Exhaustion Online with regard to Database in the EU

 

1- EXHAUSTION

Before explaining exhaustion online with regard to database in the European

Union, we should first start by explaining what exhaustion in an Intellectual Property

context is.

1. a) Definition

The exhaustion of intellectual property rights is one of the limits of Intellectual

Property (IP) Law. After a product has been sold under the authorization of the IP owner,

the reselling, rental, lending and other third party commercial uses of IP-protected goods in

domestic and international markets is protected by the principle. Once a product is covered

by an IP right, such as by a patent right, has been sold by the Intellectual Property right

owner or by others with the consent of the owner, the Intellectual Property right is said to

be exhausted. It can no longer be exercised by the owner. This limitation is also referred to

as the Exhaustion Doctrine or First Sale Doctrine. For example, if an inventor obtains a

patent on a new kind of umbrella, the inventor (or anyone else to whom he sells his patent)

can legally prohibit other companies from making and selling this kind of umbrella, but

cannot prohibit customers who have bought this umbrella from the patent owner from

reselling the umbrella to third parties. There is a fairly broad consensus throughout the

world that this applies at least within the context of the domestic market. This is the

concept of National Exhaustion. However, there is less consensus as to what extent the

sale of an Intellectual Property protected product abroad can exhaust the IP rights over this

product in the context of domestic law. This is the concept of Regional exhaustion or

International Exhaustion. The rules and legal implications of the exhaustion largely differ

depending on the country of importation, i.e. the national jurisdiction.1

The paternity of the exhaustion theory is ascribed to the German jurist Joseph

Kohler.2 The word ´exhaustion` seems, however, to have been first used by the German

Reichsgreicht in a number of judgments in the early years of the twentieth century. In a

judgment of 26 March 1902 the Reichsgericht held, for example, that the effect of the

protection conferred by a patent (i.e. the exclusive right to manufacture products covered

1 “International Exhaustion and Parallel Importation”

http://www.wipo.int/sme/en/ip_business/export/international_exhaustion.htm

2 T. de las Heras Lorenzo, El agotamiento del derecho de marca, Editorial Montecorvo, Madrid, 1994, p. 47; F.-K.

Beier, ´Grenzen der Erschöpfungslehre im Markenrecht; zur Beurteilung des Vertriebs umgepackter und neu

gekennzeichtner Originawaren in den Ländern der Europäischen Wirtschaftsgemeinschaft.

Exhaustion Online with regard to Database in the European Union

by the patent and to put them on the market) was exhausted by the first sale.3 In other

words, once the patent holder had transferred legal ownership of goods made in

accordance with the patent, by selling them to another person, he lost the power to control

the further destiny of those goods subsequently.4

1. b) Exhaustion in the European Union

The European Court of Justice (ECJ) has taken serious steps to harmonize the rules

of a Community-wide/regional exhaustion doctrine in the field of copyright law since the

1970’s. Schovsbo called the harmonization by the ECJ as “1.-phase” development of

exhaustion or negative harmonization, and the creation of directives by the competent

bodies of the EEC (and later the EU) as “2.-phase” development or positive

harmonization5.

The first-ever decision on the exhaustion of distribution rights was handed over in

the famous Deutsche Grammophon case. Here, the ECJ based its decision on different

objectives of the EEC Treaty: the prohibition of partitioning of the market, free movement

of goods, as well as the prohibition of distortions of competition in the common market.

The European Court of Justice highlighted that prohibitions and restrictions on trade

might be applied by Member States, also in cases of copyright law, if they do not constitute

a means of arbitrary discrimination or a disguised restriction on trade between Member

States6. Based upon these, the European Court of Justice concluded that “[i]f a right related

to copyright is relied upon to prevent the marketing in a Member State of products

distributed by the holder of the right or with his consent on the territory of another

Member State on the sole ground that such distribution did not take place on the national

territory, such a prohibition, which would legitimize the isolation of national markets,

would be repugnant to the essential purpose of the Treaty, which is to unite national

markets into a single market. That purpose could not be attained if, under the various legal

systems of the Member States, nationals of those States were able to partition the market

and bring about arbitrary discrimination or disguised restrictions on trade between Member

3 Guajakol-Karbonat RGZ 51, 139.

4 Intellectual Property Rights in EU Law Volume 1, David T. Keeling, p. 75-76

5 Jens Schovsbo: The Exhaustion of Rights and Common Principles of European Intellectual Property Law.

In: Ansgar Ohly: Common Principles of European Intellectual Property Law, Mohr Siebeck, Tübingen, 2010: p. 170.

6 Case 78/70 – Deutsche Grammophon Gesellschaft mbH v Metro-SB-Großmärkte GmbH & Co. KG., 8

June 1971, European Court Reports, 1971: pp. 499 – 500., para. 5-11. Compare to Article 36 of the EEC Treaty.

On the application of Article 36 of the EEC Treaty see: Nial Fennelly: Rules and Exceptions: Freedom of Movement

and Intellectual Property Rights in the European Union. In: Hugh C. Hansen: International Intellectual Property Law &

Policy, Volume 5, Juris Publishing, Huntington, 2003: pp. 33-4 – 33-11.

Exhaustion Online with regard to Database in the European Union

States. Consequently, it would be in conflict with the provisions prescribing the free

movement of products within the common market for a manufacturer of sound recordings

to exercise the exclusive right to distribute the protected articles, conferred upon him by

the legislation of a Member State, in such a way as to prohibit the sale in that State of

products placed on the market by him or with his consent in another Member State solely

because such distribution did not occur within the territory of the first Member State.”7

In the EU, the principle of exhaustion of IP rights is as follows. The holder of an

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Intellectual Property right loses his absolute right with the first sale in the EU territory. In

other words, the first commercialization of a good in a territory of the European Union

made by the holder of an industrial property right, or by a legitimate licensee, has as a

consequence that that good may freely circulate in Europe, and the legitimate IP holder

may not oppose the successive acts of reselling. Using the wording of the Centrafarm Case:

“It cannot be reconciled with the principles of free movement of goods under the

provisions of the Treaty of Rome if a patentee exercises his rights under the legal

provisions of one Member State to prevent marketing of a patented product in said State

when the patented product has been brought into circulation in another Member State by

the patentee or with his consent”8. Again, this is a good example of the function of the law

as a system to solve conflicts: on one side the traditional principle of territoriality of IP

rights; on the other side the aspiration to a common market in favour of international

trade. The aim of the exhaustion theory is to strike a balance between the free movement

of goods on the one hand, and the proprietor’s exercise of exclusive intellectual property

rights to distribute his goods on the other hand. The holder of an IP right holds therefore

the right to choose where, under which conditions and at which price his goods are put on

the market for the first time. No need to say that international exhaustion allows parallel

imports. The theory of exhaustion obviously improved in the course of time. In order to be

applicable, various conditions have to be met. It requires the consent of the legitimate

holder (consent that may be express or implied). And it also requires that the legitimate

holder receives, with the first sale, a “reasonable” remuneration. Depending on the

jurisdiction concerned, one often distinguishes between national exhaustion and

international exhaustion. In the European Union the term “regional exhaustion” is

frequently used. Regional exhaustion, in the EU member States, means that IP rights are

7 Case 78/70, supra note 64, p. 500., para. 12-13.

8 verbatim Centrafarm B.V. and Adriaan de Peijper v. Sterling Drug Inc., in 6 IIC 102 (1975).

Exhaustion Online with regard to Database in the European Union

considered exhausted for the territory of the EEA when the product has been put on the

market in any of the EEA Member States.

Once the principle of exhaustion was established, the EU Law incorporated it in

regulations, directives and conventions. For example, art. 7 n. 1 of the First Council

Directive of 21 December 1988 to approximate the laws of the Member States relating to

trade marks (89/104/EEC states that “The trade mark shall not entitle the proprietor to

prohibit its use in relation to goods which have been put on the market in the Community

under that trade mark by the proprietor or with his consent”9. Art. 13 of the Council

regulation (EC) n. 207/2009 of 26 February 2009 on the Community trade mark states that

“A Community trade mark shall not entitle the proprietor to prohibit its use in relation to

goods which have been put on the market in the Community under that trade mark by the

proprietor or with his consent”10.

The Information Society Directive (Directive 2001/29/EC) on the harmonization

of certain aspects of copyright and related rights in the information society refers to this

principle in paragraph 28 and 29. The Directive is a little old in relation to the high speed

of technology, but is still there.11

1. c) The principle of exhaustion in EU Case Law

In Germany, the German Supreme Court (BGH) has repeatedly acknowledged the

exhaustion principle as a precautionary principle for the entire IP law (BGH, 22 January

1964, Maja Case; BGH, 10 April 1997, Sermion II Case).

In France a large number of decisions were reported to deal with the exhaustion

principle (Commercial Chamber of the Court of Cassation, 9 April 2002 n° 99/15428,

Cass. Com., 20 February 2007, n° 05/11088; Cass. Com., 26 February 2008, n° 05/19087;

Cass. Com., 7 April 2009, n° 08/13378; CA Paris, 15 June 2011, n° 2009/12305).

In Austria the principle of exhaustion within the EU was applied even before it was

explicitly mentioned in the Austrian Trade Mark Act (Austrian Supreme Court October 15,

1996).

9 89/104/EEC First Council Directive of 21 December 1988 to approximate the laws of the Member States

relating to trade marks

10 COUNCIL REGULATION (EC) No 207/2009

11 Directive 2001/29/EC

Exhaustion Online with regard to Database in the European Union

2- DATABASE

The protection of electronic databases was first considered by the EC Commission

in the 1998 Green Paper. An initial proposal was adopted on January 29, 1992, and was

greeted, at least in the United Kingdom (which has the largest database industry in the

Community) by a considerable degree of opposition, due to the perceived reduction in

protection for many factual and numerical databases.12

Regarding the concept of database, we should say that it is a collection of

independent works, data or other materials arranged in a systematic or methodical way and

individually accessible by electronic or other means which can include literary, artistic,

musical or other collections of works or collections of other material such as texts, sound,

images, numbers, facts.13 Databases in the European Union are regulated through Directive

96/9/EC, also known as the Database Directive. It is an European Union Directive in the

field of Intellectual Property Law, made under the internal market provisions of the Treaty

of Rome. It harmonizes the treatment of databases under copyright law and the sui generis

right for the creators of databases which do not qualify for copyright.

The exhaustion principle does not allow the reproduction of data. The German

Supreme Court has confirmed this: it held that if there is extraction of a substantial part of

the database, there is no exhaustion as exhaustion covers the right of distribution and not

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extraction.14 Online electronic databases cannot benefit from the exhaustion principle. The

database must have been sold. If it is given free of charge, the principle of exhaustion does

not apply. The CJEU held this to be so in the field of trademarks in Peak Holding v Axolin-

Elinor and later confirmed it in L’Oreal v eBay.15 There is no reason why these decisions

would not apply here by analogy as the term used in Article 7(2)(b) is ‘sale’. The same

applies to Article 5(c) in the copyright chapter of the Database Directive.

Article 7 furthermore specifies acts of temporary or ephemeral copying as

extraction.112 In contrast to the initial draft, which required a commercial intention,

12 E.C. Intellectual Property Materials, Sweet & Maxwell’s, 1994, 1 (F) Amended Proposals of 4 October 1993

for a Council Directive on the legal protection of databases (COM (93) 464 final – SYN 393) [1993] O.J.

C308/1, p. 36

13 Article 7(1) DDir (96/9/EC)

14 Marktstudien (Market Surveys), 21 April 2005, Case I ZR 1/02[2005] GRUR 940; [2006] IIC 489

15 Case C-16/03 Peak Holding v Axolin-Elinor [2004] ECR I-11313 and Case C-324/09 L’Oreal v eBay [2011]

ETMR 52

Exhaustion Online with regard to Database in the European Union

consent is required for loading a database into a computer RAM, as this will copy the entire

database. The consequences of prohibiting acts of temporary or even ephemeral copies —

such as caching — is an inconsistency between online and offline databases. Whereas an

offline database — such as a CD-ROM — or a smaller database technically requires RAM

storage of a substantial part, accessing a large online database normally merely requires the

copy of the entries accessed to be copied.16

Exhaustion only applies to databases in tangible format. If someone lawfully

acquired a tangible copy of the databases, the right holder will not be able to control its

resale within the European Union. However, in two cases, there will arguably not be

exhaustion. The reason is the use of the narrow word ‘sale’ and ‘resale’. First, there will not

be exhaustion when the right holder gave rather than sold the database. In this case, the

right to control distribution remains. Thus, the sale of a copy of a database distributed

freely by the maker, may infringe.17 The second case is when the purchaser wishes to give

the database instead of reselling it. It seems that, in that case, the gift of the database by the

person who acquired it can also be controlled by the right holder.

It must be noted that, in a recent case, 18the Versailles Court of Appeal surprisingly

held that, for a database producer to benefit from her rights of extraction and reutilization,

she must have asserted it previously, before any infringement act is committed. The

mention of the interdiction to extract or reutilize contents from the database becomes a

condition of opposability of the sui generis right granted to the database maker by Article L.

342-2 of the IPC. The claimant lost her case since she did not make such mention on the

website she created. This decision seems to add a condition which does not exist in the

Directive. The sui generis right is not dependant on any formality.

Two German courts held that the creation of deep links is not an infringement of

the sui generis right19. This is not surprising since it is difficult to see how a deep link is an act

of extraction or reutilization.

Under Article 3, databases which, “by reason of the selection or arrangement of

their contents, constitute the author’s own intellectual creation” are protected by copyright

16 Guido Westkamp, Protecting databases under US and European law – methodical approaches to the

protection of investments between unfair competition and intellectual property concepts, 2003

17 Bently & Sherman 2004, p. 303

18 Rojo R. v Guy R., CA Versailles, 18 November 2004, available on http://www.legalis.net.

19 SV on line GmbH v Net-Clipping, OLG Munich, 9 November, 2000 [2001] ZUM 255; Handelsblatt v Paperboy,

OLG Cologne, 27 October 2000 [2001] ZUM 414; BGH, 17 July 2003 [2003] Cri.

Exhaustion Online with regard to Database in the European Union

as collections: no other criterion may be used by Member States. This may be a relaxation

of the criterion for protection of collections in the Berne Convention for the Protection of

Literary and Artistic Works,[2] which covers collections “of literary and artistic works” and

requires creativity in the “selection and arrangement” of the contents: in practice the

difference is likely to be slight. Any copyright in the database is separate from and without

prejudice to the copyright in the entries.

Copyright protection is not available for databases which aim to be “complete”,

that is where the entries are selected by objective criteria: these are covered by sui

generis database rights. While copyright protects the creativity of an author, database rights

specifically protect the “qualitatively and/or quantitatively [a] substantial investment in

either the obtaining, verification or presentation of the contents”: if there has not been

substantial investment (which need not be financial), the database will not be protected

[Art. 7(1)]. Database rights are held in the first instance by the person or corporation which

made the substantial investment, so long as: the person is a national or domiciliary of a

Member State or the corporation is formed according to the laws of a Member State and

has its registered office or principal place of business within the European Union.

The holder of database rights may prohibit the extraction and/or re-utilization of

the whole or of a substantial part of the contents: the “substantial part” is evaluated

qualitatively and/or quantitatively and reutilization is subject to the exhaustion of rights.

Public lending is not an act of extraction or re-utilization. The lawful user of a database

which is available to the public may freely extract and/or re-use insubstantial parts of the

database (Art. 8): the holder of database rights may not place restrictions of the purpose to

which the insubstantial parts are used. However, users may not “perform acts which

conflict with normal exploitation of the database or unreasonably prejudice the legitimate

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interests of the maker of the database”, nor prejudice any copyright in the entries. The

same limitations may be provided to database rights as to copyright in databases (Art. 9):

extraction for private purposes of the contents of a non-electronic database; extraction for

the purposes of illustration for teaching or scientific research, as long as the source is

indicated and to the extent justified by the non-commercial purpose to be achieved;

extraction and/or re-utilization for the purposes of public security or an administrative or

judicial procedure.

Database rights last for fifteen years from the end of the year that the database was

made available to the public, or from the end of the year of completion for private

Exhaustion Online with regard to Database in the European Union

databases (Art. 10). Any substantial change which could be considered to be a substantial

new investment will lead to a new term of database rights, which could, in principle, be

perpetual. Database rights are independent of any copyright in the database, and the two

could, in principle, be held by different people (especially in jurisdictions which prohibit

the corporate ownership of copyright): as such, database rights can be compared to the

rights of phonogram and film producers.20

3- CONCLUSION

The idea of digital first sale doctrine imploded into the mainstream copyright

discussion only a few years ago, although it has already been discussed for almost two

decades. The problem was reflected by academia, case law and legislature as well. Although

notable sources take the view that the concept of digital exhaustion deserves support, the

majority of commentators refused to accept this idea. Likewise, legislative proposals that

were submitted to the German Bundestag and the Congress of the United States, were

ultimately refused by the relevant national parliaments (or were not even discussed by them).

Under the traditional, positivist vision of copyright law, any similar ideas are condemned to

death at the moment, especially in the light of the WCT Agreed Statement. Similarly, the

CJEU’s constructive interpretation of the international and regional copyright norms led to

flawed argumentation. However, significant economic, social and technological arguments

support the view that it is time to reconsider at international legislative level.

It looks like it is time to adapt the principle of exhaustion on an online perspective.

Technology goes faster than law, so when the law goes a step forward, a new problem

arises. Streaming and cloud computing are good examples. The majority of Reports

acknowledge the problems, and underline various aspects. The first is that the principle of

exhaustion of intellectual property rights was elaborated and developed in a time when

goods and services were mainly material and sold and distributed through material and

traditional channels. This approach is overturned by the new technologies. The second is

that it is no longer possible to distinguish, as far as the principle of exhaustion is

concerned, but also in general, among industrial property and intellectual property.

Copyright is expanding. The third is that it is more and more difficult to separate and

distinguish traditional industry and online industry as well as material and immaterial goods

20 Intellectual Property Law, Trevor Cook, 2010

Exhaustion Online with regard to Database in the European Union

and services. The majority of the Reports are of the opinion that on-line infringement of

intellectual property rights is normally dealt with the ordinary rules of civil procedure, and

that there is no particular necessity of elaborating new ones. The difficulties of enforcing

decisions abroad against foreign on line infringers in copyright cases are the usual ones,

common in the legal praxis when a decision must be enforced against foreign infringers.21

Dennis S. Karjala’s thoughts serve as a great point to finish with. He stressed that

“either we believe in the first-sale doctrine in the digital age or we do not. If we no longer

believe in it, we should discard it openly and not through verbal gymnastics interpreting the

definition of ‘copy’ for the purposes of the statute’s reproduction right. Nor should our

definition of ‘copy’ force systems engineers into unduly intricate or artificial designs simply

to protect the right of the owner of a copy of a music file to transfer that file, provided that

no copies derived from the transferred file are retained.”22

21 To what extent does the principle of exhaustion of IP rights apply to the on-line industry? Avv. Prof.

Vincenzo Franceschelli, 2014.

22 Dennis S. Karjala: “Copying” and “Piracy” in the Digital Age, Washburn Law Journal, 2013: p. 255.

Exhaustion Online with regard to Database in the European Union

BIBLIOGRAPHY

ï‚· Bently & Sherman 2004, p. 303

ï‚· David T. Keeling, Intellectual Property Rights in EU Law Volume 1

ï‚· Dennis S. Karjala: “Copying” and “Piracy” in the Digital Age, Washburn Law

Journal, 2013

ï‚· Guido Westkamp, Protecting databases under US and European law – methodical

approaches to the protection of investments between unfair competition and

intellectual property concepts, 2003

ï‚· Jens Schovsbo: The Exhaustion of Rights and Common Principles of European

Intellectual Property Law.

ï‚· Sweet & Maxwell’s, E.C. Intellectual Property Materials

ï‚· T. de las Heras Lorenzo, El agotamiento del derecho de marca, Editorial

Montecorvo, Madrid, 1994, p. 47;

ï‚· Trevor Cook, Intellectual Property Law, 2010

ï‚· Vincenzo Franceschelli, To what extent does the principle of exhaustion of IP

rights apply to the on-line industry? 2014.

ï‚· Centrafarm B.V. and Adriaan de Peijper v. Sterling Drug Inc., in 6 IIC 102 (1975).

ï‚· 89/104/EEC First Council Directive of 21 December 1988 to approximate the

laws of the Member States relating to trade marks

ï‚· Deutsche Grammophon Gesellschaft mbH v Metro-SB-Großmärkte GmbH & Co.

KG. 8 June 1971, European Court Reports

ï‚· Guajakol-Karbonat RGZ 51, 139.

ï‚· L’Oreal v eBay

ï‚· Marktstudien (Market Surveys), 21 April 2005, Case I ZR 1/02[2005] GRUR 940;

[2006] IIC 489

ï‚· Peak Holding v Axolin-Elinor

ï‚· Rojo R. v Guy R., CA Versailles, 18 November 2004, available on

ï‚· COUNCIL REGULATION (EC) No 207/2009

ï‚· Directive 2001/29/EC

ï‚· International Exhaustion and Parallel Importation

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