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tangible products, such as a paper bound book, is not an issue, but when it comes to goods in
the digital medium which are intangible in nature, such as an e-book, issues start to conjure up.
This is due to the ephemeral nature of the fixation in the digital medium and the violation of
one of the exclusive rights of the copyright owner, namely, the right of reproduction, when
transferring a digital copy.
Thus, what are the obstacles in the way of transferring intangible goods, lawfully acquired,
will be considered. It should also be kept in mind that developments in the US and the EU,
with regard to the doctrines respectively, need not necessarily be the same. This polarity in
the development will also be studied with reference to the relevant case laws.
1.2
Methodology
There has been much debate about the method of legal research. The most traditional method
is the `letter of the law' approach. This method consists of a positive analysis of the law, in
other words, what the law is. It is unlike the normative approach wherein law is studied from
the perspective of what ought to be and not what is. In here, I will adopt a positive analysis
approach.
As this work concentrates on the doctrine of first sale/rule of exhaustion in the US and the EU,
therefore, cases, articles and legal perspectives will largely be drawn from these jurisdictions.
This work will use both, traditional legal sources like statutes and case laws, as well as
academic works. There will, however, be references to international conventions and
agreements such as the Berne Convention for the Protection of Literary and Artistic Works
(as amended on September 28
th
, 1979), the WIPO Copyright Treaty of 1996 and the TRIPS
agreement of 1994. As I will be studying two jurisdictions, a comparative analysis, wherever
possible, will be undertaken.
1.3
Structure
I am going to divide this work into four components. The first part, I will call it `the basics',
which will give us a brief understanding of copyright relevant for the main discussion. This
will include topics, such as, fixation of a work, reproduction and distribution rights of a
copyright owner and what are digital goods.
The second part, which I will title `the past', will deal with the development and the
application of the doctrines in question. This will be necessary to fully understand the
9
outcome of the application of the doctrines to digital goods. Topics, such as, the history and
development of the first sale doctrine/rule of exhaustion and its justification will be studied.
The third portion of the work will be titled `the present', which will be the main component.
In here will be discussed the challenges associated with the reselling of digital goods. This
will be done with the help of the Redigi and the UsedSoft cases from the US and EU,
respectively. The trend towards licensing of digital goods instead of an outright sale by the
copyright owners will also be discussed.
The fourth portion will rightfully be entitled `the future' and as the name suggests will deal
with unanticipated matters. Much of the writing and predictions will be my independent work
with predictions based on the present situation.
10
2
The basics
2.1
Subject matter of copyright
According to Article 2 of the WIPO Copyright Treaty, 1996, (WCT), copyright protects
expressions and not ideas. So the manifestation of what is in your mind is necessary. In other
words, the expression needs to be perceived by one of the senses, like reading a book, hearing
a speech, listening to music or watching a movie. The Berne Convention for the Protection of
Literary and Artistic Works (BC), as amended in 1976, in Article 2, states that copyright shall
extend to every production in the literary, scientific and artistic domain. This is rather a broad
definition of what works are protected by copyright. Works will include books, journal and
newspaper articles, poetry, song lyrics, computer programmes and other writings, dramatic
and musical works, databases, paintings, drawings, sculptures, films, maps, and many more.
Directive 2001/29/EC, henceforth, the Infosoc directive, does not expressly address the issue
of subject matter but it is addressed in Section 102(a) of the US copyright act.
2.2
Fixation of a work
Article 2(1) of the BC, says, that artistic and literary works are protected whatever may be the
form of its expression. However, Article 2(2) of the BC gives the members of the union, the
liberty to prescribe, that works in general or any specified categories of work, shall not be
protected unless they have been fixed in some material form. The Spanish copyright law of
1987, in Article 10, specifies that the work shall be expressed in any manner whether tangible
or intangible.
5
The Swiss law provides copyright protection irrespective of whether the work
is fixed on a material medium or otherwise.
6
The EU directives do not mention fixation as a
requirement for copyright protection.
7
In France for example, the `Lacan case'
8
provides that
the work shall be protected in itself even if it has not been fixed in any material medium.
9
In
this case, the court confirmed that oral presentation is protected in itself without the need for
fixation. But, Section 102(a) of the US copyright act makes it mandatory that the work must
be fixed in any tangible medium of expression...directly or with the aid of a device.
Fixation means expressing the idea in some material form. If I have poetry in mind which is
not expressed in a material form, such as writing it on a piece of paper, it will be protected in
many of the EU countries, technically, but it will not be protected in the US. This is because
5
Estelle Derclaye, Research Handbook on the Future of EU Copyright (Edward Elgar, UK 2009) 140.
6
ibid.
7
ibid 139.
8
T.G.I Paris, 11th December 1985, Dalloz 1987, somm. p. 155, note Colombet Claude.
9
Derclaye (n5) 141.
11
fixation is not a requirement for copyright protection in many EU states, whereas, it is a
requirement for copyright protection in the US.
Fixation basically serves the need to prove the existence of a work. It serves an evidentiary
purpose.
10
So a certain amount of permanence is required. Owning a copy of Mario Puzo's
`The Godfather' means, either I could own a hard bound book (tangible good) which contains
the author's ideas in print form or the work could be downloaded from the author's website
(intangible good) in electronic form which is more contemporary.
But what if the author narrated the story, will that count as fixation? As the BC does not
prescribe any mode or form of expression, in essence that speech will be protected. But
narrating a story is of a transient nature and lacks permanence. This will make it difficult to
prove the existence of the work in case of a copyright infringement claim.
11
However, if
someone was to be writing down what the author was saying, and publishes it without his
permission, it would amount to copyright infringement. Even if someone memorised what the
author said and then later published it without the author's permission it would amount to
infringement of his copyright.
2.3
Exclusive rights of a copyright owner
The rights necessary for understanding this piece of work is the reproduction right and the
distribution right. There are other rights which a copyright owner enjoys but will not be
touched upon.
2.3.1
Reproduction right
The reproduction right is basically the right to make copies of a work. It is one of the
fundamental rights that a copyright owner enjoys. Article 9 of the BC contains the
reproduction right. It grants it to authors of literary and artistic works. But it also permits the
members of the union to allow reproductions in special circumstances, provided, that such
reproductions do not conflict with the normal exploitation of the work and does not prejudice
the legitimate interests of the author. This provision of the BC popularly known as the Berne
three-step test has been applied in Article 5(5) of the Infosoc directive dealing with exceptions.
The WCT does not address the reproduction right. But the agreed statements concerning
Article 1(4) of the WCT states, `the reproduction right as set out in Article 9 of the BC fully
10
Douglas Lichtman, Copyright as a rule of evidence, 52 Duke L.J. 683, (2003).
11
ibid.
12
apply in the digital environment.' Which means storing of copyright works in a digital
electronic medium constitutes reproduction.
Article 2 of the Infosoc directive contains the reproduction right. It grants exclusive right to
authorise or prohibit temporary or permanent reproductions, direct or indirect, by any means,
for authors, for performers, for phonogram producers, for broadcasting organisations and for
the producers of films. What is worth mentioning is that temporary acts of reproductions are
also covered, which would at least in theory make copies in a random access memory (RAM)
illegal. This would pose problems for intermediaries such as the Internet Service Providers
who make temporary copies to enable transmission.
12
It will also pose problems for internet
users as temporary copies are made all the time in the RAM.
13
But Article 5(1) of the Infosoc
directive makes certain reproductions excusable which are temporary and an essential part of
the technological process, such as transmissions in a network and a RAM copy. The
reproduction has to be for a lawful use and should not be for any economic enrichment.
Recital 33 of the Infosoc directive only goes on to confirm the position that temporary
reproductions are allowed in certain cases, such as browsing and caching.
Directive 2009/24/EC, henceforth, the computer programmes directive, also provides that
temporary and permanent reproductions or adaptation of a computer programme, necessary
for a lawful users lawful use, is permitted.
14
However, according to Article 5(1) of the
computer programmes directive, this is subject to contractual limitations, if any, set by the
author of the computer programme.
Directive 96/9/EC, henceforth, the database directive,
makes provisions for temporary reproduction which is necessary for access and use of the
contents of the database, by a person who has a right to use that database.
In the US, reproduction rights are contained in Section 106(1) of the US copyright act. In MAI
Systems Corp. v. Peak Computer Inc.
15
, the question before the court was whether copies in a
RAM implicates the reproduction rights. The court found that copying occurs when a
computer programme is transferred from a permanent storage device to a RAM of a computer.
However, Section 117 of the US copyright act makes exceptions to the reproduction right,
making RAM copies permissible in the course of using a computer programme. But how far
does this extend to other digital goods is questionable. On a lighter note, how permanent are
12
Brigitte Lindner and Ted Shapiro, Copyright in the Information Society (Edward Elgar, UK 2011) 38.
13
Ibid.
14
Hector MacQueen, Charlotte Waelde, Graeme Laurie & Abbe Brown, Contemporary Intellectual Property (2nd, Oxford
University Press, United States 2011) 178.
15
991 F.2d 511 (9th Cir. 1993).
13
copies in a RAM? It exists as long as there is power to the system. Once I switch off the
power source the copies disappear.
There are other exceptions to the reproduction right which are covered under the fair use
policy but will not be necessary to examine for the present discussion.
2.3.2
Distribution right
The right to distribute is a natural corollary to the right to reproduce. Through this right, the
copyright owner is able to control the dissemination of his work to the public by sale, lease,
rental or lending.
The WCT in Article 6 states that the copyright owner shall have the making available to the
public right, of copyright work, through sale or other transfer of ownership. The agreed
statements concerning Article 6 of the WCT makes it clear that it applies only to tangible
copies. This in essence, is the right to distribute tangible copies of copyright work. Article 7
of the WCT which provides for the rental rights to the authors of computer programmes,
cinematographic works and works embodied in phonograms, also applies to tangible copies
only according to the agreed statements.
Article 8 of the WCT contains the right of communication to the public; it grants such a right
to the authors of literary and artistic work and is meant for intangible goods which are
transmitted over the internet. In addition to the communication to the public right it includes
the right of `making available to the public'. This has been a new edition in the WCT. The
agreed statement concerning Article 8, states that a mere provision of physical facilities for
enabling or making a communication, does not itself amount to communication. Physical by
its very nature means something solid, something that you can touch and see.
Communications to the public rights are also enumerated in the BC but in it they are not
uniform. What the WCT did, it congregated the different communication rights under the BC
and applied it to all literary and artistic works.
Article 3 of the Infosoc directive, which is similar to Article 8 of the WCT, mentions that the
communication to the public right and making available to the public right in Article 3(1) of
the Infosoc directive, will not be exhausted by any act of communication to the public or
making available to the public. Article 4(1) of the Infosoc directive contains the distribution
right for tangible goods. The Infosoc directive in Article 4(2) states, with respect to tangible
goods the first sale or other transfer of ownership in the community by the right holder or
14
with his consent shall exhaust his right to further control the distribution of that copy. These
provisions of the Infosoc directive are in sharp contrast to Article 4(2) the computer
programmes directive, wherein, it allows the exhaustion of not only a tangible copy of a
computer programme but also an intangible copy of a programme, which has been distributed
over the internet. This anomaly is due to because the computer programmes directive does not
distinguish between tangible and intangible goods. It applies to instances where the computer
programme has been downloaded from the authors website as well as when the programme
has been bought embodied on a material medium such as a CD.
But the database directive makes a difference between tangible and intangible databases.
Recital 33 of the database directive mentions that the question of the right of exhaustion does
not arise in the case of online databases. This means that the exhaustion of right as
enumerated in Article 5(c) of the database directive applies only to tangible copies.
It will be pertinent to note that the extinction of the right as mentioned in Article 4(2) of the
computer programmes directive, Article 4(2) of the Infosoc directive and Article 5(c) of the
database directive, applies only to first sale within the community. It does not apply to
international sales.
It can get confusing to know what amounts to communication to the public and what amounts
to making it available to the public. In the case of Svensson v Retriever
16
, the Court of Justice
of the European Union (CJEU) held that for an act of communication, it is sufficient that a
work is made available to the public in such a way that the public may access it at a time and
place individually chosen by them. This means they are one and the same thing or more
precisely the making available to the public right is a sub category of the communication to
the public right. In the US, in the case of Capitol Records, Inc. v. Thomas, the court came
across this issue and held that making available to the public amounts to distribution in the
online context.
17
The significance of the different forms of dissemination lies in determining whether the rule
of exhaustion is applicable to a particular transfer of ownership by sale or otherwise. Article
6(1) of the WCT contains the making available to the public right for tangible goods, and is
used in the context of physical distribution. Then again in Article 8 of the WCT, the making
available to the public right is mentioned alongside communication to the public right in
16
Case C-466/12 [2014].
17
579 F. Supp. 2d 1210, 1225 (D. Minn. 2008).
15
relation to intangible goods, distributed by wire or wireless means. This means that the
making available right is the right to distribute tangible as well as intangible goods.
In the Infosoc directive, in Article 3, making available to the public right is limited to
intangible goods, unlike in the WCT. It does not extend to tangible goods. Article 4 of the
Infosoc directive contains the distribution rights for tangible goods. But the WCT applies the
making available to the public right to tangible and intangible goods. And the principle of
exhaustion applies to the making available to the public right in Article 6(1) of the WCT but
not to Article 8 of the WCT. If it was not for the agreed statements, it would be difficult to
differentiate between the two making available to the public rights in the WCT. What the
WCT should have done is used a different terminology instead of the making available to the
public right in Article 6(1) to keep matters simple.
In the recent CJEU judgement in the Svensson case mentioned above, providing on a website
a link to another website, where a copyright work is freely available, is not communication to
the public within the meaning of Article 3(1) of the Infosoc directive. The link will constitute
communication to the public only when the copyright work to which the links relate is access
protected. This is because when the work is freely available there is no new public. The
copyright owner targeted everyone, so the public who access the copyright work through the
link, were taken into consideration by the copyright owner. The public have the option of
accessing the work directly from the website where the work is freely available. So it makes
no difference if they access the work through links on another website or directly from the
website where the work is freely available.
The CJEU also opined that the provision of links to the work constituted making available to
the public and used it synonymously with communication to the public right. Let us take an
example of a website offering copyrighted goods. Users can download the materials directly
from the website. By putting the goods on the website it amounts to making it available to the
public (although an act of distribution has not taken place) and needs the copyright owner's
permission, but is he communicating to the public? He is not transmitting the goods but only
letting the public know that the goods are there. According to the reasoning in the Svensson
case, it will also be communicating to the public as the making available to the public right is
but a sub category of the communication to the public right. Supposing I download a song
from the website, will my act of downloading still be communication to the public or will it
be making it available to the public? In my view it will be distribution to the public and using
the terminology communication to the public or making it available to the public for an act of
16
download is misleading. But what I generally understand, after reading numerous literatures
on the topic, is that communication to the public means transmission of digital goods, such as
streaming movies and music, whereas, making it available to the public means transmissions,
such as pay per view, on demand entertainment and it includes the act of downloading such
digital goods. Thus the difference between the two is in the retention of the copy. If the buyer
is able to keep a copy of the good then it will fall under making it available to the public
otherwise it will be communication to the public.
The history of the making available to the public right shows, that it was crafted to cater to the
music industry to protect it from piracy. So, instead of having to prove actual dissemination of
the copyright work it was sufficient that the work was made available to the public, without
actual dissemination. But then again you have to understand what is meant by distribution. Is
it just making available copies of a copyright work or is it actual dissemination. What I think
and what a prudent man would think is that distribution means when you give away copies of
a copyright work and not just making it available.
As the extent of the different methods of dissemination of copyright work can vary depending
on the copyright legislations of the individual countries, the CJEU in the Svensson case also
concluded that Article 3(1) of the Infosoc directive cannot be interpreted more broadly to
include wider range of activities than envisaged by the provision. In Sweden, for example, the
copyright act offers an extended making available to the public right which includes
communication to the public, public performance, distribution and display.
18
In the US the right to distribute is contained in Section 106(3) of the copyright act. The
limitation to this right is contained in Section 109, namely, the doctrine of first sale. Section
106(3) states that the copyright owner has the right to distribute copies or phonorecords of the
copyrighted work. The US copyright act in Section 101 defines copies as material objects in
which a work is fixed, other than phonorecords. Whereas, phonorecords is defined, in the
same section, as material objects in which sounds, other than those accompanying a motion
picture or other audio visual work are fixed. In both the instances it is a material object which
are tangible goods. The question is how do these provisions apply to digital goods which are
by their very nature intangible? Thus owner of a copy or phonorecord in Section 109 must
mean owner of tangible goods. Therefore, it will be right to say that the first sale doctrine in
the US does not apply to digital goods. To go even further, the copyright owner does not have
18
Association littéraire et artistique international, Report on the making available and communication to the public in the
internet environment, Available at : http://www.alai.org/assets/files/resolutions/making-available-right-report-opinion.pdf
17
the right to distribute digital goods. Even the making available right which was a new addition
in the WCT is not explicitly expressed in the US copyright act.
2.4
Bits and bytes
Digital goods are basically information stored in bits and bytes.
19
They are transmitted over a
network through wire or wireless means, more particularly the internet. The more accurate
term for digital goods will be digital content and services.
20
Examples of digital goods will be
e-books, online music, movies, databases, computer programmes, online newspapers,
magazines and videogames and anything that can be digitized in ones and zeroes. Thus, any
subject matter, eligible for copyright, that can be digitized and made available for
consumption through digital technology are digital goods.
There are certain characteristics associated with digital goods, they are, namely: intangible,
non-rival and non-excludable, able to proliferate and non-degradable.
The first characteristic, intangible, refers to the fact that digital goods are not perceptible to
the sense of touch unlike tangible physical goods such as a paper bound book or a music
cassette. Generally, intellectual property is intangible as long as it is unexpressed (an idea in
the head), but becomes tangible when fixed in a material medium. At least that was the trend
until now. But technological advances have revolutionised the medium and the manner in
which copyright works are fixed. The thing with tangible goods is that the purchaser of a copy
of a copyright work gets property rights in the medium in which the copyright work is fixed
but that is not the case with intangible goods.
Supposing I buy a tangible copy of a book, I have paid for not only what is printed inside the
book but also the paper which makes up the book. So in case I was able to erase everything
written inside, I would still own the book. That book is my personal property, it is within my
capacity to destroy it or alienate it. But the same cannot be said for intangible goods such as
online music. For goods purchased online, I only pay for the copyright work and not the
medium in which it is fixed because it is not fixed in any medium as such. Although I can
delete the music which is akin to erasing, I don't have property rights the same way as I have
in tangible goods.
19
Claudia Loebbecke, Digital goods: An economic perspective, Encyclopedia of Information Systems, Volume 1, 635,
(Elsevier Inc.) 2002.
20
ibid.
18
The second characteristic, non-rival, refers to a good which can be enjoyed simultaneously by
two or more persons without diminishing the utility of the good for the other person.
21
Non
excludability refers to whether free riders can be excluded from enjoying the goods.
22
These
characteristics are actually associated with public goods. As information is a public good
according to economic analysis, we regard digital goods as information having the
characteristics of public good.
23
Let us take an example of a public good such as a street light.
It is non rival as the consumption by one person does not diminish the utility for another
person. The light will shine for me as well as the hundredth passer-by. It is non excludable as
you cannot legally exclude anyone from enjoying the benefits of the street light. Digital goods
are non-rival in the sense that if I am browsing a website, another person can browse it too,
without it being detrimental to me or him. A bar of chocolate will be a rival good because if
one person consumes it the other persons share will diminish. Due to the nature of digital
goods, like the ease with which it can be replicated and distributed, it is non excludable. Thus,
copyright owners contend that if legal or technical means are not adopted to limit the number
of free riders then the market for digital goods will diminish as they will become reluctant to
release goods in the digital format.
The third characteristic of the ability to proliferate refers to the ease with which it can be
copied and distributed.
24
Copies can be made effortlessly without any deterioration in quality
unlike physical goods. It can also be distributed to countless people indifferent to
geographical boundaries at lightning speed. To replicate and distribute physical copies
requires a lot of resources. Digital goods also have the ubiquitous nature of being everywhere
and at the same time they are nowhere.
25
That is not the case with physical goods.
The fourth characteristic non degradability means that they are indestructible.
26
Physical
goods are subject to wear and tear but that is not the case with digital goods. The pages of a
book will wear out but a digital copy of a book will last forever or until your hard drive gets
corrupted.
21
Niva Elkin-Koren and Eli M. Salzberger, Law, Economics and Cyberspace (Edward Elgar, UK 2004) 51.
22
ibid 50.
23
ibid.
24
Danny Quah, Digital Goods and the New Economy (2002), Available at : http://econ.lse.ac.uk/staff/dquah/p/dp-
0212hbne.pdf
25
ibid.
26
ibid (n19).
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