What happened?
Valve Corp. (Valve), operator of the videogame distribution platform Steam, was ordered by the Tribunal de grande instance de Paris (the Court) to pay €20,000 in damages to the French consumer association UFC Que Choisir (UFC) as compensation to consumers in respect of 14 clauses of the Steam Subscriber Agreement (the Subscriber Agreement) that were found to be either unlawful or abusive and therefore “deemed unwritten”. Valve announced last week that it would be appealing the decision.
Controversy
The Court’s decision is controversial for the way in which it addressed clause 1C of the Subscriber Agreement, which effectively prohibits the onward sale by Steam users of videogames downloaded via Steam. To label clause 1C abusive, the Court first had to establish why it believed the provision to be unlawful under copyright rules (in particular, under the principle of exhaustion). This is a task even the most sophisticated copyright academics find challenging and the Court’s approach in solving this issue left many readers perplexed.
Exhaustion
UFC argued that clause 1C was unlawful by alleging incompatibility with the EU principle of free movement of goods and the copyright principle of exhaustion, also known as the ‘first sale doctrine’ in the United States. In its European form, the principle of exhaustion provides that a copyright owner’s right of distribution in the original (or a copy) of a work is ‘exhausted’ on its first sale by the copyright owner (or with such owner’s consent). It is widely accepted that exhaustion of the right of distribution only applies in relation to tangible goods embodying copyright-protected content. However, the application of the concept of exhaustion in relation to digital files is less clear, particularly in light of the UsedSoft1 decision. In this decision, the CJEU ruled that the principle of exhaustion could apply to certain digital copies of software – also protected by copyright laws – where these digital copies were effectively “a digital equivalent to a sale”.
Decision
Following a display of convoluted reasoning that seemed to conflate the rights existing in a tangible object and those arising in an intangible work protected by copyright, the Court concluded that the principle of exhaustion should apply to all “copies” of a work (regardless of whether they are tangible or intangible). However, in contrast to the CJEU’s decision in UsedSoft, the Court failed to explain why certain types of intangible copies, licensed in a certain way, might be regarded as the equivalent of a “sale [of a physical copy]” (p. 66). The Court also failed to explain how exhaustion could be extended to digital works governed by the InfoSoc Directive2 (governing copyright matters in Europe), which consistently implies that the principle of exhaustion only applies to tangible copies3.
The most convincing comments of the Court appear later in its judgment, where it finally makes a reference to UsedSoft by mentioning that access to a videogame by a Steam user under the Subscriber Agreement “must be qualified as a sale of a copy of a videogame” as such videogame is made available to the user for an unlimited period, at a price determined in advance, and paid for in a single instalment. This argument is likely to form the core component of the case on appeal.
THE CJEU’s awaited decision in Tom Kabinet
A similar question of whether the principle of exhaustion applies to ebooks has been put to the CJEU in a case involving a Dutch company that aims to create a secondhand ebook marketplace (Tom Kabinet). While we await the CJEU’s decision, it is interesting to note that the submission of the advocate general (AG Szpunar) advises the CJEU to rule that, because internet downloads of ebooks are covered by the right of communication to the public rather than the right of distribution (which is reserved to tangible assets), the principle of exhaustion does not apply.
Conclusion
Overall, the Court’s decision on the topic of exhaustion appears unforgiving and confused. The shortcuts used and the inaccuracies evident in its handling of copyright law concepts will likely be scrutinised on appeal. However, despite these technical shortcomings, the Court’s decision raises important questions regarding the principle of exhaustion, namely: (i) when will the download of a digital asset constitute “a digital equivalent to a sale”; and (ii) can the principle of exhaustion apply in respect of such digital assets under the InfoSoc Directive?
The decision of the Court will be suspended until the appeal is heard by the French Court of Appeal, which, in all likelihood, should take place after the decision in Tom Kabinet is made public. As ever in the field of copyright, all eyes are on Luxembourg.
- C128/11 UsedSoft v. Oracle (3 July 2012).
- Directive 2001/29.
- By way of example, 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 rightsholder with his consent.”
See also, for example, Recital 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. Therefore, the same applies to rental and lending of the original and copies of works or other subject-matter which are services by nature. Unlike CDROM or CDI, where the intellectual property is incorporated in a material medium, namely an item of goods, every online service is in fact an act which should be subject to authorisation where the copyright or related right so provides.
Client Alert 2019-233
