In the CPD, the reproduction right is granted by way of Article 4(1)(a). It provides that any “permanent or temporary reproduction of a computer program by any means and in any form, in part or in whole” can only be undertaken with the authorisation of the rightholder. The distribution right is to be found in Article 4(1)(c), which gives the author the right to control “any form of distribution to the public, including the rental, of the original computer program or of copies thereof.”

The principle of exhaustion is also codified in the Directive, and appears in Article 4(2):

The first sale in the Community of a copy of a program by the rightholder or with his consent shall exhaust the distribution right within the Community of that copy, with the exception of the right to control further rental of the program or a copy thereof.

There are two key elements to this provision. First, there is the term ‘first sale’. According to Oracle, what was occurring when a consumer downloaded its software and concluded a user licence was not a sale, but a licence. As such, if exhaustion was to apply at all, the Court would have to find a way of viewing the contractual licence concluded between the parties as a ‘first sale’. Second, we must consider the wording ‘that copy’. In the physical world, where a rightholder authorises the distribution of a particular copy in the EU, his or her right of further distribution is said to be ‘exhausted’ and the purchaser is free to resell it to whomever he chooses, with no obligation to the rightholder.⁶ The exhaustion doctrine, however, as envisaged and developed by the EU Courts, had up until the UsedSoft ruling been applied only to physical copies of a work, where it is only ever ‘that copy’ under consideration. The digital context brings difficulties for this wording as it is not the original copy being passed along, but a new one.

A final provision, which is specific to the CPD but was critical for the CJEU’s ruling, is a qualification for the exclusive right of reproduction. Article 5(1) provides that:

In the absence of specific contractual provisions, the acts referred to in points (a) and (b) [the right of he translation, adaptation, arrangement or alteration] of Article 4(1) shall not require authorisation by the rightholder where they are necessary for the use of the computer program by the lawful acquirer in accordance with its intended purpose, including for error correction.

The transaction at issue was labelled by Oracle as a ‘licence’, incurring no transfer of ownership. Rather than the user having to access the program via a physical CD-ROM loaded onto a computer, any consumer could, via the Oracle website, download a copy of the software free of charge. ⁷ However, the download can only be made useable where a user agreement has been concluded with Oracle. This agreement gives a “non-exclusive and non-transferrable user right for an unlimited period for that program”.⁸

The technicalities of the contested ‘resale’ were such that, when the first acquirer chooses to resell the software via UsedSoft, he is only reselling the user agreement and not the copy of the software which he downloaded from the Oracle website. Thus, the second acquirer would actually only have the user agreement transferred via UsedSoft, and would take it upon himself or herself to download the software from the Oracle site. To use the software, the second acquirer would require both the ‘second-hand’ licence and the newly downloaded copy of the software; no reproduction of the software necessarily takes place in the process. Nonetheless, as we will see, the Court considered that the reproduction right did risk being infringed.

Dealing with Question 2 first, the CJEU addressed the question of whether the transaction at issue was a “first sale or other transfer of ownership” which can be subject to the distribution right. If the transaction could not be categorised as such, no exhaustion could take place.

To interpret the meaning of ‘first sale’, the Court drew upon a “commonly accepted definition” of a sale, which necessarily involves a transfer of ownership, be it in the form of a tangible or intangible item.⁹ At the core of the categorisation of what looked like a licence that was in fact a ‘sale’ was the perpetuity of the right of use, which was not limited in time.¹⁰ By the fact that the right of use granted was perpetual in nature and “designed to enable the copyright holder to obtain a remuneration corresponding to the economic value of the copy of the work of which he is the proprietor”,¹¹ the Court felt warranted to conclude that the contract at hand was one of sale rather than a licence. The result of this was that the transaction could be categorised as one of distribution, with the consequence that – since a ‘first sale’ had taken place – exhaustion could plausibly come into play.

However, at this point the transferral of the exhaustion doctrine, as codified by Article 4(2) of the CPD, from the tangible world to the intangible one becomes slippery. For e-exhaustion to be possible, the Court must consider the novel interaction between the distribution and reproduction rights, an interaction that was not at issue in the world of physical goods where it was simply that same copy being passed to a new owner. This intangible-only connection between the reproduction right and the distribution right is reminiscent of a ‘hen-and-egg’ type situation:¹² the two rights, which previously held separate existences, are now forced to interact.¹³ The Court found that the purpose of Oracle allowing free downloads, exploitable only upon conclusion of a user licence, was to make the copy useable by the consumer: The agreement and the download form a whole since both parts are necessary for use.¹⁴ As noted above, the resale in UsedSoft was in reality of the licence alone (there was no passing along of the first acquirer’s copy of the software); however, the CJEU created a link in finding that the agreement and the download were indivisible and must be “examined as a whole for the purposes of their legal classification”.¹⁵ As such, the Court in UsedSoft considered that the reproduction right was indeed at issue.¹⁶ It is interesting to note, however, that this set-up is quite uncommon for the distribution of copyrighted content other than software; for e-books, music and film, for example, the conclusion of the user agreement and the downloading of the content take place almost instantaneously, one leading to the other.¹⁷ In these situations, the reproduction right more clearly comes into play, since a second copy must be created on the new ‘owner’s’ hardware.

The true ingenuity of the Court’s initial finding that a download could be a ‘sale’ comes in its application of this to the provisions of the CPD. As a distribution, there is a right that can be exhausted; when exhausted, any subsequent acquirer becomes a ‘lawful acquirer’ within the meaning of Article 5(1). That second acquirer can then, as provided by Article 4(1)(a), make any reproduction ‘necessary for use’ without the authorisation of the rightholder. However, this finding was not unconditional. Underpinning the expansion of the doctrine was the notion that the tangible and intangible worlds should be treated as functionally, but not formally, equivalent.¹⁸ As such, it is only if the original acquirer “make[s] the copy downloaded onto his computer unusable at the time of its resale” that he can “avoid infringing the rightholder’s exclusive right of reproduction”. In essence, the Court adapted the tangible rule to take into account the qualitative difference between tangible and intangible content that comes with the ease of reproduction, but did so in such a way that the same outcome (creation of an aftermarket^{19) could be achieved.}

With the details of the decision now clear, we can look to how this formulation holds up against the broader legislative landscape. Indeed, despite this new forced interaction between the distribution and reproduction rights, the next section shows that they are still nonetheless two separate rights under the legislative framework established by the WCT. Further, the WCT sets out another right – the right to make works available for digital interactive transmission – which was wholly neglected by the Court in UsedSoft. These formalistic points alongside the lack of replication in the EUCD of the provisions of Articles 5(1) and 4(1)(a) which allowed the conclusions above would seem to render the UsedSoft decision something of a one-shot comet.

Known as the ‘Internet treaties’, the WCT and the WIPO Performances and Phonograms Treaty were adopted by the Member States of WIPO in 1996.²⁰ As well as providing for distribution and communication rights,²¹ the WCT covers situations of “digital interactive transmission^{22” through the introduction of a new exclusive right for authors covering the “making available to the public of their works in such a way that members of the public may access these works from a place and at a time individually chosen by them”.23}

In UsedSoft, it seems clear that Oracle’s right to ‘make available’ its software was at issue when UsedSoft “promoted an ‘Oracle Special Offer’ in which it offered for sale [via the Internet] ‘already used’ licences for the Oracle programs”. ²⁴ This would appear to be all the more so given the Court’s willingness to see the download and the licences as “indivisibly linked”.²⁵ It seems rather strange then that in UsedSoft the Court made no reference to this new WCT-based right in its ruling.²⁶ Why might this be the case?

A clue in this respect is that the ‘making available’ right does not appear in the text of the CPD itself. A possible explanation for this omission could lie in timing; although the CJEU cites the current CPD, Directive 2009/24/EC, the substantive provisions of this Directive were actually adopted in 1991, prior to the WCT.²⁷ Directive 2009/24/EC is in fact a “straightforward codification”²⁸ of consolidated amendments to the original Directive. Nonetheless, the failure to incorporate these rights into the 2009 Directive can and should be read as a severe defect on the part of the drafters.²⁹ In fact, the Commission’s Report to the Council, the EP and the Economic and Social Committee on the implementation of the CPD dated 2000³⁰ does make reference to the WCT. The Commission’s Report states that:

Whilst Article 4 (c) is capable of such a wide interpretation [so as not to be “limited to the distribution of tangible copies of a computer program on floppy disks”], the author’s exclusive right of authorising any making available to the public of the work in such a way that members of the public may access it from a place and at a time individually chosen by them (cf. Article 8 WCT) is currently not provided for. Under these circumstances the need for the Community to ensure compliance with WCT requirements by providing for complementary rules on making available of computer programs is being taken into account in the proposal for a Directive on copyright and related rights in the Information Society. [31

This can be used to criticise the argument used by the CJEU that the CPD is ‘lex specialis’. The CPD simply does not provide authors with an exclusive right to make their works available which, due to the hierarchical nature of international treaties, it should. Article 216(2) of the TFEU provides that such “agreements concluded by the Union are binding upon the institutions of the Union and on its Member States” and, as a matter of international law, Article 26 of the Vienna Convention on the Law of Treaties provides that “every treaty in force is binding upon the parties to it and must be performed by them in good faith”. As such, from the moment the WCT was concluded, the EU came under an international law – and EU Treaty – obligation to implement it and ensure compliance with its provisions.³² This obviously leads the ruling to come under some fire, and the above quote could give force to an argument that the CPD being defective in this respect should have been read in light of the EUCD. This is all the more so upon a reading of Article 1(2)(a) of the EUCD, which provides that “this Directive shall leave intact and shall in no way affect existing Community provisions relating to the legal protection of computer programs”. In the view of the present author, had the Court relied on the EUCD to invoke the ‘making available’ right and for interpretative guidance in this respect, it could still have left the provisions on computer programs intact and caused no disruption the relationship between the two Directives.

Knowing that the ‘making available’ right is implemented in the EUCD, this should provide an extra layer to shield the expansion of e-exhaustion to other digital content: Only the distribution right is exhaustible, not the making available or reproduction rights. Would the Court really push the boundaries so far as to overlook this right specifically envisaged to provide authors with the ability to authorize every act of making available on the Internet for digital interactive transmission?

In addition, the very categorisation of the making available right in the EUCD is relevant and could also be used to keep big bang theorists at bay. The ‘making available’ right described above was envisaged as a “neutral, legal-characterization-free description of interactive transmissions”:³³ It leaves contracting states with relative freedom as to how they categorise it, which can be under the communication right or the distribution right.³⁴ Since the CPD makes no mention of a ‘making available’ right, it could be something of a guessing game to ascertain which way the European legislator would have gone in this respect.³⁵ However, taking advantage of the ‘umbrella solution’ offered by the WCT, we can see in the preparatory documents leading up to the EUCD that legislative intent was to characterise ‘making available’ under the communication right, in which case the question of distribution of ‘digital interactive transmissions’ – even if these were in the form of downloads – would not arise.³⁶ However, for big bang theorists wishing to advocate in favour of a making-available-as-distribution-thus-exhaustible approach, this point could be contested on the basis of the initial 1995 Green Paper, which seemed to indicate categorisation as closer to distribution, perhaps as a form of rental,³⁷ while the post-WCT proposal seems to have had primarily non-copy-related uses in mind rather than the type of situations entailing downloads to be stored and accessed by the user.

From the Commission’s report on the implementation of the CPD cited above and recital 29 to the EUCD, however, we can discount any legislative intent for exhaustion to apply to the resale of intangibles without a material medium. Speaking of the 1991 CPD, the Commission states that:

As to the exhaustion of copyright it must be borne in mind that under the Directive Community exhaustion only applies to the sale of copies i.e. goods, whereas supply through on-line services does not entail exhaustion. [38

The issue as to possible exhaustion of intangibles also appears to be clarified by Recital 29, which provides that:

The question of exhaustion does not arise in the case of services and on-line services in particular. 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.

Rather than a simple statement reiterating that the communication right cannot be exhausted as is the view of some authors, to the present author, the second sentence was not in fact required by the WCT and represents an active choice on the part of the EU legislator to restrain the distribution right from applying to any intangible. To understand this notion requires some additional information about the WCT: Article 6 on the right of distribution provides that:

The AS qualifies that “the expressions ‘copies’ and ‘original and copies,’ being subject to the right of distribution […] refer exclusively to fixed copies that can be put into circulation as tangible objects”.

AS 6 can, however, be read as allowing for the exhaustion of intangibles where contracting states have chosen these to be characterised as ‘distributions’ under the umbrella solution and if they view such transactions as a “first sale or other transfer of ownership”.³⁹ This is on the basis that the provision of a distribution right over tangible goods is the minimum level of protection set out by the Treaty. States can choose to go beyond this and apply the distribution right to intangibles such as downloads. However, even then the scope of exhaustion is still narrowly set and likely to be of little commercial significance: it still only covers that (downloaded) copy. This would only enable, for example, a user who stored a music download on his or her iPod to sell the iPod along with the content, since no further invocation of the making available or exhaustion rights takes place.⁴⁰ The second sentence of recital 29 can be read as indicative that the legislator did not intend to go beyond the minimum provision of a distribution right over tangible goods and did not wish this to extend to intangibles also. As such, this reading of the EUCD, and with the Report of the Commission on the implementation of the CPD in mind, it seems that the Court in UsedSoft was going beyond what was intended by the legislator.

A final point to the effect that UsedSoft cannot be expanded beyond the CPD can be made on point of legal construction: If the UsedSoft decision was decided under the EUCD, the Court’s modicum of creativity in overcoming the reproduction copy hurdle could not have been conceived because – private copying aside⁴¹ – there is no allowance for a ‘lawful acquirer’ to create a reproduction copy without the authorisation of the rightholder.

Already, we have seen this point arise in a regional court decision stemming from Bielefeld, Germany, where it was found that the cross-application of the CPD reasoning to the EUCD context was not possible.⁴² Therein, the Bielefeld Court paid particular attention to the difference between the EUCD and the CPD in the way that they treat reproduction copies. In the view of the present author, this distinction is warranted given that the CJEU in UsedSoft at no point strayed from a ruling on the CPD alone in its consideration of questions 1 and 3. The CPD – but not the EUCD – provides a ‘get around’ for the reproduction copy in the form of Article 5(1). Thus under the CPD alone could the CJEU find that if the reproduction was necessary for use, then a second acquirer could be a lawful acquirer. Were the EUCD to contain a provision similar to Article 4(1)(a) CPD, the possibility for a broader e-exhaustion doctrine to be read into the ruling could be feasible. But the reality is that, without this reproduction get around, the UsedSoft ruling is more likely to be contained to future rulings on the CPD alone.

The UsedSoft ruling has been described as being “firmly purposive”⁴³ in nature. However, to describe it as such we must first consider what norms the Court was attempting to preserve. From the above, it seems clear that the legislator was not seeking simply to preserve the copyright framework as set out in the WCT. If the intent of the legislator behind the Directives at hand was to implement – or at least not neglect – the WCT, then a purposive construction would seem unfitting. What then did the Court have in mind?

One clue to the Court’s doggedness in the ruling points stems from the motive of protecting the very principle of exhaustion itself. This is apparent from the key paragraph 49, whereby the Court senses that any alternative ruling would “divest [the rule of exhaustion] of all scope”.⁴⁴ The nature of the exhaustion rule that the Court wishes to preserve is, however, what the Court itself wants to make of it. While it has been argued that exhaustion is an act of balance, thus making its aim to place a limit on the significant rights bestowed upon intellectual property owners under national law, in the EU context, the “promulgation of an overarching European exhaustion principle has been, if at all, a response to the dynamics of shaping a single market rather than an attempt to approximate intellectual property laws”.⁴⁵

Thus, beyond preservation of the purpose of exhaustion as an objective unto itself, we should read the underlying aim as to “avoid partitioning of markets” and “to limit restrictions of the distribution of those works to what is necessary to safeguard the specific subject-matter of the intellectual property concerned”.⁴⁶ In order to protect these internal market aims, the Court engaged in reasoning based in a sense of ‘equivalence’;⁴⁷ essentially it asked why online and offline markets should be treated differently if downloading is the “functional equivalent of the supply of a material medium”⁴⁸ and “from an economic point of view [they] are similar”.⁴⁹

A sense of ‘equivalence’ is to be found throughout the ruling.⁵⁰ To the Court, it “makes no difference” whether the software is made available through a download or a CD-ROM or DVD.⁵¹ The permanency of the use, which is granted “for an unlimited period in return for payment of a fee”, leads the Court to determine that both downloads and physical sales constitute “transfer of the right of ownership of that copy”.⁵² This sense is also clear when, in response to Oracle’s submission that policing the deletion is difficult, the Court responds by saying that in a like situation with a physical medium – a CD-ROM or DVD – the ability to control reproductions is equally hard but “it is permissible for the distributor – whether ‘classic’ or ‘digital’ – to make use of technical protective measures such as product keys”.⁵³ While the Court is firm in its conviction that downloads are functional equivalents for consumers, it does perhaps simplify the matter.⁵⁴

Paragraph 61 reads:

It should be added that, from an economic point of view, the sale of a computer program on CD-ROM or DVD and the sale of a program by downloading from the internet are similar. The on-line transmission method is the functional equivalent of the supply of a material medium. Interpreting Article 4(2) of Directive 2009/24 in the light of the principle of equal treatment confirms that the exhaustion of the distribution right under that provision takes effect after the first sale in the European Union of a copy of a computer program by the copyright holder or with his consent, regardless of whether the sale relates to a tangible or an intangible copy of the program.

If we simply replace the reference to computer programs with ‘e-book’ or ‘downloaded music file’ then we get the distinct feeling that the implications of UsedSoft could be much broader than it first appears. Looking at the second sentence of this paragraph, the Court’s reference to equal treatment as a justification for treating tangibles and intangibles alike could have wide repercussions.

As a general principle, equal treatment means that “comparable situations must not be treated differently, and different situations must not be treated in the same way unless such treatment is objectively justified”.⁵⁵ In the field of economic law, this principle is applied to avoid distortions of competition for the purposes of completing the internal market, and so recourse to equal treatment is in keeping with the objectives set out in the above section.⁵⁶ However, presenting intangible downloads as the ‘functional equivalent’ of physical sales implies that the two are comparable so as to warrant the application of the principle of equal treatment. This could be taken already from the ruling insofar as the Court concludes that a ‘sale’ is taking place; however, the second sentence of this paragraph is particularly menacing if it could be taken to mean that based solely on the substitutive capacity of online transmissions for the supply on a material medium, the principle of equal treatment necessitates that the exhaustion doctrine also encompasses e-exhaustion.

Under this reading of paragraph 61, the implications are much wider, but strangely for a statement based on general principles the Court does not consider any objective justifications for a difference in treatment. The reason for this omission could lie in the nature of the call to general principles itself – the Court inserts paragraph 61 after it has already established that, on the basis of the objectives of the CPD (or, somewhat less convincingly, on the lack of evidence of any legislative intent to differentiate), the computer programs on any medium should be subject to the same treatment.⁵⁷ Tridimas notes that where equality is a ground for review of Community measures (here the CPD), “the application of the principle is qualified by the discretion of the Community legislature and the Court focuses more on the objectives of the measure at issue”; the Court already noted that the CPD was not intended to differentiate and so it did not need to investigate further.

Although its statement reasons towards across-the-board equivalence of intangibles and tangibles on the basis of the general principle of equal treatment, developments along these lines should be approached with caution. The situation of e-books is a case in point, with rumours abounding that the Netherlands Public Library Association (VOB) has started a test case against Stichting Leenrecht (the Dutch public lending right collecting agency), in which it has asked the Regional Court of the Hague to refer questions to the CJEU on whether libraries have a legal right to e-lending based on an ‘electronic interpretation’ of the Rental and Lending Right Directive 2006,⁵⁸ as justified by the UsedSoft decision.⁵⁹ This case would be of particular interest since the same doubts as to the legislative intent behind e-exhaustion arise in the rental context as in the CD, as expressed above. With this (potential) case in mind, it still remains to be discerned whether e-books and books are comparable, although it can be noted that for the CJEU at least the potential of substitutability has been accepted as sufficient support for a finding of comparability.⁶⁰ A bigger stumbling block could lie in any objective justifications that can be argued for a difference in treatment. Here, most certainly, the lack of reliability of the ‘original acquirer deletes’ method proposed by the Court would seem to justify that across-the-board e-exhaustion is not justified unless a greater means is provided for rightholders to protect themselves against the nemesis ‘additional copy’.

This article has sought to address the question of whether the UsedSoft ruling is a one-shot comet or whether it could be expanded with a big bang effect for the exhaustion of downloads of content other than software. Looking at the word of the WCT alone and reading the CPD and EUCD in such a way as to implement this Treaty, it is clear that the UsedSoft ruling does not line up in a number of respects. To the present author, it seems unlikely that the making available right can remain ‘missing in action’ when we transfer to the EUCD, which is after all the Directive that concerns the majority of digital content and seems all the more relevant after the Nintendo ruling of January 2014.⁷⁰ Further, there appears to be specific legislative intent not to allow e-exhaustion under the EUCD and a lack of foundation therein under which the reproduction ‘trick’ the Court pulled off using Article 5(2) of the CPD could be repeated.

Nonetheless, although the strict word of the law does not support any extension of UsedSoft, the ruling itself shows that the Court seems to have another – much bigger – plan up its sleeve. Batchelor sees in UsedSoft “a court determined to make the free movement and exhaustion principles of the off-line world… [apply] to a digital world”,⁷¹ but one whose “commitment to ideology” could be seen as coming “at the expense of legal certainty”. This sentiment is also held by the present author: With more overarching principles in mind, which undoubtedly go beyond the copyright framework alone, it is conceivable that the impact of the ruling could indeed be much broader than software, despite first appearances.