ECJ: No Exhaustion of Distribution Rights if Work Has Undergone Medium Alteration after First Sale

By Marie-Andrée Weiss

On January 22, 2015, the European Court of Justice (ECJ) held that the rights of the copyright holder are not exhausted if a protected work, after having been placed on the market in the European Union (EU), undergoes afterwards an alteration of its medium and is again placed on the market in a new form. The case is Art & Allposters International BV v. Stichting Pictoright, C-419-13.

The Exhaustion Rule of the InfoSoc Directive

Recital 28 of the Directive 2001/29/EC on the harmonization of certain aspects of copyright and related rights in the information society (the “InfoSoc” Directive) states that the copyright holder has “the exclusive right to control distribution of the work incorporated in a tangible article.” Also, under article 4(2) of the InfoSoc Directive, the distribution right of a work protected by copyright is exhausted in the EU “in respect of the original or copies of the work” after the first sale or transfer in the EU of ownership of the work, if it is done by the right holder or with his consent. The distribution right has thus been “exhausted” by this first sale or transfer.

Facts of the Case

Allposters is a company marketing and selling reproductions of works, such as posters. Some of these works are still protected by copyright. Allposters transfers some of these posters onto canvasses by applying a synthetic coating to the poster which allows for its complete transfer onto a canvas, which is then stretched over a wooden frame.

Pictoright is a copyright management society representing the interests of some of the right holders of works transferred onto canvas. It asked Allposters to cease this practice, then filed a copyright infringement suit after Allposters refused to comply with this demand.

The Dutch Court of appeals held that the sale of a poster or canvas reproducing a protected work is a publication. It cited a 1979 case, where the Dutch Supreme Court held that, when a copy of a work placed on the market by the right holder is then distributed to the public in another form, it is a new publication if this distribution provides new opportunities for exploitation. In our case, the court of appeals noted that the posters underwent a major alteration which offered Allposters new opportunities for their exploitation and that, therefore, the distribution rights had not been exhausted.

Allposters brought the case to the Dutch Supreme Court, arguing that the copyright owners right of distribution of the posters had indeed been exhausted, within the meaning of article 4(2) of the InfoSoc Directive “upon distribution of a work incorporated into a tangible object” offered for sale by the copyright holder or with his consent. Therefore, any subsequent alteration of this tangible object was not subject to the exhaustion of distribution right.

The Dutch cassation Court requested a preliminary ruling, asking the ECJ if the exhaustion rule of article 4(2) of the InfoSoc Directive applies to a protected work which had been distributed in the EU under article 4(2), but the medium of which has been subsequently altered and then placed again on the market. The ECJ responded in the negative.

The Purpose of the Distribution Right

Does the exhaustion of the distribution right only cover the tangible object into which a work or its copy is incorporated, as Allposters claimed?

To answer that question, the ECJ noted that article 4(2) of the InfoSoc Directive refers to the first sale or transfer of ownership “of that object” and that recital 28 of the InfoSoc Directive refers to the distribution right “of the work incorporated in a tangible article.” For the ECJ, that means that the InfoSoc Directive must be interpreted as giving authors an exclusive right of distribution in the EU “of each tangible object incorporating their intellectual creation” (at 37) and that “exhaustion of the distribution right applies to the tangible object into which a protected work or its copy is incorporated if it has been placed onto the market with the copyright holder’s consent” (at 40).

Therefore, for the ECJ, exhaustion of the distribution right only concerns the exhaustion of right over the tangible object embodying the intellectual creation of the author. The right over the intellectual creation itself is not exhausted, and the right holder retains his rights over the reproduction or distribution of new material vehicles of the work.

Subsequent Alterations to the Physical Medium

The ECJ then examined if subsequent alterations to the physical medium of this tangible object has an impact on exhaustion of the distribution right within the meaning of article 4(2).

Allposters argued that transferring the work into a canvas is not a reproduction, but a mere transfer from one medium to another. But for the ECJ, this “replacement of medium… results in the creation of a new object incorporating the image of the protected work” and is a new reproduction of the work within the meaning of article 2(a) of the InfoSoc Directive, which gives the authors the exclusive right to authorize or prohibit reproduction of their works (at 43).

The canvas posters are not, physically, the same objects as the paper posters which had been placed on the market with the rightholders’ consent. Therefore, it cannot be held that the right holder had consented to the distribution of these new reproductions.

Exhaustion of Distribution Rights of Intangible Goods

This ruling is of particular interest as it can be interpreted, a contrario, as meaning that exhaustion of distribution rights does not apply to intangible objects. This may be a hint that the ECJ is not in favor of giving consumers the right to resell their digital goods, even though it held in its 2012 UsedSoft GmbH v Oracle International Corp. case that the right of distribution of a copy of a computer program is exhausted if the copyright holder authorized the downloading of that digital copy.

However, UsedSoft did not concern the InfoSoc Directive, but article 4(2) of Directive 2009/24/EC on the legal protection of computer programs, under which “[t]he first sale in the [EU] of a copy of a [computer] program by the rightholder or with his consent… exhaust[s] the distribution right within the [EU] of that copy, with the exception of the right to control further rental of the program or a copy thereof.”

In any case, the exhaustion rule, or the first sale doctrine, is enjoying its moment in the spotlight, as the issue of whether consumers should have the right to resell their electronic goods is debated on both sides of the Atlantic. In the U.S., the You Own Devices Act was reintroduced in Congress on February 11, 2015. In the EU, the Amsterdam Court of appeal was asked whether Tom Kabinet, a company reselling used e-books, has the right to do so. On January 20, 2015, the Court quoted UsedSoft, but did not express with certitude that it applied to e-books.

It remains to be seen if the issue of exhaustion of rights in digital goods will be addressed in the EU by a new directive or by a definite ECJ ruling.