Are second-hand sales of downloaded music possible in the EU?
Can purchasers of lawfully downloaded music make "second-hand" sales of the music after they have finished with it?
Owners of CDs, LPs etc can sell those physical products in the EU if they wish; the rights of the owners of the copyright in the music to control sales of the products are "exhausted" when they are first put onto the market. EU law has not decided if the same is true for downloaded music. If the European Court of Justice (ECJ) were asked to (which, if the EMI v ReDigi case in the US is anything to go by, may not be too far away), we think it would decide that resale is not possible.
The ECJ has allowed the resale of downloaded software (in the UsedSoft case C-128/11, our note of which is here); it decided that the right to control distribution of downloaded software is exhausted after a first sale within the EU. Resale is possible even where that entails downloading another copy from the internet, provided that the original copy is deleted.
At first sight, this decision may suggest that second-hand sales of downloaded music are possible. After all, software and music are both types of copyright work so, if downloaded software can be resold, why should it be any different for music? If hard copies of music can be resold, why can't downloaded copies? In principle, resales would, however, infringe the reproduction right (a second reproduction being made by the second-hand purchaser, even if the first purchaser's copy is deleted) and the communication to the public right (the reseller making available to the public access to the work). Does UsedSoft mean that these rights for all copyright works are exhausted by first sale of an electronic copy and that resale of music is allowed?
UsedSoft - the wider implications?
Parts of the UsedSoft judgment suggest it could have wider application than resale of computer programs. The court said that the distribution and communication to the public rights had no further role to play after first sale. The ECJ was also unwilling to allow exercise of the reproduction right to "render ineffective" the exhaustion of the distribution right (although the exception it relied on to permit reproductions by the second purchaser does not apply to music). An argument could also be made that downloaded music is equally a piece of software so the same rules should apply to it as apply to "traditional" software.
Our view, however, is that the UsedSoft decision does not mean that resale of music is allowed. The decision only concerned exhaustion of the distribution right of computer programs in the context of the Software Directive. The Software Directive provides a different scope of protection for computer programs than the Copyright Directive does for music. The EU legislature clearly intended that the different Directives would apply to different categories of works so it would be difficult to apply one directive to works that are more properly regulated by another, even if the technology means that there is some overlap between the works.
A reseller would face difficulties in arguing that the Copyright Directive making available right is exhausted by first sale of a music download. Recital 29, for example, says that "every on-line service is in fact an act which should be subject to authorisation where the copyright or related right so provides". Article 3(3) means that the making available right is not exhausted by previous acts of making available. The reproduction right is also not exhausted by authorising a "first reproduction" by the first purchaser.
Does free movement law permit resales?
Nonetheless, a reseller could argue that EU free movement principles mean that the rights should be exhausted. The high-profile FAPL/Karen Murphy judgment (see our note here) as applied in UsedSoft, showed how these principles can limit copyright. Restricting resales of downloaded music because they infringe copyright would, in principle, restrict free movement in the EU. Restrictions can only be justified if they protect the "specific subject-matter" of copyright i.e. the opportunity to receive appropriate (but not the highest possible) remuneration. Applying this logic to downloaded music, the ECJ could take the view (as it did in UsedSoft) that the first sale of the music provides "appropriate remuneration" and that rights holders have no power to secure additional remuneration by preventing resale and, by doing so, partitioning the internal market.
The ECJ has not yet dealt with these arguments in the online context. Earlier cases have decided that when the second use (i.e. the resale) is a form of use which forms part of the essential function of copyright and should be remunerated, the rights holder can prevent the further use and there is no exhaustion. The ECJ in Murphy accepted that further communications to the public (e.g. showing copyright works in a pub or in hotel rooms) can be prevented.
"Appropriate" remuneration is determined in relation to the actual or potential number of persons who use the service and the amount of initial remuneration earned. With online music resale, the potential audience is huge, the initial remuneration is small and it is easy to copy and distribute downloaded music so it is hard to say that the remuneration from the initial sale is appropriate and that rights holders should have no right to control further uses. This argument seems stronger from a policy perspective than the desire to ensure "technology neutrality" by not restricting digital trade where there would be no equivalent restrictions on hard copy trade.
In this light, it would be a very bold move by the ECJ to allow free movement principles to override copyright to enable resale of music.
"A reseller could argue that EU free movement principles mean that the rights should be exhausted."