C-61/97

FDV v LASERDISKEN

OPINION OF ADVOCATE GENERAL LA P E R G O L A delivered o n 26 M a y 1998 *

I — The factual and legislatíve context of the right and lending right and on certain rights main proceedings and the subject of the ques- related to copyright in the field of intellectual tion referred by the national court property [hereinafter the "Directive"] 1 has entered into force, the same question is repeated on the basis that the Directive is applicable to the reply.'

1. Retten i Aalborg (Aalborg Court) has asked the Court, pursuant to Article 177 of the EC Treaty, to provide it with the neces- sary interpretation on the following question:

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This continued to apply, even in the case of copies offered for sale after 1 August 1989, when the Copy- right, Designs and Patents Act 1988 entered 2. The facts in point in the main proceedings, into force, the important point of which, for as set out in the order for reference, may be the purposes of the present case, was that it summarised as follows. Laserdisken, the defen- conferred an exclusive rental right on makers dant in the present case, is an undertaking of films (see sections 16-18). 5 This point is with its head office in Aalborg, which distrib- contested by the plaintiffs in the present case, utes films on videodisc (that is to say on laser who claim that they never, tacitly or other- discs, which afford high-fidelity reproduc- wise, authorised the rental of videodiscs in tion). 4 Laserdisken imported the videodiscs the United Kingdom or any other Member direct from the United Kingdom, where they State, though they also maintain that this is had been lawfully manufactured by certain irrelevant for the purpose of determining companies under licence. The products in whether the exclusive rental right in Danish question were not, and are still not, released territory is exhausted (see point 4 below).

As the United Kingdom eodisc are stored in an analog format. Audio can be stored on Government observed in the procedure before the Court in digital or analog audio tracks. A videodisc has several advan- the present case, since August 1989, copyright holders supply tages over a videotape including higher image quality, dura- the videogram dealers with copies specifically intended for bility, and rapid search capabilities, and the information on a hire, at a higher price than the price charged for copies that videodisc cannot be erased.' are to be sold.

Denmark without first obtaining the plain- ated the terms of sale to dealers of the video- tiffs' permission. cassettes for which the companies had acquired the copyright. The standard contracts con- cluded with the various dealers by F D V included specific clauses restricting the right of distribution by rental and expressly pro- hibiting 'chain' rental. An injunction issued by the Fogedret (Bailiff's Court) in February 1992 and upheld on appeal by the Vestre Landsret (Western Regional Court) in Sep- tember of that year prohibited Laserdisken from continuing to rent out the products at

How- ever, they cannot be distributed to the public by way of lending or rental without the copyright holder's consent' (free translation). FDV represents eight companies, 7 which have variously acquired exclusive licences to pro- duce and distribute in Danish territory, in any f orm (i. e. including videodiscs), copies of most of the films that Laserdisken distributed on videodisc, dubbed into Danish. The II — Arguments of the parties national court has pointed out that the plain- tiffs rented the works in question out on the Danish market on video-cassette (i. e. in a dif- ferent material form).

They also of the Californian company Time Warner Entertainment, and seven companies incorporated under Danish law, Egmont claim that, even though cross-border trade in Film, Buena Vista Home Entertainment, Scanbox Danmark, Polygram Records, Nordisk Film Video, Irish Video and the audiovisual products in question is sub- Metronome Video (at the time of the events that are the sub- ject of these proceedings, the last-named company held an ject to the Treaty rules on free movement of exclusive licence for rights to the production and distribu- goods, any exercise of rental right should be tion in Denmark of video-cassettes of films for which Warner holds the home video distribution rights; those rights covered regarded — like public performing rights -— the sale of items produced after an 18-month period of grace as a provision of services and that it consti- from the time when the video-cassettes were released in Den- mark for rental only). tutes a way of exploiting the protected work

that is very different from selling the product in Denmark in a different form (video- embodying that work. They claim that the cassette), is completely irrelevant. In view of right to control all the options for renting the nature of the right in question, the author copies that have been sold is an inherent part may, first of all, when the protected work is of the specific subject-matter of copyright, sold, simply prohibit outright any subsequent the protection of which may in principle, rental of the work in question. If he should under the terms of Article 36 of the Treaty, decide later to authorise the renting out of justify measures having equivalent effect to individual copies, he would be entitled to quantitative restrictions that would otherwise maximise the profits on the commercial exploi- be contrary to Article 30. 8 Rental right is tation of the work by attaching territorial consequently inherently exempt — at both restrictions or time-limits to any licence he national and Community level — from the might issue in this connection, or by issuing principle that an exclusive right is exhausted a licence to one person only (an exclusive when a product has been put into circulation licence), or by limiting it to a specific mate- for the first time, whether by sale or rental. rial form. Thus, for the purposes of the present It follows that — irrespective of whether the case, the author could, for example, agree to goods in question have been imported and the rental of a film recorded on video-cassette even supposing that they have been rented but not on videodisc. 9 The exclusive rental out in the United Kingdom with the tacit right is therefore infringed — so the plaintiffs consent of the copyright holders — Laserd- argue — •whenever a copy of a video-cassette isken nevertheless rented them out in Den- or videodisc is rented out without the con- mark without having first obtained consent, sent of the copyright holder. If Laserdisken's express or tacit, from the lawful proprietors argument were to be accepted, tacit or pre- of that right. sumed consent by the author in one Member State would deprive the person concerned of the right to restrain rental of copies of the protected work in the importing Member State, even though that right has been con-

ferred on him in that State. The result would Community trade, that law cannot be justi- therefore be to deprive the author of remu- fied under the terms of Article 36 of the neration reflecting the actual number of rental Treaty. The defendant also points out that transactions, contrary to what was held by even the Directive — although the text pro- the Court in Warner Brothers. These views vides that rental right is not exhausted by any are substantially shared by the Danish, French, sale or other act of distribution of copyright Finnish and United Kingdom Governments works (see Articles 1(4) and 9(3)) — does n o t and by the Commission. 10 state whether the right to restrain subsequent rental must be held to be exhausted once the copyright holder has authorised the rental of

Denmark. As it is a means of arbitrary dis- judgment in Warner Brothers too is based on crimination and disguised restriction on intra- that principle. In that case, the right to p r o - hibit the hiring-out on the Danish market of video-cassettes imported from the United Kingdom could not be considered exhausted 10 — For the sake of brevity, I have deliberately chosen not to mention in the foregoing paragraphs — or indeed in my because the copyright holder or his assigns summary of Laserdisken's observations (see point 6 below) — the arguments concerning the requested interpretation of had never given their consent to hiring-out in

11 — Namely, the Sammenslutningen af Danske Filminstruktører (Union of Danish Film Directors), Mr Michael Viuf Chris- tiansen (representing the estate of his father, Erik Viuf Christiansen, defendant in the main proceedings in Warner Brothers), Mr Jensen, a videogram dealer who was declared bankrupt following FDV's termination in 1991 of a previous product rental licence agreement, and Pioneer Electronics Denmark, a company with interests in the distribution of 12 — In particular, Dansk Supermarked v ¡merco, cited in note 8 videodisc players. above.

7. In the observations they have submitted to the Court, the parties, the Commission and the intervening national governments have all referred in one way or another to the prin- ciples established by the Court in Warner 8. In its judgment in Warner Brothers, the Brothers. 13 As in the main proceedings in the Court mentioned other factors determining a present case, so too in Warner Brothers, the specific rental right, which is an inherent part question was raised of compatibility between of the specific subject-matter of copyright, the exclusive rental right granted under Danish and its implications for the free movement of copyright legislation (see point 3 above) and goods and I propose to offer some further the Treaty provisions on free movement of considerations on that subject. However, goods, with reference to a case in which before proceeding with my examination of videograms lawfully purchased in the United those factors (see point 12 below), I feel a few Kingdom were hired out in Denmark without brief remarks are called for, to place that authorisation. The Court held, first of all, that judgment in the wider context of the justifi- the law in question, which enables the author cation for the principle of exhaustion of copy- or producer of a cinematographic work repro- right and the scope of that principle. duced on video-cassette to prohibit the hiring-out of videograms of that work in national territory, was 'liable to influence trade in video-cassettes [in the Member State in question] and hence, indirectly, to affect intra- Community trade in those products'. The

be more precise, the exclusive right of distri- 10. The principle of exhaustion cannot how- bution (or putting into circulation) — pro- ever be applied to exclusive performing rights vided for in the legal systems of many Member — that is, to the right to communicate the States is justified on the principle that when protected work to the public, either directly the rightholder (or others with his consent) through live performers (as in the case of a places the product on which the copyright theatrical performance) or through material work is reproduced on the market, by sale, he forms of the 'work (for example, by broad- receives once and for all the consideration casting a record on radio or showing a film due to him in return for that reproduction. In on television or in the cinema) — or gener- the context of the single market, the Com- ally to copyright in work for which com- munication to the public does not require cir- munity case-law on the application of Article culation in material form. In this case, the 36 of the Treaty has been concerned, in order exploitation of the work does not conflict to stimulate invention and creative activity with the free movement of goods and placing and encourage the opening up of new mar- the work on the market cannot therefore serve kets, to reconcile the exclusive rightholder's as a criterion for determining the scope of the needs with the general interest in the free exclusive right. 17 As successive performances movement of the products in question. 14 The of the work are independent of one another, Court has consequently accepted the prin- the right cannot be regarded as exhausted after ciple of the automatic exhaustion of the right the first performance. Each performance, in question throughout Community territory, embodying afresh the 'commercial essence' of so as to avoid the situation where — because the work, 1 8is a separate act of exploitation of the territorial nature of national legislation generating a right to remuneration. The law on industrial, commercial and intellectual protects that right, which 'is part of the essen- property — the remuneration payable to the tial function of copyright in this type of lit- exclusive rightholder when the product is first erary and artistic work', by making the exer- put into circulation has to be paid again cise of the right conditional upon the holder's simply because the product embodying his consent. 19 inventive or creative powers is resold in a Member State other than the Member State in which it was first sold. 15 Moreover, the oppo- site principle, which would legitimise the iso- lation of national markets, would be repug- nant to the essential purpose of the Treaty, which is to unite national markets into a single market. 16

the exploitation of copyright in films and the work (for example, a recording of a musical fees attaching thereto 'cannot be regulated work played in a discotheque), 'the require- without regard being had to the possibility of ments relating to the free movement of goods television broadcasts' of those films. Such and the freedom to provide services and those broadcasts may therefore lawfully be prohib- deriving from the observance of copyright ited for a certain period of time, during which must be reconciled in such a way that the the film may be shown only in cinemas. 20 I n copyright owners ... may invoke their exclu- view of the 'imperative need' to encourage sive rights in order to require the payment of the creation of cinematographic works, the royalties', even though the marketing of that national systems of the Member States may recording cannot give rise to the charging of therefore — without infringing the Commu- any royalty in the country where the music nity rules on free movement of goods — give is played in public, as royalties have already priority for a limited initial period to the dis- been paid to the author in another Member tribution of such works through the cinema, State. 22 The Court therefore recognised that such protection being considered necessary in an author's right to control the public perfor- the interests of the profitability of cinemato- mance of a recorded work reserved for pri- graphic production, as against distribution of vate use, in order to charge a supplementary the works in question by other means, in par- reproduction fee, does not conflict with the ticular through video-cassettes. 21 free movement of goods, except in so far as the right is invoked in order to impose on the purchaser of copies of the work restrictions as to their use that may restrict their circula- tion. 23

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Unlike Advocate General which secures for them a satisfactory share of Mancini, 27 the Court took the view that the the rental market. However, it considered that acquisition by a third party of rights in the that could not be guaranteed by 'authorising product in which the work is incorporated (i. the collection of royalties only on sales to e. the corpus mechanicum) does not mean that private individuals and to persons hiring out the intellectual property rightholder loses all video-cassettes' (paragraph 15). That would his rights, concluding that 'where national penalise the author unduly by requiring him legislation confers on authors a specific right to specify, when his work is placed on the to hire out video-cassettes, that right would market for the first time, all the uses to which be rendered worthless if its owner were not it might subsequently be put. 25 It follows in a position to authorise the operations for that — without prejudice to the right to remuneration when the material form of the work is first put into circulation — the right to receive a royalty each time the work is hired out is part of the specific subject-matter of the author's copyright in a film recorded on videogram (on a par with his right to receive a royalty for each public performance 26 — Sec G. Bonet, commentary on the judgment in Warner Brothers, in Revue trimestrielle de droit européen-, 1988, p. 647, in particular p. 652. 27 — According to the Advocate General, the assimilation of the hiring-out of a film — a s an essentially repetitive form of commercial exploitation — to its public performance is

. . To argue to the contrary would imply possible by various factors such as 'the improvement of taking away from consumers, in this case from Danish citi- manufacturing methods for video-cassettes which increased zens, what they may obtain as of right under the Treaty' their strength and life in use, the growing awareness amongst (original italics). He suggested that the exhaustion of the viewers that they watch only occasionally the video-cassettes film maker's right to restrain the hiring-out of video- which they have bought and, lastly, their relatively high pur- cassettes he has put into circulation in Community territory chase price' {Warner Brothers, cited in note 3 above, para- was tempered by recognition of the right to fair compensa- graph 14). tion or some other form of protection and the possibility for the author to safeguard his position 'by inserting appropriate 25 — See Benabou (op. cit. in note 17 above, p. 131), who argues clauses into the contract of sale' (Advocate General's Opinion that the difficulty of making such provision is all the greater delivered on 26 January 1988 in Warner Brothers, cited in because of the very rapia increase in diffusion options note 3 above, in particular pp. 2622-2624). resulting from technological advances.

14. In my opinion, these two respects in which the factual and legislative context in 15. That being said, it should be noted that the present case differs from that in Warner the exclusive right to make individual copies of the work reproduced on videogram avail­ able for use for a limited period of time is inherently open to exploitation through 28 — The Court consequently ruled that 'Articles 30 and 36 of the repeated and potentially unlimited opera­ EEC Treaty do not prohibit the application of national leg­ islation which gives an author the right to make the hiring-out tions, each of which gives rise to a right to of video-cassettes subject to his permission, when the video- cassettes in question have already been put into circulation royalties. Consequently, when the author with his consent in another Member State whose legislation enables the author to control the initial sale, without giving decides to assign the rental right, by means of him the right to prohibit hiring-ouť. a contractual licence, he may legitimately limit

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It cannot therefore be accepted that rental right must be exhausted after it is exercised for the first time, with the result that the rightholder would have no control over any subsequent rental of the product even in Member States in which the Examination with reference to the Directive right to make it available for use had not been assigned by means of licence agreements. I need hardly add that automatic exhaustion of rental right following the first rental of the product is not the rule at Community level, primarily because — save as otherwise pro- vided by law — there is no such provision in the national legislation of the State in which 16. As the plaintiffs, the 'intervening' national the product is first rented out. 29 The copy- governments and the Commission have all right holder may therefore restrain unautho- rised rental of his work even if he has himself 30 — See notes 20 and 21 above. See F. Pollaud-Dulian, Le droit de destination: le sort des exemplaires en droit d'auteur, Paris, 1989, p. 464, and Benabou, op. cit. in note 17 above, p. 117, or, for references to the judgment of the Tribunal de Charleroi (Charleroi Court) delivered on 27 March 1986 in joined cases 48.587 and 51.363, GPFI and others v DGD and VRP (Revue internationale du droit d'auteur, 1986, IV, p. 128), according to which 'if it is admitted that a film may be the subject of an exclusive territorial licence for distribu- tion in cinemas but that that Učence cannot be relied upon 29 — Sec G. Marcnco-K. Banks, 'Intellectual Property and the in proceedings against third parties in connection with video Community Rules on Free Movement Discrimination cassettes, the exclusive licence for exploitation in cinemas unearthed', in Eur. L· Rev., 1990, p. 224, in particular pp. would clearly be rendered worthless because, in that event,

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observed, the solution I propose is corrobo- by the rightholder or 'with his consent. The rated rather than contradicted by the relevant rental right, on the other hand, is not exhausted provisions of the Directive (see below), which by any sale or other act of distribution of in fact harmonised the Member States' national those objects. It is precisely because the pur- legislation on rental right (as well as lending pose and scope of the two rights are different right) on the lines suggested by the Danish that the Court held — in its recent judgment legislation. In mentioning this, I must how- in Metronome — that the introduction by the ever point out that the solution proposed by Directive of an exclusive rental right cannot the Community legislature is in my opinion, constitute any breach of the principle of exhaustion of the distribution right. 32 technically at least, irrelevant for the purposes of the present case in that, pursuant to Article 13, the provisions of the Directive became applicable on 1 July 1994, that is to say after the Danish courts issued the injunction against Laserdisken. As we know, the Directive draws a distinction between the effects of the rental right per se (see Article 1(4)) and those of the distribution right (that is to say, the 'exclusive right to make available these objects [fixa- tions], including copies thereof, to the public by sale or otherwise'), which is regulated in Examination with reference to Articles 85 and Article 9(2) and (3). 31 Only the distribution 86 of the Treaty right is exhausted with the first sale in the Community of one of the objects in question

2. T h e distribution right shall not be exhausted within the Community ... except where the first sale in the Community 32 — Case C-200/96 Metronome Musik v Music Point Hokamp of that object is made by the rightholder or with his consent. [1998] ECR I-1953, paragraphs 13-20, and Opinion in that 3. The distribution right shall be without prejudice to the case, delivered b y Advocate General Tesauro on 22 January specific provisions of Chapter I, in particular Article 1(4).' 1998, points 13, 14, 25 and 26.

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in very general terms. They apparently con- sist of giving consent to the rental of his own products (video-cassettes), while at the same time preventing the rental of imported prod- ucts (videodiscs) which have been offered for rental in another Member State by a third party (not the importer) with the tacit con- sent of the holder of the exclusive manufac- turing and distribution rights. But this — at least in the absence of further details — is precisely what, in law, the exclusive rights 33 — See, ex multis , Case 262/81, cited in note 9 above, paragraphs 17 to 20, in which the Court held that, although copyright conferred on the author and his assigns allow in a film and the right deriving from it, namely that of exhibiting the film, are not as such subject to the prohibi- them to do in the circumstances as described tions contained in Article 85, 'the exercise of those rights (acquisition of an exclusive rental right by may, none the less, come within the said prohibitions where there are economic or legal circumstances the effect of which means of a licence agreement). I should explain, is to restrict film distribution to an appreciable degree or t o distort competition on the cinematographic market, regard that in making this comment, I have no wish being had to the specific characteristics of that market'.

It ments, and whether or not, from a general point of view, seems to me to be patently clear, for example, such exercise within a given geographic area is such as to prevent, restrict or distort competition within the common as Laserdisken has stated in the course of the market'. More recently, Advocate General Tesauro observed that, in the light of recent decisions of the Court, there was procedure, that if the plaintiffs were to exer- some doubt as to whether 'the grounds of general interest on which the right [i. e. exclusive rental right] was granted cise their exclusive rental rights in a negative were such as to justify an exercise of that right that was clearly contrary to the provisions of Article 86 of the Treaty' manner, solely in order to prevent the deve- (Opinion in Metronome Musik v Music Point Hokamp, cited lopment of a videodisc rental market in Den- in note 32 above, point 33).

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