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U.S. District Court Dismisses a Sherman Act Class Action Lawsuit Brought by Former and Current Bureau of Prison Inmates for lack of Antitrust Injury

By Valerio Cosimo Romano

On 28 February 2017, the U.S. District Court for the Eastern District of Michigan (hereinafter, “District Court”) dismissed  a putative class action lawsuit filed by current and released Bureau of Prison (“BOP”) inmates who purchased MP3 players and music or other audio files against Advanced Technologies Group LLC (“ATG”) and SanDisk Corporation (SanDisk”).

The plaintiffs were former and current BOP inmates. While incarcerated, plaintiffs purchased MP3 players on the BOP-operated facility’s “Commissary List” of items for sale, which included only those products that met special security features and had the ability to interface with BOP’s Trust Fund Limited Inmate Computer System (“TRULINCS”). Indeed, in 2012 BOP and ATG signed a contract granting ATG the exclusive right to supply prison-restricted MP3 players and MP3 music to BOP inmates. In turn, ATG and SanDisk entered into an agreement for SanDisk to exclusively supply the prison-restricted MP3 players to ATG, pursuant to which only one brand and model of MP3 player was available for sale to inmates. The authorized device was not connected to the internet, but could only download approved music and audio books through TRULINCS. Inmates could purchase as many as 1,500 songs, which were stored on the MP3 player. When prisoners were released from BOP custody and they lost access to TRULINC, the MP3 players became inoperable and the prisoners lost access to the purchased audio files. Plaintiffs allege that this loss could only be avoided by buying a post-release MP3 player manufactured by SanDisk and sold by ATG. Also, according to plaintiffs, ATG will not restore any content to a third party player.

Plaintiffs therefore allege that defendants engaged in unlawful tying or a conspiracy to engage in unlawful tying in violation of §1 of the Sherman Act and in unlawful monopolization, attempted monopolization, or conspiracy to monopolize in violation of §2 of the Sherman Act. More specifically,  Plaintiffs assert that Defendants unlawfully tied the purchase of prison-restricted MP3 players to the purchase of a post-release MP3 player, and further allege that defendants’ conduct has exclusionary and anticompetitive effects with respect to the market for post-release MP3 players. Defendants argue that Plaintiffs lack antitrust standing.

First, The District Court recalled the relevant factors for the establishment of standing to bring an antitrust action, as articulated by the Supreme Court in Associated Gen. Contractors of Calif. and summarized by the Sixth Circuit in  Southhaven Land. These factors are: (i) the causal connection between the antitrust violation and the harm to the plaintiff and the intent of the defendant to cause that harm, with neither factor alone sufficient to confer standing; (ii) whether the plaintiff’s alleged injury is of the type for which the antitrust laws were intended to provide redress; (iii) the directness of the injury, which addresses the concerns that liberal application of standing principles might produce speculative claims; (iv) the existence of more direct victims of the alleged antitrust violations; and (v) the potential for duplicative recovery or complex apportionment of damages.

Second, the District Court held that, despite the fact that the factors have to be balanced, antitrust injury is a necessary component, and, therefore, where a plaintiff fails to establish an antitrust injury, the court must dismiss the complaint as a matter of law.

Third, the District Court ruled that an injury will not qualify as an antitrust injury unless it is attributable to an anticompetitive aspect of the practice under scrutiny. In this sense, adhering to the principles established in Standfacts Credit Servs., the District Court held that no cognizable antitrust injury could be identified where the alleged injury is a “byproduct of the regulatory scheme” or federal law rather than of the defendant’s business practices, and in this case, the injury stems from BOP policy rather than anticompetitive conduct by Defendants.

In light of the above, the District Court concluded that antitrust injury was lacking to support Plaintiff’s Sherman Act claims against defendants. Therefore, it granted motion to dismiss the defendants’ antitrust complaint as well as additional common law and state law claims.

Anti-Harassment Video Turned Appetizers Ad is Not False Endorsement

By Marie-Andrée Weiss

On 24 January 2017, Judge Abrams from the Southern District of New York (SDNY) granted a motion to dismiss from a video director who had been sued for violation of Section 43(a) of the Lanham Act by an actress featured in an anti-street-harassment video he had directed, and which he later licensed for use in an TGI Friday’s appetizers advertisement. The case is Roberts v. Bliss, No. 15-CV-10167.

Plaintiff had been hired to appear in “10 Hours Walking in NYC as a Woman,” (the video) which was filmed by hidden camera to show the amount of catcalling directed at women walking on the streets. The actress was filmed for 10 hours walking in the streets of Manhattan, while men commented on her appearance and asked for her phone number. The footage was edited to a 1.56 minute video, which ended with a message urging viewers to donate to a non-profit organization dedicated to fighting street harassment, which had commissioned the video.

The video was directed and produced by Defendant Rob Bliss. He posted the video on YouTube in October 2014, and it went viral within 24 hours, receiving 10 million views in the first 24 hours of its posting. It has now been seen some 44 million times. After the video went viral, Bliss used it on his professional website to advertise his services. In February 2015, he licensed the video to a Colorado advertising agency, which used it to create two ads for TGI Friday’s, a fifteen-second ad and a thirty-second ad (the ad).

The ad starts with a black screen with the text, ”Nobody likes a catcaller,” and then shows clips of the video, with oversized pictures of new TGI Friday’s appetizers entirely covering Plaintiff’s body. This gives the impression that men on the street are  expressing their admiration for mozzarella sticks or potato skins. The ad ends with another black screen which reads: “But who can blame someone for #AppCalling?”

Plaintiff sued Bliss, his company, and the non-profit which had originally commissioned the ad, claiming that the ad misleadingly implied that she had endorsed the ad and the appetizers, in violation of Section 43(a) of the Lanham Act, which forbids false endorsements. She also claimed that her right of publicity under New York law had been violated. Claims against the non-profit were later dropped.

The Section 43(a) false endorsement claim fails

Plaintiff claimed that she had not licensed her identity or persona to be used in the ads and would not have done so if offered to license it. She claimed that the ad violates Section 43(a) of the Lanham Act, as it “depicted [her] persona and conveyed the false impression to a substantial group of viewers… that she had participated in, authorized or endorsed the [ad]” (Complaint, p. 12-13).

While right of publicity laws generally forbid using a person’s likeness for commercial purposes, the Lanham Act, which prohibits the unauthorized use of personal identity in endorsements or advertising, may also be used to that effect. Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a) prohibits:

“us[ing] in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which… is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person, or… in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person’s goods, services, or commercial activities.”

Judge Abrams cited Burck v. Mars, Inc., a 2008 SDNY case, which enumerated the elements of a false endorsement claim under the Lanham Act, which require that “the defendant, (1) in commerce, (2) made a false or misleading representation of fact (3) in connection with goods or services (4) that is likely to cause consumer confusion as to the origin, sponsorship, or approval of the goods or services”.

The ad did not use Plaintiff’s persona

Plaintiff did not claim that her name had been used, but instead her “persona,” which indeed could fall within the scope of Section 43(a), as its broad terms may indeed protect persona.

Judge Abrams examined what exactly is a “persona” and noted that it is defined by the Oxford English Dictionary as “the aspect of a person’s character that is displayed to or perceived by others.” He also quoted two 1992 Ninth Circuit cases recognizing persona. In Waits v. Frito Lay, a case about the unauthorized imitation of Tom Waits‘ voice, the court held that an artist’s distinctive voice and style was part of his persona. In White v. Samsung Elecs. Am. Inc., the court recognized that Vanna White had a right to her individual style and stance within the context of the set of Wheel of Fortune, where she had become famous; therefore, an ad could not use a robot in a blonde wig and pink dress on a set resembling Wheel of Fortune.

In this case, Judge Abrams was not convinced by Plaintiff’s claim “because neither she, nor any representation of her, her image, or her persona, appear in the TGI Friday’s advertisement, and the ad contains no false or misleading statement suggesting that she endorsed TGI Friday’s or its appetizers.” He noted further that “the superimposed renderings of appetizers cover [Plaintiff’s] entire body.”

Judge Abrams also noted that Plaintiff could not claim that she is so associated with her performance that the ad falsely implies that she endorsed the appetizers, because the Second Circuit held in Oliveira v. Frito Lays, Inc. that a signature performance, which is one in which a “widespread audience associates with the performing artist,” cannot be claimed as a trademark. In Oliveira, the Court found that Astrud Gilberto, the singer who first sang The Girl From Ipanema, could not claim her performance as a trademark and thus claim her rights had been infringed by the use of her performance in an ad without her permission. Judge Abrams noted that TGI Friday’s had purchased a license for the video, just as Frito Lays had purchased a license to use The Girl from Ipanema in the potato chip ad. Judge Abrams concluded that the ad did not falsely imply that Plaintiff endorsed the products, noting again that Plaintiff is not seen at all in the ads.

There is no likelihood of confusion as to Plaintiff’s sponsorship because the ad is parody

Judge Abrams also found that Plaintiff did not prove that consumers were likely to be confused as to her sponsorship of the ad. He quoted Burck, where the SDNY found that if a trademark is parodied, it may be enough to result in no confusion under the statutory likelihood of confusion analysis.” Thus, if there is a parody, there is probably not consumer confusion. This had also been noted in January 2016 by Judge Furman of the SDNY in the Louis Vuitton v. My Other Bag case, which was recently affirmed by the Second Circuit (see here for a former discussion of the case in the TTLF newsletter). In that case, Judge Furman discussed the parody of a trademarks at length, and observed that “a parody clearly indicates to the ordinary observer that the defendant is not connected in any way with the owner of the… trademark.” In Bliss, Judge Abrams found the ad to be “a clear parody” of the video, which “in no way suggests that [Plaintiff] was championing the product used to mock the video for its own commercial benefit.”

The right of publicity claim was not addressed by the federal court

Since Judge Abrams dismissed the federal law claim which had justified federal jurisdiction, he declined to review the New York right of publicity claim.

New York’s right of publicity law is codified in New York Civil Rights Law, Section 50-5, and protects the right to privacy of a person if a “person, firm or corporation” uses her “name, portrait or picture” for “advertising purposes, or for the purposes of trade… without having first obtained the written consent of such person”.

Would Plaintiff be more successful in her claim that her persona had been used without her permission in a New York court? As noted in a previous TTLF newsletter, some state’s right of publicity laws protect personas, such as the Alabama Right of Publicity Act which protects the right of publicity of individuals “in any Indicia of Identity,” and thus extend its protection to persona. This is not the case in New York.

Actress Lindsay Lohan recently argued that the protection of New York’s right of publicity includes her persona, which she claimed is composed of various elements such as a bikini, shoulder-length blonde hair, jewelry, a cell phone, sunglasses, a loose white top, and her signature ‘peace sign’ pose. he Appellate division of the New York Supreme Court dismissed her claim on 1 September 2016, because New York law only protects against unauthorized use of a person’ name, portrait, or picture— not a persona. However, in February 2017 the New York Court of Appeals accepted review of this case, and so may affirm or modify the narrow scope of the New York’s right of publicity.

Plaintiff has appealed her federal case and is likely to pursue her New York right of publicity case. Regardless, this case highlights the dangers of performing without a written contract. Plaintiff alleged in her complaint that she agreed to participate in the project without being compensated because the video had been presented to her as a public service announcement against street harassment. She received death and rape threats after appearing in the original video. This case brings in mind the Garcia v. Google case (discussed in a previous TTLF newsletter here) where an actress unsuccessfully claimed copyright in her performance. There are no neighboring rights provided to performers in U.S. law, unlike, say, French law, which grants performers a droit voisin,, a sort of property right over their interpretation of the work protected by copyright . In a statement, Plaintiff wrote that “the rights of all actors and other creative artists are increasingly threatened by those who profit commercially from their content without paying for it.” Should U.S. law give performers a neighboring right?

Eli Lilly Loses in Chapter 11 NAFTA Arbitration over Drug Patents

By Gabriel M. Lentner

On 16 March 2017, the NAFTA tribunal issued its final award in the case of Eli Lilly v Canada, dismissing the claim.

Two patents of the U.S. pharmaceutical company known as ‘Eli Lilly’ were invalidated by the Canadian federal courts based on judicial interpretations of the utility requirements contained in the Canadian patent statute (referred to as the ‘promise utility doctrine’). Eli Lilly alleged that these interpretations, and in particular the courts’ adoption of the promise utility doctrine, departed dramatically from prior Canadian patent law. On this basis, Eli Lilly initiated proceedings against Canada under Chapter 11 of NAFTA claiming that the invalidation of its patents amounted to unlawful expropriation of its intellectual property (NAFTA Article 1110) and a violation of the Minimum Standard Treatment (NAFTA Article 1105).

The Tribunal dismissed the alleged breaches stating that the Claimant had not met the required burden of proof. However, it noted inter alia that, contrary to what Canada argued, not only may a denial of justice serve as a basis of liability for judicial measures, but also other conduct which ‘may also be sufficiently egregious and shocking, such as manifest arbitrariness or blatant unfairness’. It held that invalidation under naturally evolving patent laws is not a breach of legitimate expectations but also suggested that a violation could take place when ‘a fundamental or dramatic change in Canadian patent law’ occurs.

Finally, the Tribunal noted that the evolution of the Canadian legal framework, in relation to Claimant’s patents, could not sustain a claim of arbitrariness or discrimination amounting to a violation of NAFTA Articles 1105 or 1110.

The award comes at a time of heightened interest (and criticism) surrounding the use of Investor-State Dispute Settlement (ISDS) for the protection of intellectual property rights (see cases of Philip Morris v Australia and Philip Morris v Uruguay).The Tribunal was careful not to dismiss out of hand IP-based ISDS claims, but similarly did not provide any further clarification regarding such cases and the applicable legal standards for IP protection. Thus, this case will not necessarily serve to reduce the uncertainties in this area of law, and as a result, as one commentator put it, it rather further opened the door to such claims.

CJEU: Comparative Advertising Lawful Only if it Compares Goods from Stores of Similar Sizes

By Marie-Andrée Weiss

On 8 February 2017, the Court of Justice of the European Union (CJEU) held that an advertisement   comparing prices of goods sold in shops of different sizes and formats is liable to be  unlawful as the advertisement does not clearly inform consumers of these differences in sthe stores’ sizes and formats. The case is Carrefour Hypermarchés SAS v. ITM Alimentaire International SASU, C-562/15.

ITM is responsible for the strategy and commercial policy Intermarché, the retail chain, which owns supermarkets and hypermarkets, the largest of stores in the EU (Intermarché). Carrefour Hypermarché is part of the Carrefour group, which owns supermarkets, hypermarkets, and small stores in cities (Carrefour).

Carrefour launched a comparative television advertising campaign in 2012 which compared the prices of 500 leading brand products sold in its hypermarkets with the prices of these goods in competitors’ stores, and offered to reimburse consumers twice the price difference if they found cheaper prices for these goods than at Carrefour stores.

However, Carrefour compared its hypermarkets prices with Intermarché’s supermarket prices, without informing the public of the difference in the stores’ sizes and format. which prices were being compared in the advertisement. This information was only published on Carrefour’s website, and in small print.

Intermarché filed suit against Carrefour in October 2013, asking the Paris Commercial Court to enjoin Carrefour from disseminating the ad. The Court awarded Intermarché 800,000 euros in damages. Carrefour appealed to the Paris Court of Appeals, and also requested that the issue be referred to the CJEU for a preliminary ruling.

The European Union law and the French law of comparative advertising

Article 6 of Directive 2005/29 defines a misleading commercial action as one which “contains false information and is therefore untruthful or in any way… deceives or is likely to deceive the average consumer… or is likely to cause him to take a transactional decision that he would not have taken otherwise.” Article 2(b) of Directive 2006/114/EC defines “misleading advertising” as “any advertising which in any way, including its presentation, deceives or is likely to deceive the persons to whom it is addressed or whom it reaches and which, by reason of its deceptive nature, is likely to affect their economic behavior or which, for those reasons injures or is likely to injure a competitor.”

Article 4 of Directive 2006/114/EC allows comparative advertising if it is not misleading, Article 4(a), and if it “objectively compares one or more material, relevant, verifiable and representative features of those goods and services, which may include price,” Article 4(c). Similarly, French law authorizes comparative advertising if it is not misleading or likely to deceive, Article L. 121-8 of the Consumer Code, in force when the suit against Carrefour was filed.[1] Both articles recite the termsof Directive 2006/114/EC.

The Paris Commercial Court found that Carrefour advertising did not comply with Article L. 121-8 of the Consumer Code. The Paris Court of Appeals asked the CJEU if price comparison is allowed by Article 4 of Directive 2006/114/EC only if the goods are sold in stores with similar formats and sizes. It also asked the CJEU if comparing prices of stores with different sizes and formats is “material information” within the meaning of Article 7(1) of Directive 2005/29, which states that a commercial practice is “misleading” if it omits “material information that the average consumer needs” to make an informed transactional decision. The Paris Court of Appeals also asked the CJEU to explain to what degree and via which medium this information must be disseminated to the consumer.

Is comparative advertising only legal if it compares prices of products sold in shops of similar sizes?

The CJEU synthesized the questions of the Paris Court of Appeals as: whether Article 4(a) and 4(c) must be interpreted as saying that an advertisement comparing the prices of products sold in shops of different sizes is unlawful?

The CJEU noted that Article 4 of Directive 2006/114 does not require that the shops compared be of similar formats or sizes. However, comparative advertising must not undermine fair competition or the interest of consumers (at 22). This would be the case if the comparative advertisement is misleading.

The difference in size or format of the shop may distort the objectivity of the price comparison

Article 4(c) of Directive 2006/114 requires the comparison be objective. However, as noted by the Court, “in certain circumstances the difference in size or format of the shops in which the prizes being compared by the advertiser have been identifiedmay distort the objectivity of the comparison” (at 26). Indeed, Attorney General Saugmandsgaard Øe noted in his October 19, 2016 Opinion, “that generally… the prices of consumer products are likely to vary according to the format and size of the shop” (Opinion at 43). Such “asymmetric comparison” of prices could “artificially creat[e] or increase[e] any difference between the advertiser’s and the competitor’s prices, depending on the selection of the shops for the comparison” (Opinion at 57, and CJEU at 27).

While Directive 2005/29 does not define what the “material information” cannot be omitted from the ad, the CJEU found that material information is the information that an average consumer would need to make an informed transactional decision (at 30).

If the prices compared in the ad are those of shops of different sizes and formats, it is likely to deceive the consumer, if these shops “are part of retail chains each of which includes a range of shops having different sizes or formats” (CJEU ruling, paragraph 1). Indeed, the customer may believe that the advertised price difference applies to all the shops in the advertiser’s retail chain, and such advertising is thus misleading (at 33 and 34). As this information is “necessary” for the consumer to make an informed decision on where to shop, it is a “material information” within the meaning of Article 7 of Directive 2005/29 (at 35).

The information of the difference in shops ‘sizes and format must be clear

Such advertising is misleading unless the customer is informed that the prices compared concerns shops of different sizes and formats (at 36). Such information must “clearly” provided, in the advertisement itself (at 38).

It is the duty of the national courts to assert, case by case, whether a particular advertising is misleading (at 31) and thus the referring court, the Paris Court of Appeals, will have to ascertain, in the light of this case, if the Carrefour comparative advertisement is misleading (CJEU ruling, paragraph 2). It is very likely that it will rule that such comparative advertising is misleading, as Carrefour compared prices in its hypermarkets to prices with Intermarché’s supermarkets, and such shops. While both shops are part of a retail chain, they are different in size and format.

[1] Article L. 121-8 of the Consumer Code has since been  abrogated and  replaced,  without any changes, by  Article L. 122-1 of the Consumer Code.

Tenth Circuit holds IPRs defense available to rebut a refusal to deal antitrust claim

By Valerio Cosimo Romano

On 31 October 2016, the United States Court of Appeals for the Tenth Circuit (the “Court of Appeals”) held that the invocation of IPRs is a presumptively valid business justification sufficient to rebut a refusal to deal claim.

The case involved a dispute between a software company and the developer of aviation terminal charts (which provide pilots with the information necessary to navigate and land at a specific airport). The developer holds copyrights for portions of its charts, which use a proprietary format. The parties negotiated and executed a license and cooperation agreement under which the developer would waive its standard licensing fee and grant the software company access to proprietary products that facilitate the integration of the developer’s terminal charts into third-party systems. In exchange, the software company would create a data management reader that works in conjunction with an e-book viewer. After the execution of the agreement, the software company registered with Apple as a software application developer and requested the necessary toolkit from the developer to develop an app. The developer did not provide the toolkit. Rather, it announced it had created its own app, offered to its customers at no additional cost beyond their terminal chart subscription fee.

The software development company sued the developer. The district court granted summary judgment for developer on the antitrust claims but denied summary judgment on the remaining claims for loss of profits, awarding more than $43 million in damages. The developer appealed, challenging only the district court’s ruling related to the loss of profits. The software company cross-appealed, challenging the dismissal of its antitrust claims, alleging a single anticompetitive conduct consisting in a refusal to deal, in violation of § 2 of the Sherman Act.

To determine whether a refusal to deal violates § 2, the Court of Appeals first looked at market power in the relevant market, in which the court assumed that the developer enjoyed monopoly power. Second, the Court of Appeals looked at the use of the product, and concluded that the assertion of IPRs is a presumptively rational business justification for a unilateral refusal to deal. In its legal reasoning, the Court of Appeals relied on the approach taken by both the First and Federal Circuits in Data General and Xerox, respectively. In Data General, the First Circuit held that while exclusionary conduct can be pursued by refusing to license a copyright, an author’s desire to exclude others from use of its copyrighted work is a presumptively valid business justification for any immediate harm to consumers. In Xerox, a Federal Circuit declined to examine the defendant’s motivation in asserting its right to exclude under the copyright laws, absent any evidence that the copyrights were obtained by unlawful means or used to gain monopoly power beyond what provided for by the law. Quoting Novell and Trinko, the Court of Appeals also recognized the existence of a limited exception, available only where the plaintiff can establish the parties had a preexisting, voluntary, and presumably profitable business relationship, and its discontinuation suggests a willingness to forsake short-term profits to achieve anti-competitive ends. On this last point, the Court of Appeals held that the software developer did not present any evidence.

Therefore, it concluded that the developer did not have an independent antitrust duty to share its intellectual property with the software company. Consequently, it reversed and vacated the jury’s award of lost profits, but affirmed the partial summary judgment on software company’s antitrust claims.

European Commission approves the acquisition of LinkedIn by Microsoft, subject to commitments

By Valerio Cosimo Romano

On 6 December 2016 the European Commission (the “Commission”) approved the acquisition of LinkedIn by Microsoft, conditional on compliance with a series of commitments.

Microsoft is an U.S. technology giant. LinkedIn is a company based in the US, operating a social network dedicated to professionals. The parties operate on complementary areas and have limited overlaps. In its investigation, the European Commission focused on professional social network services, customer relationship management software solutions, and online advertising services.

First, the Commission investigated whether, after the merger, Microsoft could have strengthened LinkedIn’s position by pre-installing and integrating the social network on its systems. The European watchdog came to the conclusion that such measures could significantly enhance LinkedIn’s visibility to the detriment of competitors. Second, the Commission investigated the area of customer relationship management software solutions and found that the networking service does not appear to be a must-have, and access to its database is not essential to compete on the market. The Commission therefore concluded that the transaction would not enable Microsoft to foreclose this market. Third, the Commission found that after the transaction a large amount of user data would still be available on the market. Thus, it concluded that there were few competition concerns arising from the combination of the parties’ online non-search service activities and data to be used for advertising purposes. Lastly, even though privacy concerns do not fall within the scope of EU competition law, the Commission analyzed the potential impact of data concentration on the market as a result of the merger. The European competition watchdog concluded that data privacy is an important parameter of competition between professional social networks, which could have been negatively affected by the transaction.

In order to address the competition concerns identified by the Commission, Microsoft committed to (i) ensuring that manufacturers and distributors would be free not to install the social network on Windows and allowing users to remove it from devices where pre-installed; (ii) allowing competing professional social network service providers to keep intact their current levels of interoperability with Microsoft’s products and (iii) granting them access to Microsoft’s proprietary application dedicated to software developers.

In light of these commitments, the Commission gave green light to the acquisition.

CJEU rules that lending an e-book is legal if the first sale right has been exhausted

By Marie-Andrée Weiss

The Third Chamber of the Court of Justice of the European Union (CJEU) ruled on 10 November 2016 that it is legal under EU law for a library to lend an electronic copy of a book. However, only one copy of the e-book can be borrowed at the time, the first sale of the e-book must have been exhausted in the EU, and the e-book must have been obtained from a lawful source. The case is Vereniging Openbare Bibliotheken v. Stichting Leenrecht, C-174-15.

 

Legal framework

Article 2 of Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society (the InfoSoc Directive) provides authors exclusive rights in their works, including, under its Article 3, the exclusive right to communicate their works to the public by wire or wireless means. Its Article 4 provides that these exclusive rights are exhausted by the first sale or by other transfers of ownership of the work in the EU.

Article 6(1) of Directive 2006/115/EC of the European Parliament and of the Council of 12 December 2006 on the rental right and lending right and on certain rights related to copyright in the field of intellectual property, the Rental and Lending Rights Directive (RLR Directive), gives Member States the right to derogate from the exclusive public lending right provided to authors by Article 1 of the RLR Directive, provided that authors are compensated for such lending.

Article 15c(1) of the Dutch law on copyright, the Auteurswet, authorizes lending of a copy of a literary, scientific, or artistic work, provided that the rightsholder consented to the lending and is compensated for it. The Minister of Justice of the Netherlands set up a foundation to that effect, the Stichting Onderhandelingen Leenvergoedingen (StOL), which collects lending rights payments as a lump sum from lending libraries and then distributes those payments to rightsholders through collective management organizations.

The Dutch government took the view that e-books are not within the scope of the public lending exception of the Auteurswet and drafted a new law on that premise. The Vereniging Openbare Bibliotheken (VOB), which represents the interests of all the public libraries in the Netherlands, challenged this draft legislation and asked the District Court of The Hague to declare that Auteurswet covers lending of e-books.

The Court stayed the proceedings and requested a preliminary ruling from the CJEU on the question of whether Articles 1(1), 2(1)(b) and 6(1) of the Renting and Lending Rights Directive authorize e-lending, provided that only one library user can borrow the e-book at a time by downloading a digital copy of a book which has been placed on the server of a public library.

If this is indeed authorized by the Directive, the District Court asked the CJUE whether article 6 of the Directive requires that the copy of the e-book which is lent has been brought into circulation by an initial sale or other transfer of ownership within the European Union by the rightsholder, or with her consent within the meaning of Article 4(2) of the InfoSoc Directive.

The District Court also asked whether Article 6 of the RLR Directive requires that the e-book which is lent was obtained from a lawful source.

Finally, the District asked the CJEU to clarify whether e-lending is also authorized (if the copy of the e-book which has been brought into circulation by an initial sale or other transfer of ownership within the European Union by the right holder or with her consent) when the initial sale or transfer was made remotely by downloading.

 

First: Is e-lending legal under the renting and lending rights directive?

The CJEU noted that Article 1(1) of the RLR Directive does not specify whether it also covers copies which are not fixed in a physical medium, such as digital copies (§ 28). The CJEU interpreted “copies” in the light of equivalent concepts of the WIPO Copyright Treaty of 20 December 1996, which was approved by the European Community, now the European Union. Its Article 7 gives authors the exclusive right to authorize “rentals” of computer programs. However, the Agreed Statements concerning the WIPO Copyright Treaty, which is annexed to the WIPO Treaty, explains that Article 7’s right of rental “refer[s] exclusively to fixed copies that can be put into circulation as tangible objects,” thus excluding digital copies from the scope of Article 7.

The Court noted, however, that “rental” and “lending” are separately defined by the RLR Directive. Article 2(1) (a) defines “rental” as “making available for use, for a limited period of time and for direct or indirect economic or commercial advantage,” while Article 2(1) (b) defines “lending” as “making available for use, for a limited period of time and not for direct or indirect economic or commercial advantage, when it is made through establishments which are accessible to the public.” The Court examined preparatory documents preceding the adoption of Directive 92/100, which the RLD Directive codified and reproduced in substantially identical terms, and noted that there was “no decisive ground allowing for the exclusion, in all cases, of the lending of digital copies and intangible objects from the scope of the RLR Directive.” The Court also noted that Recital 4 of the RLR Directive states that copyright must adapt to new economic developments and that e-lending “indisputably forms part of those new forms of exploitation and, accordingly, makes necessary an adaptation of copyright to new economic developments” (§ 45).

The CJEU noted that borrowing an e-book as described by the District Court in its preliminary question “has essentially similar characteristics to the lending of printed works,” considering that only one e-book can be borrowed at the time (§ 53). The CJEU therefore concluded that that “lending” within the meaning of the RLR Directive includes lending of a digital copy of a book.

 

Second: May only e-books first sold in the EU be lent?

The InfoSoc Directive provides that the exclusive distribution rights of the author are exhausted within the EU after the first sale or other transfer of ownership in the EU of the work by the right holder or with his consent. Article 1(2) of the RLR Directive provides that the right to authorize or prohibit the rental and lending of originals and copies of copyrighted works is not exhausted by the sale or distribution of originals and copies of works protected by copyright.

The CJEU examined Article 6(1) of the RLR Directive in conjunction with its Recital 14, which states it is necessary to protect the rights of the authors with regards to public lending by providing for specific arrangements. This statement must be interpreted as establishing a minimal threshold of protection, which the Member States can exceed by setting additional conditions in order to protect the rights of the authors (at 61).

In our case, Dutch law required that an e-book made available for lending by a public library had been put into circulation by a first sale, or through another transfer of ownership, by the right holder or with his consent within the meaning of Article 4(2) of the InfoSoc Directive. The Court mentioned that Attorney General Szpunar had pointed out in his Opinion that if a lending right is acquired with the consent of the author, it may be assumed that the author’s rights are sufficiently protected, which may not be the case if the lending is made under the derogation provided by Article 6(1) (Opinion at 85). AG Szpunar concluded that therefore only e-books which had been made first available to the public by the author should be lent. The CJEU ruled that Member States may subject as condition to e-lending the fact that the first sale of the e-book has been exhausted in the EU by the right holder.

 

Third: May a copy of an e-book obtained from an unlawful source be lent?

Not surprisingly, the CJEU answered in the negative to this question, noting that one of the objectives of the RLR Directive, as stated by its Recital 2, is to combat piracy and that allowing illegal copies to be lent would “amount to tolerating, or even encouraging, the circulation of counterfeit or pirated works and would therefore clearly run counter to that objective” (at 68).

The Court did not answer the fourth question as it had been submitted only in the case the Court would rule that it is not necessary that the first sale of the e-books being lent had been exhausted in the EU.

This is a welcome decision since, as noted by AG Szpunar in his Opinion, it is crucial for libraries to be able to adapt to the fact that more and more people, especially younger ones, are now reading e-books instead of printed books.