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Rights holders can control resale of digital content that is not software, rules German court

Providers of digital content other than software may prohibit the resale of their material by purchasers, a German court has ruled.25 Jun 2014

A higher regional court in Hamm found that the owners of downloadable digital content, such as video and audio files, do not lose their right to control the distribution of those works after selling it for the first time.

There is no exhaustion of copyright owners' rights to control the sale of digital content beyond the first sale of their material in a market even where the content has been transferred onto a CD or other physical medium, the court ruled.

The Hamm court drew a distinction between software and other digital content when making its judgment. It said that the distinction was justified because EU rules on the protection of computer programs confer different rights on software than is available for other downloadable copyrighted material under more general EU copyright laws.

"It is quite hard to understand the factual distinction between software and other digital content, since from the technical perspective it is just bytes, regardless whether it's music, pictures, software or movies, and from the user experience because any kind of content can be downloaded and used on a respective device the digital content it is essentially the same," said copyright law expert Igor Barabash of Pinsent Masons, the law firm behind Out-Law.com. "However, the legal explanation and differentiation made in the EU Computer Programs Directive and the Copyright Directive is not simply to be dismissed."

"The Computer Programs Directive, and the corresponding national regulations, were made to align the legal system with the factual requirements of software business and software usage. Such alignment did not happen with regard to other copyrighted content, regardless whether digital or not, since the common understanding was that the existing copyright regulations, particularly after the implementation of the 2001 Copyright Directive, were sufficient to regulate the use of copyrighted material and that the regulations are made in a media-neutral manner," Barabash said.

"This new court decision shows that the Copyright Directive that was made over 10 years ago may not be as media-neutral as it was intended to be. Therefore, I would not be surprised if this case will land before the Court of Justice of the EU to determine whether the distinction between software and other digital content is justified or not," he said.

The Hamm court was ruling in a dispute between an online mail order business and a consumer group. The consumer group had challenged contractual terms used by the business which prohibited the resale of downloadable audio files by purchasers.

In 2012 the Court of Justice of the EU (CJEU) ruled that software owners exhaust their rights to control the sale of their copyrighted products when they first sell them within the EU, regardless of whether the sale concerns a physical product or one downloaded from the internet.

It said that the original purchaser of the software can sell on 'used' copies of the software to others but that they must delete any copy they have made for their own use at the when they make that sale. However, the Court said that the original purchaser cannot divide up the number of licenses for the software they buy from the copyright owner and then sell on the right to use those licences that they do not need.

However, the court in Hamm said that the copyright laws that apply to software and those that apply to other kinds of digital content are different. It therefore found that the rules that mean software owners' rights to control resale are exhausted following the first sale of their material on a market do not apply to other copyrighted digital content.

Under the Computer Programs Directive, copyright protection is given to "the expression in any form of a computer program" and generally provides rights holders with the exclusive right to authorise "any form of distribution to the public, including the rental, of the original computer program or of copies thereof". However, the rights holders' ability to control the distribution is 'exhausted' following the "first sale" of a copy of their computer programs under the terms of the Directive "with the exception of the right to control further rental of the program or a copy thereof".

More mainstream copyright rules, set out in the EU's Copyright Directive, include similar provisions regarding the exhaustion of rights to control reselling of works, but those rules only apply to "tangible articles".

"The question of exhaustion does not arise in the case of services and online services in particular," according to a recital of the Copyright Directive. "This also applies with regard to a material copy of a work or other subject-matter made by a user of such a service with the consent of the rightholder. Therefore, the same applies to rental and lending of the original and copies of works or other subject-matter which are services by nature."

"Unlike CD-ROM or CD-I, where the intellectual property is incorporated in a material medium, namely an item of goods, every online service is in fact an act which should be subject to authorisation where the copyright or related right so provides," it said.

The Hamm court reached similar conclusions to a court in New York in 2013 which found that the trade of second-hand copyrighted digital files over the internet is prohibited unless rights holders give their permission to the activity.