CJEU: The exhaustion rule does not authorize the resale of the back-up copy of a computer program

The Court of Justice of the European Union (CJEU) ruled on 12 October  2016 that while the original acquirer of a software can resell his used copy of the program because the exclusive rights of the copyright holder have been exhausted by the first sale, reselling a back-up copy of the program is subject to the authorization of the rightsholder. The case is Ranks and Vasiļevičs, C-166/15.
Mr. Ranks and Mr. Vasiļevičs (Defendants) sold online, from 28 December 2001 to 22 December 2004, more than 3,000 back-up copies of Microsoft computer programs protected by copyright, for an amount evaluated at  264,514 euros. Defendants claimed to have bought these copies from the original owners. However, some of these programs were copies, which Defendants claimed had been legally made by the original owners after the original programs had been damaged, destroyed or lost.

thriftDefendants were charged by a Latvian court for selling unlawfully objects protected by copyright and found guilty. On appeal, the Criminal Law Division of the Riga Regional Court requested a preliminary ruling from the CJEU, asking the Court (1) if the acquirer of a copy of a computer program stored on a non-original medium can resell this copy, in such a case that the original medium of the program has been damaged and the original acquirer has erased his copy or  no longer uses it, because in such case the exclusive right of distribution of the right holder has been exhausted, and (2) if the person who bought the used copy in reliance of the exhaustion of the right to distribute can sell this program to a third person.

The Latvian court cited Directive 2009/24 in its request. However, as the facts took place before the Directive entered into force on 25 May 2009 and repealed Directive 91/250, the CJEU considered that these two questions had to be interpreted under the equivalent provisions of Directive 91/250, that is, its articles 4(c) about the first sale of computer program doctrine, and its articles 4(a), 5(1), and 5(2) about the exceptions to the exclusive right of reproduction of a computer program.

The exhaustion right protects the right of the original acquirer to resell his copy of the program

Article 4(a) of Directive 91/250 and Article 4.1(a) of Directive 2009/24 give the rightsholder the exclusive right to reproduce a computer program, by any means whatsoever, whether temporarily or permanently. That right is, however, exhausted, under Article 4(c) of Directive 91/250 and Article 4.2 of Directive 2009/24, if the copy of the program has been placed on the market in the European Union (EU) by the rightsholder or with her consent. The CJEU held in UsedSoft that the right of distributing a computer program is thus exhausted regardless of whether it is a tangible or an intangible copy of the program (UsedSoft paragraphs 55 and 61) and specified that “sale,” within the meaning of Article 4(2) of Directive 2009/24, includes purchasing the right to use a copy of a computer program for an unlimited period (UsedSoft, paragraph 49).

The CJEU noted that “the holder of the copyright in a computer program who has sold, in the European Union, a copy of that program on a material medium, such as a CD-ROM or a DVD-ROM, accompanied by an unlimited licence for the use of that program, can no longer oppose the resale of that copy by the initial acquirer or subsequent acquirers of that copy, notwithstanding the existence of contractual terms prohibiting any further transfer” (Ranks and Vasiļevič paragraph 30).

Reselling a back-up copy of a computer program is subject to the authorization of the rightsholder

However, the issue in our case was not about the right of the original acquirer to resell his used copy of a computer program, but instead whether the right of exhaustion gives a person who acquired, either from the original acquirer or from a subsequent acquirer, a used copy of a computer program stored on a non-original material medium, the right to resell that copy.
Microsoft argued that a non-original copy of a computer program can never benefit from exhaustion of the right of distribution and thus cannot be sold by the user without the rightsholder’s authorization. Defendants argued that even non-original copies benefit from the exhaustion right, if, as stated in UsedSoft, the right holder gave the acquirer of a program, in return for a fee corresponding to the economic value of the work, the right to use the copy for an unlimited period, and if the original acquirer had made every copy in his possession unusable at the time of the resale of the program.

Advocate General Saugmandsgaard wrote in his 1 June 2016 Opinion of the case that article 4(c) of Directive 91/250 must be interpreted as meaning that the right holder’s exclusive right of distribution is infringed if the user makes a copy of the computer program and then sells it without the right holder’s authorization, even if the original medium has been damaged and the seller makes all of his copies unusable (Opinion at 25 and 54). The CJEU followed the opinion of its AG.

While article 5(2) authorizes making a back-up copy of the computer program, it may only be done “to meet the sole needs of the person having the right to use that program” and, therefore, such copy cannot be made to resell the computer program to a third party, even if the original copy has been destroyed, damaged or lost (Ranks and Vasiļevič paragraph 43).

The CJEU had held in UsedSoft that the exclusive right of distribution of a computer program is exhausted after the first sale of the program in the EU. However, UsedSoft could be distinguished from this case as Mr. Ranks and Mr. Vasiļevič were not the original acquirer of the computer programs, and instead had been selling copies of computer programs “on non-original material media.” There was “nothing to suggest that they initially purchased and downloaded those copies from the rightholders website”( Ranks and Vasiļevič paragraph 51).

A back-up copy of a computer program cannot be transferred to a new acquirer without the authorization of the copyright holder, even if the original copy has been damaged, destroyed or lost (Ranks and Vasiļevič paragraph 44). For the CJEU, Mr. Ranks and Mr. Vasiļevič thus indeed possessed infringing copies of a computer program, which is forbidden by article 7.1(b) of Directive 91/250 and Directive 2009/24, and sold them, which is forbidden by article 7.1.(a) of Directive 91/250 and Directive 2009/24.

This case restricts the scope of the digital resale market.

Image is courtesy of Flickr user get directly down under a CC BY 2.0 license.

This article was first published on the TTLF Newsletter on Transatlantic Antitrust and IPR Developments published by the Stanford-Vienna Transatlantic Technology Law Forum.

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