ECJ rules on infringement of copyright by resale of back-up copy of software program

Practical Law UK Legal Update Case Report w-003-9067 (Approx. 5 pages)

ECJ rules on infringement of copyright by resale of back-up copy of software program

by Practical Law IP&IT

Background

Software Directives

Directive 91/250/EEC on the legal protection of computer programs was in force until 24 May 2009, when it was replaced by a consolidated version (Directive 2009/24/EC).

Exclusive right of reproduction

Article 4(a) of the 1991 Directive (equivalent to Article 4(1)(a) of the 2009 Directive) provided:

Subject to the provisions of Articles 5 and 6, the exclusive rights of the rightholder within the meaning of Article 2 shall include the right to do or to authorise:

the permanent or temporary reproduction of a computer program by any means and in any form, in part or in whole; in so far as loading, displaying, running, transmission or storage of the computer program necessitate such reproduction, such acts shall be subject to authorisation by the rightholder;

(Article 6 of both Directives relates to decompilation.)

Exhaustion of distribution right

Article 4(c) of the 1991 Directive (equivalent to Article 4(2) of the 2009 Directive) provided:

(c) …The first sale in the Community of a copy of a program by the rightholder or with his consent shall exhaust the distribution right within the Community of that copy, with the exception of the right to control further rental of the program or a copy thereof.

The provisions of Article 5(1) and (2) of both the1991 Directive and the 2009 Directive state:

1. In the absence of specific contractual provisions, the acts referred to in points (a) and (b) of Article 4(1) shall not require authorisation by the rightholder where they are necessary for the use of the computer program by the lawful acquirer in accordance with its intended purpose, including for error correction.

2. The making of a back-up copy by a person having a right to use the computer program may not be prevented by contract in so far as it is necessary for that use.

UsedSoft preliminary ruling

In UsedSoft GmbH v Oracle International Corp, Case C-128/11, the ECJ ruled that, under the 2009 Directive, the right to distribute a copy of a computer program which had been downloaded from the internet with the permission of the rights-holder was exhausted if the rights-holder had also granted the acquirer the right to use the copy for consideration for an unlimited period of time. The court further ruled that, since the copyright-holder could not object to the resale of a copy of a computer program for which its distribution right was exhausted, a second acquirer of that copy and any subsequent acquirer were lawful acquirers and hence could resell it. For a report on this case, see Legal update, ECJ rules on exhaustion of rights in downloaded software and resale of licences.

Facts

In the Latvian court, two individuals were convicted of copyright infringement offences arising from their sale online of more than 3000 copies of Microsoft software programs between 2001 and 2004. The conviction was overturned on appeal, and an appeal on a point of law was lodged with the Latvian supreme court. The supreme court set aside relevant parts of the appeal court's decision and referred it back for re-examination. In the course of that re-examination, the defendants requested a reference to the ECJ for a preliminary ruling on the interpretation of Article 4(2) and Article 5(1) and 5(2) of the 2009 Software Directive. The referred questions were:

Under Article 5(1) and Article 4(2) of the Software Directive, may a person who has acquired a computer program with a "used" licence on a non-original disk, which works and is not used by any other user, rely upon the exhaustion of the right to distribute a copy of that computer program, the first purchaser of which acquired it from the rights-holder with the original disk, [where that disk] has been damaged, if the first purchaser has erased his copy and no longer uses it?
If the answer to the first question is yes, then does a person who may rely upon the exhaustion of the right to distribute a copy of the computer program have the right to resell that computer program on a non-original disk to a third person, in accordance with Article 4(2) and Article 5(2) of the Software Directive?

Advocate General Saugmandsgaard Øe gave an opinion in June 2016 which was not at that time available in English. He was of the view that back-up copies could not lawfully be sold. More specifically, he considered that the exclusive rights of reproduction and distribution were infringed where a copy of a computer program was made by a user, without the rights-holder's authorisation, on a material medium other than the original material medium and where that copy was sold, without the rights-holder's authorisation, by that user or another user, even in circumstances where the original material medium was damaged, and the seller of that copy made any other copy in his possession unusable.

Decision

The ECJ noted that, because the allegedly criminal acts had occurred before the current Software Directive came into force, the question was to be answered with reference to the provisions of Directive 2001/95/EEC.

The court's answer to the referred question can be paraphrased as follows:

Article 4(a) and (c) and Article 5(1) and (2) of the 1991 Software Directive must be interpreted as meaning that the initial acquirer of a copy of a computer program accompanied by an unlimited user licence is entitled to resell that copy and his licence to a new acquirer. However, where the original material medium of the copy that was initially delivered to him has been damaged, destroyed or lost, he may not provide his back-up copy of that program to that new acquirer without the authorisation of the rights-holder.

The reasoning that led the court to this conclusion is summarised below.

Does the exhaustion rule apply to back-up copies?

Microsoft, the Italian and Polish Governments and the European Commission asserted that the rule of exhaustion only applied to the original material medium (floppy disc, CD-ROM or DVD-ROM) sold to the first acquirer of the copy, and that it did not apply to back-up copies.

The ECJ noted that exhaustion of the distribution right under Article 4(c) of the 1991 Directive concerned the copy of the computer program itself and the accompanying user licence, and not the material medium on which that copy had, or might be, first offered for sale in the EU. It was clear from the UsedSoft decision (based on equivalent provision Article 4(2) of the 2009 Directive) that Article 4(c) referred to the sale of a copy of a program, making no distinction as to whether that copy was in tangible or intangible form. (UsedSoft GmbH v Oracle International Corp, Case C-128/11; see Legal update, ECJ rules on exhaustion of rights in downloaded software and resale of licences and Practice note, Assignment rights in software licences after Usedsoft).

It was, however, important to bear in mind that Article 4(a) of the 1991 Directive also granted the holder of the copyright in a computer program the exclusive right to do or to authorise the permanent or temporary reproduction of that program by any means and in any form, in part or in whole, subject to the exceptions laid down in Articles 5 and 6 of that Directive.

It followed that if a person lawfully acquired a copy of a program, they could re-sell it, as long as the sale did not adversely affect the rights-holder's exclusive reproduction right. In order not to infringe the reproduction right, the resale had to either be authorised by the copyright holder, or fall within one of the copyright exceptions set out in Articles 5 and 6.

Under what conditions can a back-up copy lawfully be sold?

The defendants in the Latvian proceedings had argued that the principle of exhaustion of the distribution right permitted them to re-sell a copy of a program on a non-original material medium such as a floppy disk if the original material medium had been damaged, as long as they complied with the conditions set out in UsedSoft. Under those conditions, the initial acquirer of the copy of a program stored on an original material medium had to have an unlimited licence for the use of that program and had to have made any copy of that program remaining in his possession unusable at the time of its resale.

The court noted that under Article 5(2) of the 1991 Software Directive, the lawful making of a back-up copy of a computer program was subject to two conditions:

The copy had to be made by a person having a right to use that program.
The copy had to be necessary for that use.

Therefore, a back-up copy could lawfully be made and used only to meet the sole needs of the person having the right to use that program. Accordingly, that person could not use that copy in order to resell the program to a third party, even if they had damaged, destroyed or lost the original material medium.

In summary, therefore, where a person lawfully acquired a copy of a computer program accompanied by an unlimited licence for the use of that program, and then sought to resell it once the copyright holder's exclusive distribution right under Article 4(c) of Directive 91/250 had been exhausted, they infringed the distribution right if they transferred to a new acquirer a back-up copy of that program made under Article 5(2) of that directive, even if they had damaged, destroyed or lost the original material medium lawfully provided to them.

It was true that the exhaustion rule did not cease to apply just because a copy was a back-up copy rather than an original copy. As the ECJ had held in the UsedSoft proceedings, the lawful acquirer of an unlimited licence for the use of a used copy of a computer program had to be able to download that program from the copyright holder's website, since that downloading constituted a reproduction of a computer program that was necessary to enable the new acquirer to use the program in accordance with its intended purpose. However, the initial acquirer of a copy of a program who then resold that copy had, in order to avoid infringing that rights-holder's exclusive right of reproduction of his computer program, make any copy in their possession unusable at the time of the resale.

Comment on national proceedings

The ECJ noted that the circumstances of the national proceedings differed from those of UsedSoft in that there was nothing to suggest that the defendants initially purchased and downloaded the initial copies from the rights-holder's website. It was not clear whether they themselves had made those copies. It was for the national court to decide whether they had infringed by possessing for commercial purposes, and putting into circulation, infringing copies, and this question was not affected by whether they themselves made the back-up copies or acquired them from a third party.

Comment

Although the UsedSoft reference did not relate to physical copies, the ECJ said in that ruling that it was clear from Article 4(2) of the 2009 Directive that the original purchaser of a physical copy and anyone in a subsequent chain of acquisition of that copy would be free to sell the copy on (together with its accompanying user licence) regardless of any purported contractual restriction on doing so. The ECJ has consistently applied the principle it set out in UsedSoft to a scenario where the software is bought as a physical copy rather than downloaded.

The status and treatment of back-up copies are not addressed in either Directive. The court has taken a restrictive view, concluding that such copies do not enjoy the same status as originals as far as exhaustion of rights is concerned. This makes sense in purely practical terms, as it would be a difficult task for a software copyright holder to establish whether the corresponding original copy had indeed been lost or rendered unusable.

In circumstances such as those of the Latvian proceedings, it seems clear that the defendants would not have a defence under Article 5, since the making of multiple back-up copies far exceeds what is "necessary for the use of the computer program by the lawful acquirer".

Case: Ranks and Vasiļevičs, Case C-166/5, 12 October 2016 (Bailii).

ECJ rules on infringement of copyright by resale of back-up copy of software program | Practical Law