The Court of Justice of the European Union ("CJEU") rendered its judgment on 22 January 2015 in case C-419/13 (ruling) relating to exhaustion of the distribution right of copyright holders.
Art & Allposters International BV ("Allposters") sells posters and other reproductions depicting copyrighted paintings through its websites. The copyright on these paintings is managed by Stichting Pictoright ("Pictoright"), a Dutch copyright collecting society.
Allposters inter alia also sells images on a canvas medium. In order to produce an image on canvas, they first apply a laminate coating to a paper poster depicting the work of choice. Subsequently, they perform a chemical process to transfer the image from the paper poster to the canvas, which is then stretched over a wooden frame. During this process the image of the work disappears from the paper poster.
Pictoright claimed before the Dutch courts that through the sales of these reproductions on a canvas medium Allposters was infringing its clients' rights. To resolve the case before it, the Hoge Raad der Nederlanden decided to refer two questions to the CJEU for a preliminary ruling.
The case relies on Directive 2001/29/EC on the harmonisation of certain aspects of copyright and related rights in the information society (the “InfoSoc Directive”), and more particularly on Article 4(2), which lays down the principle of exhaustion of the author's exclusive distribution right. Said exhaustion in respect of the original or copies of the work only takes place "where the first sale or other transfer of ownership in the Community of that object is made by the rightholder or with his consent."
Such provision is transposed in the Netherlands under Article 12b of the Dutch Law on Copyright. Although the wording of the Dutch rule of exhaustion is very similar to the one contained in Article 4(2) of the InfoSoc Directive, it specifies that once the ownership of a work has been transferred within the European Union ("EU") or the European Economic Area by its author or with his consent "the distribution of that copy in another manner, with the exception of renting or lending, does not constitute an infringement of copyright."
Preliminary: No need to interpret the concept of adaptation
By way of preliminary remark, the CJEU first dealt with Pictoright's claim that the canvas cannot be covered by the distribution right but rather by the right of adaptation considering that the original medium (i.e. the paper poster) undergoes significant alterations in the process of transferring the image onto the new medium (i.e. the canvas). Relying on the (alleged) lack of harmonisation of the adaptation right at EU level, Pictoright submitted that the case fell entirely outside of the scope of the InfoSoc Directive.
Pictoright's claim provided an excellent opportunity for the CJEU to shed some clarity on the question whether the adaptation right falls within the right of reproduction and therefore whether the adaptation right is harmonised, be it implicit, at EU level. At present, the EU Member States indeed take different approaches with regard to the adaptation right. Some Member States, like Belgium and France, consider the right of adaptation to be part of the right of reproduction, whereas other Member States, like Germany and the UK, expressly provide for a right of adaptation separate from the reproduction right. Therefore, an appreciation by the CJEU of the adaptation right could have been interesting, more particularly given its past findings in Infopaq (Case C-5/08) and Painer (Case C-145/10) on the broad scope of the reproduction right.
The CJEU however avoided having to go down this road by stating that for the poster and canvas transfer to fall within the scope of the distribution right as copies of a protected work, it is sufficient that both contain the image of a protected artistic work.
To answer the questions at hand, the CJEU thus solely focused on the medium of the protected work rather than on the protected work itself. It thereby disregarded the possibility that the alteration of a work's medium could in certain instances also lead to the alteration of the work itself. Therefore, the question remains whether the exhaustion rule applies in cases where the work itself is altered.
Exhaustion of the distribution right applies to the tangible object incorporating a protected work
The CJEU then looked at the conditions of application of the exhaustion rule. Firstly, it reiterated that Member States may not provide for an exhaustion rule different from the one laid down in the InfoSoc Directive, in light of the smooth functioning of the internal market.
The application of the exhaustion rule requires the fulfilment of the two following conditions:
- The work or copies thereof must have been placed on the market by the copyright holder or with his consent; and
- The work or copies thereof must have been placed on the market within the EU.
The CJEU then went on to interpret the meaning of the term "that object" in Article 4(2) of the InfoSoc Directive. It thereby referred to recital 28 of the InfoSoc Directive, which refers to the author's exclusive right to control distribution of the work incorporated in a tangible article. It thus found that the purpose of the distribution right is "to give authors control over the initial marketing in the European Union of each tangible object incorporating their intellectual creation."
This implies that exhaustion of the distribution right applies to the tangible object into which a protected work or its copy is incorporated rather than to the protected work itself.
The alteration of a medium of a protected work constitutes a new reproduction requiring a new authorisation
Lastly, the CJEU looked at the effect of subsequent alterations to the physical medium of such object incorporating a protected work. It thereby argued that the replacement of the medium, such as took place in the main proceedings through the canvas transfer, results in the creation of a new object incorporating the protected work.
It subsequently held that such an alteration of a copy of a protected work is sufficient to constitute a new reproduction of that work, which therefore requires a separate authorisation by the copyright holder.
The CJEU emphasises that for the exhaustion rule to be applicable, one must determine whether the altered object itself is physically the object that was placed onto the market with the consent of the rightholder. If this is not the case, the rightholder's right is not exhausted and accordingly, any distribution of such object requires his authorisation.
The CJEU further supports these findings by reiterating the principle it laid down in Premier League (Case C-403/08) that authors should be rewarded reasonable remuneration in relation to the economic value of the exploitation of the protected work. In the case at hand, the economic value of canvas transfers significantly exceeded that of paper posters.
In UsedSoft (Case C-128/11), the CJEU supported its findings on the aim of realising an internal market. Thus, it stressed that the purpose of the exhaustion rule is to avoid partitioning of the markets. However, the UsedSoft judgment should be distinguished from the one at hand, as UsedSoft relied on Directive 2009/24/EC on the legal protection of computer programs (the "Software Directive"). As opposed to the exhaustion rule under the InfoSoc Directive, the exhaustion rule under the Software Directive applies to the first sale in the Community of a copy of a program by the rightholder or with his consent. Whereas a 'copy' of a program can be both tangible and intangible, an 'object' is by definition tangible. The Software Directive thus provides less protection to right holders than the InfoSoc Directive and is thus interpreted differently as regards the exhaustion rule.
Another reason why the Allposters judgment is not entirely unexpected, are the CJEU’s earlier findings in TVCatchup. In that case, the CJEU held that when there is an alteration to the technical means used to transfer a communication, this constitutes a wholly new communication to the public necessitating a new authorisation by the rightholder. Logically, the CJEU found in Allposters that an alteration of a protected work’s medium constitutes a new reproduction necessitating a new authorisation.
Yet, these findings could have a far-reaching impact on emerging technologies. The process of 3D printing, for example, inevitably entails an alteration to the physical medium of a protected work. The present judgment seems to imply that such process would require a separate authorisation by the rightholder, even when the intellectual creation as such remains unchanged. On the other hand, due to the CJEU's missed opportunity to rule on the consequences of adaptation of a work on the exhaustion principle, it is unclear what will happen if the intellectual creation as such is in fact altered. Moreover, even if the CJEU would have considered that the reproduction right includes the adaptation right, the question of moral rights would still remain. More in particular, the author's right to integrity of the work would still cause issues, since it entitles the author to object to any distortion or modification of the work. Considering the lack of harmonisation of moral rights at EU level, it remains to be seen how jurisprudence like the one at hand would be applied in light of such new technologies and how this would interact with the author's moral rights.