A profitable business?
Back in 2001, Ranks and Vasiļevičs, Latvian citizens, decided to start a new business. They opened two accounts in Ebay, under the names “s$s-ranks” and “jurij408”, and together they created Softhome Trading Group, Inc. The idea was simple: reselling software. Particularly, Microsoft products: ranging from Windows 95 to Office 2003, among many others. Between 2001 and 2004, the business seemed profitable. Perhaps too profitable: more than 3000 copies sold, for a total amount of $293 548.40. To the extent that their entrepreneurial adventure fell under Microsoft’s lawyers radar. It was then when things got nasty. Microsoft filed a lawsuit claiming, among other things, trademark and copyright infringement. The assumption was that Mr. Rank and Mr. Vasiļevičs were selling unauthorised copies of Microsoft products, which is considered a felony under the Latvian Criminal Code.
C-166/15: CJEU and First Sale Doctrine
After being condemned by the Latvian Courts, Mr. Rank and Mr. Vasiļevičs decided to appeal, and asked the Rīgas apgabaltiesas Krimināllietu tiesu kolēģija (Criminal Law Division of the Riga Regional Court) to submit a request for a preliminary ruling to the Court of Justice on the interpretation of Article 4(2) and Article 5(1) and (2) of Directive 2009/24. Their defence was sustained in the following: they claim to have been selling backups of Microsoft products acquired legitimately, which shall be protected by the exhaustion of intellectual property rights under the First sale doctrine.
Wait! stop talking lawyerish. The First sale what?
Following a previous CJEU ruling (UsedSoft, C‑128/11, EU:C:2012:407), when a customer purchases a copy of a computer program accompanied by an unlimited license to use that copy, that constitutes a first sale, which exhausts the right to distribute that copy within the European Union. In other words: the legitimate acquirer will be entitled to resell that copy to a third party, and that regardless of the medium in which the copy is stored. And this last piece is very important, because in the era of Steam and Spotify, who still buys CDs and DVDs? UsedSoft is a key ruling, because the Court established that the rule of exhaustion also applied to online sales:
In the event of a resale of the copy of the computer program purchased and downloaded by the first acquirer from the right holder’s website, the new acquirer of that copy, who is a lawful acquirer within the meaning of Article 5(1) of Directive 91/250, is also entitled, under that provision, to download that copy onto his computer, since that download constitutes a reproduction that is necessary to enable him to use that program in accordance with its intended purpose
means medium and the end (Maquiavelli 2.0)
One should be relieved that in the digital era, the role and concept of tangible medium had lost most of its importance because, in the end, why should we apply a different legal approach depending on the distribution channel? Right? However, this is precisely what happed with Rank and Vasiļevičs (C-166/15, ECLI:EU:C:2016:762).
To this regard, the CJEU sort of repeats what was already hinted by the Advocate General’s Opinion:
Where the original copy of a computer program, sold by the rightholder or with his consent, is incorporated in a material medium, only that original tangible copy benefits from the rule of exhaustion of the right of distribution
Making a distinction when the copy is purchased and downloaded via web:
Where the original copy is not incorporated in a material medium, it is appropriate to apply the solution adopted by the Court in the judgment in UsedSoft in order to preserve the effectiveness of the exhaustion rule
Crazy? Well, it depends on the real intention here. From a legal point of view it seems, at least, bizarre applying a restriction to non-original mediums, and in particular backups, with basis on the fact that the intended purpose of the backup copy is not being sold, and therefore it won’t constitute a “reproduction which is authorised under Article 5(1) of Directive 91/250“. The distinction seems in my opinion somehow artificial and forced. If the real CJEU’s intention is to avoid the existence a loophole (e.g. prevent people from selling illegal knock-off copies under the disguise of backups), it is probably a bit late for such a patch because, again, who keeps buying hard copies of software?
Additionally, the truly annoying part is: Why the CJEU keeps forcing the letter of the Directives in order to interpret whatever they want to interpret in that specific moment, or in oder to serve to a ‘higher’ purpose? This is not a system based on precedents. EU Law should be guided by clear and harmonised interpretations of Regulations and Directives but, unfortunately, the recent CJEU rulings on IP Law matters (a great example of this is Svensson) are everything but clear.
If you are a young entrepreneur with ambition and some legal knowledge, watch out! Finding legal loopholes in order to make money can be a risky and, often, a criminally prosecutable business.
More on this recent preliminary ruling:
- TecnoLlama (Andrés Guadamuz): “European Court revisits resale of software“
- Ars Technica (Glyn Moody): “Backup copies of software can’t be resold, rules top EU court“
- Kluwer Copyright Blog (Sanna Wolk): “EU Court rules that back-up copies cannot be resold“
- Cearta.ie (Eoin O’Dell): “Exhausting exhaustion – the limits of the first sale doctrine in EU copyright law“