Does an e-book have a material medium?

Tom
Kabinet Internet BV et al. (hereinforth Tom Kabinet), a Dutch company,
operated a “reading club” selling “second-hand” e-books to persons
registered on its website. Tom Kabinet first acquired the e-books from
official distributors or users. Users who wanted to sell a second-hand
e-book to the company had to delete their copy of the book. The company
secured the e-books acquired in this way using a digital watermark to
confirm the legality of the copy. However, two publishers’ associations
objected to Tom Kabinet’s activity, regarding it as a violation of
copyright law.

The
district court in The Hague submitted a request for a preliminary
ruling to the Court of Justice of the European Union, which turned on
the legal classification of Tom Kabinet’s activity under the Information
Society Directive (2001/29/EC). The referring court asked whether
making available and downloading of e-books falls within:

• The notion of “communication to the public” under Art. 3(1) of Directive 2001/29/EC, or
• The notion of “distribution to the public” under Art. 4(1) of the Directive 2001/29/EC.

The
answer to this question is crucial because it determines whether Tom
Kabinet can rely on the notion of exhaustion of copyright.

Exhaustion
of copyright means that once a tangible copy of a work has first been
sold or otherwise disposed of, the copyright holder loses the
possibility of controlling the subsequent fate of that copy. In the
analogue, brick-and-mortar world, the buyer of a physical CD or book can
listen to the CD or read the book, and then dispose of that copy
without the need to obtain the author’s consent. The buyer can for
example resell the disc or book on an auction website, or donate it to a
public library. As a rule, the author cannot oppose such actions.

But the situation in Tom Kabinet
was somewhat different. What Tom Kabinet provided to its subscribers
was not print copies of books, but e-books, i.e. digital files. The
fundamental issue was thus whether the rule of exhaustion can be applied
to an e-book as in the case of print books.

To answer this question, we must refer to Directive 2001/29/EC and two legal situations governed by the directive: the right of communication to the public and the right of distribution:

Art. 4
expressly refers to the “original” and “copies” of a work, thus
alluding to the tangible medium of the work. This article refers to the
sale of a specific object, which means transfer of ownership of an item.
A digital file (which is what an e-book constitutes) lacks a tangible
medium and thus cannot be regarded as a good for legal purposes.
Consequently, because of its intangible form, a digital file cannot be
the subject of transfer of ownership. Moreover, the intangible form of a
digital work means that it is not easy to determine with certainty
whether transfer of ownership of such a digital file has occurred. A
digital file, including an e-book, is rather a record of data, which
potentially may be protected by rights other than a right of ownership.

Both
Advocate General Maciej Szpunar and the Court of Justice also stressed
that equalising tangible and intangible copies of works in this respect
was not the intention of the EU legislature when it adopted Directive
2001/29/EU. The aim was to distinguish digital distribution (Art. 3)
from physical distribution (Art. 4).

As
an e-book is only a data file, and not a copy of a work within the
meaning of Art. 4 of the directive, it is not subject to the rule of
exhaustion. Making an e-book available to the public and facilitating
download of the e-book does not fall within the concept of the right of
distribution under Art. 4(1). Further, secondary trading in e-books
requires the consent of the rightholder (author or publisher), as making
e-books available to the public should be assessed under Art. 3 of the
directive, which excludes exhaustion of rights in this respect.

E-books and computer programs—different rules

Both
the advocate general and the court took a different position on
exhaustion of rights to e-books than that expressed in the earlier EU
case law on computer programs. In 2012 the Court of Justice held that
the sale of a computer program on a material medium and sale of the
program by downloading it online have the same economic effect and
should be treated the same way. In both instances, exhaustion of the
copyright occurs (UsedSoft, C-128/11). Transfer of a copy of a
computer program, whether via a material medium or by download,
accompanied by a licence to use the program for an indefinite period, is
equivalent to transfer of ownership of that copy, and consequently sale
of that copy within the meaning of Art. 4(2) of the Computer Programs
Directive (2009/24/EC). From an economic perspective, online supply of a
copy of a computer program is the functional equivalent of supply of
the material medium.

As
EU law recognises the rule of exhaustion with respect to computer
programs, which contributed to the development of a secondary market in
software, it seemed that the Court of Justice might apply a similar rule
to e-books. But the advocate general and the court did not take that
view. An e-book, they found, is not just a computer program. It is a
complex matter, including both a protected literary work and a computer
program incidental to the literary work. An e-book is protected due to
its content, which is its fundamental element, and the computer program
merely enables reading of the e-book.

Tom Kabinet and the secondary market for video games

The ruling by the Court of Justice in Tom Kabinet
may prove interesting for the video game industry and the secondary
market for video games. A video game is a complex work in which (similar
to or even more than in the case of an e-book) other protected elements
occur alongside the computer program. As the court held in C-355/12, Nintendo, video
games “constitute complex matter comprising not only a computer program
but also graphic and sound elements, which, although encrypted in
computer language, have a unique creative value which cannot be reduced
to that encryption. In so far as the parts of a videogame, in this case,
the graphic and sound elements, are part of its originality, they are
protected, together with the entire work, by copyright in the context of
the system established by Directive 2001/29.”

As for their manner of sale, video games may be found in boxed versions as well as digital (online) versions. The Tom Kabinet case thus forces us to ask whether the secondary trade in games in digital form is lawful.

In this context, the judgment issued in September 2019 by a court in Paris in UFC–Que Choisir v Valve Corp.,
a dispute between a French consumer organisation and the operator of
the game distribution platform Steam over whether users of the Steam
platform could resell video games they purchased online, has attracted
the attention of many commentators. The French court held that the rule
of exhaustion applies to video games under both Directive 2001/29/EC and
the Computer Programs Directive 2009/24/EC. Exhaustion should thus
apply to both material copies of a work and to digital works.
Downloading a video game file and installing the game on a computer
creates a copy of the game, and thus it is permissible to apply the rule
of exhaustion. The French court also pointed out that although Valve
alleged that it was providing subscription-based services, in reality
its model for operating the platform resembled the sale of video games:
the user obtained access to the video game for an indefinite period in
exchange for payment in advance of a one-time fee.

It should be pointed out that the French court handed down its ruling before issuance of the Tom Kabinet judgment by the Court of Justice, and thus the French court might have reasoned differently if Tom Kabinet had already been decided.

The
case law from the Polish courts should also be noted. In the judgment
of 7 May 2014 (case no. I ACa 1663/13), the Warsaw Court of Appeal held
that a digital record on its own could be equated with a copy (egzemplarz).
The notion of a “copy” as used in the Polish Act on Copyright and
Related Rights may include not only material (physical) copies of a
work, but also versions made accessible to the public in electronic form
(e.g. in a computer network) (Łódź Court of Appeal judgments of
4 February 2016, case no. I ACa 1107/15, and 5 January 2017, case no. I
ACa 830/16).

Thus
if a case involving second-hand sale of e-books were heard in Poland,
it cannot be excluded that the court would allow the rule of exhaustion
to be applied. However, in light of the ruling in Tom Kabinet,
the line of decisions admitting the existence of a digital copy, and
thus exhaustion of the copyright to the work embodied in that copy,
allowing the same copy to be resold, may not survive. Like the judgment
of the French court, the judgments of the Polish courts cited above were
issued prior to the judgment by the Court of Justice in Tom Kabinet.

Summary

The ruling by the Court of Justice in Tom Kabinet
reinforces the division in the approach to traditional works and
digital works. With respect to traditional boxed sales of video games,
the rule of exhaustion can be applied, allowing resale of such a “used”
game. But this does not appear permissible with respect to video games
offered online, where resale of “used” games may infringe copyright.
Unfortunately, the approach of the advocate general and the Court of
Justice in Tom Kabinet means a continuation of the dualism in
treatment of digital works and analogue works, which does not contribute
to legal clarity or help the law keep current with the challenges of
the digital world.

Dr Monika A. Górska