Monday, 3 December 2012

Copyright law trumps free movement of unlawfully distributed goods

Author: Thorsten Lauterbach (Robert Gordon University Aberdeen)

Case C-5/11 Titus Alexander Jochen Donner, Court of Justice of the European Union, 21 June 2012

Journal of Intellectual Property Law & Practice (2012) doi: 10.1093/jiplp/jps177, first published online: November 29, 2012

Traders who target customers in a specific European Union Member State for unlawful sales of copyright works can face criminal prosecution in that jurisdiction even if the goods in question are not protected by copyright law in the country of origin; such traders cannot rely of the general principle of the free movement of goods.

Legal context

This case concerns a clash of differing national copyright laws between European Union (EU) Member States with the overarching EU notion of free movement of goods. The latter is manifested by Article 34 of the Treaty on the functioning if the European Union (TFEU) which prohibits quantitative restrictions on imports and all measures having equivalent effects. However, Article 36 TFEU offers a number of exceptions to this prohibition. Of key importance for this case is the protection of industrial and commercial property, which includes copyright law, as a justification for barriers to intra-EU trade.

German law renders the distribution of unlawful copies of protected copyright works a criminal offence, implementing Article 4(1) of Directive 2001/29 on copyright in the information society (the ‘InfoSoc Directive’). That article concerns the right of owners of copyright works to exclusively control their distribution to the public. While the goods in question did not enjoy copyright protection in the country of origin at the time, they did so in Germany. Did German copyright law constitute an illegal barrier to intra-EU trade, or was it lawful courtesy of Article 36 TFEU?

Facts

An Italian company, Dimensione, sold replicas of Bauhaus-style furniture of well-known designers, with some of its targeted customer base being located in Germany. Dimensione used marketing materials tailored and aimed at the German market. Donner operated a transport business which would collect the sold items in Italy and deliver them to the German purchasers. While at the time of the sales the replicas did not benefit from copyright protection under Italian copyright law, they did so under German copyright law. There was an argument that although the contracts were completed in Italy, the German customers would only have possession of the goods when they were delivered to them. This, in turn, meant that the replicas were distributed to (the German) public under Article 4(1) of the InfoSoc directive without the permission of the owners of the copyright. The key issue in the German courts was whether Donner's acts constituted aiding and abetting an act of copyright infringement under ss 17, 106 and 108a UrhG (Author's Rights Act) and §27 StGB (Criminal Code). Under German law, goods are distributed when the property is actually transferred to the public and the seller can no longer legally dispose of them. While Donner argued that this transfer had been completed in Italy when he paid for the goods there and then on behalf of the German customers, the Landgericht (Regional Court) Munich II opined that the actual transfer occurred when the goods were delivered to the German customers (and they reimbursed him for the price of the goods and cost of freight). This, in turn, made German law applicable and the Munich court duly convicted Donner.

Donner appealed to the Bundesgerichtshof (Federal Court of Justice), arguing that his conviction, inter alia, contravened the EU's free movement of goods principles, as German copyright law had been used to an artificial partitioning the Single Market. The court asked the European Court of Justice (ECJ) for a preliminary ruling on the following questions: Are Articles 34 and 36 TFEU governing the free movement of goods to be interpreted as precluding the criminal offence of aiding and abetting the prohibited distribution of copyright-protected works resulting from the application of national criminal law where, on a cross-border sale of a work that is copyright protected in Germany,
• that work is taken to Germany from a Member State of the European Union and de facto power of disposal thereof is transferred in Germany,

• but the transfer of ownership took place in the other Member State in which copyright protection for the work did not exist or was unenforceable as against third parties?
Figure 1: E1027 table by Eileen Gray, an example of the type of goods subject to the dispute (Source: courtesy of steelform.com, used with permission. Clubmarx 19:24, 24 November 2004 (UTC))

Figure 2: Barcelona Chair by Ludwig Mies van der Rohe, an example of the type of goods subject to the dispute (courtesy of Sailko (author) under Creative Commons Licence 3.0)

Analysis

Interpreting Article 4(1) of the InfoSoc Directive broadly, the ECJ held that ‘distribution to the public’ could be constituted by various activities, rather than one particular type of act. The whole range from concluding the contract to the delivery of goods to customers would be within the ambit. Consequently, the exclusive distribution right could be infringed in different Member States by cross-border sales. If there is evidence that a trader specifically targets customers in a particular Member State, this would constitute ‘distribution to the public’. If a trader set up websites using specific languages, design and distribution of advertising materials and the provision of tailored delivery and payment systems are all relevant in the court's assessment on a case-by-case basis. In respect of traders such as Donner, a national court would have to be satisfied that they themselves were involved in the targeting of the public and whether they were aware of the activities by the actual seller.

The ECJ agreed that there was a potential conflict between the national legislation and the free movement of goods principle anchored in Article 34 TFEU: clearly, an offence of aiding and abetting the distribution of goods protected by copyright constituted a restriction of the free movement of goods. While this contravened Article 34 TFEU, it was possible to justify this restriction under Article 36 TFEU. The ECJ argued that where goods were placed on the market because of differences between national copyright laws, bypassing the permission of the right-holder, national law could be used to restrict the free movement of goods. Consequently, the free movement principle would not trump an offence of aiding and abetting unlawful distribution of goods protected by copyright anchored in national law.

Practical significance

In view of previous ECJ rulings, the outcome in this case may be unsurprising. It is nevertheless significant, not least for businesses which trade in goods that attract copyright protection. If they embark on cross-border trade, there is a need to take account of the copyright laws of other Member States. The Advocate-General had remarked—and the ECJ agreed—that the requesting of consent from the respective copyright owners would have been the prudent step to take before embarking on the particular business venture. Viewed in this light, the approach taken by German copyright law could not be regarded as disproportionately restricting intra-EU trade. On a policy level, it is unclear whether this decision will lead the European Commission to consider further attempts at harmonizing further areas of copyright law where national levels of protection differ between Member States. There are prominent examples where previous rulings had led to European copyright legislation in the early 1990s: Case 62/79 Coditel v Cine Vog (Satellite and Cable Directive), Case 158/86 Warner Bros v Christansen (Rental Rights Directive) and Case 341/87 EMI Electrola v Patricia (Term of Protection Directive). In all of those celebrated instances, it was argued that the differences in copyright protection between Member States hindered the completion of the Single Market programme. In copyright and authors' rights terms, there is still a very long way to go before that objective is attained.

There is a recurring argument that ever-increasing cross-border business and consumer activity via the internet and other communications technology require a wider and conceptually based, less piecemeal, approach to harmonization of national copyright laws for the benefit of all stakeholders. Disputes such as Donner may be quite detrimental to both consumer and business confidence in intra-EU trade, besides painting an unclear picture for owners and authors of copyright works. The recent Commission proposal for a directive on ‘collective management of copyright and multi-territorial licensing of rights in musical works for online uses in the internal market’ may only be the first sign of things to come. Given that a more holistic approach to harmonization of copyright law, while desirable, may be illusory, a high number of smaller steps towards that aim are most likely.

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