The principle of exhaustion is that where the copyright owner’s control ceases over a work, the owner can no longer enforce its rights to distribute that work. This is generally accepted as the time of sale, as at this time the copyright owner has received reasonable remuneration and the purchaser can then decide how to deal with its copy without interference from the copyright owner.
For physical books it is accepted that selling on a purchased copy of a book second-hand, does not infringe the distribution right of the original copyright owner. This is codified in Article 4 of the Infosoc Directive 2001/29/EC (and in the UK, section 18(3)(a) Copyright, Designs and Patents Act 1988). However, the position concerning the sale of intangible digital copies has been up for debate.
Tom Kabinet is a Dutch company which re-sells used e-books. The company requires that after it has purchased an e-book, the seller then deletes its copy. Tom Kabinet's position is that this business model benefits from the principle of exhaustion – i.e. the right to distribute the e-book was exhausted on initial sale by the copyright owner, so Tom Kabinet can resell the e-book without requiring permission. The AG disagrees. (See his opinion given on 10 September 2019.)
Overview of the AG's opinion
Rather than the sale of an e-book being classed as a "distribution" (where exhaustion would apply), the AG believed that this is in fact a "communication to the public" (where exhaustion does not follow). He confirmed that a single purchaser can be classed as "the public", as they fall outside the copyright owner's "private circle".
In his opinion he noted that as digital copies do not deteriorate with use, the used copies are in fact perfect substitutes for a brand new copy. Such a market place could be economically disrupting and very harmful for copyright owners which supports a policy decision to refuse exhaustion in this context.
Further, as the digital resale model is increasingly historic (being replaced by streaming or subscription access where ownership is not transferred) the AG felt that “by recognising the rule of exhaustion of the right of distribution in the internet environment, the court would thus resolve a problem that does not really need to be resolved and that to a large extent belongs to the past”. At one stage the development of a second-hand digital marketplace and its economic implications was a hot topic amongst IP lawyers, however technology continues to evolve and new challenges arise. It is interesting that the AG places weight on the practical reason that the question arising from the case is out-dated over other legal arguments.
The opinion considers earlier case law, most interestingly the UsedSoft (C‑128/11) decision where it was held that the sale of second hand software did benefit from the principle of exhaustion. However, the AG highlighted that the UsedSoft case related to different legislation (the Software Directive 2009/24/EC vs. the InfoSoc Directive 2001/29/EC) and covered different types of work (software vs. e-books). The present case of Tom Kabinet could therefore be distinguished and the companies' activities be held to infringe the rights of the original copyright owner.
As AG opinions are not binding, we now wait to see whether the CJEU will agree with this position in its anticipated judgment.
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