software they possess. However, there lacks clarity on whether this retention of title to the data carrier in a contract that, on the other hand, which looks, smells and feels like a contract of standard sales. Such a contract would be covered under the applicable laws that restrict the “unreasonable” clauses in standard conditions and terms.
- Evaluation of the Different Strategies in the European Union
In the continental Europe, there is a remarkable trend that subsumes the software agreements in the perspective of the already existing nominate contracts. In England, the software agreements partly involve a license to the use of the copyright-protected software. On the other hand, the formalistic strategy in France and Germany seems to be surprising since the legal assessment of agreements on the authorization of using trademarks or patents varies in a significant way.[29] For instance, if a patent or trademark owner wished to authorize a third party to make use of its right of the intellectual property, obviously, the authorization itself takes a form a license. It has been argued that the attempts to use the codified law seem to be understandable, especially at first sight.[30] Thus, the classification in the form of a license has little to offer since there is a lack of codified licensing law, though, the case law on the problems of licensing remains to be limited.
Notably, it would be hard for anyone to contemplate classifying the respective agreements in terms of sales or rental agreements for this subject matter apart from the software. Additionally, in the context of software agreements, the wide application of the rules concerning sales or rental agreements is still critical in the continental Europe.[31] In addition, classifying a license as an agreement of sales at times apply when the transferred software is mounted on a physical data carrier. The assessment of this agreement may be considered as the individual good that needs transfer based on the sales law.[32] Nonetheless, it will be impossible for this strategy to work if the transfer of the software takes place with no physical data carrier, as it happens with a download or cloud computing. It is not surprising that the new methods are needed for such new cases; thus, the UsedSoft decision of ECJ depicts a course that needs to be explored in the offing.
- Trademark and Copyright Restrictions on Resale Activity
In this context, a trademark’s owner is safeguarded against the use of any mark that is confusingly similar to another one.[33] This confusing similarity can be determined according to several factors, while the utilization of an identical mark to determine similar goods like the ones sold by the owner of the trademark will nearly create a possibility of confusion. On the other hand, courts have, for a long time, stated that a defendant could capitalize on the trademark of plaintiff for the identification of trademarked products of the plaintiff. A perfect example depicting the exhaustion principle is in the case that revolved around Champion Spark Plug Co. v. Sanders.[34] In this case, the Supreme Court established that a seller of reconditioned or repaired spark plugs got the permission of keeping the original trademark as it was stamped on the goods by the manufacturer.[35] In a situation of this kind, it would be necessary for the trademark owner enjoin the application of its mark on condition that the reconditioning or repair may be extensive or basic. This situation would mean it is a misnomer to refer the article by the name it had originally, even if there was an addition of the terms like ‘used’ or ‘repaired’.[36] For the past few years, courts have held that it may be possible for a reseller to utilize the trademark of the manufacturer on goods whose sales seem to be new as long as such goods have no differences which would be critical to a buyer.
In a broader perspective of the copyright restrictions on the resale activities, scholars have intersected the two concepts of the first sale and fair use of the copyrighted work under the exhaustion or first sale doctrine. In this context, the first sale bears a description just like that of a trademark where the copyright law incorporates a doctrine of first sale allowing particular resale activities.[37] Such activities are those which would be captured in the rights that are exclusively reserved to the owner of the copyright. Such rights are covered in Section 106 of the Copyright Act which comes with various specifications.[38] The rights include the preparation of the derivative work; public performance of the work; the digital audio transmission of the recordings of sound; production of the work; the distribution of the work copies; and the public display of task. Conversely, the fair use entails the copyright piece of work meant for the news reporting, scholarship, criticism, research, teaching, and comments among others.[39] Where the copyrighted work serves a purpose of promoting the resale of the products related to the work, there would be the significance of the nature of the copyrighted work for fair use. In addition, the substantiality and amount of the part utilized in association with the entire work copyrighted work would be critical in the fair use perspective.
- The Practical Significance of UsedSoft Directive
The presentation of this case is a perfect illustration of the enforcement that is highly effective, aiming at stopping an infringement in the EU law perspective. This decision has been applicable to the products of Bestseller which were placed on the market in towards the close of September 2006.[40] Additionally, New Balance responded to this situation though the filing of a request for a combined procedure with the court of bailiff for preserving the evidence as well as injunctive relief. To this end, the goods were not on the market by mid-December in the same year, still making New Balance a reasonable amount of the compensation activity. In the point of view of Danish, the amount of compensation of this case appeared to be historically large. The evidence of this scenario emanates from the implementation of the EU Enforcement Directive (2004/48), which led to the change of the law in Denmark starting from January 1, 2006. In the computation of the right holder’s amount of damages, the court needs to consider, amidst other things the infringer’s unfair profit. For instance, Bestseller had attained an unfair profit amounting to DKK 1.7 million, and based on the recent rule to award New Balance an amount that was considerably higher, the ruling established that the violation of the rights of other businesses was not worthwhile.[41]
Moreover, the effect of such a judgment gives a significant hope, both in practice and theory. The ECJ’s decision with no consideration of distinguishing the case involving making a computer program is available by use of a download from the one where the program is embodied in a physical medium appears to make sense.[42] The reason for this situation is to apply the exhaustion principle. Thus, this application is significant since it gives a reflection of the current business practices and also shows its consistency with the equal treatment principle. Nevertheless, it may not be easy to reconcile such a conclusion with the international tools, and particularly with the consideration of a ‘copy’ as envisaged in the agreed statements. This notion has to be in line with Articles 6 and 7 of the World Intellectual Property Organization (WIPO) Copyright Treaty to meet the legal requirements of the copyrighted work.[43] Moreover, there is an expected increase in the controversy based on the path of the thinking that the court adopting to arrive at such a conclusion. Therefore, this situation leads to three concepts that call for a specific concern.
The first consideration is that through the provision of an autonomous meaning in the EU perspective to the aspect of ‘sale’ has similar to reference to the basic principles of copyright. In this case, the ECJ attained a de facto harmonization of the terms whose definitions were at the EU legislation level, but in the private law field.[44] Through this case, the court was able to make a clarification that granting of a license, together with downloading a copy of a computer program, plays a critical role in the transfer of property. Obviously, such a conclusion appears to be controversial at the EU Member States level. Thus, this case stems from the fact that there are countries, such as the UK, where granting of a license has been traditionally viewed as a contractual right but not a right of property.[45] Other like Italy, on the other hand, has depicted the emergence of the contrasting strategies among them.
- Future Implications of the Used UsedSoft Decision
Notwithstanding an immense harmonization that has been experienced in the EU up to today, there is still a need for some sections of the copyright as well as the related laws of the right to be harmonized further in the EU. Notably, any legislative actions of this nature can merely advance a single market using the rights of this form to a restricted point.[46] In particular, they occur as a result of the migration of the predominant mode of exploration of such rights from the physical carriers to the electronic downloads. In this connection, the application of the exhaustion principle of rights is also relevant only to the physical carriers. Moreover, there lacks legislative responses that would bring about a conceptual equation of some Internet download or transmissions with the fixing on the physical carriers to offer satisfactory answers.[47] Nonetheless, it is even not likely that this legislation may be feasible, whether politically, or in the context of the global legal framework governing the copyright.
The notable results also indicate that there seems to be only one reasonable response to the challenges inherent in the current legal model, which would take the place of the laws of the national copyright within the EU region. Based on this situation, some areas have adopted the strategy of intellectual property, which involves the introduction of the latest unitary rights. Unfortunately, they lack the capability to respond to the fragmentation issues of the global market for the copyrighted work as well as the related rights provided the national rights are not affected.[48] Such an approach is expected to be effective, like in the next more seven decades, regardless of whether there are or no rights governed by the national laws of the establishment of the Community laws. There is also another surprising query that is still critical concerning whether the principle of exhaustion is applicable to the software whose distribution is done online. This is the question that the ECJ needs to respond to and also the request to the German Federal Supreme Court.[49]
- Conclusion
The ECJ’s UsedSoft decision typically energizes the classification aspect as well as the real nature of the software agreement in the European law. Notably, the ECJ has been bound by the ruling of the Directive 2009/24, in which only a particular part sticks to the law of sales, while at the time the Court capitalized on every opportunity to pinpoint the aspect of licensing of software agreement for the digital copy users. On the other hand, the ECJ has tried to explicitly explain the interpretations of the Directive 2009/24 based on the case of the UsedSoft and Oracle in the context of the European Law. However, some controversies have emerged concerning the copyright and other related rights, and thus need to be explored further in future research.
Bibliography
Afori, O. F. 2008, Implied license: an emerging new standard in copyright law, Santa Clara Computer and High Tech Law Journal, Vol. 25, pp. 275–325
Brautigam, P. 2012, Second-Hand Software in Europe: Thoughts on the Three Questions of the German Federal Court of Justice Referred to the Court of Justice of the European Union, Computer Law Review International, Vol.13, No.1, pp. 1–8.
Cook, T. 2013, The Future of Copyright Protection in the European Union, Journal of Intellectual Property rights, Vol. 18, pp.181-185.
Gillen, M. 2014, The software Proteus –UsedSoft changing our understanding of software as ‘saleable goods,’ International Review of Law, Computers and Technology, Vol.28, No.1, pp. 4-20.
Hilty, R. M., Koklu, K., Hafenbradl, F. 2013, Software Agreements: Stocktaking and Outlook –Lessons from the UsedSoft v. Oracle Case from a Comparative Law Perspective, Software Agreements: Stocktaking and Outlook, IIC, Vol. 44, pp.263-292.
Linklater, E. 2014, UsedSoft and the Big Bang Theory: Is the e-Exhaustion Meteor about to Strike? Jipitec, pp.12-22.
Moon, K. 2013, Resale of Digital Content: Usedsoft v Redigi, International Law Review, Issue 6, pp. 193-195.
Overdijk, T., Van der Putt, P., De Vries, E., and Schaft, T. 2011. Exhaustion and Software Resale Rights, CRI, Vol. 2, pp.33-39.
Robins, M. D. 2006, Trademark and Copyright Restrictions on Internet Resale Activities: Intellectual Property, Vol. 23, No.5, pp. 1-11.
[1] Hilty, RM, Koklu, K, Hafenbradl, F 2013, Software Agreements: Stocktaking and Outlook –Lessons from the UsedSoft v. Oracle Case from a Comparative Law Perspective, Software Agreements: Stocktaking and Outlook, IIC, Vol. 44, pp.263.
[2] Afori, O. F. 2008, Implied license: an emerging new standard in copyright law, Santa Clara Computer and High Tech Law Journal, Vol. 25, p. 275.
[3] Hilty, RM, Koklu, K, Hafenbradl, F 2013, Software Agreements: Stocktaking and Outlook –Lessons from the UsedSoft v. Oracle Case from a Comparative Law Perspective, Software Agreements: Stocktaking and Outlook, p.272
[4] Ibid
[5] Ibid, 266
[6] Gillen, M. 2014, The software Proteus –UsedSoft changing our understanding of software as ‘saleable goods,’ International Review of Law, Computers and Technology, Vol.28, No.1, p. 4.
[7] Robins, MD 2006, Trademark and Copyright Restrictions on Internet Resale Activities: Intellectual Property, Vol. 23, No.5, pp. 2.
[8] Moon, K 2013, Resale of Digital Content: Usedsoft v Redigi, International Law Review, Issue 6, p. 193.
[9] Gillen, The software Proteus –UsedSoft changing our understanding of software as ‘saleable goods,’ p. 5.
[10] Hilty, Koklu, and Hafenbradl, p.272
[11] Linklater, E 2014, UsedSoft and the Big Bang Theory: Is the e-Exhaustion Meteor about to Strike? Jipitec, pp.12.
[12] Afori, Implied license: an emerging new standard in copyright law, p. 276.
[13] Hilty, Koklu, and Hafenbradl, p.266
[14] Ibid, p.265
[15] Hilty, Koklu, and Hafenbradl, p.265
[16] Hilty, Koklu, and Hafenbradl, p.265
[17] ibid
[18] Hilty, Koklu, and Hafenbradl 267
[19] Brautigam, P. 2012, Second-Hand Software in Europe: Thoughts on the Three Questions of the German Federal Court of Justice Referred to the Court of Justice of the European Union, Computer Law Review International, Vol.13, No.1, p. 1.
[20] Ibid, 266
[21] Ibid, 266
[22] Hilty, Koklu, and Hafenbradl, p. 266
[23] Ibid, p.268
[24] Ibid, p.268
[25] Hilty, Koklu, and Hafenbradl, p.268
[26] Gillen, The software Proteus –UsedSoft changing our understanding of software as ‘saleable goods,’ p.5
[27] Overdijk, T, Van der Putt, P, De Vries, E, and Schaft, T 2011. Exhaustion and Software Resale Rights, CRI, Vol. 2, pp.38.
[28] Linklater, UsedSoft and the Big Bang Theory, p.13
[29] Hilty, Koklu, and Hafenbradl, p.274
[30] Linklater, UsedSoft and the Big Bang Theory, p.14
[31] Linklater, UsedSoft and the Big Bang Theory, p.14
[32] Hilty, Koklu, and Hafenbradl p. 274
[33] Moon, Resale of Digital Content, p.193
[34] Robins, Trademark and Copyright Restrictions on Internet Resale Activities, p. 1.
[35] Moon, Resale of Digital Content, p.193
[36] Robins, Trademark and Copyright Restrictions on Internet Resale Activities, p.1
[37] Linklater, UsedSoft and the Big Bang Theory, p.13
[38] ibid
[39] Moon, Resale of Digital Content, p.13
[40] Robins, Trademark and Copyright Restrictions on Internet Resale Activities, p.6
[41] Robins, Trademark and Copyright Restrictions on Internet Resale Activities, p.6
[42] Moon, Resale of Digital Content, p.195
[43] Hilty, Koklu, and Hafenbradl, p.274
[44] Moon, Resale of Digital Content, p.196
[45] Linklater, UsedSoft and the Big Bang Theory, p.14
[46] Cook, T. 2013, The Future of Copyright Protection in the European Union, Journal of Intellectual Property rights, Vol. 18, p.181.
[47] Cook, The Future of Copyright Protection in the European Union, p.182.
[48] ibid, p.183
[49] Cook, p.185
