Copyright Exhaustion Rationales and Used Software

• Author: Antoni Rubí Puig
• Position: Senior Lecturer of Civil Law at Universitat Pompeu Fabra (Barcelona, Spain)
• Pages: 159-178

Copyright Exhaustion Rationales and Used Software

2013

159

3

A. Exhaustion as a structural

limitation to aftermarket control

1 The right of distribution plays a substantial role in

the exploitation of intellectual property assets and

in the commercialization of works protected by cop-

yright law. The right of distribution basically allows

rightholders to control the introduction of tangi-

ble embodiments of a work into the market and, in

this regard, supplements the right of reproduction

in cases where the act of reproduction has occurred

outside the EU or where the origin of the infringing

copies is unknown.

1

Obvious as it may be, this right is

not unrestricted: among other limitations, once the

rightholder authorizes the transfer or transfers own-

ership of a copy of the work or the medium in which

 

the acquirer from reselling the copy in the aftermar-

Er-

schöpfung, épuisement du droit de mise en circulation,

agotamiento del derecho de distribución) and of other

intellectual property rights limits rightholders’ abil-

ity to monitor and control purchasers’ conduct in re-

lation to copies of a protected work or products in

which the copies have been installed.

2

Article 4(2) of the Directive 2001/29/EC of 22 May

2001 on the harmonization of certain aspects of cop-

yright and related rights in the information soci-

ety

2

establishes the general rule providing for the

regional exhaustion of the right of distribution in

the European Economic Area (EEA).3 In the case of

software copies, which are the focus of this article,

Article 4(2) of the Directive 2009/24/EC of the Eu-

ropean Parliament and the Council of 23 April 2009

Copyright Exhaustion Rationales

and Used Software

A Law and Economics Approach to Oracle v. UsedSoft

by Antoni Rubí Puig, Senior Lecturer of Civil Law at Universitat Pompeu Fabra (Barcelona, Spain)

© 2013 Antoni Rubí Puig

Everybody may disseminate this ar ticle by electronic means and m ake it available for download under the terms and

conditions of the Digita l Peer Publishing Licence (DPPL). A copy of the license text may be obtaine d at http://nbn-resolving.

de/urn:nbn:de:0009-dppl-v3-en8 .

Recommended citation: Antoni Rubí Puig , Copyright Exhaustion Rationa les and Used Softwar e: A Law and Economics

Approach to Oracle v. UsedSof t , 4 (2013) JIPITEC 3, 159

Keywords: Exhaustion, Law and Economics, Ownership Rationale, Information Costs

of complexity of the acquired goods and their pros-

pects of productive uses and interoperability; (iv) the

role of other exclusive rights in providing righthold-

ers with indirect control over uses of the copies in the

aftermarket; (v) the impact of post-sale restraints in

preventing opportunism in long-term contracts and

in reducing deadweight losses created by IP pricing;

and (vi) the temporal scope of post-sale restraints.

After setting out this analytical framework, the ECJ

Judgement in Oracle v. UsedSoft is discussed.

Abstract: This article aims to provide courts

and policymakers with an analytical framework that,

building upon the traditional rationales of IP exhaus-

tion doctrine, identifies factors which advocate for a

modulation or flexibilization of the role of exhaus-

tion in copyright law. Factors include (i) the personal

features of acquirers of copies of copyrighted works,

distinguishing between consumers and commercial

users; (ii) whether post-sale restrictions have been

adequately communicated to acquirers and have

been agreed in the contract or license; (iii) the degree

2013

Antoni Rubí Puig

160

3

on the legal protection of computer programs4 cod-





program by the copyright owner or with her con-

sent shall exhaust the distribution right of that copy

within the European Community (EC), i.e. the EEA.5

According to these provisions, transferring owner-

ship of a copy exhausts the distribution right in re-



Yet from a broader analytical standpoint, exhaus-

tion reduces rightholders’ control over aftermarket

activity by acquirers or third parties in relation to



3

Both traditional and law and economics scholarship

has advocated the limitation of monitoring and con-

trolling powers over further distribution of a copy-

righted work, its copies and the products into which

the work is incorporated, and has endorsed exhaus-

tion as a sound and socially desirable policy for copy-

right markets. First, without exhaustion of the distri-

bution right, ordinary dealings in the market would

frequently give rise to copyright infringement unless

the rightholder had authorized them in advance.6

Traditional foundations of exhaustion highlight that

markets for copyrighted works would be seriously

affected if their participants lacked the minimum

security that common events such as a consumer

sale implied a potential liability risk for copyright

infringement, or if the distribution rightholder had

the opportunity, at any time, to seek an injunction

and paralyze any business by a third party that con-

sisted in introducing copyrighted copies into cir-

culation.7 In this scenario, exhaustion of the dis-

tribution right stands as the legal solution to the

transaction costs and risks of hold-up that the need

for the rightholders’ consent would involve for such

normal mass behaviours in the market. Second, ex-

haustion of copyright involves several positive ex-



economics literature.8

4 However, application of the exhaustion doctrine is

not without social costs. To put it simply, exhaustion

prevents parties from including some covenants and

conditions in sales and other transfer agreements,

and freedom of contract is thus restricted. In this

vein, the doctrine has been heavily criticized from

the standpoint of economic analysis of competition

   

and pro-competitive effects of vertical restraints

  -

cient price discrimination. Extensive literature on

-

strictions – or, in general terms, the ability to con-

trol post-commercial activities – reduce the need

  -

ing IP assets.

5 The goals of this article are threefold: 1) to present

a critical assessment of the traditional foundations



ordinarily associated to the doctrine with costs that

arise in particular distribution or marketing con-

texts; 2) to provide an analytical framework for ex-

amining issues related to the exhaustion of the right



a lower scope for exhaustion in some settings; and

3) to apply this analytical framework to ECJ Judg-

ment of 3 July 2012 in Oracle v. UsedSoft. In pursuing

these goals, the article is organized as follows: Sec-

tion B surveys the positive external effects that the

doctrine of exhaustion may have in markets for cop-

yrighted works; Section C further describes the ra-

 

to support the exhaustion of the distribution right;

Section D critically assesses these traditional ration-

-

ature and builds an analytical framework that may

help decision-makers in matters concerning copy-

right exhaustion; Section E applies this framework

to the ECJ Judgment in Oracle v. UsedSoft

Section F provides a summary of the article’s main

conclusions.

B. Spillovers of exhaustion

6

Copyright exhaustion entails substantial positive ex-

-

cation for the enactment or keeping in force of rules

that purport to reduce or eliminate rightholders’

control of aftermarkets.9

I. Creation of secondary markets

7 The doctrine of exhaustion of copyright allows the

creation of secondary markets for legal copies and

the development of alternative distribution models

outside rightholders’ control.10 Thrift stores, book-

stores, public libraries and websites like eBay de-

pend to some extent on the previous exhaustion of

the distribution right on the products or works that

they offer in the market. The immediate social con-

sequence of these alternative distribution systems,

outside rightholders’ control, is greater public access

to works. Moreover, the existence of these alterna-

tive systems increases competition in the primary

market and encourages rightholders to improve or

update their products.11 In this regard it is common

for sellers of a copyrighted work in the primary mar-

ket to put new versions of the same product into cir

-

culation – such as remastered CDs, DVDs with new

content or new versions of computer programs – in

order to compete with those in the secondary mar-

ket offering lower quality copies or copies with less

content.