IP & IT Bytes: Copyright: exhaustion of distribution rights

03 March 2015

Summary

The European Court of Justice (ECJ) has held that the consent of the copyright holder does not cover the distribution of an object incorporating his work, if that object has been altered after its initial marketing to such an extent that it constitutes a new reproduction of that work.

Background

Recital 28 of the Copyright Directive (2001/29/EC) (the Directive) provides that copyright protection includes the exclusive right to control the distribution of the work incorporated in a tangible article.

EU member states must provide authors the exclusive right to authorise or prohibit any form of distribution of their original work to the public by sale or otherwise (Article 4(1), the Directive). The distribution right in the EU is only exhausted if the first sale or other transfer of ownership in the EU is made by the copyright owner or with his consent (Article 4(2), the Directive) (Article 4(2)).

Facts

The Dutch collecting society P licensed copyright and took action against infringements on behalf of copyright owners. A marketed posters and other reproductions depicting the works of famous painters, which were covered by the copyright exploited by P. A sold posters, framed posters, posters on wood and images on canvas. The production of an image on canvas involves a chemical process that A termed “canvas transfer”. The economic value of the canvas transfers significantly exceeded that of the posters.

P brought an action for copyright infringement on the basis that the canvas transfers reproduced works protected by copyright without the consent of the copyright owners. The Dutch first instance court dismissed P’s claim, but the Dutch appeal court, rejecting A’s argument that the distribution right had been exhausted, held that there is a new publication where the copy of a work placed on the market by the copyright owner is distributed to the public under another form, as whoever markets that new form of that copy has new opportunities for exploitation. Therefore, the marketing of canvas transfers constituted a publication that was prohibited under national law.

The Dutch supreme court referred to the ECJ the question of whether the distribution right is exhausted if the copyright work reproduced undergoes an alteration in its form.

Decision

The ECJ held that Article 4(2) means that exhaustion of the distribution right does not apply where a reproduction of a copyright protected work, marketed in the EU with the copyright holder’s consent, underwent an alteration of its form and was placed on the market again in its new form.

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. Where the object, which was marketed with the copyright owner’s consent, underwent later alterations to its physical medium, as in the case of a canvas transfer, the replacement of the medium resulted in the creation of a new object incorporating the image of the protected work. This alteration of the work was sufficient to constitute a new reproduction of that work, which was covered by the exclusive right of the author and required his authorisation.

Therefore, the consent of the copyright holder did not cover the distribution of an object incorporating his work if that object had been altered after its initial marketing in such a way that it constituted a new reproduction of that work. The copyright holders had not expressly consented to the distribution of the canvas transfer. Applying the rule of exhaustion of the distribution right would have deprived those copyright owners of the possibility of either prohibiting the distribution of those objects, or requiring appropriate reward for the commercial exploitation of their works.

Comment

The focus of this decision is on the distribution of tangible objects under the Directive, and so questions relating to the exhaustion of digital rights remain unanswered.

For works protected by the Software Directive (91/250/EEC), following UsedSoft v Oracle, in the case of computer software that is distributed by download as well as on a physical medium, the distribution right may, in certain cases, be exhausted where the copyright holder has granted the right to use the software for an unlimited period for a fee corresponding to the economic value of the work (see News brief “Second-hand software: the market opens up", Practical law). Complex digital works, such as e-books and audio books, may, however, be protected both under the Copyright Directive (for example, text, images, sound) and the Software Directive (for example, enhanced interactive functionality, animation). The ECJ is yet to consider whether and how the exhaustion principle will be applied to works with digital content. 

The decision also has implications for licensees, which should ensure that all their intended uses of the licensed copyright work on different physical (or electronic) media are covered within the scope of the licence grant.

Case: Art & Allposters International BV v Stichting Pictoright C-419/13.

First published in the March 2015 issue of PLC Magazine and reproduced with the kind permission of the publishers. Subscription enquiries 020 7202 1200.

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