Digital resale rights in the EU: the state of play

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What happens when you decide that you no longer want an e-book, film, tv episode, music track or video game which you bought and downloaded?  What happens if you decide you want to give it to a friend, relative or just someone who wants to buy it from you?  We’re in the middle of trying to find out the answer to that question.  It’s being argued out by consumers with businesses and it’s also now attracting the attention of the legal system. I thought my readers in the games and digital creative industries might like a practical summary on what’s been happening recently.  Here we go…

Back in July 2012 I wrote a lengthy analysis of a case called Oracle v UsedSoft which had just been decided by the EU’s highest court, the Court of Justice of the European Union (CJEU).  You can read that post here – as you’ll see, I thought it was the CJEU trying to make a big step in giving consumers digital resale rights – but it was filled with problems.  All that we could really reliably say was that the CJEU WANTED to give consumers digital resale rights, but the whats and hows of it were rather murky.

Since 2012, there haven’t really been any significant clarifications given in the EU about that fundamental question of whether and how consumers have digital resale rights…until now. We now have two partial developments about what the answer might be, which I’m going to discuss with you (lucky you!)

Development No. 1: Nintendo v PC Box

The PC Box case is another CJEU decision, just published this month- you can see here what I thought about its primary subject of discussion, which was to discuss the legality of game console modchips.  But there’s another angle to PC Box. This gets into legal technical detail quickly, so bear with me…

UsedSoft was a case about enterprise software (not games).  In deciding whether the enterprise software in question gave its owner resale rights, the CJEU had to look at various EU legislation including the InfoSoc Directive, the Software Directive and the Copyright Directive.  Each of these directives apply to computer programs but in overlapping ways – resolving exactly how they complement and interfere with each other is a complicated subject.  And this is just for enterprise software remember – not games.

Anyway, in UsedSoft the CJEU decided that enterprise software did give its owner a resale right in appropriate conditions (legal wonk alert: more specifically it held that, although the Copyright Directive contained wording about how the exhaustion right applies or doesn’t apply to computer programs, certain special provisions of the Software Directive meant that the exhaustion right still applied).  The case didn’t say anything explicitly about games or other creative digital works (which btw is just one of the problems in arguing that UsedSoft = digital second hand sales rights for gamers).  So, essentially, UsedSoft said that at least some software could be resold – but didn’t specifically talk about creative software products like ebooks or games.

Then along comes PC Box.  In this newer CJEU case the court looked a little at the differences between enterprise software and video games, holding that:

Videogames … constitute complex matter comprising not only a computer program but also graphic and sound elements, which, although encrypted in computer language, have a unique creative value which cannot be reduced to that encryption. In so far as the parts of a videogame … are part of its originality, they are protected, together with the entire work, by copyright in the context of the system established by Directive 2001/29 [the Copyright Directive]“.

Elsewhere in that CJEU judgment (and the earlier Advocate General opinion on the case), the court decided essentially that video games couldn’t be considered as ONLY computer programs – they contained other creative works which had to be assessed separately to the computer program underlying the video game.

[I'm going to take a moment out to underline just how important this is: the highest court in the EU decided for the first time that video games need their own legal treatment and can't just be lumped together with other computer software.  I'm pretty sure we're going to be revisiting this important statement many times in future posts.]

How does this affect UsedSoft and the argument it made for permitting digital resale rights for users?  Well, there’s nothing 100% concrete, but here’s the argument:

  • In UsedSoft the CJEU held that enterprise software and similar computer programs benefit from a digital resale right under appropriate conditions, due to the operation of the Copyright and Software Directives (in particular, the language in the Software Directive which overrode the Copyright Directive).
  • But in PC Box the CJEU argued that video games are something more than mere computer programs – they also contain creative works (governed by the Copyright Directive).
  • So does that mean the original software publisher’s right to control distribution ISN’T lost for those more creative aspects of software?  If so, then in principle either only some, or possibly none, of a video game could be resold by its user.
  • Or, put another way, does the fact that video games and other digital creative products are much more complicated from a legal perspective than enterprise software mean that users DON’T have a digital resale right in them?

That’s the argument anyway, as put forward by the IPKat and Edwards Wildman among others.

Personally, I’m a little sceptical of the argument for three reasons:

(1) The argument being made seems to arrive at some odd conclusions.  So, apparently, software can be resold (UsedSoft) unless it contains sufficiently graphical or other creative works (PC Box) which mean we’re taken into a different area of law and the resale right is lost (maybe).  But in this day and age, which computer program does NOT contain complex graphical and other creative elements?  All software worth talking about contains some form of user interface, for example, often very sophisticated.  Plus, what about digital books or films which in some respects barely qualify as software at all (even if they are digital in format)?

(2) This argument involves in depth analysis of various conflicting EU directives – this is of course a worthy thing to do if done deliberately and thoroughly.  But that’s not what the CJEU was doing here.  The CJEU has been pursuing two different chains of investigation – UsedSoft on enterprise software and PC Box on modchips in video games – which happen to end up talking about a similar area of law.  But there has as yet been no CJEU decision which actually looks squarely at video game or other digital creative resale rights.  We just have some pretty high level observations about the legal issues involved.

(3) Leaving aside the law for a moment, the CJEU in UsedSoft was, in my view, motivated by powerful policy considerations: it WANTED to give users digital resale rights in the EU and its legal analysis proceeded accordingly to achieve that.  As I wrote back in 2012, we shouldn’t underestimate the CJEU as a law-making body: if it wants to achieve a particular outcome for the functioning of the EU market, then it has significant track record in achieving it.  I don’t see that policy analysis going away anytime soon and I didn’t see it even being raised, for or against, in PC Box.  This tells me the debate isn’t near over.

Clearly, we shouldn’t focus entirely on the policy arguments and ignore what the law actually says.  On the other hand, frankly, what the law says is a bit of a mess, as the CJEU and legal commentators are both now pointing out.  So, does PC Box mean that actually there are no digital resale rights for video games or other creative works?  In my view, no – but there’s clearly a new strand to the legal debate which didn’t exist previously.

Development no. 2: VZBW v Valve

Back in around 2009, the German consumer protection regulator, the Verbraucherzentrale Bundesverband (VZBW) commenced litigation against Valve, maker of the leading PC games digital distribution platform Steam, arguing essentially that German consumers should have the ability to trade Steam accounts under German law.  After a long court battle which went to the German Supreme Court (the BGH), Valve prevailed.  The BGH decided that while a software publisher’s distribution rights were exhausted regarding a software DVD or other storage medium (and therefore consumers could resell them), German law did not require the resale right to extend to the digital software itself.  Therefore, Valve’s terms of service banning account or software trading were valid under German law.

In 2013, following the UsedSoft case, the VZBW decided to recommence its pursuit of Valve, arguing that the new CJEU case meant that now at least German consumers must have digital resale rights in their Steam accounts.

We now have the first instance decision from this second case.  My German colleagues at Osborne Clarke wrote up an analysis of the case – essentially they say that the court did not consider that UsedSoft had affected German law on the area.  This seems to suggest that the VZBW is unlikely to get far with its second attempt (although equally we haven’t seen this second attempt abandoned yet as far as I’m aware, so we can’t say definitively tet that they have failed).

What does all this mean?

The EU’s highest court decided in 2012 that it wanted to give EU consumers and businesses a digital resale right in software.  They made that decision in a way which raised all kinds of legal and practical problems.  What we’re now seeing, in a rather uncoordinated and organic way, is the EU system trying to probe exactly what that means and how it should apply in practice.  Right now this is an exercise being conducted by judges and legal commentators, but sooner or later we can expect legislatures may want to get involved by passing actual laws on digital resale rights (a process which is only just beginning in the EU now).  At that point, I hope to be able to give clearer guidance about what this means for games studios, publishers and gamers in the EU.

Plus, of course, let’s not forget that the US is going through exactly the same process under its own laws (and so far seems to be ruling AGAINST second hand sales).

So, right now all I can really say is: the games industry and other creative industries have been wrestling with second hand sales of their products for a while. Now the courts and other legal authorities in the US and EU are getting involved.  In my view they appear to be making a bit of a mess so far, but here’s hoping for greater clarity in the next year or two…

 

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