Tom Kabinet - the Aftermath Subtitle: a Critical Evaluation of the CJEU's Judgment and Its Market Effects on Digital Distribution

Department of Law

Spring Term 2020

Master Programme in Intellectual Property Law Master’s Thesis 30 ECTS

Title: Tom Kabinet - The Aftermath Subtitle: A critical evaluation of the CJEU's judgment and its market effects on digital distribution

Author: Vahagn Grigoryan Supervisor: Kacper Szkalej

ACKNOWLEDGEMENTS

This study has been produced during my scholarship period at Uppsala University, thanks to the Swedish Institute (SI) scholarship, which financially supported my studies.

ABSTRACT

On the 19th of December 2019, the Court of Justice of the European Union ruled: "The supply to the public by downloading, for permanent use, of an e-book is covered by the concept of ‘communication to the public’ ..." This judgment ("Tom Kabinet judgment") solved a long debate whether "digital exhaustion" exists or not, in favour of the latter. This study is dedicated to the analysis of Tom Kabinet judgment and its effects. It analyses the judgment from several perspectives. Firstly it discusses the effects and the importance of Tom Kabinet judgment. Secondly, it analyzes the legal and non-legal arguments of the Court from a critical point of view and argues that a contrary non-contra legem solution existed. Thirdly, this study argues that in the long run, not only the end-users but also the rightholders can benefit from "digital exhaustion" and the existence of a digital secondary market. Therefore, a contrary solution of the case could be beneficial for everyone. As a proponent of "digital exhaustion," the present author offers several legislative policy considerations that are needed to give a new life to digital secondary markets.

Keywords: digital exhaustion, digital secondary markets, Tom Kabinet

TABLE OF CONTENTS ABBREVIATIONS ...... 6 1. INTRODUCTION ...... 7 1.1. Background ...... 7 1.2. Objectives (purpose) of the study ...... 8 1.3. Research questions ...... 9 1.4. Methodology and materials ...... 9 1.5. Delimitations ...... 9 1.6. Structure ...... 10 2. TOM KABINET: A JUDGMENT WITH "NO ALTERNATIVES" ...... 12 2.1. A brief historical tour: the previous judgments ...... 12 2.1.1. UsedSoft (C-128/11) ...... 12 2.1.2. Allposters (C-419/13) ...... 15 2.1.3. VOB (C-174/15) ...... 16 2.2. Tom Kabinet - the background and the outcome ...... 17 2.2.1. The facts ...... 18 2.2.2. The questions and the outcome ...... 19 2.2.3. The importance ...... 19 2.3. Arguments of the Court - could the CJEU decide otherwise? ...... 21 2.3.1. The three principles...... 21 2.3.2. Compliance with WCT ...... 26 2.3.3. Legislative history of the InfoSoc Directive ...... 28 2.3.4. Recitals of the InfoSoc Directive ...... 30 2.3.5. "First sale" ...... 32 2.3.6. Arguments of economical nature ...... 32 3. TOM KABINET: THE "BENEFICIAL" EFFECTS ...... 34 3.1. Shutting down the secondary markets? ...... 34 3.1.1. Centralized platforms of digital content resale ...... 34 3.1.2. Decentralized platforms of digital content resale ...... 34 3.1.3. Out-of-platform sales ...... 36 3.1.4. Conclusion ...... 36 3.2. The problem of enforceability ...... 36 3.3. Digital secondary markets: good or bad? ...... 37

3.3.1. Innovation ...... 38 3.3.2. Competition ...... 39 3.3.3. Prices and affordability ...... 39 3.3.4. Privacy ...... 41 3.3.5. Access ...... 41 3.3.6. Other benefits for the users ...... 43 3.3.7. Benefits for the rightholders ...... 43 3.3.8. Digital secondary markets - beneficial for everyone ...... 48 4. A NEW "PLACE UNDER THE SUN" FOR DIGITAL SECONDARY MARKETS ...... 50 4.1. Legislative policy considerations ...... 50 4.2. Feeding the wolves and keeping the sheep safe ...... 52 5. CONCLUSION ...... 56 BIBLIOGRAPHY ...... 58

ABBREVIATIONS

AG - Advocate General CJEU - Court of Justice of the European Union CPD - Directive 2009/24/EC of the European Parliament and of the Council of 23 April 2009 on the legal protection of computer programs CRD - Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011 on consumer rights ECHR - European Convention on Human Rights ECtHR - European Court of Human Rights E-Commerce Directive - Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market InfoSoc Directive - Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society RLD - Directive 2006/115/EC of the European Parliament and of the Council of 12 December 2006 on rental right and lending right and on certain rights related to copyright in the field of intellectual property TFEU - Treaty on the Functioning of the European Union WCT - WIPO Copyright Treaty, 1996

1. INTRODUCTION

1.1. Background Can copyright-protected products be resold without the rightholder's consent? Article 4 of the InfoSoc Directive1 states: (1) Member States shall provide for authors, in respect of the original of their works or of copies thereof, the exclusive right to authorize or prohibit any form of distribution to the public by sale or otherwise. (2) Distribution right shall not be exhausted within the Community in respect of the original or copies of the work, except where the first sale or other transfer of ownership in the Community of that object is made by the rightholder or with his consent. The doctrine of exhaustion (Article 4(2) of InfoSoc Directive) was introduced to EU copyright law in order to allow the buyers of copyright-protected products to resell that product in the future without the rightholder's consent. This doctrine did not create any issues in the "tangible world." As long as the copyright- protected product is tangible, no ambiguities arise concerning the applicability of the doctrine of exhaustion. However, the modern world is not merely a world of tangible objects. Nowadays, we live in a digital era. The digital era affected every aspect of our lifestyle, including the consumption of copyright-protected products. The consumption of such products has become mainly digital. In the digital era, the essential question is narrowed down - can copyright-protected digital products be resold without the rightholder's consent? While the doctrine of exhaustion provides a straightforward answer for tangible objects, in the digital era, the issue becomes really complex. Preparatory works of the InfoSoc Directive began in the 1990s, which can hardly be considered as "digital era." The drafters of the Directive did not and could not clearly envisage the technological advancements that were yet to come. The InfoSoc Directive, as such, was not designed to answer the question in a purely digital context. When the law is not clear enough, scholars come into play. A heated debate existed whether Article 4 (2) of the InfoSoc Directive applies to digital objects. An obstacle against such applica-

1 “Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the Harmonisation of Certain Aspects of Copyright and Related Rights in the Information Society,” Pub. L. No. 32001L0029, OJ L 167 (2001), http://data.europa.eu/eli/dir/2001/29/oj/eng.

7 tion exists in Article 3 of the InfoSoc Directive2. The main problem is the fact that, together with the right of distribution, the rightholders also have a right to communicate their works to the public - a right which is never exhausted according to Article 3(3) of the InfoSoc Directive3. Thus, when a copyright-protected digital work (with no tangible medium) is acquired, is it "distributed" to the acquirer, or is it "communicated"? If it is distributed, it can be freely resold by the buyer. If it is communicated, then exhaustion does not happen, and the work can not be freely resold. However, the InfoSoc Directive does not offer a clear answer to this question. As a result, it became the task of the CJEU to clarify whether the doctrine of exhaustion is applicable to purely digital objects. As regarding software, a positive answer was given in 2012 in the case of UsedSoft4. However, UsedSoft was a case about software. It was solved in the context of CPD5, which, according to its Article 1, is applicable only to software. The fate of other types of protected works was decided in Tom Kabinet,6 and the answer was negative. The CJEU solved the "distribution vs. communication" issue in favour of the latter and stated that a secondary market of digital content unreasonably harms the rightholders' interests.

1.2. Objectives (purpose) of the study The objective of this study is to analyze Tom Kabinet judgment and to evaluate the Court's legal and non-legal (economical) arguments from a critical point of view. Proving that CJEU was wrong in Tom Kabinet is not an objective of this study. Rather, this study will argue that the Court could have reached a contrary final conclusion and that contrary conclusion could be beneficial to all the stakeholders - consumers and rightholders alike. Based on the analysis, this study will offer several recommendations and outlooks of legal and technological nature about the fate and the future of the digital secondary market.

2 Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society. 3 Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society. 4 Judgment of 3 July 2012, C-128/11, UsedSoft GmbH v Oracle International Corp., ECLI:EU:C:2012:407. 5 “Directive 2009/24/EC of the European Parliament and of the Council of 23 April 2009 on the Legal Protection of Computer Programs (Codified Version) (Text with EEA Relevance),” Pub. L. No. 32009L0024, OJ L 111 (2009), http://data.europa.eu/eli/dir/2009/24/oj/eng. 6 Judgment of 19 December 2019, C-263/18, NUV and GAU v Tom Kabinet, ECLI:EU:C:2019:1111.

1.3. Research questions The research questions which will be answered in this study are: (1) What does Tom Kabinet judgment mean for the society and the digital secondary market? Who is "affected" by the judgment? (2) How could the Court reach a different non-contra legem conclusion in Tom Kabinet? (3) Can the digital secondary market be considered as beneficial for both the users and the rightholders?

1.4. Methodology and materials The study is based on both legal and non-legal sources. Legal sources include: (1) WCT and InfoSoc Directive which directly address the issue of exhaustion; (2) CPD, CRD, RLD and E- Commerce Directive which can be used to evaluate separate issues concerning exhaustion; (3) case -law of the CJEU which is directly or indirectly related to digital exhaustion; (4) doctrinal sources. Non-legal sources are mainly used to support the arguments of economic and technological nature, as presented in this study. These sources primarily consist of journal publications and articles. As the area of exhaustion is harmonized within the EU, the current study is limited to the EU copyright law framework. National laws or national court decisions will not be analyzed. The primary method used in this study is the legal dogmatic method (doctrinal research). With its help, this study: (1) identified the relevant legal framework for analysis, (2) identified the relevant case-law, (3) identified and analyzed the legal issues that exist in the context of digital exhaustion, (4) identified the interpretations that could solve these legal issues in favour of digital exhaustion. Analysis of the digital secondary markets' benefits was conducted with the help of doctrinal research, law-in-context approaches, and evidence-based approaches.

1.5. Delimitations Firstly, there is a debate on whether the issue of digital exhaustion is important nowadays7. It could be argued that the emergence of new content-dissemination subscription-based techno-

7 Lothar Determann, “Digital Exhaustion: New Law from the Old World,” Berkeley Technology Law Journal 33, no. 1 (2018): 223.

9 logies (such as streaming, cloud computing, cloud gaming8) makes the issue of digital exhaustion irrelevant9. The issue is not considered as important by the EU legislator10. AG Szpunar took a similar position in the case of Tom Kabinet11. This issue will not be discussed in depth. Many authors have given various reasons12 why digital exhaustion is still important. Generally, all these reasons are agreeable for the present author. Secondly, several authors argue that in the absence of digital exhaustion, the rightholders will be able to prevent (public) resales of used devices (iPods, tablets, etc.) that contain copyright- protected digital content13. This issue has no significance for the current study. As stated by Deter- mann, this problem has no practical significance (at least, presently)14.

1.6. Structure The study is divided into four parts. The first part will offer a brief analysis of the previous CJEU judgments which are relevant to the topic. It will go on discussing the case of Tom Kabinet and CJEU's line of arguments. This part will be concluded with a discussion of how CJEU could reach a contrary non-contra legem conclusion in Tom Kabinet.

8 Vincenzo Franceschelli, “International Report,” in Compatibility of Transactional Resolutions of Antitrust Proceedings with Due Process and Fundamental Rights & Online Exhaustion of IP Rights, ed. Bruce Kilpatrick, Pierre Kobel, and Pranvera Këllezi, LIDC Contributions on Antitrust Law, Intellectual Property and Unfair Competition (Cham: Springer International Publishing, 2016), 485, https://doi.org/10.1007/978-3-319-27158-3_18. 9 Péter Mezei, “Digital Exhaustion in the European Union and the US,” in Copyright Exhaustion: Law and Policy in the United States and the European Union (Cambridge University Press, 2018), 140, https://doi.org/10.1017/9781108135290.005; John Enser, “The 1709 Blog: Tom Kabinet Decision - No Digital Exhaustion of e-Books,” The 1709 Blog (blog), December 19, 2019, http://the1709blog.blogspot.com/2019/12/tom- kabinet-decision-no-digital.html; Stavroula Karapapa, “Exhaustion of Rights on Digital Content under Eu Copyright: Positive and Normative Perspectives,” SSRN Scholarly Paper (Rochester, NY: Social Science Research Network, November 4, 2018), 29, https://papers.ssrn.com/abstract=3278149. 10 Caterina Sganga, “A Plea for Digital Exhaustion in EU Copyright Law,” Journal of Intellectual Property, Information Technology and Electronic Commerce Law 9, no. 3 (2018): 213–14, 233. 11 AG opinion of 10 September 2019, C-263/18, NUV and GAU v Tom Kabinet, ECLI:EU:C:2019:697, paras 95-96. 12 “Old Habits Die Hard?: UsedSoft v Oracle,” SCRIPTed, /01/7, 13, https://doi.org/10.2966/scrip.00.; Mezei, “Digital Exhaustion in the European Union and the US,” 141; Christopher B. Graber, “Tethered Technologies, Cloud Strategies and the Future of the First Sale/Exhaustion Defence in Copyright Law,” Queen Mary Journal of Intellectual Property 5, no. 4 (2015): 397–400; Péter Mezei, “Digital First Sale Doctrine Ante Portas -- Exhaustion in the Online Environment,” SSRN Scholarly Paper (Rochester, NY: Social Science Research Network, June 7, 2015), 51, 52, https://papers.ssrn.com/abstract=2615552. 13 Louise Longdin and Pheh Hoon Lim, “Inexhaustible Distribution Rights for Copyright Owners and the Foreclosure of Secondary Markets for Used Software,” IIC - International Review of Intellectual Property and Competition Law 44, no. 5 (August 1, 2013): 545–46, https://doi.org/10.1007/s40319-013-0063-0; Gary Donatello, “Killing the Secondary Market: How the Ninth Circuit Interpreted Vernor and Aftermath to Destroy the First Sale Doctrine Comment,” Seton Hall Journal of Sports and Entertainment Law 22, no. 1 (2012): 82; Karapapa, “Exhaustion of Rights on Digital Content under Eu Copyright,” 15. 14 Determann, “Digital Exhaustion,” 222, 223.

The second part will analyze the effects of Tom Kabinet. It will discuss who is affected by the judgment, and what are its consequences. This part will be concluded with a discussion that a digital secondary market is beneficial for both the users and the rightholders. The third part will offer general legislative policy considerations that will allow the doctrine of digital exhaustion to exist after Tom Kabinet. The same part will discuss the technological measures which are needed to protect the rightholders' interests in a world with a digital secondary market. The fourth and final part of the study is a brief conclusion.

2. TOM KABINET: A JUDGMENT WITH "NO ALTERNATIVES"

2.1. A brief historical tour: the previous judgments Before discussing the case of Tom Kabinet in detail, let us take a short historical tour and have a look at the previous judgments of the CJEU, which tackle the subject of digital exhaustion.

2.1.1. UsedSoft (C-128/11) Oracle International Corp. was a developer/distributor of software. UsedSoft GmbH was buying used user licenses from Oracle's users and was subsequently selling them. UsedSoft's customers were buying the user licenses from UsedSoft and downloading the software from Oracle's website. Oracle tried to stop UsedSoft's practices and brought court proceedings against UsedSoft. In the end, the case was brought to CJEU, who solved the case in favour of UsedSoft. The judgment of UsedSoft contains several essential findings: (1) Under Article 4 (2) of CPD, the rightholder's distribution right to a copy of a software is exhausted if the "first sale" of that copy has taken place15. According to the Court, the notion of "first sale" has three cumulative criteria: (1) transfer of the physical or digital medium to the bu- yer16; (2) conclusion of a perpetual license agreement; (3) a lump-sum fee which enables the rightholder to get a remuneration corresponding to the economic value of the copy17. (2) In order to justify that the principle of exhaustion under Article 4 (2) of CPD applies to both tangible and intangible copies of computer programs, the Court stated that it makes no difference whether one downloads a copy of a software or buys it on a CD-ROM/DVD. From an economical point of view, these transactions are functionally equivalent and have to be treated equally18. (3) CJEU's overall logic is based on the assumption that a software distributor can calculate and set appropriate prices for the software19. The rightholder can be remunerated via the first sale,

15 C-128/11, UsedSoft, para 38. 16 Andreas Lober, Susanne Klein, and Florian Groothuis, “The Long and Winding Road of Digital Distribution. Or: Why the ECJ’s UsedSoft Decision Is of No Use to Keysellers,” Interactive Entertainment Law Review 1, no. 1 (June 20, 2018): 46, https://doi.org/10.4337/ielr.2018.01.03. 17 C-128/11, UsedSoft, paras 41-48. 18 C-128/11, UsedSoft, paras 47, 61. 19 Ole-Andreas Rognstad, “Legally Flawed but Politically Sound? Digital Exhaustion of Copyright in Europe after UsedSoft,” Oslo Law Review 1, no. 01 (2014): 16, https://doi.org/10.5617/oslaw977.

12 and he should not be entitled to earn further revenues from any subsequent sales of the same pro- duct20. The situation in the digital world should not contradict this logic, either21. Thus, if the criteria of "first sale" are satisfied, then the distribution right to the sold copy is exhausted. The copy can be resold not only by its first buyer but also by the subsequent buyers22. Importantly, in case of a "first sale," the right of resale can not be limited by the contract. CJEU solved the "distribution vs. communication" issue in favour of distribution by noting that CPD is a lex specialis in relation to the InfoSoc Directive. Importantly, CPD does not contain a right of communication to the public. This fact allowed CJEU to adopt its lex specialis approach. The Court offered the rightholders some comfort23 by saying that sellers must make their own copies unusable upon resale, in order not to infringe the exclusive right of reproduction. O- racle argued that it would be difficult to be sure that the seller's copy is deleted. The Court answered that the same difficulty also exists in the world of tangible distribution. The solution here is not to ban digital exhaustion, but to implement technical measures to ensure such deletion24. UsedSoft judgment raised many debates. Most of the arguments of the Court were critici- zed25. However, the judgment was supported by many26. Others argued that UsedSoft was a "Pyrr- hic victory," as the rightholders can still enforce their interests with the help of technology27 or by

20 Rita Matulionyte, “Lending E-Books in Libraries: Is a Technologically Neutral Approach the Solution?,” International Journal of Law and Information Technology 25, no. 4 (December 1, 2017): 267, https://doi.org/10.1093/ijlit/eax016. 21 C-128/11, UsedSoft, para 63. 22 C-128/11, UsedSoft․ 23 “Oracle Loses to UsedSoft in Software Resale Case,” Managing Intellectual Property, August 7, 2012, 8–8. 24 C-128/11, UsedSoft, paras 70, 79, 87. 25 Reto M. Hilty, Kaya Köklü, and Fabian Hafenbrädl, “Software Agreements: Stocktaking and Outlook – Lessons from the UsedSoft v. Oracle Case from a Comparative Law Perspective,” IIC - International Review of Intellectual Property and Competition Law 44, no. 3 (May 1, 2013): 269, 274, 276, 279–80, https://doi.org/10.1007/s40319-013- 0041-6; “Old Habits Die Hard?,” 7–8; Rognstad, “Legally Flawed but Politically Sound?,” 7; Sganga, “A Plea for Digital Exhaustion in EU Copyright Law,” 229. 26 Lazaros G. Grigoriadis, “The Distribution of Software in the European Union after the Decision of the CJEU UsedSoft GmbH v. Oracle International Corp. (UsedSoft),” Journal of International Commercial Law and Technology 8, no. 3 (2013): 202; “Old Habits Die Hard?,” 5, 7–8; Martina Gillen, “The Software Proteus – UsedSoft Changing Our Understanding of Software as ‘Saleable Goods,’” International Review of Law, Computers & Technology 28, no. 1 (March 2014): 5, 17, https://doi.org/10.1080/13600869.2013.869911. 27 Karen Bolipata, “What the CJEU’s UsedSoft Decision Means for Software Resales,” Managing Intellectual Property, August 7, 2012, 14–14.

13 changing their business models28. Also, there was a debate on whether the principles of UsedSoft would have a broader application in the future29. Importantly, the scope of UsedSoft is limited, and it does not extend to videogames. In the case of Nintendo v PC Box, CJEU noted that videogames are not only code; they also have a story, music, and graphics30 that have a creative value. Therefore, a videogame is protected also under the InfoSoc Directive31. Moreover, every software has a graphic user interface (GUI). Though CJEU held that GUI is not protected by CPD, still it can be protected under the InfoSoc Directive if it meets the requirements of originality32. As a result, UsedSoft will not fully extend to videogames and software with an original and creative GUI. The following aspects of UsedSoft are particularly noteworthy for the present author: (1) In the FAPL case, CJEU stated that the specific subject-matter of intellectual property entitles the rightholders to demand an appropriate (but not the highest possible) remuneration for the use of their works33. UsedSoft (at least) implies a presumption that "appropriate remuneration" always equals to the price set by the rightholder on his own free will. (2) In UsedSoft, the Court noted: "... even supposing that Article 4(2) of [InfoSoc Directive] ... indicated that ... exhaustion of the distribution right concerned only tangible objects ... ."34 This at least indicates that in 2012 the Court had serious doubts whether the right of distribution and its exhaustion was limited to tangible objects35. (3) The Court stated that the existence of a transfer of ownership changes an "act of communication to the public" into an "act of distribution36." This conclusion was reached in the context of not only CPD but also InfoSoc Directive and WCT. This can be seen as an attempt to differen-

28 “Old Habits Die Hard?,” 14; Grigoriadis, “The Distribution of Software in the European Union after the Decision of the CJEU UsedSoft GmbH v. Oracle International Corp. (UsedSoft),” 204–5. 29 Hilty, Köklü, and Hafenbrädl, “Software Agreements,” 284, 288, 290; “Old Habits Die Hard?,” 2, 9; Rognstad, “Legally Flawed but Politically Sound?,” 18. 30 Lober, Klein, and Groothuis, “The Long and Winding Road of Digital Distribution. Or,” 48. 31 Judgment of 23 January 2014, C-355/12, Nintendo v PC Box, ECLI:EU:C:2014:25, para 23. 32 Mezei, “Digital First Sale Doctrine Ante Portas -- Exhaustion in the Online Environment,” 48, 49; Mezei, “Digital Exhaustion in the European Union and the US,” 138. 33 Judgment of 4 October 2011, C-403/08 and C-429/08, Football Association Premier League and Others, ECLI:EU:C:2011:631, para 108. 34 C-128/11, UsedSoft, para 60. 35 “Old Habits Die Hard?,” 10. 36 C-128/11, UsedSoft, para 52.

14 tiate between digital distribution (where the buyer is left with an independent and permanent copy of the work) and online services (where such copies are not left)37.

2.1.2. Allposters (C-419/13) Art & Allposters International BV was buying reproductions of famous paintings on posters. Then it was transferring the images from the posters to canvases via a special technique. The images on the posters were disappearing. The canvases were being sold by Allposters. Stichting Pictoright was a copyright collective society which wanted to stop the foregoing business practice. In Pictoright's view, the rightholders' exclusive right of reproduction was being infringed38. The case reached CJEU, where it had to decide whether Allposters could rely on the rule of exhaustion, considering that Allposters was altering the medium of the protected works. The Court decided that Allposters could not rely on exhaustion39. Based on the wordings of the InfoSoc Directive (Recital 28, Article 4(2)) and Agreed State- ment to Article 6 of WCT, the Court found that: "... exhaustion of the distribution right applies to the tangible object into which a protected work ... is incorporated ...40." The fact that Allposter's canvases were more valuable than the posters initially were, was also important for the Court41. Lastly, the Court said that a new object (a new reproduction) was created as a result of the replacement of the medium. The canvas is physically not the same object that was placed onto the market with the consent of the rightholder42. Allposters is based on a broad definition of reproduction. According to it, if there is duplication, there is reproduction. But even if there is no duplication, there can still be reproduction43. This concept was heavily criticized by Griffiths, and the present author agrees with that criticizm44.

37 Grigoriadis, “The Distribution of Software in the European Union after the Decision of the CJEU UsedSoft GmbH v. Oracle International Corp. (UsedSoft),” 203. 38 Judgment of 22 January 2015, C-419/13, Art & Allposters International BV v Stichting Pictoright, ECLI:EU:C:2015:27, paras 14-21. 39 C-419/13, Allposters․ 40 C-419/13, Allposters, paras 34-40. 41 Jonathan Griffiths, “Exhaustion and the Alteration of Copyright Works in EU Copyright Law—(C-419/13) Art & Allposters International BV v Stichting Pictoright,” ERA Forum 17, no. 1 (April 1, 2016): 77, https://doi.org/10.1007/s12027-016-0414-7. 42 C-419/13, Allposters, paras 41-48. 43 Griffiths, “Exhaustion and the Alteration of Copyright Works in EU Copyright Law—(C-419/13) Art & Allposters International BV v Stichting Pictoright,” 77. 44 Griffiths, 79–80.

Many commentators read Allposters as a "final "no" to digital exhaustion under the InfoSoc Directive."45 The present author does not agree. CJEU did not expressly address the issue of digital exhaustion in this judgment46. Allposters can be read in various ways47. However, Allposters does not mean that "exhaustion is inapplicable to intangible (digital) objects."

2.1.3. VOB (C-174/15) The case of VOB48, between Vereniging Openbare Bibliotheken and Stichting Leenrecht, is mainly about the interpretation of RLD49. (1) RLD states that the authors have an exclusive right to authorize the rental and lending of their works. However, Member States can derogate from the exclusive lending right in respect of public lending. This means that libraries will not need an authorization from the authors to offer their books for lending, but the authors have to be remunerated50. The relevant fees are distributed to writers and publishers (in some countries)51 via copyright collecting societies52. The first question was: can this derogation apply to the lending of e-books? CJEU answered - yes, if the e-lending is organized in a way that is equivalent to "normal" lending53. In this respect, CJEU's following arguments are particularly noteworthy.

45 Griffiths, 78; Eleonora Rosati, “Online Copyright Exhaustion in a Post-Allposters World,” Journal of Intellectual Property Law & Practice 10, no. 9 (September 1, 2015): 676–77, https://doi.org/10.1093/jiplp/jpv122; Sganga, “A Plea for Digital Exhaustion in EU Copyright Law,” 225; Eleonora Rosati, “CJEU Says That Copyright Exhaustion Only Applies to the Tangible Support of a Work,” Journal of Intellectual Property Law & Practice 10, no. 5 (May 1, 2015): 330, https://doi.org/10.1093/jiplp/jpv033. 46 Rosati, “Online Copyright Exhaustion in a Post-Allposters World,” 678. 47 Péter Mezei, “The Doctrine of Exhaustion in the Copyright Law of the European Union,” in Copyright Exhaustion: Law and Policy in the United States and the European Union (Cambridge University Press, 2018), 49, https://doi.org/10.1017/9781108135290.003; Karapapa, “Exhaustion of Rights on Digital Content under Eu Copyright,” 19. 48 Judgment of 10 November 2016, C-174/15, Vereniging Openbare Bibliotheken v Stichting Leenrecht, ECLI:EU:C:2016:856. 49 “Directive 2006/115/EC of the European Parliament and of the Council of 12 December 2006 on Rental Right and Lending Right and on Certain Rights Related to Copyright in the Field of Intellectual Property (Codified Version),” Pub. L. No. 32006L0115, OJ L 376 (2006), http://data.europa.eu/eli/dir/2006/115/oj/eng. 50 Directive 2006/115/EC of the European Parliament and of the Council of 12 December 2006 on rental right and lending right and on certain rights related to copyright in the field of intellectual property (codified version). 51 Matulionyte, “Lending E-Books in Libraries,” 262. 52 Kyle K. Courtney, “Technology: EU Court: Treat Ebooks Like Print,” Library Journal; New York 141, no. 20 (December 1, 2016): 16. 53 C-174/15, VOB.

(a) The Court noted that there was no evidence in the preparatory works of RLD confirming that e-lending should be excluded from the scope of RLD54. Interestingly, the Court did not look for evidence confirming that e-lending should be included in the scope of RLD. (b) The Court noted that the explanatory memorandum on the Proposal for RLD mentions the Commission's desire to exclude electronic data transmissions from the scope of RLD. Howe- ver, the examples brought in the document were related exclusively to films, not to e-books (which were not popular at that time). So CJEU could not presume that the Commission had really wished to exclude electronic transmissions of e-books from the scope of RLD55. Thus, CJEU used the examples provided in the memorandum in order to interpret a general (but a very explicit) idea from the same memorandum narrowly. Moreover, based on the realities of the era when the memorandum was drafted, the Court decided what the Commission could have meant and what it could not have meant. However, most commentators are of the opinion that the legislative history of RLD does not support the Court's view56. (2) The second question, which the Court had to decide on, was the following: can Member States introduce a requirement that the public lending exception/derogation (Article 6 (1) of RLD) is applicable only to the e-books the distribution rights to which have been exhausted? The Court answered that introduction of such an additional requirement is possible57. Though the Court essentially stated that exhaustion does not affect the lending right or vice versa58, the judgment in VOB was read as possibly opening the doors to digital exhaustion59.

2.2. Tom Kabinet - the background and the outcome In this part, we will discuss the facts of the case, the questions that were asked to CJEU and CJEU's answer. Next, we will discuss why was Tom Kabinet important and why it received a lot of attention.

54 C-174/15, VOB, para 40. 55 C-174/15, VOB, paras 41-42. 56 Matulionyte, “Lending E-Books in Libraries,” 271–72. 57 C-174/15, VOB, paras 55, 57, 61, 62, 64. 58 Emma Linklater-Sahm, “The Libraries Strike Back: The ‘Right to e-Lend’ under the Rental and Lending Rights Directive: Vereniging Openbare Bibliotheken,” Common Market Law Review 54, no. 5 (October 1, 2017): 1562. 59 Linklater-Sahm, 1565.

2.2.1. The facts Tom Kabinet was the operator of an internet website on which "second-hand" e-books were bought and sold. This "secondary market" was launched in 2014. Eight days after the launch, the website was sued by NUV and GAU (associations defending the rights of Netherlands publishers). The District Court of Amsterdam rejected their application as it found no prima facie breach of copyright. This decision was appealed by NUV and GAU, but the Court of Appeal of Amsterdam upheld the appealed decision. However, the Court of Appeal prohibited Tom Kabinet from allowing the sale of illegally downloaded e-books60. According to the secretary-general of Dutch Publishers Association, most of the books sold via Tom Kabinet were pirated copies61. The Court found that Tom Kabinet was facilitating infringement62. Therefore, at this stage, rather than relating to the "distribution vs. communication" dichotomy, the contemplated problem was piracy. Initially, the users of Tom Kabinet (sellers) were uploading their copies on the website and offering them for sale for a desired price. The buyers were downloading the e-books from the sellers' accounts. After the sale, the e-book was subsequently removed from the sellers account63. Since 8 June 2015, as a response to the judicial attacks64, Tom Kabinet changed its business model. It replaced its former services with a "reading club" within which Tom Kabinet was an e- book trader. The reading club offered its members "second-hand" e-books, which were purchased by Tom Kabinet (either from official distributors or from other individuals65) or donated to Tom Kabinet. NUV and GAU applied to the District Court of Hague for an injunction against Tom Ka- binet, arguing that Tom Kabinet is making unauthorized communications of e-books to the public. In its interim judgment, the court found that Tom Kabinet's actions did not constitute a "communication to the public" under the InfoSoc Directive. However, the court was unsure whether Tom Kabinet's actions could be classified as "distribution." Because of this uncertainty, as well as se-

60 C-263/18, Tom Kabinet, paras 20-23. 61 John Charlton, “Philanthropy and Secondhand Ebooks,” Information Today 31, no. 8 (October 2014): 16; John Charlton, “Substantive Proceedings,” Information Today 32, no. 3 (April 2015): 9. 62 Karapapa, “Exhaustion of Rights on Digital Content under Eu Copyright,” 26. 63 Sganga, “A Plea for Digital Exhaustion in EU Copyright Law,” 214. 64 Sganga, 215. 65 AG opinion of 10 September 2019, C-263/18, NUV and GAU v Tom Kabinet, ECLI:EU:C:2019:697, para 18.

18 veral other legal uncertainties, the District Court of Hague decided to stay the proceedings and to turn to the CJEU66. Importantly, Tom Kabinet implemented measures (hash codes stored on the website67, digital watermarks68, requirements to delete the seller's copy upon sale69, validation scans70 and a notice-and-take-down system to remove illicit content71) to ensure that only legal copies could be bought and sold via the website. Whether these measures were truly sufficient to reach that goal, is a separate question. Anyway, for the Dutch Publishers Association, these measures were clearly not enough72. Moreover, Tom Kabinet was willing to cooperate with the rightholders. It tried to negotiate with NUV and GAU73 and was ready to share its revenues with the authors via a donation system74.

2.2.2. The questions and the outcome CJEU was asked whether the notion of "distribution" in the InfoSoc Directive includes the making available remotely by downloading, for use for an unlimited period, of e-books for a lump- sum fee75. The answer to this question was: "The supply to the public by downloading, for permanent use, of an e-book is covered by the concept of "communication to the public" and, more specifical- ly, by that of "making available to the public of [authors’] works in such a way that members of the public may access them from a place and at a time individually chosen by them ... ."76

2.2.3. The importance Can copyright-protected digital content (without a tangible medium) be resold without the rightholder's consent? In order to answer this question, one needs to address the following issues.

66 C-263/18, Tom Kabinet, paras 27-30. 67 Karapapa, “Exhaustion of Rights on Digital Content under Eu Copyright,” 26. 68 C-263/18, Tom Kabinet, para 24. 69 AG opinion of 10 September 2019, C-263/18, NUV and GAU v Tom Kabinet, ECLI:EU:C:2019:697, para 18. 70 Charlton, “Philanthropy and Secondhand Ebooks,” 16. 71 Sganga, “A Plea for Digital Exhaustion in EU Copyright Law,” 214. 72 Charlton, “Philanthropy and Secondhand Ebooks,” 16. 73 Míchel Olmedo Cuevas, “Dutch Copyright Succumbs to Aging as Exhaustion Extends to E-Books,” Journal of Intellectual Property Law & Practice 10, no. 1 (January 1, 2015): 8, https://doi.org/10.1093/jiplp/jpu200. 74 Mezei, “Digital First Sale Doctrine Ante Portas -- Exhaustion in the Online Environment,” 39; Charlton, “Substantive Proceedings,” 9; Sganga, “A Plea for Digital Exhaustion in EU Copyright Law,” 215. 75 C-263/18, Tom Kabinet, para 30. 76 C-263/18, Tom Kabinet.

Firstly, it must be decided whether the file was "distributed" to the buyer or "communicated" to him. If it was "communicated," then the buyer can not resell it. If the buyer wants to resell the file, he will have to "communicate" it to the next potential buyer, but that will be illegal without the rightholder's consent as the right of "communication to the public" still belongs to the rightholder and is never exhausted (Article 3(3) of the InfoSoc Directive)77. Secondly, it must be decided whether the buyer really bought the file or merely got a license to use it. Exhaustion of the distribution right can happen only in case of a "sale" (transfer of ownership). It is evident that a license can not fall within this notion. Thirdly, it must be decided whether exhaustion doctrine can apply to digital files at all. The wording of Recital 28 of the InfoSoc Directive78 assumingly speaks against any digital exhaustion. Fourthly, it must be decided whether the transaction in question can be qualified as an "online service." In that case, according to Recital 29 of the InfoSoc Directive79, exhaustion can not happen. Lastly, it must be decided whether the resale of digital content can be done without infringing the rightholder's exclusive right of reproduction. The problem is - when the acquirer is transferring a file to the next potential buyer, from a technical point of view, he/she is always making a reproduction (even if no duplication is taking place). Article 2 of the InfoSoc Directive states that the exclusive right of reproduction belongs to the rightholder80. That right is not "exhaustible." The outcome of Tom Kabinet means that digital purchases are communicated to the buyers. For the society, it means that end-users can not resell their digital content which is protected under InfoSoc Directive without the rightholders' consent. This rule applies not only to e-books but also to music, films, and videogames (which are protected under InfoSoc Directive as well81). The only digital content that can be freely resold is software which does not have an original/creative GUI. The importance of Tom Kabinet does not concern the end-users only. There are platforms on which used digital goods are bought and sold at low prices. These platforms form the secondary

77 Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society. 78 Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society. 79 Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society. 80 Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society. 81 C-355/12, Nintendo, para 23.

20 market of digital goods/content. The problem is: if end-users can not resell their digital content, then these platforms (and the "digital secondary market" as a whole) will not be able to operate. The main suppliers of the digital secondary market are the end-users82, and now they can not supply this market any longer. Thus, it is not surprising that European Writers Council welcomed the outcome of Tom Kabinet83. When the CJEU decided the fate of Tom Kabinet, at stake were these issues and the future of secondary markets of digital content. Therefore, one can not overestimate the importance of the case. Naturally, the case received a lot of attention in media84 and scholarly circles85.

2.3. Arguments of the Court - could the CJEU decide otherwise? In this part, we will discuss the arguments that were put forward by CJEU in Tom Kabinet, as well as the counter-arguments to these arguments. However, the discussion will start with identification of three fundamental principles on which the present author's reasoning is based.

2.3.1. The three principles (1) Legislative texts per se are not an "impassable" obstacle for supreme courts. Most often, they had not prevented supreme courts from reaching a desirable conclusion.

82 Liliia Oprysk, Raimundas Matulevicius, and Aleksei Kelli, “Development of a Secondary Market for E-Books: The Case of Amazon,” Journal of Intellectual Property, Information Technology and Electronic Commerce Law 8, no. 2 (2017): 133. 83 “EWC Welcomes the Decision against ‘Re-Sale’ of e-Books – EWC | European Writers Council,” accessed March 3, 2020, http://europeanwriterscouncil.eu/tom-kabinet-2019-cjeu/. 84 Charlton, “Substantive Proceedings”; Charlton, “Philanthropy and Secondhand Ebooks”; “EU Copyright Law – Online Resale of an EBook Requires Consent of the Copyright Holder,” LCII (blog), December 20, 2019, https://www.lcii.eu/2019/12/20/eu-copyright-law-online-resale-of-an-ebook-requires-consent-of-the-copyright- holder/; “CJEU: THE SALE OF SECOND-HAND E-BOOKS REQUIRES AUTHORIZATION FROM THE RIGHTS HOLDER (TOM KABINET CASE),” Propiedad Intelectual (blog), January 14, 2020, https://blog.cuatrecasas.com/propiedad-intelectual/cjeu-the-sale-of-second-hand-e-books-requires-authorization- from-the-rights-holder-tom-kabinet-case/?lang=en; “Resale of E-Books Requires Copyright Authorization, Rules CJEU,” IPWatchdog.Com | Patents & Patent Law (blog), December 20, 2019, https://www.ipwatchdog.com/2019/12/20/resale-e-books-requires-copyright-authorization-rules-cjeu/id=117378/; “European Court: reselling e-books violates copyright law,” bureau Brandeis (blog), December 19, 2019, https://www.bureaubrandeis.com/european-court-reselling-e-books-violates-copyright-law/; Enser, “The 1709 Blog”; Manon Rieger-Jansen, “E-Books: Digital Exhaustion under the InfoSoc Directive?,” Mediawrites.Law (blog), August 23, 2017, https://mediawrites.law/e-books-digital-exhaustion-under-the-infosoc-directive/. 85 Sganga, “A Plea for Digital Exhaustion in EU Copyright Law”; Karapapa, “Exhaustion of Rights on Digital Content under Eu Copyright”; Mezei, “Digital First Sale Doctrine Ante Portas -- Exhaustion in the Online Environment”; Eleonora Rosati, “BREAKING: CJEU Rules That the Provision of Ebooks Is an Act of Communication to the Public (so There Is NO Digital Exhaustion under the InfoSoc Directive),” The IPKat (blog), accessed March 3, 2020, http://ipkitten.blogspot.com/2019/12/breaking-cjeu-rules-that-provision-of.html.

For example, since 1979, the ECtHR has ruled that the ECHR is a "living instrument," which must be interpreted in the light of "present-day conditions."86 It was first mentioned in the judgment of Tyrer v United Kingdom87. The "living instrument doctrine" allows the ECtHR to interpret the provisions of ECHR (or "creatively update their interpretation"88) in such a way as the constantly changing present-day conditions require, without formally amending the text of the ECHR89. It is a tool of interpretation which allows the ECtHR to act flexibly in a rapidly changing environment90. This anti-textualist and anti-originalist doctrine's91 legitimacy was questioned by many aut- hors92 who rightfully noted that the doctrine is not based on proper (any) legal justification93. Still, the ECtHR used the doctrine94 and continues to use it in many of its judgments. The present author thinks that the doctrine is more than justified. Firstly, it is not an easy task to amend the text of ECHR95. Secondly, if this doctrine did not exist, ECtHR would not be able to act flexibly. It would be bound by the outdated text of ECHR and its drafters' old-fashioned intent. As a result, the ECHR would become a stagnated instrument96.

86 Pavel Bureš, “Evolution Interpretation and the European Consensus before the European Court of Human Rights,” Espaço Jurídico Journal of Law [EJJL] 20, no. 1 (June 28, 2019): 74, https://doi.org/10.18593/ejjl.20214. 87 Andreas Føllesdal, Birgit Peters, and Geir Ulfstein, Constituting Europe: The European Court of Human Rights in a National, European and Global Context (New York, UNITED STATES: Cambridge University Press, 2013), 109, http://ebookcentral.proquest.com/lib/uu/detail.action?docID=1182952; Milan Brglez, Samo Novak, and Stasa Tkalec, “Stereotyping and Human Rights Law: An (Un)Conventional Approach of the European Court of Human Rights 1,” Teorija in Praksa; Ljubljana 53, no. 5 (2016): 1130. 88 Alastair Mowbray, “The Creativity of the European Court of Human Rights,” Human Rights Law Review 5, no. 1 (2005): 69. 89 Bureš, “Evolution Interpretation and the European Consensus before the European Court of Human Rights,” 76. 90 Kanstantsin Dzehtsiarou, “European Consensus and the Evolutive Interpretation of the European Convention on Human Rights Legitimacy and the Future of the European Court of Human Rights,” German Law Journal 12, no. 10 (2011): 1731, 1732. 91 Føllesdal, Peters, and Ulfstein, Constituting Europe, 123; Mowbray, “The Creativity of the European Court of Human Rights,” 63. 92 Føllesdal, Peters, and Ulfstein, Constituting Europe, 138; Kanstantsin Dzehtsiarou and Conor O’Mahony, “Evolutive Interpretation of Rights Provisions: A Comparison of the European Court of Human Rights and the U.S. Supreme Court,” Columbia Human Rights Law Review 44, no. 2 (2013 2012): 312, 317. 93 Mowbray, “The Creativity of the European Court of Human Rights,” 61, 71. 94 Mowbray, 62 ,63, 69; Dzehtsiarou and O’Mahony, “Evolutive Interpretation of Rights Provisions,” 322, 323. 95 Dzehtsiarou and O’Mahony, “Evolutive Interpretation of Rights Provisions,” 318. 96 Dzehtsiarou, “European Consensus and the Evolutive Interpretation of the European Convention on Human Rights Legitimacy and the Future of the European Court of Human Rights,” 1732; Dzehtsiarou and O’Mahony, “Evolutive Interpretation of Rights Provisions,” 314.

Thus, the risk of "stagnation" and the difficulty of amending ECHR let the ECtHR (who is supposed to refrain from explicit lawmaking97) interpret the text of ECHR based on the needs of modern society, without any purely legal justification. Moreover, the U.S. Supreme Court is using interpretation techniques similar to the "living instrument doctrine."98 The "living instrument doctrine" was never used by CJEU99. However, CJEU uses a different approach to achieve the same result. For example, CJEU is using the "rightholder-friendly" recitals of the InfoSoc Directive when it wants to reach a "rightholder-friendly" conclusion. At the same time, it cites "user-friendly" recitals when the final conclusion is "user-friendly."100 CJEU's decisions concerning technology-enabled uses of copyright-protected works are sometimes "formalistic" and sometimes - "flexible."101 Contrary to "formalistic" decisions, in "flexible" decisions the Court "circumvents" a legal constraint by: (1) not interpreting the relevant rights in broadest possible manner, (2) not interpreting the relevant exceptions in strictest possible manner, or (3) creating a new exception or a new "user's right."102 Moreover, several interpretation techniques of CJEU were considered as "harmonization by stealth."103 CJEU's notion of "new public" has been called a "judge-made doctrine" with weak legislative grounding104. CJEU's judgment in FAPL was called "flexible"105 and "re-casting [the] legislation."106 From a purely legal perspective, CJEU's UsedSoft judgment was heavily criticized. It was considered as "contra legem,"107 "going beyond the wording of the [InfoSoc] Directive,"108 "cont-

97 Dzehtsiarou and O’Mahony, “Evolutive Interpretation of Rights Provisions,” 360. 98 Dzehtsiarou and O’Mahony, 315, 329. 99 The present author thinks that such use would be justified at least by the difficulty of amending EU directives and regulations, as well as the risk that these legal instruments will become "stagnated." 100 Griffiths, “Exhaustion and the Alteration of Copyright Works in EU Copyright Law—(C-419/13) Art & Allposters International BV v Stichting Pictoright,” 83. 101 Tito Rendas, “Copyright, Technology and the CJEU: An Empirical Study,” IIC - International Review of Intellectual Property and Competition Law 49, no. 2 (February 1, 2018): 171, https://doi.org/10.1007/s40319-017- 0664-0. 102 Rendas, 179, 180. 103 Martina Gillen, “Exhaustion--Harmonization by Case Law or the Clarification of a Long Standing Principle?,” Journal of Internet Law 18, no. 11 (May 2015): 17–18. 104 Sganga, “A Plea for Digital Exhaustion in EU Copyright Law,” 228. 105 Rendas, “Copyright, Technology and the CJEU,” 162. 106 Bill Batchelor and Luca Montani, “Exhaustion, Essential Subject Matter and Other CJEU Judicial Tools to Update Copyright for an Online Economy,” Journal of Intellectual Property Law & Practice 10, no. 8 (August 1, 2015): 592, https://doi.org/10.1093/jiplp/jpv093. 107 Mezei, “Digital Exhaustion in the European Union and the US,” 139. 108 Hilty, Köklü, and Hafenbrädl, “Software Agreements,” 284.

23 radicting the WCT,"109 and "a result of legal gymnastics."110 An author argues that in UsedSoft, the CJEU wanted to apply the rule of exhaustion, and thus, it qualified the facts according to the desired outcome111. This approach is justified. No legislation is perfect. Laws often contain "conflicts" of two or more protected values112. The task of the courts is to try and find the fair balance between these values113 - often in the total absence of any exactly formulated criteria of how such balance can be reached. Moreover, the legislator is usually unable to foresee the emergence of new technologies. And when the new technologies are "already here," it is not possible to update the laws quickly114. While many authors will argue that the courts should not re-write the legislator's intentions, we still have to accept that sometimes the "stakes are high,"115 and the negative consequences of not doing so can outweigh the positive ones. Concluding, supreme courts who are not "happy" with the wording of the law, can always find a way to circumvent that wording116. Non-explicit legal constraints will not prevent the supreme courts to reach a desired conclusion if the courts are willing to "bypass these constraints."117 In cases such as Tom Kabinet, where no explicit regulations exist, and no clear answer is available118, the Court can take several pathways of interpretation. There is no single right choice. The solution of the Court does not have to be uncriticizable. Scholars have always criticized the courts' judgments and will always do so. The solution of such cases has to be "fair," balanced, and maximally beneficial for all the interested parties. Moreover, there is no such thing as "contra legem interpretation given by supreme courts." Even if such court's interpretation is contra legem, from the moment of its adoption it becomes the only valid legal interpretation (as the court's decision is not subject to appeal). From that moment,

109 P. Sean Morris, “Beyond Trade: Global Digital Exhaustion in International Economic Regulation,” Campbell Law Review 36, no. 1 (2014 2013): 123. 110 Batchelor and Montani, “Exhaustion, Essential Subject Matter and Other CJEU Judicial Tools to Update Copyright for an Online Economy,” 591. 111 Gillen, “The Software Proteus – UsedSoft Changing Our Understanding of Software as ‘Saleable Goods,’” 12. 112 An example of this can be found in Recital 31 of the InfoSoc Directive. The Recital speaks about safeguarding a fair balance between the rights and interests of the end-users and the rightholders (which are contradictory). 113 Martin Husovec, “Intellectual Property Rights and Integration by Conflict: The Past, Present and Future,” Cambridge Yearbook of European Legal Studies 18 (2016): 244. 114 Rendas, “Copyright, Technology and the CJEU,” 160. 115 Batchelor and Montani, “Exhaustion, Essential Subject Matter and Other CJEU Judicial Tools to Update Copyright for an Online Economy,” 600. 116 Rendas, “Copyright, Technology and the CJEU,” 160–61. 117 Rendas, 169–70. 118 A fact, which was admitted by the CJEU itself.

24 the criticism of such interpretations (as being contra legem) is acceptable only in academic texts. As Robert H. Jackson said, "the [US] Supreme Court is not final because it is infallible, but it is infallible only because it is final."119 (2) InfoSoc Directive is outdated. It is poorly adapted for solving issues that are fundamental to online business models120. Its principles concerning (digital) exhaustion do not reflect the current state of technology121. This statement is also true for WCT122. (3) InfoSoc Directive was not only about rightholders. According to Recital 31, it was a- bout balance123. The same is true for Copyright Law in general124. The need to strike a fair balance between copyright and other fundamental rights was repeatedly stated by the CJEU125. The exhaustion doctrine was one of the tools to keep that balance. However, in the digital era, the balance was violated in favour of the rightholders. They have more control over their works and more ability to dictate their rules in the digital environment. It is not a surprise that copyright law has become a tool for generating profits (instead of pursuing its original goals)126. At least, it is considered as such by many127. As a result, copyright law suffers a crisis of legitimacy128. The violated balance needs to be restored. It can be restored with the help of a "reasonable dose of flexibility."129 Importantly, the balance was "violated" in favour of the rightholders, so the "flexibility" should be shown in favour of the end-users. Keeping these principles in mind, let us turn to Tom Kabinet judgment.

119 “Robert H. Jackson,” in Wikipedia, March 19, 2020, https://en.wikipedia.org/w/index.php?title=Robert_H._Jackson&oldid=946290809. 120 Batchelor and Montani, “Exhaustion, Essential Subject Matter and Other CJEU Judicial Tools to Update Copyright for an Online Economy,” 600. 121 Franceschelli, “International Report,” 467; Sganga, “A Plea for Digital Exhaustion in EU Copyright Law,” 232– 33. 122 Mezei, “Digital First Sale Doctrine Ante Portas -- Exhaustion in the Online Environment,” 54. 123 Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society. 124 Aaron Perzanowski and Jason Schultz, “Digital Exhaustion,” UCLA Law Review 58, no. 4 (2011 2010): 892; Matulionyte, “Lending E-Books in Libraries,” 276. 125 T. E. Synodinou, “The Renckhoff Case: 6 Degrees of Separation from the Lawful User,” ERA Forum 20, no. 1 (July 1, 2019): 31, https://doi.org/10.1007/s12027-019-00558-w. 126 Mark Jansen, “Applying Copyright Theory to Secondary Markets: An Analysis of the Future of 17 U.S.C. § 109(a) Pursuant to Costco Wholesale Corp. V. Omega S.A.,” Santa Clara High Technology Law Journal 28, no. 1 (January 1, 2011): 158. 127 Giorgio Spedicato, “Online Exhaustion and the Boundaries of Interpretation,” in Balancing Copyright Law in the Digital Age: Comparative Perspectives, ed. Roberto Caso and Federica Giovanella (Berlin, Heidelberg: Springer, 2015), 29, https://doi.org/10.1007/978-3-662-44648-5_2. 128 Spedicato, 27. 129 Synodinou, “The Renckhoff Case,” 32.

2.3.2. Compliance with WCT The Court noted that the InfoSoc Directive has to be interpreted according to WCT, under which, the distribution right does not apply to intangible items - a conclusion drawn from Article 6(1) of WCT and its Agreed Statements130. The first part of this statement is not disputable131. The question is - does WCT preclude digital exhaustion? According to Article 6 of WCT: (1) Authors ... shall enjoy the exclusive right of authorizing the making available to the public of the original and copies of their works through sale or other transfer of ownership. (2) Nothing in this Treaty shall affect the freedom of Contracting Parties to determine the conditions, ... under which the exhaustion of the right in paragraph (1) applies after the first sale or other transfer of ownership of the original or a copy of the work with the authorization of the author132. The wording of this article does not limit the distribution right or its exhaustion to tangible objects. It does not prohibit digital distribution or digital exhaustion per se. According to Article 8 of WCT: "... authors ... shall enjoy the exclusive right of authorizing any communication to the public of their works, by wire or wireless means, including 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 them133". However, nothing in this Article can be used to prove that any digital dissemination of works has to be covered exclusively by the right of communication to the public. Articles 6 and 8 of WCT mean that the rightholders generally have a distribution right and a right to communicate their works to the public. The distribution right (which can be exhausted) can apply to tangible or intangible objects. The right of communication to the public can apply to intangible objects. Digital dissemination of protected works (intangible objects) can be covered by either of these rights134 - the countries have the freedom to choose.

130 C-263/18, Tom Kabinet, paras 39-40. 131 Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society; Lorna Woods, “Beyond Murphy, Films and Football: Audiovisual Content in Europe Broadcasting in an Age of Commercialism,” Journal of Media Law 4, no. 2 (2012): 212. See also Judgment of 21 June 2012, C-5/11, Donner, ECLI:EU:C:2012:370, para 23; Judgment of 17 April 2008, C-456/06, Peek & Cloppenburg KG v Cassina SpA, ECLI:EU:C:2008:232, para 31. 132 “WIPO Copyright Treaty (WCT),” 1996, https://www.wipo.int/treaties/en/ip/wct/index.html. 133 “WIPO Copyright Treaty (WCT).” 134 Emma Linklater, “UsedSoft and the Big Bang Theory: Is the e-Exhaustion Meteor about to Strike,” Journal of Intellectual Property, Information Technology and Electronic Commerce Law 5, no. 1 (2014): 16; Sganga, “A Plea for Digital Exhaustion in EU Copyright Law,” 219–20.

However, Agreed Statements concerning Articles 6 and 7 of WCT state: "As used in these Articles, the expressions “copies” and “original and copies,” being subject to the right of distribution and the right of rental under the said Articles, refer exclusively to fixed copies that can be put into circulation as tangible objects135." This text made many authors believe that the distribution right under Article 6 of WCT was meant to be limited exclusively to tangible objects (at least, from a purely formalistic approach)136, meaning that digital dissemination of protected works can not be covered by the distribution right. However, there are several alternative interpretations. Firstly, WCT and the Agreed State- ments set only minimal standards for copyright protection. Therefore, the Agreed Statements only mean that the obligation (but not the right) of the states to provide the rightholders with a distribution right is limited exclusively to tangible objects. The states must at least provide the rightholders with a distribution right of tangible copies. However, states can (but are not obliged to) broaden the scope of distribution right and apply it also to intangible items137. This interpretation seems debatable. The distribution right is a right to authorize the first act of distribution, while the right of communication to the public concerns each and every act of such communication138. Moreover, the right of distribution is exhaustible, while the right of communication to the public is not. Thus, if we cover "digital dissemination of works" by the distribution right (instead of the right of communication to the public), it means offering less protection to the rightholders. This concern was also raised by AG Szpunar139. However, this interpretation is valid if we accept that permanent transfers of digital files on the Internet can not be covered by the right of communication to the public per se. Nowadays, digital works are enjoyed both as a product and as a service.140 Permanent transfers of digital files have more similarities with traditional products than services141. Once we accept that these permanent digital transfers are not covered by the right of communication to the public, we have to host

135 “Agreed Statements Concerning the WIPO Copyright Treaty Adopted by the Diplomatic Conference on December 20, 1996,” accessed March 14, 2020, https://wipolex.wipo.int/en/text/295456. 136 Rognstad, “Legally Flawed but Politically Sound?,” 5; Mezei, “Digital Exhaustion in the European Union and the US,” 143; Sganga, “A Plea for Digital Exhaustion in EU Copyright Law,” 216. 137 Linklater-Sahm, “The Libraries Strike Back,” 1564; Linklater, “UsedSoft and the Big Bang Theory,” 16; Sganga, “A Plea for Digital Exhaustion in EU Copyright Law,” 233, 235. 138 Karapapa, “Exhaustion of Rights on Digital Content under Eu Copyright,” 13. 139 AG opinion of 10 September 2019, C-263/18, NUV and GAU v Tom Kabinet, ECLI:EU:C:2019:697, para 34. 140 Sganga, “A Plea for Digital Exhaustion in EU Copyright Law,” 238. 141 Sganga, 216.

27 them under distribution right142 (in order to offer the rightholders at least some protection). This interpretation is acceptable because: "Between the scope of the right of communication to the public ..., covering the dematerialized transmission of digital works as services, and the scope of the right of distribution ..., covering the tangible transfer of works as products/goods, a new grey zone has emerged: that is the online transfer of digital works as products, which entails the buyer's acquisition of the work on its device, and not the mere access from a place and at a time individually chosen by them"143. This grey zone needs to be "covered," and it can be covered by the distribution right. Secondly, according to Ruffler's interpretation, Agreed Statements of WCT limit the scope of the distribution right not to tangible objects as such, but to objects that can be fixed on a tangible medium144. The exact wording of the Agreed Statement says: "fixed copies that can be put into circulation as tangible objects." Permanent digital files are also fixed, contrary to on-demand streams. They are fixed on the computer's HDD or SSD. When a person sells his/her HDD (or, e.g., a USB drive), the files on the data carrier are put into circulation as tangible objects. Under this interpretation, WCT and its Agreed Statements were not meant to exclude permanent digital files (capable of being transferred on a tangible medium) from the scope of exhaustion doctrine. But one-off acts (such as on-line streams) would still be excluded from that scope145. Lastly, the legal status of the Agreed Statements is unclear. AG Szpunar himself noted that the Statements have a "declaratory nature." While Szpunar believes that the Statements reflect the way in which WCT was understood by the signatory parties at the time of WCT's signature146, we believe that they merely reflect the way in which WCT was understood by the parties after WCT's signature. So maybe these Agreed Statements were not binding for the CJEU at all.

2.3.3. Legislative history of the InfoSoc Directive Based on the explanatory memorandum in the proposal for a European Parliament and Council Directive on the harmonisation of certain aspects of copyright and related rights in the

142 Sganga, 235, 238. 143 Sganga, 235. 144 Mezei, “Digital First Sale Doctrine Ante Portas -- Exhaustion in the Online Environment,” 26, 56; Mezei, “Digital Exhaustion in the European Union and the US,” 164–65. 145 Mezei, “Digital First Sale Doctrine Ante Portas -- Exhaustion in the Online Environment,” 26. 146 AG opinion of 10 September 2019, C-263/18, NUV and GAU v Tom Kabinet, ECLI:EU:C:2019:697, para 35.

Information Society of 10 December 1997 (COM(97) 628 final), the Court found that the legislator's intention was to cover online downloads of protected works by the concept of "communication to the public147." Let us take a closer look at the legislative history of the InfoSoc Directive. The Green Paper of 1995 shows that the EU legislator wished to exclude exhaustion in case of on-demand services. However, the EU legislator's intention was based on the assumption that on-line dissemination of works always results to provision of services (where no permanent copies are offered to the user of the service). Moreover, according to the EU legislator, an "on-demand" service was something similar to rental148 and contrary to TV broadcasts. The example of "on-demand services" offered by the legislator was the video-on-demand service149. Generally, the same conclusions can be with- drawn from the Follow-up to the Green Paper of 1996150. The final proposal for the InfoSoc Direc- tive generally follows the same logic151, with one important difference: it also slightly mentions digital downloads152 (though solely in the context of licensing). In this context, CJEU could firstly argue that an "on-demand" transmission (which the EU legislator intended to protect) is characterized by the possibility of the end-user to access the work, without offering the end-user a permanent "offline" copy of the work. Secondly, the Court could state that if the legislator's intention was to exclude exhaustion in respect of all digital transmissions, then that intention was based on a wrong assumption that "online transmissions always involve a service."153 Thirdly, the Court could argue that the issue which was being decided in Tom Kabinet was not a visible one when InfoSoc Directive was being adopted154. Thus, the legislator could not have had any intention on that issue. At least in 2 cases, the Court interpreted the exceptions to exclusive

147 C-263/18, Tom Kabinet, paras 41-45. 148 Linklater, “UsedSoft and the Big Bang Theory,” 16. 149 Commission of the European Communities, Green Paper on Copyright and Related Rights in the Information Society, Brussels, 19.07.1995, COM(95) 382 final, pg. 20, 30, 45, 47-48, 56-57, 62. 150 Commission of the European Communities, Communication from the Commission: Follow-up to the Green Paper on Copyright and Related Rights in the Information Society, Brussels, 20.11.1996, pg. 3, 6, 12-13, 18-19. 151 Proposal for a European Parliament and Council Directive on the harmonization of certain aspects of copyright and related rights in the information society. COM (97) 628 final, 10 December 1997, pg. 6, 16, 17, 18, 19, 25, 26. 152 Proposal for a European Parliament and Council Directive on the harmonization of certain aspects of copyright and related rights in the information society. COM (97) 628 final, 10 December 1997, pg. 5. 153 Mezei, “Digital First Sale Doctrine Ante Portas -- Exhaustion in the Online Environment,” 53; Mezei, “Digital Exhaustion in the European Union and the US,” 146. 154 Oprysk, Matulevicius, and Kelli, “Development of a Secondary Market for E-Books,” 138; Sganga, “A Plea for Digital Exhaustion in EU Copyright Law,” 213.

29 rights broadly, in order to ensure their effective application in circumstances which could not have been considered by the legislator155. Not going too far: in the VOB case the Court clearly disregarded the legislator's intention156. AG Szpunar at least implied that legislator's intention should not be given decisive weight, as the legislator "could not have intended to include e-lending within RLD’s scope, since this technology- enabled use was in its very early days." However, it does not mean that RLD must be interpreted as not extending to e-lending157. In contrast, the AG suggested that the Explanatory Memorandum of the Directive does not sufficiently support exclusion of e-books from the public lending right158. Similarly, in Tom Kabinet, the Court could adopt the same approach towards the legislator's outdated and unclear "intention." It could argue that the legislative history of the InfoSoc Directive does not clearly show that the legislator wished to exclude exhaustion in case of digital transmissions which result into a permanent "offline" copy of the copyright-protected work. It could argue that the legislative history does not clearly show that such transmissions were to be covered exclusively by the right of communication to the public. Such transmissions (not being very popular in the 90s) could not have been (seriously) taken into account by the legislator.

2.3.4. Recitals of the InfoSoc Directive The Court recalled Recitals 28 and 29 of the InfoSoc Directive159 and pointed out the words "tangible article" (Recital 28) and "that object" (Recital 28 and Article 4(2)) as one more argument that the distribution right is limited only to tangible objects160. Recital 28 states that the distribution right applies only to tangible objects. Recital 29 states that no exhaustion can happen in case of services and on-line services161. However, the Court could firstly argue that Recitals do not have a binding character162. Thus, if a main provision of a Direc-

155 Oprysk, Matulevicius, and Kelli, “Development of a Secondary Market for E-Books,” 130. 156 Matulionyte, “Lending E-Books in Libraries,” 272. 157 Tito Rendas, “Does ‘Lending’ Include e-Lending? Yes, Says Advocate General Szpunar,” Journal of Intellectual Property Law & Practice 11, no. 10 (October 1, 2016): 731, https://doi.org/10.1093/jiplp/jpw104. 158 Matulionyte, “Lending E-Books in Libraries,” 271. 159 C-263/18, Tom Kabinet, paras 46-51. 160 C-263/18, Tom Kabinet, para 52. 161 Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society. 162 Mezei, “Digital Exhaustion in the European Union and the US,” 165.

30 tive conflicts with a Recital, then the language of the main provision should prevail163. In this case, the language of Article 4 (1) of the Directive164 should prevail over the text of Recital 28165. Secondly, it could argue that Recital 29 is too broad166 and outdated167. If taken literally, that Recital168 would exclude exhaustion even in case of tangible goods (e.g., a CD-ROM) bought online169, which is against logic - a problem which was also noted by the AG in Tom Kabinet170. Thirdly, the Court could argue that there is a need to differentiate between scenarios when copyright-protected digital works are offered as "services" and when the same works are offered as intangible "goods."171 Goods and services differ greatly172. Permanent digital downloads do not match the criteria of "services" and can not be qualified as such173. They are closer to the concept of "goods."174 This argument could be further supported by Recital 19 of CRD, which adopts a sui generis approach towards such digital content175. As a conclusion, the Court could state that Re- cital 29 of the InfoSoc Directive does not preclude exhaustion in case of the digital downloads.

163 Mezei, 165. 164 Which, to our best understanding, states that distribution right is applicable to "any form of distribution." 165 Which "limits" the distribution right exclusively to tangible articles/objects. 166 Rognstad, “Legally Flawed but Politically Sound?,” 15. 167 Sganga, “A Plea for Digital Exhaustion in EU Copyright Law,” 221. 168 Particularly, the following wording: "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." 169 Mezei, “Digital Exhaustion in the European Union and the US,” 146; Sganga, “A Plea for Digital Exhaustion in EU Copyright Law,” 221; Mezei, “Digital First Sale Doctrine Ante Portas -- Exhaustion in the Online Environment,” 53; Mezei, “The Doctrine of Exhaustion in the Copyright Law of the European Union,” 46. 170 AG opinion of 10 September 2019, C-263/18, NUV and GAU v Tom Kabinet, ECLI:EU:C:2019:697, para 38. 171 Mezei, “Digital First Sale Doctrine Ante Portas -- Exhaustion in the Online Environment,” 54; Sganga, “A Plea for Digital Exhaustion in EU Copyright Law,” 221; Spedicato, “Online Exhaustion and the Boundaries of Interpretation,” 47; Mario Cistaro, “The Interface between the EU Copyright Law and the Fundamental Economic Freedoms of Trade and Competition in the Digital Single Market: From the FAPL Case to the Decision in UsedSoft,” Queen Mary Journal of Intellectual Property 6, no. 2 (2016): 145. 172 Janja Hojnik, “Digital Content as a Market Commodity Sui Generis: EU Lawyers (Finally) Moving from Newton Physics to Quantum Physics The Legal Challenges of Modern World,” Economic and Social Development, International Scientific Conference on Economic and Social Development: The Legal Challenges of Modern World 22 (2017): 73; Cistaro, “The Interface between the EU Copyright Law and the Fundamental Economic Freedoms of Trade and Competition in the Digital Single Market,” 142; Grigoriadis, “The Distribution of Software in the European Union after the Decision of the CJEU UsedSoft GmbH v. Oracle International Corp. (UsedSoft),” 203. 173 Cistaro, “The Interface between the EU Copyright Law and the Fundamental Economic Freedoms of Trade and Competition in the Digital Single Market,” 143; Mezei, “Digital Exhaustion in the European Union and the US,” 143–44; Spedicato, “Online Exhaustion and the Boundaries of Interpretation,” 51. 174 Hojnik, “Digital Content as a Market Commodity Sui Generis,” 75. 175 “Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011 on Consumer Rights, Amending Council Directive 93/13/EEC and Directive 1999/44/EC of the European Parliament and of the Council and Repealing Council Directive 85/577/EEC and Directive 97/7/EC of the European Parliament and of the Council Text with EEA Relevance,” Pub. L. No. 32011L0083, OJ L 304 (2011), http://data.europa.eu/eli/dir/2011/83/oj/eng.

2.3.5. "First sale" In the light of these arguments, the Court could argue that the criterion of "sale," as developed in UsedSoft, can apply to other types of digital content176. It could argue that the permanent nature of the copy, the existence of a one-time lump-sum fee177 and the ability of the end-user to exercise unrestricted autonomous control over that copy178 are enough to qualify the transaction in question as a sale. The mere fact that the rightholders call it a "license" should not be decisive, in the same way, as it was not decisive in UsedSoft179. Thus, the Court could conclude in Tom Kabinet that a "first sale" of a copy of a copyright- protected work took place under Article 4(2) of the InfoSoc Directive, and the rightholder's right to further distribute that copy was exhausted.

2.3.6. Arguments of economical nature CJEU stated that e-books, unlike paper books, always stay "perfect" and never deteriorate. Exchange of e-books does not require additional cost or effort. Therefore, a secondary market of "used" e-books will harm the interests of the rightholders much more than a secondary market of used paper books180. Firstly, non-deterioration of e-books in libraries181 was not an obstacle for CJEU in the case of VOB. E-books did (do) not deteriorate neither in VOB nor in Tom Kabinet. If the concept of e- deterioration was important, the Court could stress the necessity of applying "e-deterioration"-like mechanisms in libraries in VOB. A number of such mechanisms are possible to implement182. Secondly, the doctrine of exhaustion does not depend on deterioration of products as such. The doctrine of exhaustion is mainly based on the reward theory183 and the competition theory184: it controls each and every future resale (after the first lawful resale) of the copyright-protected

176 Spedicato, “Online Exhaustion and the Boundaries of Interpretation,” 49, 50; Sganga, “A Plea for Digital Exhaustion in EU Copyright Law,” 218, 238. 177 Aaron Perzanowski and Jason Schultz, “Legislating Digital Exhaustion,” Berkeley Technology Law Journal 29, no. 3 (December 2014): 1553–54. 178 Karapapa, “Exhaustion of Rights on Digital Content under Eu Copyright,” 25. 179 Mezei, “Digital First Sale Doctrine Ante Portas -- Exhaustion in the Online Environment,” 42. 180 C-263/18, Tom Kabinet, paras 57-59. 181 Matulionyte, “Lending E-Books in Libraries,” 273. 182 Matulionyte, 261, 281; Linklater-Sahm, “The Libraries Strike Back,” 1567. 183 According to which, the rightholder is freely able to set the initial price of copies of his work (in a manner which he thinks is fair), and is not entitled to any further reward in cases of further transfers of ownership of sold copies. 184 According to which, the rightholder does not have and should not have the chance to fully control the secondary market.

32 work. The fact that the non-deteriorating product can be resold an unlimited number of times does not matter from the perspective of the doctrine185. No law prescribes that the doctrine is applicable only to deteriorating copies. What is more important, deterioration can not be guaranteed in tangible world either186. However, no one questions the doctrine of exhaustion in the tangible world. Thirdly, digital content also "degrades" and suffers "loss of value." For example, old file formats become obsolete (lose value) when superior file formats appear on the market187. Fourthly, transferring content at (virtually) no additional cost and effort is a problem which also exists in the world of tangible objects188. Yet, it was never used as a reason to limit the doctrine of exhaustion in the tangible world. Fifthly, if the Court's logic in Tom Kabinet is true, then the judgment in VOB also harms the rightholders. That judgment can decrease the volume of e-book sales for the rightholders189 - something which will probably not make them happy. However, in VOB, this was not an issue for the Court, in Tom Kabinet, it was.

185 Péter Mezei, “The Theory of Copyright Exhaustion,” in Copyright Exhaustion: Law and Policy in the United States and the European Union (Cambridge University Press, 2018), 11, https://doi.org/10.1017/9781108135290.002; Mezei, “Digital First Sale Doctrine Ante Portas -- Exhaustion in the Online Environment,” 56. 186 Mezei, “Digital Exhaustion in the European Union and the US,” 158. 187 Olmedo Cuevas, “Dutch Copyright Succumbs to Aging as Exhaustion Extends to E-Books,” 9; Mezei, “Digital Exhaustion in the European Union and the US,” 153. 188 Mezei, “Digital Exhaustion in the European Union and the US,” 153; Mezei, “Digital First Sale Doctrine Ante Portas -- Exhaustion in the Online Environment,” 44–45, 55. 189 Mezei, “Digital First Sale Doctrine Ante Portas -- Exhaustion in the Online Environment,” 51; Matulionyte, “Lending E-Books in Libraries,” 261.

3. TOM KABINET: THE "BENEFICIAL" EFFECTS

3.1. Shutting down the secondary markets? In this part, we will discuss whether digital content can be lawfully resold after Tom Kabi- net, provided that: (1) the rightholder does not give consent to such resale, (2) seller's copy of the content is deleted upon resale. According to Tom Kabinet,190 digital downloads of works protected under the InfoSoc Di- rective are covered by the right of "communication to the public." That right belongs to the author of the work191 (or the rightholder). According to Article 3(3) of InfoSoc Directive, this right is not exhausted even after the initial communication of that work192. In the light of the foregoing, let us discuss the impact of Tom Kabinet on the possible digital content resale scenarios.

3.1.1. Centralized platforms of digital content resale In these platforms, users sell digital content only to the platform and buy it only from the platform. The platform acts as an active trader (not a mere intermediary). In centralized platforms, the seller sells to the platform, and the platform sells to the buyer. Two transactions are needed for the final resale to happen ("seller>>platform" and "platform >>buyer"). The first transaction (seller>>platform) can hardly be qualified as a communication to the public. However, the second transaction (platform >> buyer) and the platform's act of offering the content on a website193 is a "communication to the public," according to Tom Kabinet.

3.1.2. Decentralized platforms of digital content resale In these platforms, users directly buy digital content from the other users and sell it directly to the other users. The platform (the operator of the website) acts as an intermediary between the buyer and the seller. The platform does not buy anything and does not sell anything. It just hosts a virtual place where the buyer and the seller meet.

190 C-263/18, Tom Kabinet. 191 Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society. 192 Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society. 193 C-263/18, Tom Kabinet, para 64.

Tom Kabinet does not clearly answer whether these transactions (seller >> buyer) can be qualified as "communication to the public." CJEU's previous judicial practice is also controversial. CJEU noted in Stichting Brein judgment that the concept of "communication to the public" has two criteria: (1) an act of communication, and (2) the existence of a "public."194 An "act of communication" takes place when a protected work is transmitted (by wire or wireless means) to the public not present at the place where the communication originates195. However, the notion of "public" is controversial. On the one hand, a single buyer is not a "public," as the term "public" refers to an indeterminate number of potential [recipients]196. It in- volves a threshold which excludes "too small" or "insignificant" groups of persons from that con- cept197. On the other hand, a "communication to the public" can happen if the work is communicated to a "new public" (a public that was not already taken into account by the rightholders when they authorised the initial communication of their work)198. While it might seem illogical to qualify one person as a "public," there is a risk that in the future, CJEU might qualify a single person, who was not taken into account by the rightholder during the initial communication, as a "public." The existence of such risk is firstly grounded on AG Szpunar's words: "What matters is not the number of persons to whom the communication is made but the fact that the person at the origin of that communication addresses his offer to persons not belonging to his private circle. In that case, a single acquirer may therefore constitute a public199." Secondly, such a scenario can be predicted by analyzing the Court's approaches in the cases of Renckhoff200, Soulier201, and SGAE202 (and the AG's opinion in SGAE203). However, this is still an open question204.

194 Judgment of 14 June 2017, C-610/15, Stichting Brein, ECLI:EU:C:2017:456, para 24. 195 C-263/18, Tom Kabinet, para 62. 196 Judgment of 7 December 2006, C-306/05, SGAE, ECLI:EU:C:2006:764, para 37. 197 C-610/15, Stichting Brein, para 41. 198 C-610/15, Stichting Brein, para 28. 199 AG opinion of 10 September 2019, C-263/18, NUV and GAU v Tom Kabinet, ECLI:EU:C:2019:697, para 42. 200 Judgment of 7 August 2018, C-161/17, Land Nordrhein Westfalen v Dirk Renckhoff, ECLI:EU:C:2018:634, paras 29, 33-34. 201 Judgment of 16 November 2016, C-301/15, Soulier, ECLI:EU:C:2016:878, para 33. 202 C-306/05, SGAE, para 51. 203 Lianne Bulger, “Are Works Communicated through Television Sets in Hotel Rooms a ‘Communication to the Public’?Journal of Intellectual Property Law & Practice, 2007, Vol. 2, No. 5Journal of Intellectual Property Law & Practice, 2007, Vol. 2, No. 5,” Journal of Intellectual Property Law & Practice 2, no. 5 (May 1, 2007): 282–83, https://doi.org/10.1093/jiplp/jpm047. 204 AG opinion of 10 September 2019, C-263/18, NUV and GAU v Tom Kabinet, ECLI:EU:C:2019:697, para 41.

Thus, there is a quite high probability that selling digital content on decentralized platforms might be qualified as a "communication to the public." The buyer (who was not taken into account by the rightholder) might be qualified as a public. Even if nobody buys the content, the seller's act of offering the content might be enough to qualify as a "communication to the public."

3.1.3. Out-of-platform sales Finally, a seller and a buyer can reach a non-public205 agreement via social networks (e.g., Facebook) or by other means. In this scenario, we have the "act of communication" and a single buyer who was not taken into account by the rightholder. Considering that the buyer does not belong to the seller's "private circle," and following the preceding line of arguments, such communication might be qualified as a "communication to the public" as well.

3.1.4. Conclusion Concluding, resales on centralized digital content resale platforms are qualified as "communication to the public." Resales on decentralized platforms, as well as resales concluded out of dedicated resale platforms (via public offers and/or private communications), are very likely to be qualified as "communication to the public." Legal uncertainty and the risky nature of these transactions alone are enough to draw people away from such resales. As a result, after Tom Kabinet, centralized platforms of digital content resale can not lawfully operate without the consent of the respective rightholders. Other digital content resellers will have to consider certain legal risks if they choose to operate independently. Therefore, Tom Kabi- net judgment is shutting down the secondary market of digital content (excluding software).

3.2. The problem of enforceability In this part, we will discuss whether Tom Kabinet judgment is practically enforceable against everyone - whether the rightholders can use this judgment to "attack" each and every digital content reseller successfully.

205 In this part, we are not discussing the cases when the offer made by the seller is public (visible to everyone). In our opinion, such a situation is the equivalent of the situation with decentralized platforms. Thus, it does not require a separate discussion.

In the case of centralized platforms, the answer is simple. The platform will be responsible for infringing the rightholders' exclusive right of communication to the public. The platform (who runs an active business) is easily traceable and identifiable. The same conclusion applies to decentralized platforms. These platforms (as well as their users) are practically traceable and identifiable. While such platforms do not buy or sell anything, they still act as intermediaries. As intermediaries, they are not exempted from liability. They can not "benefit" from Articles 12 ("Mere conduit"), 13 ("Caching"), or 14 (Hosting) of E-Commerce Directive206. The seller will be responsible for infringing the rightholders' exclusive right of communication to the public. The platform will be responsible according to the relevant intermediary liability rules. However, the situation concerning out-of-platform sales is different. Dedicated platforms can be easily monitored by the rightholders. However, out-of-platform transactions can be completely private and hardly traceable. Even if they are public (e.g., announcements on Facebook), the rightholders most likely will not have enough resources or motivation to monitor non-dedicated platforms. Therefore, Tom Kabinet can really "help" the rightholders only in cases when a "dedicated" (decentralized or centralized) platform of digital content resale is involved in the transaction. When no such platform is involved, not every transaction is identifiable and traceable. Even if it is, still, a judicial attack against two private persons would be time-consuming and expensive. It would not have a strategical purpose. The rightholders will most likely not engage in such litigations.

3.3. Digital secondary markets: good or bad? In this part, we will describe the benefits of the digital secondary markets for the users and the rightholders. Although EU Copyright Law generally does not have an end-user-centered appro- ach207, still the area of exhaustion is where the end-users have a central role to play. End-users are relevant market players who constitute an important market force. Therefore, this part will include end-users in the analysis.

206 “Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on Certain Legal Aspects of Information Society Services, in Particular Electronic Commerce, in the Internal Market ('Directive on Electronic Commerce’),” Pub. L. No. 32000L0031, OJ L 178 (2000), https://eur-lex.europa.eu/legal- content/EN/ALL/?uri=CELEX%3A32000L0031. 207 Synodinou, “The Renckhoff Case,” 22.

3.3.1. Innovation Secondary markets bolster innovation in several ways. Firstly, operators of secondary markets, being beyond the reach of rightholders, can experiment and develop new business models for digital dissemination of works208. Even Netflix's success was empowered by first sale doctrine (the equivalent of the principle of exhaustion in the USA)209. Secondly, as a response to the innovations by the secondary markets, the rightholders also innovate to stay competitive210. They make efforts to be sure that their content is still appealing to the users (more attractive than the used copies)211. Rightholders publish new editions of their works with added value (new versions, extra features, new content, or other bonuses)212. Thirdly, availability of low-cost copies on the secondary markets fosters user innovation213. User innovation requires access to works which can not be guaranteed if the price of the work is not affordable. Secondary markets mean lower prices, and therefore, more access and more innovation - innovation which would probably be hindered by the rightholder if its result was to com- pete with the original work214. Fourthly, secondary markets can promote innovation by reducing consumer lock-in - a situation when a consumer can not switch to a newer and a better product because the costs of switching are too high. Lock-in discourages consumers from moving to a more competitive model215. Such a situation creates barriers for competitors and reduces their incentives and capability to enter the market. Thus, consumer lock-in stifles innovation216. Contrarily, a secondary market ensures that users can resell their digital purchases. The switching costs are decreased as the users are able to recoup at least a portion of their past invest-

208 Karapapa, “Exhaustion of Rights on Digital Content under Eu Copyright,” 9; Perzanowski and Schultz, “Digital Exhaustion,” 897–98. 209 Theodore Serra, “Rebalancing at Resale: Redigi, Royalties, and the Digital Secondary Market Note,” Boston University Law Review 93, no. 5 (2013): 1774. 210 Perzanowski and Schultz, “Digital Exhaustion,” 897. 211 Sganga, “A Plea for Digital Exhaustion in EU Copyright Law,” 232. 212 Serra, “Rebalancing at Resale,” 1774; Sganga, “A Plea for Digital Exhaustion in EU Copyright Law,” 232. 213 Perzanowski and Schultz, “Digital Exhaustion,” 898. 214 Sganga, “A Plea for Digital Exhaustion in EU Copyright Law,” 232. 215 Karapapa, “Exhaustion of Rights on Digital Content under Eu Copyright,” 10; Perzanowski and Schultz, “Digital Exhaustion,” 900. 216 Sganga, “A Plea for Digital Exhaustion in EU Copyright Law,” 232.

38 ments217. As a result, better products do not fail in the market only because their potential customers have already invested in older products so much that switching to a new product will be truly expensive218. There can be no doubt that such a situation is truly beneficial for innovation.

3.3.2. Competition Several commentators note that digital exhaustion and secondary markets of digital goods foster competition on the market219. Secondary markets positively affect the level of competition by bolstering the development of effective distribution models220, by increasing the level of innovation and reducing consumers' lock-in221 and in other ways. As noted by Serra, a secondary market "introduces some competition to a marketplace otherwise controlled exclusively by the copyright holder."222

3.3.3. Prices and affordability It is generally accepted that secondary markets ensure the affordability of copyright protected goods. Secondary markets are extremely useful for the purchasers223 because they make it possible to buy used goods at lower prices when they are not affordable in the primary market due to budget limitations,224 financial insecurity, or difficult economic times225. Moreover, secondary markets pressure rightholders to reduce their prices226. As a response to the price competition introduced by the secondary markets, the rightholders will be "forced" to control their prices and engage in positive price discrimination to make sure that they can attract low-income consumers and distract them from the secondary markets227. For example, the pricing

217 Serra, “Rebalancing at Resale,” 1775; Karapapa, “Exhaustion of Rights on Digital Content under Eu Copyright,” 10. 218 In the contrary situation, the "monopoly" of commercial success would belong to earlier developed products which already have numerous customers - customers, who will never switch to another (even better) product because of high costs of switching. 219 Morris, “Beyond Trade,” 135. 220 Sganga, “A Plea for Digital Exhaustion in EU Copyright Law,” 231. 221 Karapapa, “Exhaustion of Rights on Digital Content under Eu Copyright,” 9, 10. 222 Serra, “Rebalancing at Resale,” 1776. 223 Mezei, “Digital First Sale Doctrine Ante Portas -- Exhaustion in the Online Environment,” 54. 224 Youngsang Cho and Yoonmo Koo, “Investigation of the Effect of Secondary Market on the Diffusion of Innovation,” Technological Forecasting and Social Change 79, no. 7 (September 1, 2012): 1363, https://doi.org/10.1016/j.techfore.2012.04.002. 225 Donatello, “Killing the Secondary Market,” 83. 226 Perzanowski and Schultz, “Digital Exhaustion,” 894. 227 Sganga, “A Plea for Digital Exhaustion in EU Copyright Law,” 231.

39 scheme of "Kindle Unlimited" (a service launched by Amazon that allows its US customers to read more than one million e-books for $9.99 per month without even owning a Kindle device228) is so low that "it practically kills the second-hand market for "used" e-books."229 Secondary markets also allow the consumers who purchased the copyright-protected goods on the primary market to recoup a part of the original price in a later transaction (a resale on the secondary market)230. Thus, the possibility of resale "lowers the effective prices that consumers pay on the primary market."231 Therefore, secondary markets increase the affordability and availability of copyright-protected goods232 because: (1) the prices on the secondary markets are always lower than the prices on the primary markets; (2) lower prices offered by the secondary markets "force" rightholders to lower the prices on primary markets; (3) the possibility of a further resale lowers the real price of these goods (if an item costs $10 but can later be resold for $4, then the "real" price of that item is only 6$). The problem of affordability can be clearly shown in the market of videogames.233 "The Sims 3" (a very popular game published by EA) costs €19.99 on Steam234. The main game and all its DLCs cost €399.08 in total235. The main game, all its DLCs and all the online store content cost $74,926.31 in total. At least, this was the situation back in 2013236. Another example, "Train Si- mulator 2020" (a videogame developed and published by Dovetail Games), costs €29.99 on Steam. The DLCs for that game cost more than €8,200 in total237. Without questioning the pricing policies of the publishers, we have to agree that these (and many more) videogames are not really affordable and available for the general public. Strong digital secondary markets would place these videogames within reach of more consumers.

228 Learn More about Kindle Unlimited, https://www.amazon.com/gp/feature.html?ie=UTF8&docId=1002872331 (last visited 01.04.2020). 229 Mezei, “Digital First Sale Doctrine Ante Portas -- Exhaustion in the Online Environment,” 55. 230 Donatello, “Killing the Secondary Market,” 83. 231 Serra, “Rebalancing at Resale,” 1776. 232 Sganga, “A Plea for Digital Exhaustion in EU Copyright Law,” 231; Serra, “Rebalancing at Resale,” 1776–77; Donatello, “Killing the Secondary Market,” 83. 233 Videogame developers have a common "dishonest" practice nowadays. They cut a lot of content from the main game in order to release them later via DLCs. 234 The Sims 3 on Steam, https://store.steampowered.com/app/47890/The_Sims_3/ (last visited 01.04.2020). 235 The Sims 3 on Steam, https://store.steampowered.com/app/47890/The_Sims_3/ (last visited 01.04.2020). 236 Total cost of all DLC and store content :: The Sims 3 General Discussions, https://steamcommunity.com/app/47890/discussions/0/846954921951120944/ (last visited 18.04.2020). 237 Train Simulator 2020 on Steam, https://store.steampowered.com/app/24010/Train_Simulator_2020/ (last visited 01.04.2020).

3.3.4. Privacy Secondary markets play a key role in protecting consumers' privacy238. They make it practically impossible to track and identify the buyers of a particular work, as these works are bought without the rightholder's knowledge239. This issue is particularly important when we consider sensitive, controversial or politically unpopular works. Consumers' identification can have a "chilling effect" on the level of dissemination of such works240. In the digital environment, the issue of consumers' anonymity becomes more crucial because the rightholders (and their proxies) have significantly greater and broader possibilities to effectively track, identify and profile the consumers241. In a world without digital secondary markets, the consumers have to share their sensitive personal data with the rightholder or its proxy242. How- ever, the secondary market's user's choices are not revealed to them243. Concluding, the more lawful vendors of the same work exist, the harder it becomes to track and to identify the customers who buy that work. Secondary markets ensure the existence of more lawful vendors.

3.3.5. Access With the aid of DRM systems, purchased digital content can "vanish" from users' devices overnight244. Through remote deletion, Amazon can erase e-books from users' Kindles245. In 2009, hundreds of Amazon Kindle owners discovered that two books written by Orwell had disappeared from their e-book readers246. After receiving a lot of criticism, Amazon refunded the customers247,

238 Karapapa, “Exhaustion of Rights on Digital Content under Eu Copyright,” 11; Sganga, “A Plea for Digital Exhaustion in EU Copyright Law,” 231; Serra, “Rebalancing at Resale,” 1775; Perzanowski and Schultz, “Digital Exhaustion,” 896. 239 Sganga, “A Plea for Digital Exhaustion in EU Copyright Law,” 231; Serra, “Rebalancing at Resale,” 1775. 240 Sganga, “A Plea for Digital Exhaustion in EU Copyright Law,” 231–32; Serra, “Rebalancing at Resale,” 1775– 76. 241 Sganga, “A Plea for Digital Exhaustion in EU Copyright Law,” 232. 242 Serra, “Rebalancing at Resale,” 1775. 243 Donatello, “Killing the Secondary Market,” 84. 244 Morten Rosenmeier, Kacper Szkalej, and Sanna Wolk, EU Copyright Law: Subsistence, Exploitation and Protection of Rights (Alphen aan den Rijn: Wolters Kluwer, 2019), 120. 245 Perzanowski and Schultz, “Digital Exhaustion,” 905. 246 John Rodden, “Introduction, or Orwell Into the Twenty-First Century,” The Midwest Quarterly 56, no. 1 (2014): 5-; Graber, “Tethered Technologies, Cloud Strategies and the Future of the First Sale/Exhaustion Defence in Copyright Law,” 389. 247 Jason Snell, “Amazon Deletes Kindle Books, Then Apologizes,” Macworld 26, no. 10 (October 2009): 22–22.

41 apologized, and explained the reasons of their actions: Amazon publishing partner who sold these e-books did not have the right to distribute them in the US. One day, any rightholder might decide to limit the public's access to his work(s). It can be done by remotely erasing the content from users' devices, by not distributing the work any further or otherwise. The reasons can be various. However, economic reasons of stopping the distribution of tangible works are usually not pertinent to digital works248. Distribution of digital works is more likely to be stopped because of personal feelings, political pressure, social sensitivity or other similar reasons249. For example, the videogames "Grand Theft Auto 1" and "Grand Theft Auto 2" (published by "Rockstar Games") are no longer available on "Rockstar's" website250. They are also not available on "Steam" or any other legal digital market251. The reasons are unknown. However, it does not mean that general public should lose the ability to enjoy those particular work lawfully. Rightholders should not have the right to control the dissemination of knowledge and culture as such. Copyright law has never entitled them to do so252. Digital markets can be controlled by the rightholders more effectively than tangible mar- kets253. Digital secondary markets make it more difficult (or even impossible) for the rightholders to censor or suppress particular works254. These markets ensure access to works which the rightholder decided to "withdraw" or not to distribute any longer255. In many situations, the secondary market may be the exclusive way by which the public will be able to get lawful access to works. Another benefit of secondary markets - they help to preserve the access to and the dissemination of orphan works (which is important for the preservation of cultural heritage)256. The commercial incentives of digital dissemination of such works are quite low. Secondary markets would help to disseminate these works digitally.

248 Serra, “Rebalancing at Resale,” 1779. 249 Serra, 1779–80. 250 Rockstar Classics - Free Downloads, https://www.rockstargames.com/classics/ (last visited 18.04.2020). 251 Grand Theft Auto on Steam, https://store.steampowered.com/app/12170/Grand_Theft_Auto/ (last visited 01.04.2020), Grand Theft Auto 2 on Steam, https://store.steampowered.com/app/12180/Grand_Theft_Auto_2/ (last visited 01.04.2020). 252 Rosenmeier, Szkalej, and Wolk, EU Copyright Law, 121. 253 Sganga, “A Plea for Digital Exhaustion in EU Copyright Law,” 231; Serra, “Rebalancing at Resale,” 1779. 254 Donatello, “Killing the Secondary Market,” 84. 255 Karapapa, “Exhaustion of Rights on Digital Content under Eu Copyright,” 10–11; Perzanowski and Schultz, “Digital Exhaustion,” 895. 256 Sganga, “A Plea for Digital Exhaustion in EU Copyright Law,” 231.

Concluding, in a situation where the work is no longer being [lawfully] distributed but has not yet passed into the public domain, secondary markets may facilitate the lawful access to such work257. When the rightholder terminates the distribution of a work, it is the exhaustion doctrine which helps the society not to lose that work forever258.

3.3.6. Other benefits for the users Several commentators also argue that digital exhaustion creates legal certainty for the con- sumers259 by obviating the need to ask permission from rightholders for certain activities260; that resale of digital content leads to reinvestment into the economy261; and that the secondary markets increase economic efficiency262. Secondary markets give a "new life" to old products, which would otherwise become useless and redundant263.

3.3.7. Benefits for the rightholders The present author argues that in the long run, secondary markets (including the digital ones) are at least indirectly beneficial for the rightholders as well.

Statement 1. - Digital piracy is a significant threat for the rightholders Digital piracy is the consumption of illegal copies of digital content264. Nowadays, digital dissemination of works is more popular than traditional means of dissemination265. However, technological development and the Internet have made it very difficult to enforce anti-piracy laws in

257 Spedicato, “Online Exhaustion and the Boundaries of Interpretation,” 33. 258 Mezei, “The Theory of Copyright Exhaustion,” 12–13. 259 Karapapa, “Exhaustion of Rights on Digital Content under Eu Copyright,” 11. 260 Serra, “Rebalancing at Resale,” 1775. 261 Mezei, “Digital First Sale Doctrine Ante Portas -- Exhaustion in the Online Environment,” 54; Mezei, “Digital Exhaustion in the European Union and the US,” 150. 262 Donatello, “Killing the Secondary Market,” 83. 263 Gillen, “The Software Proteus – UsedSoft Changing Our Understanding of Software as ‘Saleable Goods,’” 15. 264 Godwin Udo, Kallol Bagchi, and Moutusy Maity, “Exploring Factors Affecting Digital Piracy Using the Norm Activation and UTAUT Models: The Role of National Culture,” Journal of Business Ethics: JBE; Dordrecht 135, no. 3 (May 2016): 517, http://dx.doi.org.ezproxy.its.uu.se/10.1007/s10551-014-2484-1. 265 Sganga, “A Plea for Digital Exhaustion in EU Copyright Law,” 230.

43 practice. Moreover, even the best DRM technologies are not hacker-proof266. As a result, pirates have more opportunities to access and consume illicit digital content267. The problem of digital piracy is a large and growing one268 though not everyone sees digital piracy as a significant threat269. There can be debates over the extent to which digital piracy affects lawful sales of content270. Posner argues that piracy will severely hurt rightholders if it reaches a certain level271. Still, the "increasing threat of piracy" is a fact which was recognized even back in 1998272. Although pirated copies of protected works are not always perfect substitutes for the legal version of the product273, still the rightholder's ability to set prices (pricing power) becomes limited when he is faced with digital piracy274. Moreover, when faced with digital piracy, rightholders are forced to implement DRM and TPM systems, which reduce the value of their product, as these systems make the products "unflexible" for the end-user275. For example, "Steam" generally sells the same videogames at a lower price than "GOG." Videogames on Steam are DRM-protected; on GOG, they are not276. Additionally, piracy is able to attract a share of customers from the rightholders, thus reducing their revenues. By affecting the ability of the rightholders to expand in the market, piracy

266 Arun Sundararajan, “Managing Digital Piracy: Pricing and Protection,” Information Systems Research 15, no. 3 (2004): 303. 267 Udo, Bagchi, and Maity, “Exploring Factors Affecting Digital Piracy Using the Norm Activation and UTAUT Models,” 518. 268 Charles Hill, “Digital Piracy: Causes, Consequences, and Strategic Responses,” Asia Pacific Journal of Management 24, no. 1 (March 2007): 9, 10, https://doi.org/10.1007/s10490-006-9025-0. 269 Publications Office of the European Union, “Estimating Displacement Rates of Copyrighted Content in the EU : Final Report.,” Website (Publications Office of the European Union, September 22, 2017), 7–8, http://op.europa.eu/en/publication-detail/-/publication/59ea4ec1-a19b-11e7-b92d-01aa75ed71a1. 270 Nicholas Costanza, “Digital Music Garage Sale: An Analysis of Capitol Records, LLC v. ReDigi Inc. and a Proposal for Legislative Reform in Copyright Enabling a Secondary Market for Digital Music Note,” Hastings Communications and Entertainment Law Journal 37, no. 1 (2015): 155. 271 Richard A. Posner, “Intellectual Property: The Law and Economics Approach,” The Journal of Economic Perspectives; Nashville 19, no. 2 (Spring 2005): 64. 272 Judgment of 28 April 1998, C-200/96, Metronome Musik GmbH v Music Point Hokamp GmbH, ECLI:EU:C:1998:172, para 22. 273 This statement is particularly true for videogames. Pirated versions of videogames usually have limited functionality. They do not offer online multi-player experience or in-game purchases ("microtransactions"). Moreover, patching or updating a pirated "videogame" usually means deleting/uninstalling the whole game and downloading/installing the patched/updated "pirated" version. As a result, the pirate may lose his saved games. Moreover, pirated versions of videogames can have compatibility issues with the user's hardware or OS. Occasionally, the installation process of such videogames ends with an error. 274 Sundararajan, “Managing Digital Piracy,” 287–88, 302. 275 Sundararajan, 288. 276 GOG.com, https://www.gog.com/about_gog (last visited 18.04.2020).

44 reduces the market available for these rightholders. The situation is particularly dangerous for re- latively small market players who do not own significant financial resources277. As a result, piracy may affect the whole system of IP-protected content generation. The more digital piracy negatively affects the revenues of the content creators, the less content (music, films, books, videogames, etc.) will be created and supplied to the market278.

Statement 2. - High prices of copyright-protected digital content and the feeling of inequity are one of the main causes of digital piracy Equity theory is an important theory of social exchange and justice. It describes an individual’s search for fairness or equity in social exchanges. An equitable exchange happens when the individuals understand that the participants of that exchange are receiving outcomes appropriate to their inputs. Equity theory predicts that when individuals find themselves participating in rela- tionships that are perceived to be inequitable, they will become distressed and will try to eliminate the distress by taking actions to restore equity279. Of course, "equity" is a very subjective concept for each individual. Still, "the sense of equity" and the "feeling of inequity" are forces which can and will drive most individuals to particular actions. According to Hill, there is some evidence that digital pirates perceive the prices for digital goods to be high, and view this as inequitable, particularly when the copyright holders enjoy economic success280. The present author has the same opinion. From the perspective of "equity" and "inequity," it is not important how much a particular digital content costs and/or how much money was spent on that content's production. What truly matters is: how much the content should cost in the general public's opinion. Of course, the rightholders are not obliged to care about the public's opinion. Still, we agree that P2P file-sharing, torrents, and many other forms of digital piracy came into existence because a tremendous gap existed between the society and the rightholders281. The rightholders were not trying to understand the society, and as a result, the society was not willing to pay the rightholders.

277 José Maria Rodriguez Ovejero, Luigi Stammati, and Maria Paula Torres Figueroa, “The Impact of Piracy on the Structure of the Pay TV Market: A Case Study for Latin America,” Journal of Media Business Studies 16, no. 1 (January 2, 2019): 44, 46, 53, https://doi.org/10.1080/16522354.2019.1572449. 278 Hill, “Digital Piracy,” 17–18. 279 Hill, 12. 280 Hill, 12. 281 Mezei, “Digital First Sale Doctrine Ante Portas -- Exhaustion in the Online Environment,” 55.

We agree with Mezei, that piracy would not be so popular if lawful alternatives to consume digital goods existed282. Importantly, an "alternative" means a cheaper alternative. Otherwise, the search for alternatives would be quite a meaningless concept. High prices of digital content are not the only reason of the "feeling of inequity." Situations such as consumer lock-in can lead to the same result. If the consumer can not transfer his purchased e-books from Reader A to Reader B, and if he can not resell the e-books from Reader A (in order to buy the e-books for Reader B with the received funds), he might become frustrated and turn to piracy283 (illegally download e-books for the Reader B). Nobody likes to pay twice for the same thing (even when the "same thing" is in a different file format). Concluding this argument, the present author has lawfully purchased more than 200 videogames, but he would probably download "The Sims 3" (which costs €400) from a torrent website.

Statement 3. - Piracy is a culture which has the ability to spread Piracy is not only about money. While it can start as a response to "inequity," and as a way to save money, in the end, it becomes a mindset and a "life choice." It is hard for the pirate to get back to the "right path," as piracy makes life easier. Digital piracy bears virtually no costs. Importantly, a typical digital pirate will not consider himself a criminal. Digital piracy is a form of theft of intellectual property. However, most of the digital pirates would not walk into a store and steal an item of similar value284. While many people have moral restrictions against re- gular theft, theft of intellectual property is not widely considered as immoral. In the case of Vernor v Autodesk, the District Court (U.S. District Court, W.D. Washington, at Seattle) noted that "piracy depends on the number of people willing to engage in piracy."285 This is an acknowledgement of piracy as being a "life choice." However, this choice does not start out of nowhere. There are factors that lead to this choice, and one of them is the feeling of "inequity." Piracy can spread like any culture or sub-culture. The more people bear the culture, disseminate its ideology and act as an example for others, the faster the culture spreads. In case of digital

282 Mezei, 55; Mezei, “Digital Exhaustion in the European Union and the US,” 162. 283 Serra, “Rebalancing at Resale,” 1775. 284 Hill, “Digital Piracy,” 10–11. 285 VERNOR v. AUTODESK, INC. (W.D.Wash. 9-30-2009), Case No. C07-1189RAJ, https://www.casemine.com/judgement/us/5914b142add7b049347581c6 (last visited 18.04.2020).

46 piracy, this is particularly easy, considering that it makes people's lives easier, bears no costs, and is not considered immoral. Also, the possibility of "getting caught" is not high.

Statement 4. - Digital secondary markets will reduce the level of digital piracy by offering cheaper copyright-protected digital content and thus reducing the level of "inequity" The feeling of inequity is one of the causes of (digital) piracy. It can be countered inter alia by lowering prices. Hill suggests lowering prices as a strategic response against piracy. He argues that lowering prices will close the "equity gap," limit the attraction to the pirated good and increase the rightholder's profits in the long run286. A similar idea was suggested by Gopal and Sanders287. The present author is not suggesting that the rightholders should lower their prices in order to combat piracy. Instead, the existence of a digital secondary market (which offers lower prices) might have the same effect on the level of piracy as lowering of the prices by the rightholders. Mezei argues that [digital secondary markets] might direct users' attention to lawful digital retail stores [instead of piracy]288. Donatello, argues that "whether software is allowed to be resold in the secondary market or not, those who wish to pirate software, will do so."289 While there is some truth in both of these positions, we do not completely agree with any of them. Those who wish to be pirates will always be pirates. It is very difficult to turn a pirate into a paying customer. While the existence of a digital secondary market might direct some current pirates' attention to lawful digital stores, most of the current pirates will not start paying. Digital secondary markets will not reduce the numbers of current pirates significantly. However, digital secondary markets can slow down the future growth of digital piracy. These markets would offer affordable options to those who have not "taken the path of piracy" yet but would do so if they do not find affordable alternatives. As a result, gradually, fewer and fewer people (potential digital pirates) would wish to become actual digital pirates. Concluding this part, digital secondary markets will reduce the level of digital piracy not by lowering the numbers of current digital pirates and attracting them to buy legal goods, but by slowing down the future growth rate/speed of digital piracy.

286 Hill, “Digital Piracy,” 20, 22. 287 Sundararajan, “Managing Digital Piracy,” 289. 288 Mezei, “Digital First Sale Doctrine Ante Portas -- Exhaustion in the Online Environment,” 55; Mezei, “Digital Exhaustion in the European Union and the US,” 162. 289 Donatello, “Killing the Secondary Market,” 86.

Conclusion Digital piracy is a significant threat for the rightholders. High prices of digital content and the feeling of inequity are among the causes of digital piracy. Like any culture, the culture of digital piracy is spreading, and that is harmful for the rightholders. Digital secondary markets will reduce the level of digital piracy by offering cheaper copyright-protected digital content. The rightholders might ask: "Where is our benefit? Both digital piracy and digital secondary markets take away our profits. If one does not take it, the other will." The present author firmly believes that economically speaking, "secondary markets + redu- ced level of piracy" is a better option for the rightholders than "no secondary markets + high level of piracy." Secondary market users, contrary to digital pirates, already have a developed habit of paying and complying with the law. From this perspective, secondary market users are likely to become the rightholder's direct customers (especially during discount periods). Digital pirates are less likely to do the same. Though rumors exist about "honest pirates" who buy after trying for free290, still "honest secondary market users" are better than "honest pirates." Lack of cheaper lawful alternatives does not necessarily mean that the rightholders' profits will grow. However, it does necessarily mean that the level of digital piracy will continue to grow. In the long run, continuous growth of digital piracy might have a worse effect on the rightholders' profits than digital secondary markets. One must never forget that a "digital pirate" and a "digital secondary market user" are two different characters with different choices, mindsets and behaviors.

3.3.8. Digital secondary markets - beneficial for everyone Commentators also note that a digital secondary market can draw the customers away from digital streaming services (such as Spotify), thus benefitting the rightholders291. This would sound logical if the rightholders were to receive royalties from digital secondary markets. However, that would be paradoxical. If we accept digital exhaustion, then such royalties are unnecessary292. It has also been argued that the existence of digital secondary markets allows the rightholders to raise the prices of their digital goods on the primary market in order to compensate the loss

290 Hill, “Digital Piracy,” 18; Costanza, “Digital Music Garage Sale,” 157. 291 Costanza, “Digital Music Garage Sale,” 155; Serra, “Rebalancing at Resale,” 1778. 292 Mezei, “Digital First Sale Doctrine Ante Portas -- Exhaustion in the Online Environment,” 54–55.

48 of sales293. Importantly, the existence of a secondary market is a "proper excuse" to raise prices on the primary market without being considered as an "abuser of dominant position" (conduct which is prohibited by Article 102 of TFEU294). However, it is debatable whether raised prices will lead to raised profits for the rightholders. Another question is - does a digital secondary market really harm the rightholders? It has been argued that digital secondary markets harm the rightholders, deprive them of the opportunity to receive appropriate fees for the uses of their works295, and reduce the incentive to create296. However, it is worthy to note that a secondary market (even a digital one) always remains second best. Newly released content (which is mostly the main source of profit for the rightholders) seldom appears on the secondary market until a long time has passed. As a result, the rightholder "retains the ability to capture the lion's share of revenues" from that content297. Moreover, as an author rightfully notes: "People always have bought and will continue to buy new items ... Some people just can't wait to get their hands on something. Others don't care about the cost."298 Besides, only a limited amount of digital content will be available on the secondary market: the end-users will sell only unused content and will keep the rest for future enjoyment. Finally, a significant number of users will continue to buy digital goods from primary markets: secondary markets will most likely be less viral299. Concluding, a secondary digital market is generally beneficial for both the rightholders and the users300. The benefits of digital secondary markets from the users' perspective were also recognized by AG Szpunar in Tom Kabinet301.

293 Mezei, 54; Serra, “Rebalancing at Resale,” 1777; Donatello, “Killing the Secondary Market,” 84, 85; Mezei, “Digital Exhaustion in the European Union and the US,” 149. 294 “Consolidated Versions of the Treaty on European Union and the Treaty on the Functioning of the European Union,” Pub. L. No. 2012/C 326/01 (2012), https://eur-lex.europa.eu/legal- content/EN/TXT/?uri=celex%3A12012E%2FTXT. 295 Rognstad, “Legally Flawed but Politically Sound?,” 17. 296 “Old Habits Die Hard?,” 8. 297 Serra, “Rebalancing at Resale,” 1777. 298 Theresa Cramer, “Used (Digital) Goods,” EContent; Wilton 36, no. 7 (September 2013): 3. 299 Mezei, “Digital Exhaustion in the European Union and the US,” 161. 300 Serra, “Rebalancing at Resale,” 1778. 301 AG opinion of 10 September 2019, C-263/18, NUV and GAU v Tom Kabinet, ECLI:EU:C:2019:697, paras 81- 84.

4. A NEW "PLACE UNDER THE SUN" FOR DIGITAL SECONDARY MARKETS

4.1. Legislative policy considerations Though the Court could come to a better conclusion, the judgment of Tom Kabinet is now a reality that has to be taken into account. Tom Kabinet itself admits that its path has ended,302 and we have to look forward. Legislative changes are needed to "override" the effect of the judgment. The present author suggests several principles on which these changes should be based. Firstly, persons who paid a lump-sum fee for a permanently fixed copy of a digital content need a right to resell that content. This goal can be mainly achieved by narrowing the scope of the right of "communication to the public." In UsedSoft, the Court held that online transmission of a work + permanent copy + transfer of ownership to that copy = distribution; and that perpetual right to use a permanent copy + a lump- sum fee = transfer of ownership. This approach should be applicable to all types of digital content. Like the Court did in UsedSoft303, EU legislator needs to differentiate between online dissemination of protected works with and without permanent copies. The right of communication to the public should be narrowed in order not to encompass scenarios with permanent copies. This right should not apply in situations when "an identifiable copy is made," which is "made availible to the recipient permanently."304 "Communication to public" should not exist if a permanent copy of a protected work is lawfully305 made available to the end-user after the "communication." Secondly, persons who paid a lump-sum fee for a permanent copy of a digital content, need a right to resell that content without infringing the rightholder's exclusive right of reproduction.

302 Tom Kabinet - Epiloog, https://www.tomkabinet.nl/ (last visited 18.04.2020). 303 Mezei, “Digital Exhaustion in the European Union and the US,” 124; Mezei, “Digital First Sale Doctrine Ante Portas -- Exhaustion in the Online Environment,” 43. 304 Poorna Mysoor, “Exhaustion, Non-Exhaustion and Implied Licence,” IIC - International Review of Intellectual Property and Competition Law 49, no. 6 (July 1, 2018): 673, 676, https://doi.org/10.1007/s40319-018-0721-3. 305 By using different technical means, users can also download digital content during e.g. video streams, which is not lawful, in our opinion.

When a user transfers a digital file, it is widely accepted that not the original copy is being passed, but a new one. Thus, such a user infringes the rightholder's exclusive right of reproduction (which is not exhaustible)306. This issue was also raised by AG Szpunar in Tom Kabinet307. The problem lies in the breadth and "unflexibleness"308 of the reproduction right. In Allpos- ters, CJEU stated that reproduction can happen even without duplication. However, Allposters had a specific factual background, which is very different from Tom Kabinet. If the Court had chosen "the path of digital exhaustion" in Tom Kabinet, it had two ways of solving the reproduction issue. Firstly, CJEU could use the same approach as it used in FAPL309. CJEU could qualify exhaustion as an exception or a limitation to the distribution right and could argue that a temporary reproduction of the digital file is necessary in order to make that exception/ limitation effective. Secondly, CJEU could qualify such reproductions as transient (or incidental) and as an essential part of a technological process whose sole purpose is to enable a lawful use of the work. Thus, they would be considered lawful under Article 5(1) of the InfoSoc Directive310. However, it is too late. The only option left is reconsidering the philosophy of reproduction, taking into account the "effect of use" and not the "technical nature"311 of the act. In UsedSoft, the Court held that if the end-user resells a computer program and makes his own copy unusable, then no infringement of the reproduction right happens. The Court made clear that this interpretation is only possible because of unique provisions of CPD, which is a lex specialis to the InfoSoc Directive. Now, the time has come for lex specialis to become lex generalis. The concept of reproduction should not let the user keep additional copies after the resale or resell the same copy multiple times312. However, it should not prohibit the otherwise lawful transfer of ownership of a digital content as such. If a single digital copy is being transferred from one person to another, the additional temporary copies created during such transfer should not

306 Hojnik, “Digital Content as a Market Commodity Sui Generis,” 76; Linklater, “UsedSoft and the Big Bang Theory,” 13; Perzanowski and Schultz, “Digital Exhaustion,” 902; Mezei, “Digital Exhaustion in the European Union and the US,” 127; Spedicato, “Online Exhaustion and the Boundaries of Interpretation,” 55; Mezei, “Digital First Sale Doctrine Ante Portas -- Exhaustion in the Online Environment,” 44. 307 AG opinion of 10 September 2019, C-263/18, NUV and GAU v Tom Kabinet, ECLI:EU:C:2019:697, paras 45- 49. 308 Rendas, “Copyright, Technology and the CJEU,” 155–59. 309 C-403/08 and C-429/08, FAPL, paras 163-164. 310 Sganga, “A Plea for Digital Exhaustion in EU Copyright Law,” 236. 311 Synodinou, “The Renckhoff Case,” 26. 312 Perzanowski and Schultz, “Digital Exhaustion,” 937; Spedicato, “Online Exhaustion and the Boundaries of Interpretation,” 55.

51 matter. These copies have a merely technical nature which are inevitably created only for facilitating such transfer313. We only need to ensure that no multiplication is taking place. Exactly how we ensure this (erasure of content after transfer, byte-by-byte transfer, or transfer-and-delete) does not really matter314. A contrary philosophy is unduly formalistic: temporary reproductions are always necessary for transferring files via the Internet. Such reproductions are not independent acts, but merely technical steps315. Of course, the user who keeps his copy after its transfer must be considered as a copyright infringer316. Thirdly, if the first two principles are impossible to implement, at least there is a need for an exception or limitation for the people who conduct out-of-platform sales. This exception (limitation) should cover the reproduction right and the right of communication to the public. Drawing a line of analogy, why does "private copying exception" (Article 5(2)(b) of Info- Soc Directive317) exist? The reason most likely lies in the impossibility to control private copy- ing318. The same logic can apply to out-of-platform sales. People will obey the law only if it is in their interests to do so, and they will, in any event, try to minimise the disadvantages that laws impose on them319. With no such exception/limitation, many might infringe, and the rightholders might not be able to deal with these infringements. Even if they are able to deal with them, most likely, they will not be motivated enough to do so.

4.2. Feeding the wolves and keeping the sheep safe The next question is - how can we keep both the wolves (rightholders trying to make more profit) fed and the sheep (users and operators of digital content resale platforms) safe? It could be argued that the "wolves" are generally "well-fed." Several arguments can support this reasoning. Firstly, the rightholder sets the price for the content by his own free will. Dra-

313 Perzanowski and Schultz, “Digital Exhaustion,” 938; Graber, “Tethered Technologies, Cloud Strategies and the Future of the First Sale/Exhaustion Defence in Copyright Law,” 404. 314 Mezei, “Digital First Sale Doctrine Ante Portas -- Exhaustion in the Online Environment,” 46; Mezei, “Digital Exhaustion in the European Union and the US,” 132. 315 Spedicato, “Online Exhaustion and the Boundaries of Interpretation,” 55. 316 Spedicato, 59. 317 Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society. 318 Stavroula Karapapa, Private Copying (London, UNITED KINGDOM: Routledge, 2012), 15, http://ebookcentral.proquest.com/lib/uu/detail.action?docID=981963. 319 Cento Veljanovski, “The Economics of Law,” SSRN Scholarly Paper (Rochester, NY: Social Science Research Network, October 10, 2006), 63, https://doi.org/10.2139/ssrn.935952.

52 wing lines of analogy with the Court's reasoning in FAPL320, nothing prevents the rightholder to set an appropriate price for his content, taking into account the fact that the potential "recipient" of the content is not only its first acquirer but also its subsequent acquirers. After all, the purpose of safeguarding intellectual property rights does not require that the rightholders receive a continuous revenue from resales of goods to third parties321. Of course, the practical ability of the rightholder to calculate the appropriate remuneration is an important precondition for the application of exhaustion doctrine322. While such calculations might be challenging to conduct for digital content, we do not believe that it is an impossible task. Secondly, rightholders can act as digital secondary markets themselves if they adopt corresponding business models (e.g., buyback programs for unwanted digital files)323. However, the present author does not believe that secondary markets should be generally and totally controlled by the rightholders (although a number of such models are possible to implement324). Thirdly, they can make resales of digital content more difficult with the help of technology. Or they can offer DRM-protected (cheap) and DRM-free (expensive) versions of same content325. Fourthly, a rightholder who is not happy with the exhaustion doctrine can always switch to service-like dissemination models326 (e.g., video streaming instead of video downloads). Fifthly, rightholders can stay competitive by offering additional services that differentiate a "brand new" copy from a "used" copy327. These are the main reasons why the present author is against such measures as resale royal- ties328, differentiation between commercial and non-commercial resales329 or resale number limita- tions330. The fact that the rightholder could not determine a reasonable remuneration for his content does not mean that he should be entitled to collect royalties from each and every future resale. The

320 C-403/08 and C-429/08, FAPL, paras 112-113, 129. 321 Matulionyte, “Lending E-Books in Libraries,” 267. 322 Rognstad, “Legally Flawed but Politically Sound?,” 14, 19. 323 Gillen, “The Software Proteus – UsedSoft Changing Our Understanding of Software as ‘Saleable Goods,’” 15; Olmedo Cuevas, “Dutch Copyright Succumbs to Aging as Exhaustion Extends to E-Books,” 9–10. 324 Rosenmeier, Szkalej, and Wolk, EU Copyright Law, 119–20; Costanza, “Digital Music Garage Sale,” 157–58; Oprysk, Matulevicius, and Kelli, “Development of a Secondary Market for E-Books,” 136; Mezei, “Digital First Sale Doctrine Ante Portas -- Exhaustion in the Online Environment,” 54–55. 325 Sganga, “A Plea for Digital Exhaustion in EU Copyright Law,” 234–35. 326 Determann, “Digital Exhaustion,” 219. 327 Rognstad, “Legally Flawed but Politically Sound?,” 17. 328 Serra, “Rebalancing at Resale,” 1787, 1799; Costanza, “Digital Music Garage Sale,” 160. 329 Perzanowski and Schultz, “Legislating Digital Exhaustion,” 1547. 330 Costanza, “Digital Music Garage Sale,” 159.

53 fact that digital content is not deteriorating and can be resold for an unlimited number of times does not mean that the number of possible future resales should be artificially limited331. Everything can be changed, including the nature of the Internet332. "Real" deterioration of digital content is not impossible as such. Digital content was designed not to deteriorate in a "traditional" sense. However, the design can be changed. The same could be said about the possibility to freely and endlessly reproduce digital copies at no cost - it can also be changed333. Even now, "e-deterioration" in a "traditional" sense is not beyond the realms of possibility334. However, the present author does not vote for the implementation of such schemes. Two things have to be taken care of. Firstly, we must ensure that all the digital content sold on the secondary market is legal (not pirated). This aim can be achieved with the help of watermarking technologies or unique ID numbers. Each and every digital content eligible for resale should be identifiable with the help of these technologies. They will help to ensure not only the lawfulness of the content (the fact that the content comes from lawful sources) but also the fact that the digital content was originally put into circulation in the Community (as the InfoSoc Directive requires)335. It can be argued that watermarking is not an effective technology against piracy. However, law, as such, is not effective against piracy either. Whether digital exhaustion exists or not, pirates will be pirates. Technological obstacles can be overcome, punishments prescribed by law can be avoided. The solution against piracy does not lie in law or technology as such. It lies in making piracy undesirable - in legal and economic sense, total drawbacks from digital piracy should outweigh total benefits. The existence of digital secondary markets (cheaper alternatives) is a possible mechanism for making digital piracy not very desirable. So watermarking is not a tool for comba- ting against digital piracy as such, but it is a minimal guarantee that the secondary market will not be flooded with pirated copies.

331 Mezei, “Digital Exhaustion in the European Union and the US,” 154. 332 Lawrence Lessig, “The Law of the Horse: What Cyberlaw Might Teach,” Harvard Law Review 113, no. 2 (1999): 505, https://doi.org/10.2307/1342331. 333 Lessig, 523. 334 Chunlin Song, Jie Sang, and Sud Sudirman, “A Buyer-Seller Watermarking Protocol for Digital Secondary Market,” Multimedia Tools and Applications 77, no. 1 (January 1, 2018): 244, https://doi.org/10.1007/s11042-016- 4247-8; Karapapa, “Exhaustion of Rights on Digital Content under Eu Copyright,” 29. 335 Oprysk, Matulevicius, and Kelli, “Development of a Secondary Market for E-Books,” 134–35; Mezei, “Digital Exhaustion in the European Union and the US,” 158–59; Mezei, “Digital First Sale Doctrine Ante Portas -- Exhaustion in the Online Environment,” 56.

Secondly, we must ensure that the seller of the digital content makes his own copy unusab- le336 - a concern which was also raised by AG Szpunar337. It can be ensured with the help of transfer-and-delete technologies ("bit-by-bit," blockchain or otherwise), which will de facto simulate a physical transfer by leaving only one copy after resale and allowing no multiplications338. While the publishers and producers believe that such kind of technology does not exist yet,339 we argue that the creation of such technology is not impossible. Evidence exists that forward-and-delete technologies are developing340. Development of a "perfect" forward-and delete technology is a matter of time, proper policies, and determination. Every platform, on which digital content is resold, should implement these technologies at their own cost. Rightholders should have the right to supervise (without controlling) these technologies, to ensure that they are working properly. However, the case of out-of-platform sales is different. In case of out-of-platform sales, the implementation of these technologies can not be practically enforced. Still, the end-user who sells pirated copies or does not delete his own copy during or after resale will be considered as a copyright infringer and can not use the doctrine of exhaustion as a defence341. The only mechanism that we can offer is putting the burden of proof of lawfulness of the resale on the reseller342 in case of a judicial dispute. However, if the reseller fails to prove the lawfulness of the resale, then both he and the buyer should be liable for copyright infringement. This will make the buyers more cau- tious, more prone to checking every detail before buying, and generally will make them refrain from out-of-platform sales in the long run. Maybe this mechanism is not effective enough. Yet, no law or technology can be really effective and enforceable in case of out-of-platform non-public sales. Exclusion of digital exhaustion itself is not an effective measure to protect the rights of copyright holders in the realm of out- of-platform sales. Accordingly, in this case, we have to adjust our desires to our abilities.

336 Song, Sang, and Sudirman, “A Buyer-Seller Watermarking Protocol for Digital Secondary Market,” 229. 337 AG opinion of 10 September 2019, C-263/18, NUV and GAU v Tom Kabinet, ECLI:EU:C:2019:697, para 92. 338 Costanza, “Digital Music Garage Sale,” 154, 159; Mezei, “Digital Exhaustion in the European Union and the US,” 158, 159; Mezei, “Digital First Sale Doctrine Ante Portas -- Exhaustion in the Online Environment,” 56. 339 Graber, “Tethered Technologies, Cloud Strategies and the Future of the First Sale/Exhaustion Defence in Copyright Law,” 404. 340 Mezei, “Digital First Sale Doctrine Ante Portas -- Exhaustion in the Online Environment,” 45. 341 Mezei, “Digital Exhaustion in the European Union and the US,” 158. 342 Mezei, 163.

5. CONCLUSION

Tom Kabinet judgment means that digital content protected under the InfoSoc Directive (e-books, music, films, and videogames) can not be resold without the rightholder's authorization. The same applies to software with a GUI, which is original enough to be protected under the In- foSoc Directive. As a result, digital secondary markets can not operate freely after Tom Kabinet. The main suppliers of these markets are the end-users. If the end-users are not allowed to resell digital content, digital secondary markets will have nothing to offer to their customers. Tom Kabinet judgment, at least implicitly, sets a resale restriction not only for the platforms designed for (and/or used for) digital content resale but also for everyone who wants to resell their digital content by any other means. However, even though Tom Kabinet supposedly affects everyone, resales that happen out of dedicated resale platforms are not easily traced, and participants of such transactions are not easily identified. As a result, Tom Kabinet will most likely have a problem of enforceability in case of such transactions. CJEU treats digital secondary markets as beneficial exclusively for the end-users and detrimental for the rightholders. It is true that digital secondary markets bolster the levels of innovation and competition, ensure the affordability of digital content, play a role in protecting the end- users' privacy and, in a number of scenarios, preserve users' access to protected works. However, in the long run, rightholders might also benefit from these markets. The existence of robust digital secondary markets will most probably reduce the level of digital piracy by slowing down its future growth speed. Even if it does not happen, at least, digital secondary markets are not so harmful for the rightholders as the CJEU perceives. The rightholders will still keep most of their revenues, even when digital secondary markets exist and operate lawfully. Therefore, digital secondary markets can be beneficial both for the users and the rightholders. In the light of the foregoing, a contrary solution of Tom Kabinet might be beneficial to all of the stakeholders, while shutting down the secondary markets might benefit no one, at least in the long run. A contrary solution of Tom Kabinet would not be contra legem. CJEU could apply at least two alternative interpretations of WCT and its Agreed Statements and consequently conclude that, according to WCT, permanent digital files could be included in the scope of the distribution right

56 and the exhaustion doctrine. As regarding the InfoSoc Directive's legislative history, various legi- timate reasons existed not to make it a decisive factor. Still, said legislative history does not clearly support the Court's viewpoint. By recognizing that permanent digital downloads differ from the concept of services, CJEU could conclude that Recital 29 of the InfoSoc Directive did not preclude exhaustion in case of the digital downloads. The problem of Recital 28 could be solved by accep- ting that the language of Article 4(1) should prevail over the non-binding text of the said Recital. Every legal obstacle against digital exhaustion could be overcome by CJEU if it had adopted a more "flexible" (rather than purely "formalistic") approach towards the case. Such a flexible approach might be criticized for its unnecessary flexibility. However, the current formalistic approach deserves to be criticized for unnecessary formalism. As regarding the Court's arguments of economical nature, firstly, they could not be used to preclude digital exhaustion as such. Secondly, the Court's reasoning was one-sided. At a first glan- ce, it might seem that the solution of Tom Kabinet was the only way to protect the rightholders' interests. However, this study tried to argue that a contrary solution of Tom Kabinet case would be beneficial for everyone in the long run. Unfortunately, the idea that the digital secondary market would not be so detrimental to the rightholders never came to the Court's mind. Both the judgment and the AG's opinion are based on the assumption that a secondary market (whether digital or not) is always harmful for the rightholders. The present author does not support this assumption. Lastly, it is worthy to note that a contrary solution of Tom Kabinet would be more consis- tent with the Court's judgments in VOB and UsedSoft. UsedSoft and VOB gave high hopes to the proponents of "digital exhaustion." Tom Kabinet crushed these hopes. Now the time has come for the EU legislator to introduce "digital exhaustion" as the logical "extension" of traditional exhaustion doctrine. EU legislator needs to reconsider the concepts of "communication to the public" and "reproduction." The first concept should be redesigned in order not to apply to situations when an end-user gets a permanent and independent copy of a protected work. The second concept should be redesigned in order not to prohibit the otherwise lawful transfer of ownership of a digital content. The rightholders' interests can be safeguarded with the help of technological measures, the implementation of which should be mandatory for digital content resale platforms. Although "e- deterioration" is not impossible as such, still watermarking, unique ID numbers, and transfer-and- delete technologies might be sufficient to protect the rightholders' interests.

BIBLIOGRAPHY

1. Legislation

1.1. International Law - “WIPO Copyright Treaty (WCT),” 1996. - “Agreed Statements Concerning the WIPO Copyright Treaty Adopted by the Diplomatic Conference on December 20, 1996.” Accessed March 14, 2020.

1.2. EU Law - Consolidated versions of the Treaty on European Union and the Treaty on the Functioning of the European Union, Pub. L. No. 2012/C 326/01 (2012). - Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market ('Directive on electronic commerce’), Pub. L. No. 32000L0031, OJ L 178 (2000). - Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society, Pub. L. No. 32001L0029, OJ L 167 (2001). - Directive 2006/115/EC of the European Parliament and of the Council of 12 December 2006 on rental right and lending right and on certain rights related to copyright in the field of intellectual property (codified version), Pub. L. No. 32006L0115, OJ L 376 (2006). - Directive 2009/24/EC of the European Parliament and of the Council of 23 April 2009 on the legal protection of computer programs (Codified version) (Text with EEA relevance), Pub. L. No. 32009L0024, OJ L 111 (2009). - Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011 on consumer rights, amending Council Directive 93/13/EEC and Directive 1999/44/EC of the European Parliament and of the Council and repealing Council Directive 85/577/EEC and Directive 97/7/EC of the European Parliament and of the Council Text with EEA relevance, Pub. L. No. 32011L0083, OJ L 304 (2011).

2. Case Law

2.1. CJEU - Judgment of 28 April 1998, C-200/96, Metronome Musik GmbH v Music Point Hokamp GmbH, ECLI:EU:C:1998:172. - Judgment of 7 December 2006, C-306/05, SGAE v Rafael Hoteles SA, ECLI:EU:C:2006:764.

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2.2. US - VERNOR v. AUTODESK, INC. (W.D.Wash. 9-30-2009), Case No. C07-1189RAJ.

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4. Other Sources

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4.2. Other legal sources - Advocate General's opinion of 10 September 2019, C-263/18, NUV and GAU v Tom Kabinet, ECLI:EU:C:2019:697. - Bolipata, Karen. “What the CJEU’s UsedSoft Decision Means for Software Resales.” Managing Intellectual Property, August 7, 2012, 14–14. - Commission of the European Communities, Green Paper on Copyright and Related Rights in the Information Society, Brussels, 19.07.1995, COM(95) 382 final. - Commission of the European Communities, Communication from the Commission: Follow-up to the Green Paper on Copyright and Related Rights in the Information Society, Brussels, 20.11.1996. - “Oracle Loses to UsedSoft in Software Resale Case.” Managing Intellectual Property, August 7, 2012, 8–8. - Proposal for a European Parliament and Council Directive on the harmonization of certain aspects of copyright and related rights in the information society. COM (97) 628 final, 10 December 1997.

4.3. Other non-legal sources - GOG.com, https://www.gog.com/about_gog (last visited 18.04.2020).

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4.4. Wikipedia - “Robert H. Jackson.” In Wikipedia, https://en.wikipedia.org/w/index.php?title=Robert_H._Jackson&oldid=946290809 (last visited 01.04.2020).