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Insight

No back-up loophole to copyright exhaustion right via resale of back-up copies of software

In October the Court of Justice of the European Union (CJEU) found that selling a physical back-up copy of a computer program, if the original had been destroyed or lost, amounted to copyright infringement.

In October in the Ranks case (C-166/15), the Court of Justice of the European Union (CJEU) found that selling a physical back-up copy of a computer program, if the original had been destroyed or lost, amounted to copyright infringement.

Background

This case concerned the principal of copyright exhaustion. Under this principal a copyright owner's right to control copies of its copyright work is exhausted on the work's first sale by the owner or, with his consent.

Copyright exhaustion has been considered relatively recently in the software context in Usedsoft v Oracle ("Usedsoft"). In Usedsoft, the CJEU had to decide whether downloading a copy of a computer program exhausted the distribution right under the Software Directive 2009/24/EC ("Software Directive"). The CJEU held that the exhaustion of the distribution right under the Software Directive takes effect after the first sale of a copy of a computer program in the EU by the copyright holder or, with his consent, regardless of whether the sale relates to a tangible or, an intangible copy of that program.

Facts

In the current proceedings, Mr Ranks and Mr Vasiļevičs were initially charged with copyright infringement offences under Latvian Criminal Law for their sale of over 3000 copies of various versions of Microsoft Office between 2001 and 2004 in the Latvian Court. Their convictions were eventually overturned and a re-trial was subsequently ordered. In the course of the re-examination, the Criminal Law Division of the Riga Regional Court made a preliminary reference to the CJEU.

The point of law that the reference related to was whether the rule of exhaustion allows the resale of a copy of a computer program stored on a non-original material medium, such as a back-up copy, if the original material medium has been damaged, destroyed or, lost.

Decision

Mr Ranks and Mr Vasiļevičs argued that the rule of exhaustion allowed the resale of a copy of a computer program stored on a non-original material medium if the conditions of Usedsoft were satisfied. These conditions were that the initial acquirer of the copy of a program stored on an original material medium must have an unlimited licence for the use of that program and must make any copy of that program remaining in his possession unusable at the time of its resale. Making a copy of a computer program on a non-original material medium would, in this instance, be authorised under the exceptions to the exclusive reproduction right laid down in Article 5(1) and 5(2) of the Software Directive.

The CJEU rejected this argument and held that the lawful acquirer of a copy of a computer program accompanied by an unlimited licence for the use of that program, seeking to resell it, cannot without the authorisation of the rightholder transfer to the new acquirer the back-up copy of that program, on the ground that he has damaged, destroyed or lost the original material medium sold to him by or, with the consent of the rigtholder.

Reasoning

In coming to this conclusion the CJEU looked at the provision in the Software Directive concerning the making of back-up copies and observed that it was subject to two conditions: (i) the copy must be made by a person having a right to use that program and (ii) the copy must be necessary for that use.

With this in mind the CJEU found that the right to make a back-up copy was limited to meet the sole needs of the person having the right to use that program, which did not include copying the program to resell it to a third party.

Comment

This is a positive decision for the software industry as the CJEU has taken a restrictive view on exhaustion; finding that back-up copies do not enjoy the same status as original tangible or, intangible copies of computer programs. This is also pragmatic as it would be difficult in practice to police whether an original copy had been destroyed or, become unusable (in other words whether it is actually a back-up) and consequently, counterfeit software could be sold under the guise it was a back-up copy.

Looking at the bigger picture this decision is probably not commercially crucial to the software industry as the way software is being supplied is changing. Software is increasingly being supplied as a real time service (for example in streaming services or software as a service). This makes the application of the doctrine of exhaustion, which focuses on "sale" of a tangible/intangible good increasingly redundant.

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