October 30, 2019

The question of whether the supply of an e-book online is covered by Article 4 or Article 3(1) of the Copyright Directive has been referred to the CJEU by The Hague following copyright infringement proceedings between two collective management organisations looking after the interests of publishers in the Netherlands, and the defendant, Tom Kabinet Internet BV.

Tom Kabinet has a website which supplies an online market for used e-books. In the context of a service called a “reading club”, Tom Kabinet resells to individuals registered on its site e-books that it has bought either from the official distributors or from other individuals. The prices charged by Tom Kabinet are lower than the prices charged by the official distributors. Tom Kabinet’s site encourages individuals who have bought e-books on its site to resell them to it after they have read them, which entitles them to “credits” allowing them then to buy other books. When it buys e-books from individuals, Tom Kabinet requires that they delete their own copy, and it places a digital watermark on the copies that it sells in order to ensure that the copy is legal.

Advocate General Szpunar opined that there are arguments, of both a legal and a teleological nature, that favour a recognition of the rule of exhaustion of the distribution right with respect to works supplied by downloading for permanent use. In particular, the permanent possession by the user of a copy of such a work shows the similarity of that mode of supply with the distribution of tangible copies.

However, the AG said, as EU law now stands, the arguments to the contrary should prevail, including the EU legislature’s clear intention that downloading should be covered by the right of communication to the public, the limitation of the distribution right to acts of transfer of ownership of a copy, and the AG’s opinion that the right of reproduction under Article 2 precludes recognition of the rule of exhaustion of the distribution right in the case of works supplied by downloading online.

These legal arguments were, the AG said, supported by arguments of a teleological nature, such as the fact that dematerialised digital copies do not deteriorate with use, and used copies are therefore perfect substitutes for new copies. Further, exchanging such copies requires neither additional effort nor additional cost. The parallel second-hand market is therefore likely to affect the interests of copyright holders much more than the market for second-hand tangible copies. There are two risks for the copyright holders, the AG said: (i) the risk of competition from copies of the same quality offered at a fraction of the original market price; and (ii) the risk of an uncontrolled multiplication of the copies in circulation.

Further, the AG said it is not certain that once exchanges of second-hand digital copies are authorised it will always be easy or possible to distinguish legal copies, i.e. those legally acquired and resold in accordance with the rules from counterfeit copies. Commercial platforms may use technical means to ensure that those rules are complied with, as Tom Kabinet does through use of a watermark, but it is nevertheless doubtful that individuals will make the same efforts. Thus, recognition of the rule of exhaustion of the right to distribute dematerialised copies might contribute to the development of piracy and make it more difficult to implement the measures intended to combat it.

Finally, downloading with a permanent right of use as a mode of supplying online content is in the process of being relegated to the past with the advent of streaming and subscription access to large amounts of content, meaning that there is no payment for each item downloaded and therefore no “sale” in the strict sense of the word. The sale of a copy of the work is, after all, the condition of the exhaustion of the distribution right.

Accordingly, in the AG’s view, by recognising the rule of exhaustion of the right of distribution in the internet environment, the CJEU would resolve a problem that does not really need to be resolved and that to a large extent belongs to the past.

Article 3(1) and Article 4 of the Directive must therefore be interpreted as meaning that the supply of e-books by downloading online for permanent use is not covered by the distribution right within the meaning of Article 4, but is covered by the right of communication to the public within the meaning of Article 3(1). (Case C-263/18 Nederlands Uitgeversverbond v Tom Kabinet Internet BV EU:C:2019:697 (Advocate General Opinion) (10 September 2019) — to read the Opinion in full, click here).