Who: the Paris Court
When: 17 September 2019
Law stated as at: 14 October 2019
The Paris Court of First Instance has ruled that the doctrine of exhaustion does apply to downloaded video games. As such, all video games, whatever their medium (physical or dematerialised), can be resold as second-hand. This decision is a revolution in the world of video games, which reflects the ever-wider application of the principles of the CJEU’s UsedSoft Case (2012) – and may even go too far in the light of more recent European case law.
Four years ago, UFC Que Choisir, a French association defending consumer rights, initiated judicial proceedings against Valve Corporation, which offers, via the Steam platform, an online distribution service for digital content, such as video games. The claim aimed to establish the abusive or unlawful nature of some clauses included in the General Terms and Conditions of sales of the platform imposed on its users and thus, to deem them void and to force VALVE to modify or delete them.
Which clauses of the STEAM platform were claimed to be null and void?
To claim that many clauses of the Steam platform terms and conditions should be null and void, UFC Que Choisir argued three main grounds of infringement: (1) consumer protection rules; (2) personal data protection rules; and (3) intellectual property rules.
French judges ruled that fourteen clauses which aimed to place consumers on an equal position with Valve Corporation should be deemed null and void, including the liability clause of Valve Corporation or the applicable law and jurisdiction (Steam TCs provided for US laws / courts).
However, the main scope of this case concerned the deletion of a particular clause (Clause 1.C), which prohibited consumers from re-selling the access and use rights to Steam video games that they had acquired via the platform. The court ruled in this decision that no distinction must be made between physical or
dematerialised games as to their possible resale by consumers.
The court’s reasoning
The court followed UFC Que Choisir’s reasoning, which highlighted the European Union principle of free movement of goods, which is guaranteed regarding copyright, by the doctrine of exhaustion.
The exhaustion of intellectual property rights constitutes one of the limits of intellectual property rights under European Union Law. As such, the first sale within the EU of the original of a work exhausts the right to control the resale of that object within the EU. This principle of a free market within the EU supersedes the intellectual property rights of the author (at least the patrimonial rights).
The issue in this case was whether such a doctrine could apply to any assets or supports, whether tangible or intangible, or more specifically, to downloaded video games.
The French judges based their decision on Directive 2001/29/CE and Directive 2009/24/CE, which both deal with the principle of exhaustion of distribution rights regarding copyright, without ever excluding this principle to intangible goods. Even though Article L.122-6 of the French Intellectual Property Code refers to a “material copy”, this provision must be construed in the light of European Union Law. Moreover, Article L.111-3 of the same Code states that “intellectual property is independent of the ownership of the material object”, meaning that the “material copy” should not be restricted to the physical medium of the software, but extended to its downloaded version.
The Paris Court of First Instance then concluded that the doctrine of exhaustion applies regardless of the distribution method of the video game, whether tangible or not. As a result, the copyright holder can no longer object to the resale of the said copy even if the initial purchase has been made by download.
This reasoning led the French Court to deem the present clause null and void, thus authorising the resale of second-hand downloaded video games. Nevertheless, the conditions stated in the UsedSoft Case regarding the resale of software licenses still apply in this situation. Such conditions are as follows:
- there has been a “first sale” of a licence within the EEA;
- the licence is a perpetual (irrevocable) licence;
- the licence has been fully paid;
- the first acquirer has made all his copies unusable; and
- where a multi-user licence was acquired, all licences must be resold.
Why this matters:
Even though Valve Corporation appealed this decision, thus suspending the effects of the judgment of Paris Court of First Instance until the Court of Appeal’s ruling, the case could leave a deep mark on the digital world, both in France and in the European Union.
Indeed, the direct application of the principles of the doctrine of exhaustion and of the UsedSoft case prefigures an ever-wider application of these principles to all intangible goods likely to be resold as second-hand.
However, the Opinion of the CJEU Advocate General, Maciej Szpunar, regarding the Tom Kabinet case (delivered on 10 September 2019 – Case C-263/18), indicates that a doctrine of digital exhaustion could only apply to computer software, which, under the CJEU’s Nintendo/PC Box jurisprudence (decision of 23 January 2014, C-355/12) would mean that computer games are excluded from its scope. In Germany, courts have ruled both before and after the CJEU’s UsedSoft decision that Valve was indeed entitled to design its product in such a way that resale of games was not possible.
It would therefore not be surprising to see this case end up before the CJEU for a final decision.