Exhaustion Online with regard to Database in the EU

Exhaustion Online with regard to Database in the EU Sandro Sandri   EXHAUSTION Before explaining exhaustion online with regard to database in the European  Union, we should first start by explaining what exhaustion in an Intellectual Property  context is. 1. a) Definition The exhaustion of intellectual property rights is one of the limits of Intellectual  Property (IP) Law. After a product has been sold under the authorization of the IP owner,  the reselling, rental, lending and other third party commercial uses of IP-protected goods in  domestic and international markets is protected by the principle. Once a product is covered  by an IP right, such as by a patent right, has been sold by the Intellectual Property right  owner or by others with the consent of the owner, the Intellectual Property right is said to  be exhausted. It can no longer be exercised by the owner. This limitation is also referred to  as the Exhaustion Doctrine or First Sale Doctrine. For example, if an inventor obtains a  patent on a new kind of umbrella, the inventor (or anyone else to whom he sells his patent)  can legally prohibit other companies from making and selling this kind of umbrella, but  cannot prohibit customers who have bought this umbrella from the patent owner from  reselling the umbrella to third parties. There is a fairly broad consensus throughout the  world that this applies at least within the context of the domestic market. This is the  concept of National Exhaustion. However, there is less consensus as to what extent the  sale of an Intellectual Property protected product abroad can exhaust the IP rights over this  product in the context of domestic law. This is the concept of Regional exhaustion or  International Exhaustion. The rules and legal implications of the exhaustion largely differ  depending on the country of importation, i.e. the national jurisdiction.   The paternity of the exhaustion theory is ascribed to the German jurist Joseph  Kohler.2 The word  ´exhaustion` seems, however, to have been first used by the German  Reichsgreicht in a number of judgments in the early years of the twentieth century. In a  judgment of 26 March 1902 the Reichsgericht held, for example, that the effect of the  protection conferred by a patent (i.e. the exclusive right to manufacture products covered  with regard to Database in the European Union  by the patent and to put them on the market) was exhausted by the first sale.3 In other  words, once the patent holder had transferred legal ownership of goods made in  accordance with the patent, by selling them to another person, he lost the power to control  the further destiny of those goods subsequently. 1. b) Exhaustion in the European Union   The European Court of Justice (ECJ) has taken serious steps to harmonize the rules  of a Community-wide/regional exhaustion doctrine in the field of copyright law since the  1970s. Schovsbo called the harmonization by the ECJ as 1.-phase development of  exhaustion or negative harmonization, and the creation of directives by the competent  bodies of the EEC (and later the EU) as 2.-phase development or positive  harmonization. The first-ever decision on the exhaustion of distribution rights was handed over in  the famous Deutsche Grammophon case. Here, the ECJ based its decision on different  objectives of the EEC Treaty: the prohibition of partitioning of the market, free movement  of goods, as well as the prohibition of distortions of competition in the common market.   The European Court of Justice highlighted that prohibitions and restrictions on trade  might be applied by Member States, also in cases of copyright law, if they do not constitute  a means of arbitrary discrimination or a disguised restriction on trade between Member  States6. Based upon these, the European Court of Justice concluded that [i]f a right related  to copyright is relied upon to prevent the marketing in a Member State of products  distributed by the holder of the right or with his consent on the territory of another  Member State on the sole ground that such distribution did not take place on the national  territory, such a prohibition, which would legitimize the isolation of national markets,  would be repugnant to the essential purpose of the Treaty, which is to unite national  markets into a single market. That purpose could not be attained if, under the various legal  systems of the Member States, nationals of those States were able to partition th e market  and bring about arbitrary discrimination or disguised restrictions on trade between Member  States. Consequently, it would be in conflict with the provisions prescribing the free movement of products within the common market for a manufacturer of sound recordings to exercise the exclusive right to distribute the protected articles, conferred upon him by  the legislation of a Member State, in such a way as to prohibit the sale in that State of  products placed on the market by him or with his consent in another Member State solely  because such distribution did not occur within the territory of the first Member State.7  In the EU, the principle of exhaustion of IP rights is as follows. The holder of an  Intellectual Property right loses his absolute right with the first sale in the EU territory. In  other words, the first commercialization of a good in a territory of the European Union  made by the holder of an industrial property right, or by a legitimate licensee, has as a  consequence that that good may freely circulate in Europe, and the legitimate IP holder  may not oppose the successive acts of reselling. Using the wording of the Centrafarm Case:   It cannot be reconciled with the principles of free movement of goods under the  provisions of the Treaty of Rome if a patentee exercises his rights under the legal  provisions of one Member State to prevent marketing of a patented product in said State  when the patented product has been brought into circulation in another Member State by  the patentee or with his consent Again, this is a good example of the function of the law  as a system to solve conflicts: on one side the traditional principle of territoriality of IP  rights; on the other side the aspiration to a common market in favour of international  trade. The aim of the exhaustion theory is to strike a balance between the free movement  of goods on the one hand, and the proprietors exercise of exclusive intellectual property  rights to distribute his goods on the other hand. The holder of an IP right holds therefore   the right to choose where, under which conditions and at which price his goods are put on  the market for the first time. No need to say that international exhaustion allows parallel  imports. The theory of exhaustion obviously improved in the course of time. In order to be  applicable, various conditions have to be met. It requires the consent of the legitimate  holder (consent that may be express or implied). And it also requires that the legitimate  holder receives, with the first sale, a reasonable remuneration. Depending on the  jurisdiction concerned, one often distinguishes between national exhaustion and  international exhaustion. In the European Union the term regional exhaustion is  frequently used. Regional exhaustion, in the EU member States, means that IP rights are  considered exhausted for the territory of the EEA when the product has been put on the  market in any of the EEA Member States.   Once the principle of exhaustion was established, the EU Law incorporated it in  regulations, directives and conventions. For example, art. 7 n. 1 of the First Council  Directive of 21 December 1988 to approximate the laws of the Member States relating to  trade marks (89/104/EEC states that The trade mark shall not entitle the proprietor to  prohibit its use in relation to goods which have been put on the market in the Community  under that trade mark by the proprietor or with his consent9. Art. 13 of the Council  regulation (EC) n. 207/2009 of 26 February 2009 on the Community trade mark states that   A Community trade mark shall not entitle the proprietor to prohibit its use in relation to  goods which have been put on the market in the Community under that trade mark by the  proprietor or with his consent10.   The Information Society Directive (Directive 2001/29/EC) on the harmonization  of certain aspects of copyright and related rights in the information society refers to this  principle in paragraph 28 and 29. The Directive is a little old in relation to the high speed  of technology, but is still there.11   1. c) The principle of exhaustion in EU Case Law   In Germany, the German Supreme Court (BGH) has repeatedly acknowledged the  exhaustion principle as a precautionary principle for the entire IP law (BGH, 22 January  1964, Maja Case; BGH, 10 April 1997, Sermion II Case).   In France a large number of decisions were reported to deal with the exhaustion  principle (Commercial Chamber of the Court of Cassation, 9 April 2002 n ° 99/15428,   Cass. Com., 20 February 2007, n ° 05/11088; Cass. Com., 26 February 2008, n ° 05/19087;   Cass. Com., 7 April 2009, n ° 08/13378; CA Paris, 15 June 2011, n ° 2009/12305).   In Austria the principle of exhaustion within the EU was applied even before it was  explicitly mentioned in the Austrian Trade Mark Act (Austrian Supreme Court October 15,  1996).   9 89/104/EEC First Council Directive of 21 December 1988 to approximate the laws of the Member States  relating to trade marks   10 COUNCIL REGULATION (EC) No 207/2009   11 Directive 2001/29/EC   Exhaustion Online with regard to Database in the European Union 2- DATABASE   The protection of electronic databases was first considered by the EC Commission  in the 1998 Green Paper. An initial proposal was adopted on January 29, 1992, and was  greeted, at least in the United Kingdom (which has the largest database industry in the  Community) by a considerable degree of opposition, due to the perceived reduction in  protection for many factual and numerical databases.12   Regarding the concept of database, we should say that it is a collection of  independent works, data or other materials arranged in a systematic or methodical way and  individually accessible by electronic or other means which can include literary, artistic,  musical or other collections of works or collections of other material such as texts, sound,  images, numbers, facts.13 Databases in the European Union are regulated through Directive  96/9/EC, also known as the Database Directive. It is an European Union Directive in the  field of Intellectual Property Law, made under the internal market provisions of the Treaty  of Rome. It harmonizes the treatment of databases under copyright law and the sui generis  right for the creators of databases which do not qualify for copyright.   The exhaustion principle does not allow the reproduction of data. The German  Supreme Court has confirmed this: it held that if there is extraction of a substantial part of  the database, there is no exhaustion as exhaustion covers the right of distribution and not  extraction.14 Online electronic databases cannot benefit from the exhaustion principle. The  database must have been sold. If it is given free of charge, the principle of exhaustion does  not apply. The CJEU held this to be so in the field of trademarks in Peak Holding v Axolin-  Elinor and later confirmed it in LOreal v eBay.15 There is no reason why these decisions  would not apply here by analogy as the term used in Article 7(2)(b) is sale. The same  applies to Article 5(c) in the copyright chapter of the Database Directive.   Article 7 furthermore specifies acts of temporary or ephemeral copying as  extraction.112 In contrast to the initial draft, which required a commercial intention,   12 E.C. Intellectual Property Materials, Sweet Maxwells, 1994, 1 (F) Amended Proposals of 4 October 1993  for a Council Directive on the legal protection of databases (COM (93) 464 final SYN 393) [1993] O.J.  C308/1, p. 36 13 Article 7(1) DDir (96/9/EC)   14 Marktstudien (Market Surveys), 21 April 2005, Case I ZR 1/02[2005] GRUR 940; [2006] IIC 489   15 Case C-16/03 Peak Holding v Axolin-Elinor [2004] ECR I-11313 and Case C-324/09 LOreal v eBay [2011]   ETMR 52   Exhaustion Online with regard to Database in the European Union  consent is required for loading a database into a computer RAM, as this will copy the entire  database. The consequences of prohibiting acts of temporary or even ephemeral copies   such as caching is an inconsistency between online and offline databases. Whereas an  offline database such as a CD-ROM or a smaller database technically requires RAM  storage of a substantial part, accessing a large online database normally merely requires the  copy of the entries accessed to be copied.16   Exhaustion only applies to databases in tangible format. If someone lawfully  acquired a tangible copy of the databases, the right holder will not be able to control its  resale within the European Union. However, in two cases, there will arguably not be  exhaustion. The reason is the use of the narrow word sale and resale. First, there will not  be exhaustion when the right holder gave rather than sold the database. In this case, the  right to control distribution remains. Thus, the sale of a copy of a database distributed  freely by the maker, may infringe.17 The second case is when the purchaser wishes to give  the database instead of reselling it. It seems that, in that case, the gift of the database by the  person who acquired it can also be controlled by the right holder.   It must be noted that, in a recent case, 18the Versailles Court of Appeal surprisingly  held that, for a database producer to benefit from her rights of extraction and reutilization,  she must have asserted it previously, before any infringement act is committed. The  mention of the interdiction to extract or reutilize contents from the database becomes a  condition of opposability of the sui generis right granted to the database maker by Article L.  342-2 of the IPC. The claimant lost her case since she did not make such mention on the  website she created. This decision seems to add a condition which does not exist in the  Directive. The sui generis right is not dependant on any formality.   Two German courts held that the creation of deep links is not an infringement of  the sui generis right19. This is not surprising since it is difficult to see how a deep link is an act  of extraction or reutilization.   Under Article 3, databases which, by reason of the selection or arrangement of  their contents, constitute the authors own intellectual creation are protected by copyright  16 Guido Westkamp, Protecting databases under US and European law methodical approaches to the  protection of investments between unfair competition and intellectual property concepts, 2003   17 Bently Sherman 2004, p. 303   18 Rojo R. v Guy R., CA Versailles, 18 November 2004, available on http://www.legalis.net.   19 SV on line GmbH v Net-Clipping, OLG Munich, 9 November, 2000 [2001] ZUM 255; Handelsblatt v Paperboy,   OLG Cologne, 27 October 2000 [2001] ZUM 414; BGH, 17 July 2003 [2003] Cri.   as collections: no other criterion may be used by Member States. This may be a relaxation  of the criterion for protection of collections in the Berne Convention for the Protection of  Literary and Artistic Works,[2] which covers collections of literary and artistic works and  requires creativity in the selection and arrangement of the contents: in practice the  difference is likely to be slight. Any copyright in the database is separate from and without  prejudice to the copyright in the entries.   Copyright protection is not available for databases which aim to be complete,  that is where the entries are selected by objective criteria: these are covered by sui  generis database rights. While copyright protects the creativity of an author, database rights  specifically protect the qualitatively and/or quantitatively [a] substantial investment in  either the obtaining, verification or presentation of the contents: if there has not been  substantial investment (which need not be financial), the database will not be protected  [Art. 7(1)]. Database rights are held in the first instance by the person or corporation which  made the substantial investment, so long as: the person is a national or domiciliary of a  Member State or the corporation is formed according to the laws of a Member State and  has its registered office or principal place of business within the European Union.   The holder of database rights may prohibit the extraction and/or re-utilization of  the whole or of a substantial part of the contents: the substantial part is evaluated  qualitatively and/or quantitatively and reutilization is subject to the exhaustion of rights.   Public lending is not an act of extraction or re-utilization. The lawful user of a database  which is available to the public may freely extract and/or re-use insubstantial parts of the  database (Art. 8): the holder of database rights may not place restrictions of the purpose to  which the insubstantial parts are used. However, users may not perform acts which  conflict with normal exploitation of the database or unreasonably prejudice the legitimate  interests of the maker of the database, nor prejudice any copyright in the entries. The  same limitations may be provided to database rights as to copyright in databases (Art. 9):  extraction for private purposes of the contents of a non-electronic database; extraction for  the purposes of illustration for teaching or scientific research, as long as the source is  indicated and to the extent justified by the non-commercial purpose to be achieved;  extraction and/or re-utilization for the purposes of public security or an administrative or  judicial procedure. Database rights last for fifteen years from the end of the year that the database was  made available to the public, or from the end of the year of completion for private  databases (Art. 10). Any substantial change which could be considered to be a substantial  new investment will lead to a new term of database rights, which could, in principle, be  perpetual. Database rights are independent of any copyright in the database, and the two  could, in principle, be held by different people (especially in jurisdictions which prohibit  the corporate ownership of copyright): as such, database rights can be compared to the  rights of phonogram and film producers.20   3- CONCLUSION The idea of digital first sale doctrine imploded into the mainstream copyright  discussion only a few years ago, although it has already been discussed for almost two  decades. The problem was reflected by academia, case law and legislature as well. Although  notable sources take the view that the concept of digital exhaustion deserves support, the  majority of commentators refused to accept this idea. Likewise, legislative proposals that  were submitted to the German Bundestag and the Congress of the United States, were  ultimately refused by the relevant national parliaments (or were not even discussed by them).   Under the traditional, positivist vision of copyright law, any similar ideas are condemned to  death at the moment, especially in the light of the WCT Agreed Statement. Similarly, the  CJEUs constructive interpretation of the international and regional copyright norms led to  flawed argumentation. However, significant economic, social and technological arguments  support the view that it is time to reconsider at international legislative level.   It looks like it is time to adapt the principle of exhaustion on an online perspective.  Technology goes faster than law, so when the law goes a step forward, a new problem  arises. Streaming and cloud computing are good examples. The majority of Reports  acknowledge the problems, and underline various aspects. The first is that the principle of  exhaustion of intellectual property rights was elaborated and developed in a time when  goods and services were mainly material and sold and distributed through material and  traditional channels. This approach is overturned by the new technologies. The second is  that it is no longer possible to distinguish, as far as the principle of exhaustion is  concerned, but also in general, among industrial property and intellectual property.   Copyright is expanding. The third is that it is more and more difficult to separate and  distinguish traditional industry and online industry as well as material and immaterial goods   20 Intellectual Property Law, Trevor Cook, 2010   Exhaustion Online with regard to Database in the European Union  and services. The majority of the Reports are of the opinion that on-line infringement of  intellectual property rights is normally dealt with the ordinary rules of civil procedure, and  that there is no particular necessity of elaborating new ones. The difficulties of enforcing  decisions abroad against foreign on line infringers in copyright cases are the usual ones,  common in the legal praxis when a decision must be enforced against foreign infringers.21  Dennis S. Karjalas thoughts serve as a great point to finish with. He stressed that  either we believe in the first-sale doctrine in the digital age or we do not. If we no longer  believe in it, we should discard it openly and not through verbal gymnastics interpreting the  definition of copy for the purposes of the statutes reproduction right. Nor should our  definition of copy force systems engineers into unduly intricate or artificial designs simply  to protect the right of the owner of a copy of a music file to transfer that file, provided that  no copies derived from the transferred file are retained.22   21 To what extent does the principle of exhaustion of IP rights apply to the on-line industry? Avv. Prof.   Vincenzo Franceschelli, 2014.   22 Dennis S. Karjala: Copying and Piracy in the Digital Age, Washburn Law Journal, 2013: p. 255.   Exhaustion Online with regard to Database in the European Union   BIBLIOGRAPHY à ¯Ã¢â‚¬Å¡Ã‚ · Bently Sherman 2004, p. 303 à ¯Ã¢â‚¬Å¡Ã‚ · David T. Keeling, Intellectual Property Rights in EU Law Volume 1 à ¯Ã¢â‚¬Å¡Ã‚ · Dennis S. Karjala: Copying and Piracy in the Digital Age, Washburn Law Journal, 2013 à ¯Ã¢â‚¬Å¡Ã‚ · Guido Westkamp, Protecting databases under US and European law methodical approaches to the protection of investments between unfair competition and intellectual property concepts, 2003 à ¯Ã¢â‚¬Å¡Ã‚ · Jens Schovsbo: The Exhaustion of Rights and Common Principles of European Intellectual Property Law. à ¯Ã¢â‚¬Å¡Ã‚ · Sweet Maxwells, E.C. Intellectual Property Materials à ¯Ã¢â‚¬Å¡Ã‚ · T. de las Heras Lorenzo, El agotamiento del derecho de marca, Editorial Montecorvo, Madrid, 1994, p. 47; à ¯Ã¢â‚¬Å¡Ã‚ · Trevor Cook, Intellectual Property Law, 2010 à ¯Ã¢â‚¬Å¡Ã‚ · Vincenzo Franceschelli, To what extent does the principle of exhaustion of IP rights apply to the on-line industry? 2014. à ¯Ã¢â‚¬Å¡Ã‚ · Centrafarm B.V. and Adriaan de Peijper v. Sterling Drug Inc., in 6 IIC 102 (1975). à ¯Ã¢â‚¬Å¡Ã‚ · 89/104/EEC First Council Directive of 21 December 1988 to approximate the laws of the Member States relating to trade marks à ¯Ã¢â‚¬Å¡Ã‚ · Deutsche Grammophon Gesellschaft mbH v Metro-SB-Großmà ¤rkte GmbH Co. KG. 8 June 1971, European Court Reports à ¯Ã¢â‚¬Å¡Ã‚ · Guajakol-Karbonat RGZ 51, 139. à ¯Ã¢â‚¬Å¡Ã‚ · LOreal v eBay à ¯Ã¢â‚¬Å¡Ã‚ · Marktstudien (Market Surveys), 21 April 2005, Case I ZR 1/02[2005] GRUR 940; [2006] IIC 489 à ¯Ã¢â‚¬Å¡Ã‚ · Peak Holding v Axolin-Elinor à ¯Ã¢â‚¬Å¡Ã‚ · Rojo R. v Guy R., CA Versailles, 18 November 2004, available on à ¯Ã¢â‚¬Å¡Ã‚ · COUNCIL REGULATION (EC) No 207/2009 à ¯Ã¢â‚¬Å¡Ã‚ · Directive 2001/29/EC à ¯Ã¢â‚¬Å¡Ã‚ · International Exhaustion and Parallel Importation 1 International Exhaustion and Parallel Importation http://www.wipo.int/sme/en/ip_business/export/international_exhaustion.htm 2 T. de las Heras Lorenzo, El agotamiento del derecho de marca, Editorial Montecorvo, Madrid, 1994, p. 47; F.-K.   Beier,  ´Grenzen der Erschà ¶pfungslehre im Markenrecht; zur Beurteilung des Vertriebs umgepackter und neu  gekennzeichtner Originawaren in den Là ¤ndern der Europà ¤ischen Wirtschaftsgemeinschaft.   Exhaustion Online   3 Guajakol-Karbonat RGZ 51, 139. 4 Intellectual Property Rights in EU Law Volume 1, David T. Keeling, p. 75-76 5 Jens Schovsbo: The Exhaustion of Rights and Common Principles of European Intellectual Property Law. In: Ansgar Ohly: Common Principles of European Intellectual Property Law, Mohr Siebeck, Tà ¼bingen, 2010: p. 170. 6 Case 78/70 Deutsche Grammophon Gesellschaft mbH v Metro-SB-Großmà ¤rkte GmbH Co. KG., 8 June 1971, European Court Reports, 1971: pp. 499 500., para. 5-11. Compare to Article 36 of the EEC Treaty. On the application of Article 36 of the EEC Treaty see: Nial Fennelly: Rules and Exceptions: Freedom of Movement and Intellectual Property Rights in the European Union. In: Hugh C. Hansen: International Intellectual Property Law Policy, Volume 5, Juris Publishing, Huntington, 2003: pp. 33-4 33-11. Exhaustion Online with regard to Database in the European Union 7 Case 78/70, supra note 64, p. 500., para. 12-13.   8 verbatim Centrafarm B.V. and Adriaan de Peijper v. Sterling Drug Inc., in 6 IIC 102 (1975).   Exhaustion Online with regard to Database in the European Union