The principle of exhaustion in the EU applies in relation to the distribution right of the copyright holder. That means that when an author/right holder sells (or otherwise transfers ownership) to members of the public the original or copies of their work in the EU by themselves or with their consent, he/she cannot prevent third parties from reselling or further transferring ownership to that original or copy of the work within the EU or the EEA. This principle is market-driven and strikes a balance between the rights of the authors and the free movement of goods. Because of the intangible nature of intellectual property, it cannot follow perpetually the tangible article with which it is associated. For instance, without the exhaustion of rights, a book owner, who has bought a book from the original author, will have to seek the same author’s authorization or license each time he decides to lend, resale or even donate his/her book. To avoid such unreasonable complications after the right holder authorizes the first sale of the good, their exclusive rights of distribution become exhausted. This is why this limitation is also known as the ‘first sale doctrine’. Nonetheless, the majority of other intellectual property rights remain unexhausted and can be exclusively exercised by the author.
The exhaustion of rights is unanimously applied to goods of tangible nature. However, recent case law has brought the question whether intangible assets, such as digital goods, can also benefit from the exhaustion of the right holder’s rights. Case 128/11 UsedSoft v Oracle dealt exactly with the resale of downloaded software and the topic of the exhaustion of rights. Oracle is a software company developing various software products. Usually, when a customer decides to buy software, they download a copy of the program directly onto their computer from Oracle’s website. In the current case the user’s rights in relation with the program were granted by a license agreement and included the right to store a copy of the program permanently on a server and to allow up to 25 other users to access it by downloading it to their work-station computers. The license agreement gave the customer a non-transferable user right for an unlimited period, exclusively for his internal business purposes. UsedSoft, on the other hand was a German platform, allowing users to resale their licenses for software they have used but no longer need. Users who acquired such a ‘used’ license from UsedSoft could go to Oracle’s website and download their copy of the program. This led to Oracle seeking a cease and desist order against UsedSoft before German courts. Thus, the CJEU was referred with the demand to interpret the institute of exhaustion, formulated in Article 4 (2) of Directive 2009/24/EC of the European Parliament and of the Council of 23 April 2009 on the legal protection of computer programs. The CJEU ruled that the principle of exhaustion applies not only where the copy of the software is sold on a material medium (CD-ROM or DVD) but also where the distribution is carried by means of downloads from a website.
Thus, each time the right holder sells to his customer a tangible or intangible copy of a programme in consideration for the payment of a fee, regardless of how he names the commercial operation – license, sale, etc., the holder exhausts his exclusive distribution right. Hence, the right holder can no longer oppose the resale or lent of the computer program and the subsequent acquirers will be deemed as ‘lawful’. Furthermore, the Court also concluded that since Oracle issues regular updates of its software in order to ensure its maintenance the exhaustion extends to the copy of the software as corrected and updated by the latest updates.
However, the Court stated that the original acquirer of the tangible or intangible copy of the computer program must make the copy downloaded onto his own computer unusable at the time of resale in order to be able to benefit from the exhaustion. Otherwise the exclusive right to reproduction of the copyright holder will be adversely affected.