All Luxury - CJEU Decides on the Legality of Selective Distribution Agreements for Luxury Goods

Prestige and exclusivity are the cornerstones of luxury goods, and the maintenance of that perception is paramount to both retaining customers and to drawing in new purchasers. As discussed in a previous article, the sale of these goods online can be difficult, especially when considering the retention of the above image. After the Advocate General's opinion in September the question of restricting the sale of luxury goods online has finally landed on the CJEU's desk, who handed down their judgment only last week.

As a brief primer, the case of Coty Germany GmbH v Parfümerie Akzente GmbH concerned the sale of luxury cosmetics made by Coty. The company selected distributors for its network, which included a selective distribution agreement that included a provision on the preservation of the brand's luxury image. Akzente was one of these distributors, primarily selling through their store, website and Amazon as a third-party seller. The agreement was amended by Coty sometime after, which stipulated that all internet sales have to be done through an 'electronic shop window' that preserves the luxury image of the goods. Akzente refused to sign this supplement, and Coty took matters to court in order to prohibit the sale of their goods on Amazon.

The matter ended up in the CJEU who had to answer four questions in the proceedings dealing with anti-competitive practices, and whether the selective distribution arrangements are exempt from the anti-competition provisions.

The first question posed to the Court asked, in essence, "…whether Article 101(1) TFEU must be interpreted as meaning that a selective distribution system for luxury goods designed, primarily, to preserve the luxury image of those goods can comply with that provision". The Article prevents any agreements on undertakings that may affect trade between Member States and have as their object or effect the prevention, restriction or distortion of competition in the EU.

In considering this question, the Court reiterated that selective distribution networks are allowed under Article 101 if the resellers are chosen on the basis of objective criteria of a qualitative nature; the criteria are not applied in a discriminatory fashion; the characteristics of the products necessitate such a network to preserve those characteristics; and the criteria don't go beyond what is necessary. With regards to luxury goods, the Court saw that selective distribution networks may be necessary for luxury goods, where the quality and allure and prestige of those goods is essential and should be protectable. The same applies for mandatory displays in sales to preserve that image.

In answering the first question the Court concluded that "…a selective distribution system for luxury goods designed, primarily, to preserve the luxury image of those goods complies with that provision"; however, they still have to conform to the criteria set out above.

The second question asked "…whether Article 101(1)… must be interpreted as precluding a contractual clause… which prohibits authorised distributors in a selective distribution system for luxury goods designed, primarily, to preserve the luxury image of those goods from using, in a discernible manner, third-party platforms for the online sale of the contract goods". In other words, it is asking whether a selective distribution agreement can prohibit the sale of luxury goods on websites like Amazon.

The same criteria as set out above apply to the lawfulness of the clause in the second question. Should it satisfy them it will not fall foul of Article 101.

The CJEU looked at the clause and its provisions, and concluded that it didn't contravene Article 101. The objective of the requirements on online sales is to preserve the image that it is exclusively associated with the distributor. The aim was therefore legitimate in the light of the protection of the luxury image the goods have. What the prohibition also achieves is to ensure the goods are sold in an environment that corresponds to the qualitative conditions that were agreed between Coty and Akzente. This allows for the supplier to make sure, and enforce, the sale of the goods online and to prevent any harm against the luxury image of the goods.

Luxury is worth the price (Source: HistoryTwins)

The CJEU looked at the clause and its provisions, and concluded that it didn't contravene Article 101. The objective of the requirements on online sales is to preserve the image that it is exclusively associated with the distributor. The aim was therefore legitimate in the light of the protection of the luxury image the goods have. What the prohibition also achieves is to ensure the goods are sold in an environment that corresponds to the qualitative conditions that were agreed between Coty and Akzente. This allows for the supplier to make sure, and enforce, the sale of the goods online and to prevent any harm against the luxury image of the goods.

The Court then moved onto whether the prohibition goes beyond what is necessary for the objective pursued. Due to the prohibition only applying to third-party websites, and not the Internet as a whole, the distributors are still free to sell the goods online, albeit only through a store window. Studies have also shown that the majority of online sales are made through distributors' own websites, leading to very little detriment through the prohibition (although third-party sites are growing in importance). The measure therefore does not go beyond the objective pursued.

The CJEU looked at the clause and its provisions, and concluded that it didn't contravene Article 101. The objective of the requirements on online sales is to preserve the image that it is exclusively associated with the distributor. The aim was therefore legitimate in the light of the protection of the luxury image the goods have. What the prohibition also achieves is to ensure the goods are sold in an environment that corresponds to the qualitative conditions that were agreed between Coty and Akzente. This allows for the supplier to make sure, and enforce, the sale of the goods online and to prevent any harm against the luxury image of the goods.

The answer to the question was set out as "…Article 101(1)… must be interpreted as not precluding a contractual clause… which prohibits authorised distributors in a selective distribution system for luxury goods designed, primarily, to preserve the luxury image of those goods from using, in a discernible manner, third-party platforms for the internet sale of the contract goods, on condition that that clause has the objective of preserving the luxury image of those goods, that it is laid down uniformly and not applied in a discriminatory fashion, and that it is proportionate in the light of the objective pursued, these being matters to be determined by the referring court".

The Court considered the third and fourth questions together, which asked, in essence "…whether Article 4 of Regulation No 330/2010 must be interpreted as meaning that… the prohibition imposed on the members of a selective distribution system for luxury goods, which operate as distributors at the retail level of trade, of making use, in a discernible manner, of third-party undertakings for internet sales constitutes a restriction of their customers, within the meaning of Article 4(b)... or a restriction of passive sales to end users, within the meaning of Article 4(c)".

If the distribution agreement would restrict who the distributor can sell the goods to or authorised passive sales to end users, it will not be caught by the Article 2 exemption and treated as unlawful.

The Court quickly observed that the agreement does not prohibit the use of the internet as a means of marketing the goods, nor circumscribe who can buy the goods online. Additionally, the agreement allows distributors to advertise the goods online, and considering all of the above, there is no restriction on distributors as to who the goods can be sold to or passive sales.

In short, the third and fourth questions were answered as "…the prohibition imposed on the members of a selective distribution system for luxury goods, which operate as distributors at the retail level of trade, of making use, in a discernible manner, of third-party undertakings for internet sales does not constitute a restriction of customers… or a restriction of passive sales to end users".

The case is quite an important one, which considers issues that will often pertain to the sale of luxury goods, particularly on the Internet. Clearly the image of the goods is protectable through contractual arrangements, including through some restrictions on those sales, and both distributors and brand owners should heed the decision and ensure their contracts are up to snuff.

Source: IPKat

Citation Needed - CJEU Decides on Use of Registered Designs as Citations for the Sale of Goods Online

Marketing your goods online can be very tricky, especially if you are in the business of making proprietary goods or accessories relating to well-known brands or goods. Using the name, image or design of the goods your items relate to is almost necessary to communicate the relationship of the goods to the consumer, but without proper authorisation this can be a thorny issue. The law does allow for the use of registered designs for some purposes, but could the use of a design for the sale of goods be allowed under EU law? The CJEU took on this question in late September, giving some clarity to those wishing to do so.

The case of Nintendo Co. Ltd v BigBen Interactive GmbH dealt with the manufacture sale of remote controls and other accessories for the Nintendo Wii gaming console by BigBen, selling them online to consumers in France, Belgium and Luxembourg, and to its German subsidiary. The German entity sold the goods, manufactured by BigBen in France, to consumers in Austria and Germany. The German entity in itself does not hold any stock, but orders them when needed from the French entity. Both companies used images of the Wii and its official accessories (protected by registered designs, e.g. here and here) in the sale of these goods. Nintendo took both entities to court in Germany for design infringement.

The CJEU faced three questions in the matter, specifically dealing with whether the court of a Member State has jurisdiction over the matter where the infringement happened elsewhere; is this use allowed as citation under EU law; and how the place of infringement would be determined.

The first question, as summarized by the court, asked in essence whether the Community Designs Regulation (along with Article 6(1) of the Jurisdiction Regulation) gives jurisdiction to a court to impose an injunction against a party who is supplied by another party in another Member State for infringement of a registered design.


The CJEU first dealt with the issue of jurisdiction. Article 82 of the Community Designs Regulation sets out that "…claims fall primarily within the international jurisdiction of the courts of the Member State in which the defendant is domiciled or, if he is not domiciled in any of the Member States, in any Member State in which he has an establishment". This can also include the Member State where the act of infringement has been committed or is threatened. For Article 6 of the Jurisdiction Regulation to apply there has to be a connection between various defendants in different jurisdictions "…that it is expedient to determine those actions together in order to avoid the risk of irreconcilable judgments resulting from separate proceedings". The court also highlighted that, under case law, two companies in the same group acting in an identical or similar manner would constitute the same situation of fact.

According to the CJEU, "…the territorial jurisdiction of a Community design court seised of an action for infringement within the meaning of Article 81(a)… extends throughout the European Union also in respect of the defendant who is not domiciled in the Member State of the forum". This means that there would be no jurisdictional issue with regards to pursuing a company in a different Member State through a national court within the EU.

The court then moved onto the second issue of use of the design as a citation. The question posed to the court, in short, asked whether Article 20 of the Community Designs Regulation meant that the use of a registered design by a third party, without authorisation, to demonstrate goods being sold online would be use as a citation and therefore allowed.

Burt definitely needed a citation (Source: xkcd)

The CJEU first looked at the meaning of 'citation'. They emphasised the designs' use for an illustrative purpose, in that "…a third party that lawfully sells goods intended to be used with specific goods corresponding to Community designs and reproduces the latter in order to explain or demonstrate the joint use of the goods it sells and a product corresponding to a protected design carries out an act of reproduction for the purpose of making ‘citations'". The use, however, would be assessed using three cumulative conditions: "…the compatibility of the acts of reproduction with fair trade practice, the absence of undue prejudice to the normal exploitation of the design on account of such acts and mention of the source".

The first condition look at whether the reproduction of the design falls within 'honest practices in industrial or commercial matters', i.e. should the design be reproduced in such a way as to create an impression of a commercial connection between the two entities, it would not be made for the purpose of citation. The second condition concerns the reproduction of the design that negatively affects the economic interest or their normal exploitation by the rightsholder. The third condition is simply attribution, so that a reasonable and observant consumer will know the design's commercial origin.

The court concluded that in the matter at hand the reproduction would be for the purpose of citation if it fulfils all of the above conditions.

Finally, the court addressed the last question of where the infringement would be committed between the two group companies, as the group companies reside and have committed infringements in several EU Member States. The CJEU, having considered the legislative framework, considered that "…the ‘country in which the act of infringement was committed’ within the meaning of Article 8(2) of that regulation must be interpreted as meaning that it refers to the country where the event giving rise to the damage occurred, namely the country on whose territory the act of infringement was committed". This hones down the legislation as applying to where the act was committed, rather than the damage occurring (i.e. infringement in Germany damaging a country in France).

As acknowledged by the court, IP does leave this interpretation as difficult, since the act could happen in a variety of locations in one time. In the light of this, the CJEU set out that "… where the same defendant is accused of various acts of infringement falling under the concept of ‘use’ within the meaning of Article 19(1) of [the Community Designs Regulation] in various Member States, the correct approach for identifying the event giving rise to the damage is not to refer to each alleged act of infringement, but to make an overall assessment of that defendant’s conduct in order to determine the place where the initial act of infringement at the origin of that conduct was committed or threatened". In the situation in the current matter, the place where the goods were put on sale online would be where the infringement took place.

 The CJEU's decision is a very interesting one, and while they made no assessment on the particular infringements in the case, it still gives national courts the tools to do so themselves in a more flexible manner rather than just designating each infringement in its respective country. This will make the assessment of infringement, and similarly of citation, much clearer for the future.

Sales are Offline - Advocate General Allows for the Restriction of Third-Party Sales of Goods Online

Selling goods online can be incredibly lucrative, since the potential reach of your business can be near anywhere in the world to millions of people. Many companies therefore sell their goods either exclusively online, or through various third-parties, who could even purchase your goods and then resell them elsewhere without your permission. While the exhaustion of rights is quite pertinent in this scenario (e.g. more on which in relation to patents can be found here), could you still be able to prevent others from selling your goods? After a lengthy spell in the European Courts, a case dealing with just this question has landed on an Advocate General's desk, who has given their opinion on it only some weeks ago.

The case of Coty Germany GmbH v Parfümerie Akzente GmbH dealt with the sale of luxury cosmetics, made by Coty. The company sells its goods through a variety of distributors in a select network, all of which are contracted to do so under a distribution agreement (and its various undertakings). Akzente has been a Coty distributor for some years selling their goods via their retailer stores, including physical locations and via the Internet, primarily through Amazon.de. Coty wanted to make changes to their distributor agreement, which, among others, required that all goods sold online be sold via an electronic store window (not using websites like Amazon) to protect the brand and its image. Akzente refused the amendments, and Coty took the matter to court, which ultimately ended up going to the CJEU.

The crux of the case revolves around the Treaty of the Functioning of the EU and its provisions preventing the distortion of competition. Article 101 of the TFEU, in short, prevents companies from employing contractual measures that affect trade between Member States in a negative way. This could potentially include selective distribution systems, such as Coty's.

The CJEU faced four questions from the referring court, which primarily focussed on the applicability of Article 101 to the above facts.

The first question, as summarized by the Court, asked "…whether selective distribution networks for the distribution of luxury and prestige goods aimed mainly at preserving the luxury image of those goods are caught by the prohibition laid down in Article 101(1) TFEU".

The AG considered both parties' submissions relating to the first question, ultimately deciding that, in his opinion, that selective distribution networks for luxury goods would not be caught by Article 101. Following previous case law, the AG set out the three criteria that have to be met for purely qualitative selective distribution systems not to be prohibited under Article 101:

(1) it must be established that the properties of the product necessitate a selective distribution system, in the sense that such a system constitutes a legitimate requirement, having regard to the nature of the products concerned, and in particular their high quality or highly technical nature, in order to preserve their quality and to ensure that they are correctly used; (2) resellers must be chosen on the basis of objective criteria of a qualitative nature which are determined uniformly for all potential resellers and applied in a non-discriminatory manner; and (3) the criteria defined must not go beyond what is necessary.

Online sales definitely make life easier

The first criteria, necessity of the selective distribution system, needs to take into account the qualitative characteristics of the goods themselves, i.e. that it maintains the high quality of the goods when sold. This can include both the physical characteristics and the 'luxury' image of the goods. The AG summarized that "…the selective distribution networks relating to the distribution of luxury and prestige goods and seeking mainly to preserve the brand image of those goods are not caught by the prohibition laid down in Article 101(1) TFEU". Even so, the AG wanted the CJEU to clarify the possible prohibition of these types of clauses, which has been asserted under case law (particularly in Pierre Fabre Dermo-Cosmétique).

The AG considered that the case should not negate prior case law regarding the allowance of selective distribution networks under EU law, as its judgment only related to the review of the proportionality of a clause preventing the sale of goods online outright. However, he still observed that should the objective of protecting the prestige of the goods not be legitimate and therefore not allowed under EU law. Retaining the exemption for the above distribution systems is important for the preservation of trademark rights, which could be compromised if not allowed to be protected.

Ultimately, the AG set out that the answer to question one should be that such selective distribution systems should be allowed under Article 101, provided they conform to the three criteria set above.

The second question was summarized by the AG asking "…whether and to what extent Article 101(1) TFEU must be interpreted as meaning that it precludes the prohibition imposed on the members of a selective distribution system for luxury products, who operate as authorised retailers on the market, from using in a discernible manner third-party platforms for internet sales of the products concerned".

Following Metro SB-Groβmärkte, the AG set out that, to answer the above question, one would have to assess whether "…operators were chosen by reference to objective criteria of a qualitative nature, determined uniformly for all potential resellers and applied in a non-discriminatory fashion, whether the properties of the product(s) concerned require, in order to preserve their quality and to ensure that they are correctly used, such a distribution network and… whether the conditions defined are consistent with the principle of proportionality". He did note that only the necessity and proportionality criteria would have to be considered in this instance.

Should the prohibition of the use of third-party platforms be used legitimately to protect the quality of the goods, the AG considered this to be allowable. Not only does it potentially ensure that the goods are authentic, but also protects the brand. Therefore the prevention of the use of third-party websites in a distribution agreement would not be contrary to competition law. Coty didn't prevent the parties from selling them online altogether, allowing the goods to be sold on the sellers' websites, just not on third-party sites like Amazon.

The AG also considered that the clause would not be disproportionate to the objective pursued. Due to the original supplier not being able to control the third-party pages in the absence of a direct contractual relationship with them (as opposed to with the distributors), the clause would be proportionate to reach the means of controlling quality. He concluded that the clause would therefore be compatible with Article 101.

Finally, the AG, under the guise of a hypothetical determination of an infringement of Article 101 in a clause such as in the matter, set out possible further provisions that might come into play in that event. This would be Article 4(b) and 4(c) of the Vertical Agreements Regulation. These relate to the restriction of the territory in which goods can be sold, and a restriction of passive sales respectively.

In short, the AG considered that the prohibition imposed on members of the distribution system was not a restriction on the seller's customers under Article 4(b). The clause only prevents the seller from selling on third-party websites, and not online entirely, which does not limit the territory or customers accessible to the seller. The prohibition was not a restriction of passive sales under Article 4(c) either, as the restriction only applies to third-party websites, and not the entire internet. Passive sales can happen via the seller's website just as well as from a third-party site.

The case will be very important to suppliers of luxury goods who wish to maintain the image and the distribution networks selling the goods in a very close and controlled fashion. The AG's opinion would seem to be correct, since the disallowance of these types of restrictions could genuinely dilute the image and value of luxury goods, and only guide the way in which the goods are sold, not preventing some avenues like online sales. In the end the CJEU will decide the matter, but it seems unlikely they will deviate from the AG's opinion.

Source: IPKat

Into the Slammer - The Sale of 'Grey Goods' a Criminal Offense, Says UK Supreme Court

The sale of branded goods can be a complicated affair, especially when the line between counterfeits and 'authorized' goods can be blurry at times. This is highlighted in the sale of 'grey goods', which are items obtained from licenced manufacturers without the authorisation of the licensor. Having discussed the criminality of the sale of grey goods last year (more here), the decision of the Court of Appeal was appealed by the defendants, ultimately ending up on the desk of the Supreme Court, which handed down its judgment in early August.

The case of R v M, C and T concerned three defendants (including one company), who were engaged in the importation of branded goods into the UK that were manufactured outside the EU. These goods included notable brands such as Ralph Lauren, Adidas and Under Armour. Many of the goods were duly accepted as being counterfeits, but a significant portion of them were ones made by authorized manufacturers, but not authorized for sale to other parties. The defendants were taken to court for, among other offenses, the unauthorized use of trademarks (a criminal offense).

The focus of the case is section 92 of the Trade Marks Act 1994, which sets out that a person commits an offense under the Act if the proprietor "…sells or lets for hire, offers or exposes for sale or hire or distributes goods which bear, or the packaging of which bears [a registered trade mark]". There is a separate offense under section 92 for the possession and control of such goods, for which the defendants were prosecuted as well. The defendants' appeal argues that section 92 would only relate to the counterfeit goods and not the 'grey goods' as set out above.

The defendants argued that the phrase "such as sign" in the Act would only apply where the sign has been applied to the goods without the authorization of the rightsholder. As 'grey goods' have had the sign applied to them with the consent of the rightsholder, section 92 would not apply to those goods, but only to truly counterfeit goods.

Lord Justice Hughes, handing down the Court's unanimous decision, rejected this argument. In his view, the use of the phrase "such a sign" refers to "…a sign which is 'identical to, or likely to be mistaken for, a registered trade mark'", not just in instances where it has been applied without consent. This means that 'grey goods' would be caught by section 92 just as well as counterfeit goods would be.

Making fakes ain't easy

The judge also noted that all three offenses set out in section 92 are separate, not cumulative, and that both intent and the application of a sign without the authorization of the rightsholder apply to all three offenses. This is important, since the defendants argued that there is a link between the first and the second offense (subsections a and b), which, if the offenses are separate, could not be the case. Lord Justice Hughes emphasised that there is no ambiguity or obscurity in the law that would require a further investigation into Parliament's meaning of the section, particularly in relation to the defendants' argument on the different meanings of counterfeit and 'grey goods' (and subsequent differing treatment under section 92).

Lord Justice Hughes acknowledged that there has been a distinction between the two in the case of R v Johnstone; however, the distinction came about through the facts of the case, and does not reflect the general view of the Court on 'grey goods' and counterfeit goods.

The defendants further argued that due to the exhaustion of rights in the goods under EU law, and subsequently section 12 of the Act, any further objections to the sale of the goods would be limited to very narrow special cases, such as changes or impairments to the goods. The Court rejected this argument, as the exhaustion of rights only relates to civil law, not criminal, nor would it be useful in interpreting the construction of section 92.

A further argument put forward was that the more stringent test of a mental element used in the previous Trade Marks Act 1938 would exclude 'grey goods' from the current Act due to the previous Act only applying to only 'true counterfeits' (and therefore carrying over into the new Act in intention). The Court rejected this interpretation, as the previous Act would have included 'grey goods' due to its inclusion of goods irrespective of the authorized application of the mark onto the goods or not. Lord Justice Hughes also mentioned that, in his view, the sale of 'grey goods' and counterfeits would both be unlawful, as "…[b]oth may involve deception of the buying public".

Finally, the defendants argued that the construction of section 92 to include 'grey goods' would infringe on their human rights to enjoy and keep their possessions. The Court rejected the notion that the defendants have any rights in the trademarks affixed on the goods, even though they have the right to the goods excluding the marks. While they could sell those goods without the marks on them, the Act prevents them from misleading purchasers and infringing on the marks while doing so. The defendants are not deprived of the goods they own, but only regulated in the manner of the disposal of the goods. Lord Justice Hughes concluded that there was nothing disproportionate in the imposition of criminal sanctions under the Act, which legitimately balances "…the rights of the proprietor to protect his valuable trademark and goodwill, and those of the person who wishes to sell goods which he has bought".

Ultimately the Court rejected the appeal and allowed for the criminal trial to proceed.

The case will undoubtedly be hugely influential, especially for rightsholders who wish to prevent the sale of 'grey goods' in the UK market. This writer would agree with the interpretation of the Court, as the inclusion of 'grey goods' under section 92 makes sense, since one can draw an analogy between them and counterfeit goods due to the lack of authorization during their initial sale to the ultimate distributor. Should a proprietor wish to sell the goods without the marks they would be wholly entitled to do so, provided no other rights exist in the goods. The case seems to have finally settled the matter of 'grey goods' in the UK, at least for now.

Source: JDSupra

Used Treasures - CJEU Sets Limits on the Resale of Copyright Works

Resale of goods, particularly those protected by copyright, has been a question that the courts have been tackling for a long time. This is further exasperated by the online environment, where the sale and use of sold products or software is ever-more elusive, with the actual exhaustion of any rights (particularly in the sale of the protected goods) is unclear. For rightsholders, exhaustion of rights can often seem like having your cake and eating it, while those seeking to benefit from it perceive it as more of a possibility to create a second-hand market in the online environment. Not often discussed, cases dealing directly with exhaustion seem to be far and few between; however, the Court of Justice of the EU recently took on a case dealing with a question that is important in the context of software exhaustion.

The case of Aleksandrs Ranks and Jurijs Vasiļevičs v Finanšu un ekonomisko noziegumu izmeklēšanas prokoratūra and Microsoft Corp deals with two Latvian individuals who sold Microsoft software products online during 2001 to 2004. The Court estimated that over 3,000 copies had been sold, with the pair making revenues nearing $300,000 during that time. Mr Ranks and Vasiļevičs were subsequently charged with a number of infringement claims, and having gone through the courts in Latvia, the matter ultimately ended up in the CJEU, particularly dealing with questions surrounding the exhaustion of rights in the aforementioned software products.

The Court, dealing with the two referred question together, summarized the matter as asking "…the interpretation of Article 4(2) of Directive 2009/24 [Software Directive], establishing the rule of exhaustion of the copyright holder’s distribution right, and of Article 5(1) and (2) of [the Directive], laying down exceptions to that rightholder’s exclusive right of reproduction, must be interpreted as referring to the equivalent provisions of Directive 91/250 [Computer Programs Directive], namely Article 4(c) thereof, on the one hand, and Article 4(a) and Article 5(1) and (2) thereof, on the other". Effectively the questions seek to establish whether the exhaustion of rights after their first sale under the Software Directive is interpreted as meaning the same equivalent provision as set out in the Computer Programs Directive.

Having discussed the admissibility of the claim overall, allowing for them to be referred to the CJEU, the Court first looked at the actual concept of exhaustion.

For exhaustion to apply to the right to distribute computer programs in the EU it is is subject to two conditions: "...(i) the copy must have been placed on the market and, more specifically, sold by the rightholder or with his consent, and (ii) it must have been placed on the market in the European Union". Sale in itself means the sale of a program for an unlimited period in return for a fee to remunerate the rightsholder for the distribution of that particular program. While the Court has clearly established that, at least in most cases, the sale applies to physical copies of the programs only; the case at hand discussed the resale of electronic copies, and thus would be outside of the prima facie remit of the provisions.

Even Santa has to resell some things

The Court followed this with observations that, although the provisions above discuss 'a copy' of the program, no particular medium is specified, and, following the decision in UsedSoft, the law "...makes no distinction according to the tangible or intangible form of the copy in question". The sale then clearly applies irrespective of the medium of the program, as long as it has been initially sold in the EU lawfully. The reseller can, therefore, resell a copy of a program provided that "…[the] sale does not adversely affect the rightholder’s exclusive reproduction right".

Mr Ranks and Vasiļevičs also argued that the rule would allow for the resale of computer programs stored on a non-original medium (i.e. electronically rather than on a CD or DVD, for example) if the original medium has been damaged. While Article 5 of the Computer Program Directive allows for the making of back-up copies, the exception is limited to instances where "… That copy… (i) [is] made by a person having a right to use that program and (ii) [is] necessary for that use". Clearly, the resale of 'back-up' copies would not fall under Article 5, even if the original copy has been damaged. The CJEU followed this rationale, establishing that a copy cannot be resold even if the original medium has been damaged, and can only be used to meet the sole needs of the person who made that back-up copy.

Although UsedSoft established that the purchaser of a legal electronic copy of a computer program does have the right to resell their copy (and the rights were exhausted as a result of that initial sale), this can be distinguished from the resale of a back-up copy, since the back-up would not have been the item that was originally sold (which was the tangible copy) and exhaustion would not, arguably, apply. Has the individuals purchased the copies from Microsoft legally from their website, they potentially could have had the right to resell the copies.

In the end the CJEU summarized their decision as "… that Article 4(a) and (c) and Article 5(1) and (2) of Directive 91/250 must be interpreted as meaning that, although 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, he may not, however, in the case where the original material medium of the copy that was initially delivered to him has been damaged, destroyed or lost, provide his back-up copy of that program to that new acquirer without the authorisation of the rightholder".

The resale of computer programs is a very thorny topic, as one can see, and the resolution the CJEU came up with seems to make the most sense. This allows for the resale of genuine copies of programs, yet reserves the rights to only those with a bona fide interest in doing so, rather than a mere opportunistic view for quick monetary gains. The limitation of the resale of back-up copies also makes sense, since, as the original program was bought in a tangible medium, the original seller's view couldn't have been one that allows for the resale of any back-up copies (especially since back-ups, by nature, are for the user and no one else as a means to access their programs in the event of damage or loss to the CD/DVD). It will be interesting to see whether this case spawns more litigation; however, this writer seems to be quite skeptical of this, due to the complexity and lack of benefit to those who'd pursue this avenue more vigorously.

You bought it, you own it - The First Sale doctrine in the US Supreme Court

The American Supreme Court delivered its judgment a few days ago on a case which was long anticipated to possibly change the landscape where copyright exists, both in the US and globally. And it possibly might have done just that.

Kirtsaeng v John Wiley & Sons set an interesting precedent in the world of reselling a copyright work you have legally purchased, once you're done with the item. The case itself dealt with the resale of College textbooks by Mr. Kirtsaeng, which he brought over from Thailand, having been sold there for significantly less than in the US, making this the perfect opportunity for him to make a quick buck, while retaining the moral high-ground of helping his fellow students saving said buck (to use on nice things, I'm sure).

In previous years, had you done just what Mr. Kirtsaeng did, you would've been sued for copyright infringement the moment you brought the books over into the US and attempted to sell them. How was this allowed, even if you legally bought the books and merely brought them over to sell what's yours? This is due to the interpretation of the First Sale doctrine in the US Copyright Act under section 109, which states that: "the owner of a particular copy [of a copyrighted work]... lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy..." When looking at the language of the section in itself, one cannot understand why it would act exactly against what it plainly says; that a person can sell what he has legally purchased without asking the copyright holder's for permission to do so. The interpretation of the section limiting it only to copies bought within the US was yet another Supreme Court statement in a different case, Quality King v L’Anza Research International. In the case the Supreme Court found that the definition of section 109, albeit stated purely as dicta (a legal term meaning it was not a matter contended in the case itself, but is merely a statement of opinion as to what the law is, making it non-biding in future cases, but can be used as a persuasive argument), that it would prevent the sale of copies in the US bought outside of the US itself. This definition has since been used to do exactly what Mr. Kirtsaeng contended. The outcome allows a person to sell what's rightfully theirs, even if it was bought outside of the US (though the copy has to be a legally made one, authorized by the copyright holder - I'm looking at you, bootleg CDs, videos and the like!).

These kids paid nothing for their books

So what does this mean for the consumer or the media industry? It will remain to be seen. Whether it will change the pricing dynamic in the US, bringing prices more closer to foreign ones if cheaper, is something that only time will tell. Will consumers take this and run with it? Will companies act preemptively to undercut their own prices to match those in cheaper countries? Personally I can't really say. With college textbook prices increasing over 600% since the 1990s, one can only hope the benefit will be to the end consumer, even in other categories of media.