C-200/96

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METRONOME MUSIK v MUSIC POINT HOKAMP

right. 3 The rule of a general nature con- for a limited period of time and not for tained in Article 1(1) pursues harmonisation. direct or indirect economic or commercial It provides that the Member States are to advantage, when it is made through estab- recognise 'the right to authorise or prohibit lishments which are accessible to the public.' the rental and lending of originals and copies The proceedings before the national court of copyright works, and other subject-matter are concerned only with the rules governing as set out in Article 2(1).' The latter provi- rental. Article 1(4) expressly states that exer- sion identifies the persons to whom the cise of the right of sale or distribution, in any exclusive rental right is to be granted: the form, of the protected works is not to entail author in respect of the original and copies exhaustion of the rights of rental and lend- of his work; the performer in respect of fixa- ing. 4 The Directive thus makes the rental tions of his performance; the phonogram right entirely autonomous, as a form of producer in respect of his phonograms; and exploitation distinct from distribution of the the producer of the first fixation of a film in original or copies of the protected work. respect of the original and copies of his film. Article 2(4) goes on to make it clear that the rights in question may be transferred, assigned or subject to the granting of con- tractual licences.

4. Chapter II of the Directive is concerned with harmonisation of national provisions Article 1(2) and (3) define the rights con- relating to certain rights related to copyright, ferred by Chapter I of the Directive. in particular the fixation right (Article 6), the According to those paragraphs: '"rental" reproduction right (Article 7), the right of means making available for use, for a limited broadcasting and communication to the pub- period of time and for direct or indirect lic (Article 8) and the distribution right economic or commercial advantage' whilst (Article 9). The producers of phonograms '"lending" means making available for use, enjoy an exclusive right to authorise or

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O P I N I O N OF MR TESAURO — CASE C-200/96

prohibit the reproduction and distribution of Prior to the entry into force of the imple- their works and the right to fair remunera- menting law, the rental of copyright works tion in the event of broadcasting or any was authorised in German law provided that communication to the public of the phono- the physical medium containing the pro- gram or a copy thereof. tected works was put into circulation with the consent of the holders of the broadcast- ing rights (Paragraph 17(2) of the UrhG, old version); those included, by virtue of Para- graph 85 of the UrhG, the producer as regards his own phonograms. Paragraph 27 of the Law required the renters to pay fair remuneration to the holders of distribution rights, and therefore, inter alia, to the pro- Article 13, in Chapter IV, entitled 'Common ducer. provisions', is concerned with the effect in time of the protective provisions of the Directive as a whole. For the purposes of this case, Article 13(3) is of importance: it contains a transitional provision intended t o facilitate application of the legislation t o regimes in those States in which the exclusive rental right had not yet been granted t o authors and the holders of related rights. 5 Finally, it should be noted at this point that, under Article 15, Member States were required to adopt measures to implement the Directive by 1 July 1994.

The facts and the preliminary question Article 1(1) of Council Directive 92/100/EEC of 19 November 1992 on rental rights and lending rights and on certain rights related to copyright in the field of intellectual property compatible with Com- munity law, in particular Community funda- 7. The German company Metronome Musik mental rights?' (hereinafter 'Metronome'), the producer of the compact disc 'Plant Punk' and therefore the holder of the rights related to copyright recognised by German law, sought an interim injunction from the Landgericht Köln against Music Point Hokamp G m b H (hereinafter 'Music Point'). Metronome com- plained that Music Point was, by way of Preliminary remarks trade, offering for rental copies of the above- mentioned compact disc in breach of the exclusive rental right enjoyed by it under Paragraph 17(2) of the German Copyright Law. By order of 4 December 1995, the court granted the injunction and prohibited Music Point from renting out the product in question thereafter. Music Point appealed against that order. It challenged the constitu- tional and Community basis of the legislation granting the producer of phonographic 9. In view of the general terms of the ques- recordings the exclusive right to authorise or tion, I think it is appropriate first to define prohibit the rental of protected works. its scope so as to identify the aspects of the validity of the Directive with which these proceedings are concerned.

8. The national court rejected Music Point's arguments as unfounded. Entertaining doubts as to the compatibility of the Direc- tive with the general principle of Commu- nity law upholding free enterprise, it referred the following question to the Court for a preliminary ruling: 10. In the first place, it should be noted that the national court does not call in question the lending right, which is also conferred on the producers of phonograms by Articles 1 and 2 of the Directive; nor, moreover, does 'Is the introduction of an exclusive rental it appear that there could be any question right, contrary to the principle of the in this case of conflict with the principle of exhaustion of distribution rights, by free enterprise, since the lending right is by

11. In the second place, even though the 13. A last clarification is called for concern- wording of the preliminary question appears ing the actual nature of the rental right and to refer in general to all categories of holders its relationship with the principle of exhaus- of the rental right included in the list in tion of copyright. It will be noted that in the Article 2 of the Directive, the court expressly text of its question the national court refers in the grounds of its order only to the describes the grant of a rental right to the exclusive right vested in the producers of categories mentioned by the Directive as phonograms.

ers. Consequently, the considerations which follow will focus solely on the validity of the 6 — I refer to the right of every person to enjoy access to culture, rental right granted to the producers of pho- recognised in international instruments concerning human nograms. rights to which the Member Sutes contributed or became parties. I have in mind for example the Covenant on Econ- omic, Social and Cultural Rights drawn up by the United Nations and opened for signature in N e w York on 10 December 1996, Article 15 of which provides: 'the States parties to the present Covenant recognise the right of every- one (a) to take part in cultural life; (b) to enjoy the benefits of scientific progress and its applications; (c) to benefit from the protection of the moral and material interests resulting from any scientific, literary or artistic production of which he is the author'. 1 also have in mind Article 27 of the Uni- versal Declaration of Human Rights, approved by the Gen- eral Assembly of the United Nations on 10 December 1948, which confers on every individual 'the right freely to partici- pate in the cultural life of the community, to enjoy the arts and to share in scientific advancement and its benefits'.

The classification of copyright as a human right which might theoretically be of relevance in in international instruments will not be taken into account examining the decision to grant producers here since the intellectual property right at issue is a related right which docs not come within the scope of the legislation the exclusive right to authorise or prohibit cited above.

exception to the principle of the exhaustion tion de-restrict other forms of exploitation of distribution rights. of the protected work which are of a differ- ent nature from sale or any other lawful form of distribution. Like the right of public performance, 8 including broadcasting, 9 the rental right remains a prerogative of the author and the producer notwithstanding sale of the corpus mechanicum containing the work. However, I feel unable to share that view which, moreover, does not appear to find any support in the case-law of the Court of Justice. In Warner Brothers, the Court made it clear that the express consent of the holder of a copyright or right related to the com- mercialisation of a physical medium contain- ing the protected work, although rendering lawful subsequent sales of the same medium even without the express consent of the rightholder, does not authorise any different form of economic exploitation of the work such as rental of the physical medium pur- chased. The Court then made it clear that, in There is thus no question here of any excep- view of the emergence of a specific rental tion, still less of anything 'contrary', to the market separate from the sales market, 'by principle of the exhaustion of copyright. The authorising the collection of royalties only sale of the sound-recording medium entails on sales to private individuals and to persons solely exhaustion of the right of distribution, hiring out video-cassettes, it is impossible to which allows the author to decide whether, guarantee to makers of films a remuneration how and when to commercialise the original which reflects the number of occasions on or copies of the protected work. Exercise of which the video-cassettes are actually hired the distribution right cannot in itself there- out and which secures for them a satisfactory fore have any effect on other prerogatives share of the rental market.' 7 granted to the author and to the holder of related rights, which make it possible to con- trol any economic exploitation of the pro- tected work. That applies with greater force to those infinitely repeatable activities that are capable of increasing the scale of exploi- tation of the work among the public: public performance, broadcasting and therefore also 14. It is thus clear that the problem is badly rental and lending of copies of the work. 10 defined. The release into circulation of the sound-recording medium cannot by defini- 8 — Case 395/87 Ministère Puhlic v Tournier [1989] ECR 2521. 9 — Case 62/79 Coditei v Cine Vog Films [1980] ECR 881. 10 — See Sam, Diritti esclusivi e circolazione dei beni, Milan, 7 — Case 158/86 Warner Brothers and Another v Christiansen 1996, p. 312 et seq.; Bergé, La Protection internationale et [1988] ECR 2605, paragraph 15. communautaire du droit d'auteur, Paris, 1996, p. 128 et seq.

18. That said, it is now necessary to consider whether the reasons which prompted the Community legislature to grant the producer of phonograms an exclusive right to author- ise or prohibit the rental of their phono- • 16. It is therefore clear that the legislative graphic products are such as to conform to choice represented by the grant of an exclu- the parameters just oudined. sive right is capable of impairing pursuit of the economic activity of renting phono- graphic products such as compact discs. By contrast with the position obtaining in a number of Member States before the intro- duction of Community rules for the har- monisation of legislation, that activity can be carried on only if the rightholders grant the — The reasons for harmonising national pro- requisite licences. It appears from the docu- visions concerning the rental right ments before the Court that the producers of phonograms, vested with the rental right in respect of their works, prefer for the time being, on the basis of economic assessments, not to allow third parties to hire out their products.

19. In the preamble to the Directive the Council indicates the objectives it pursued in

11 — Sec inter alia Case 4/73 Nold [1974] ECR 491, paragraph 17. It is apparent from the case-law of the 14; Case 265/87 Schröder [1989] ECR 2237, paragraph 15; Court that the freedom to pursue a trade or Case C-280/93 Germany v Council [1994] ECR I-4973, paragraph 78; Case C-44/94 Fishermen's Organisations and profession, far from being an absolute Others [1995] ECR I-3115, paragraph 55.

12 — Judgment cited in footnote 7, paragraph 10: 'the commer- cial distribution of video-cassettes takes the form not only of sales but also, and increasingly, that of hiring out to indi- The requirements of uniformity in the rules viduals who possess video-tape recorders. The right to pro- hibit such hiring out in a Member State is therefore liable to governing the rights provided for in the influence trade in video-cassettes in that State and hence, Directive are then set out in the eighth and indirectly, to affect intra-Community trade in those prod- ucts. Legislation of the kind which gave rise to the main ninth recitals. In the eighth it is stated that proceedings must, therefore, in the light of established case- law, be regarded as a measure having an effect equivalent to creative, artistic and entrepreneurial activi- a quantitative restriction on imports, which is prohibited by ties, and in particular those of producers of Article 30 of the Treaty'.

phonograms and films, are, to a large extent, 13 — The Court recognised, in Joined Cases C-92/92 and C-326/92 Phil Collins and Others [1993] ECR I-5145, para- activities of self-employed persons and that graph 26, that 'It is ... precisely in order to avoid the risk of hindrances to trade and the distortion of competition that the pursuit of such activities must be made the Council has, since the disputes in the main proceedings easier by providing harmonised legal protec- arose, adopted Directive 92/100/EEC of 19 November 1992 on the rental right and lending right and on certain rights tion within the Community. In the ninth related to copyright in the field of intellectual property, on the basis of Article 57(2) and Articles 66 and 100a of the recital, it is added that 'to the extent that Treaty'.

21. It is not superfluous to point out that, competition. Moreover, as is made clear in before harmonisation, a lending right was the second recital in the preamble to the granted by operation of law, albeit under dif- Directive, differences in legal protection fering procedures, in France, Spain, Portugal could well become greater 'as Member States and the United Kingdom. In Italy, the domi- adopt new and different legislation or as nant trend in the case-law made the right at national case-law interpretation of such leg- issue part of the right 'to put into circula- islation develops differently'. tion' provided for in the old version of Article 72 of the special law on copyright. In Belgium, Greece and Luxembourg, the legis- lative position was not particularly clear and the pattern of the case-law was not clearly identifiable, but the lending right was in gen- eral associated with the 'right of destination' recognised by domestic law. In other States the rental right was close to achieving legis- lative recognition, on the German model of adequate remuneration considered earlier (that is the position in the Netherlands), or was granted only to authors (as in the case of Denmark). Only in Ireland was no lending right recognised in respect of protected works. 14 22. In addition to the objective of ensuring the proper functioning of the internal mar- ket, it must also be borne in mind that 'the adequate protection of copyright works and subject matter of related rights protection by rental and lending rights' can be regarded as being 'of fundamental importance for the Community's economic and cultural deve- lopment' (fifth recital). The link between the grant of the lending right to producers and In those circumstances, it must necessarily be the Community's economic and cultural recognised that harmonisation of the legis- development will be more clearly defined lative provisions in the Member States con- below, when the Council's decision to grant cerning the lending right, and in particular an exclusive right to producers to authorise the grant to producers of a lending right in or prohibit the rental of their works is dis- respect of their phonograms, as a right sepa- cussed. It is nevertheless appropriate to have rate from that of authors and performers, is regard, in that connection, to Article 128 of certainly justified by the aim of promoting the EC Treaty, inserted by Article G(37) of the proper functioning of the internal mar- the Treaty on European Union, under which ket, in particular the free movement of goods the Community is given the task of contrib- and services, and of avoiding distortions of uting to the development of cultural diver- sity. Among the areas of cultural importance, Article 128(2) includes artistic and literary 14 — This information comes from the report accompanying the creation. In particular, Article 128(4) pro- proposal for a Commission Directive, Doc. COM(90) 586 vides that the Community is to take cultural of 24 January 1991, paragraph 11 et seq.

23. The comments made thus far fully sup- port the Council's decision to proceed with 24. In assessing the proportionality of the harmonisation of national legislation on the solution adopted in the Directive, it is there- lending right. It remains, however, to con- fore necessary to show that the Community sider the compatibility with the right of free objectives of general interest, as outlined enterprise of the Council's choice in granting above, could not have been attained by mea- the producers of phonograms the exclusive sures which would have been less onerous right to authorise or prohibit rental of their for rental businesses. The national court works. itself notes in its order for reference, whilst recognising that the introduction of an exclusive rental right is justified and neces- sary to ensure the creation and functioning of the internal market, that the question 'must be asked whether, in view of [the] extreme effects [of that solution] on the free- dom to pursue the business of renting CDs, O n close examination, there are genuine the economic interests of phonogram pro- grounds for complaint against the provisions ducers and the operation of the single market

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OPINION OF MR TESAURO — CASE C-200/96

25. In the first place, as made clear by the Council in the sixth and seventh recitals in the preamble to the Directive, copyright and related rights protection must adapt to new economic developments such as new forms of exploitation of protected works. That adaptation must take the form of the intro- duction of provisions to protect the holders of intellectual property rights so as to allow them to receive 'an adequate income as a basis for further creative and artistic work'. Furthermore, that operation can, potentially, The justification for the protection offered be repeated an infinite number of times. The by the legislation on copyright and related sale of a single copy to a person in the rental rights to the producers of phonograms has business allows it to be rented out on a con- always been based on the protection of the siderable number of occasions, in view of the particularly high-risk and substantial invest- fact that, unlike their vinyl counterparts, ments which constitute an absolutely essen- CDs do not easily wear out. Moreover, the tial precondition for authors to go on creat- introduction of digital technology for unre- ing new works. Consequendy, 'the corded tapes as well (DAT) now makes it possibility for securing that income and possible to reproduce the content of the C D recouping that investment can only effec- with the same high quality as the original, tively be guaranteed through adequate legal and this makes rental even more attractive. protection of the rightholders concerned' Those developments would clearly lead to a (last sentence of the seventh recital). The considerable shrinkage in sales of phono- return on the investor's investment also con- graphic products which could not be offset stitutes, indirectly, the remuneration for the by rental income. There would then be a risk author's intellectual endeavours. that it would be impossible to assure

27. The information given in the order for reference and again in the observations of O n this point I would also observe that, Music Point, according to which the market when the Directive entered into force, some in sales of CDs did not register any decline Member States had already introduced in in Germany when renting was still permit- their domestic legislation an exclusive rental ted, 15 does not seem significant. First, it right for phonogram producers, a fact which relates to the market situation at a time when the Council could not ignore when adopting technological developments had not yet Community harmonising legislation. Any made renting a de facto alternative to sales; other course would probably have helped second — and this is a more important point maintain barriers to the functioning of the — the accuracy of the assessments made by internal market rather than removing them. the Community institutions as a basis for the content of harmonising legislation cannot be verified solely in the light of statistics relat- ing to one or more Member States.

29. In short, the Council was right to decide to introduce legislation affording special pro- tection for the lending right of authors, per- formers and producers, which was exposed to encroachment as a result of technological 28. The grant of the exclusive right cannot progress. In the case of producers, the be isolated from a proper assessment of the extreme ease with which recordings of works can be reproduced is liable to cause serious damage to the profitability of their invest- 15 — The dataare, however, contested by Metronome. ments. The sacrifice imposed on those who

31. A provision of similar content is also to be found in the Performances and Phono-

16 — The WTO Agreement and its schedules, signed in Mar- In that regard, particular importance attaches rakesh on 15 April 1994, were approved on behalf of the Community by Council Decision 94/800/EC of 22 Decem- to the Agreement on Trade-related Aspects ber 1994 concerning the conclusion on behalf of the Euro- of Intellectual Property Rights (TRIPS) pean Community, as regards matters within its competence, of the agreements reached in the Uruguay Round multilat- annexed to the Agreement establishing the eral negotiations (1986-1994) (OJ 1994 L 336, p. 213).

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METRONOME MUSIK v MUSIC POINT HOKAMP

That means that in interpreting the general principle of freedom of economic enterprise 18 — The judgment in Joined Cases C-241/91 P and C-242/91 P and the corresponding fundamental right, the RTE and ITP v Commission [1995] ECR I-743 offers more than one reason for controlling the way in which the exclu- international obligations entered into by the sive right granted to the producers of phonograms is exer- Community and the Member States cannot cised. I would add, however, that the conclusion reached by the Court in that judgment deserves some clarification: it would be unacceptable to interpret it as a general justifica- tion for control, by means of the competition provisions, of decisions by authors regarding the exercise of their essential prerogatives such as the right of reproduction and perfor- 17 — It should also be noted that the WIPO proceedings regard- mance. The s t a t u s of fundamental right attributed to copy- ing protection of the rental right were taken into consider- right by the international instruments referred to earlier ation by the Commission in drawing up the proposal for a stands in the way of such a conclusion. The same cannot be directive —see paragraph 40 and note 12 of the introduc- said of rights related to copyright, to which the interna- tory report cited in footnote 14. tional provisions do not accord equivalent protection.

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OPINION OF MR TESAURO — CASE C-200/96

Conclusion

34. In the light of the foregoing considerations, I propose that the Court give the following answer to the question submitted by the Landgericht Köln: