German jurisdiction is uniform – no second-hand market for digital literature
Retailers and publishers prevail against the lawsuits filed by the Federation of German Consumer Organizations. In its ruling of 24.03.2015 (case reference: 10 U 5/11), which was described by the German Publishers and Booksellers Association as a “success for the entire book industry”, the court found that the resale of downloaded digital media requires the consent of the rights holder. The action brought by the Federation of German Consumer Organizations was therefore dismissed due to a lack of prospects of success.
This is the third lawsuit of this kind in which the retailers and publishers have successfully prevailed against the Federation of German Consumer Organizations. The German Publishers and Booksellers Association supported all three proceedings on behalf of the rights holders.
The starting point of the legal dispute was primarily the question of whether online retailers may prohibit buyers of digital media (e-books and audio books) from reselling downloaded works by means of general terms and conditions clauses.
The scope of the principle of exhaustion in the digital book trade
The core issue of the current discussion is the applicability of the copyright exhaustion principle to digital media, specifically to e-books and audio books.
In principle, the author or rights holder has the authority to decide on the publication or distribution of a copyrighted work pursuant to Section 17 para. 1 of the German Copyright Act (UrhG) has the authority to decide on the publication or distribution of a copyrighted work.
The principle of exhaustion derived from § 17 para. 2 UrhG refers to the point in time after the “legal” placing on the market of the physical work. Accordingly, the right holder’s right to control the resale is “exhausted” once a copyrighted product has been placed on the free market. For this reason, used works or goods (e.g. books, CDs, DVDs, computer games, etc.) can be resold by consumers without any problems.
Therefore, the resale of products that are stored or embodied on a data carrier is covered by the principle of exhaustion. The resale of used products cannot be controlled by the rights holder, nor can he demand a resale fee from the consumer.
However, the situation is more difficult in the case of immaterial works, including digital downloads.
Is the term “used” applicable to digital media?
In the opinion of consumer advocates, online retailers may not impose resale bans on their customers. The analogy is sought with a work stored on a data carrier (paper form, CDs, etc.), where resale is perfectly possible due to the principle of exhaustion. The consumer advocates also use the cost factor to argue that there is no major difference between digital and analog books, as both variants are almost equally expensive.
Online retailers are resisting this view with the argument that “digital books can be reproduced and passed on indefinitely without ever wearing out“. Furthermore, providers and rights holders fear that the primary market for digital literature will be jeopardized if the resale of downloaded works is permitted in the future.
In this case, the Hanseatic Court decided against the application of the principle of exhaustion and thus confirmed the position of online retailers. The decision has established a uniform trend in German case law. Accordingly, e-books and audio books downloaded from the Internet may not be resold.
Resale at European level
The trends regarding the interpretation of the principle of exhaustion in Europe could play an important role in the future development of case law in Germany.
Originally, a strict distinction was made between tangible and intangible exhaustion. The principle of exhaustion was mainly relevant for the free movement of goods – Art. 34 and 35 TFEU – and not for the freedom to provide services – Art. 56 TFEU. The resale of tangible goods, which are the subject of the free movement of goods, was therefore subject to the principle of exhaustion, whereas the resale of intangible works – the subject of the freedom to provide services – was subject to licensing.
At the latest since the UsedSoft decision of the European Court of Justice (ECJ) of July 3, 2012 (Case C-128/11), these clear boundaries have been broken. UsedSoft Deutschland GmbH trades in used software licenses. The question of whether downloaded and license-protected software may be resold was given a new interpretation. Applying the principle of exhaustion, the ECJ ruled that the exclusive right to distribute a licensed copy of a program is also exhausted with the first sale.
Will the ECJ’s pro-software resale view spread to other digital media?
Developments at European level remain exciting. Recently, a Dutch court took the view that digital books may also be resold. The question has now been referred to the ECJ for a preliminary ruling.
Another dispute regarding digital book lending exists between the Dutch libraries and collecting societies and the publishers.
The different opinions of the European courts basically concern the question of the applicability of the principle of exhaustion.
There is clearly no consensus as to whether the ECJ’s method of interpretation from the UsedSoft decision can be applied to other digital products without further ado. This could also have an impact on the resale of downloaded films, music and computer games and thus have a strong influence on the Internet trade in e-books, music and software.
It therefore remains to be seen whether the ECJ – UsedSoft case law will also affect the resale of other digital media in the future.