Rather than affirming the specific ‘high level of protection’ that claimant software developers had hoped for, the Court of Justice of the European Union has recently appeared steadfastly unwilling to allow copyright to restrict competition in the software market. In Case C-406/10 SAS Institute v World Programming Ltd, the Court held that the Software Directive did not provide copyright protection for a computer program’s functionality, language or data formats (following which WPL successfully defended SAS’s claim at the High Court and then again in Court of Appeal). A few months later, in Case C-128/11 Oracle v UsedSoft, the Court held that copyright cannot be used to prevent the distribution of ‘second-hand’ copies of downloaded computer programs where the terms of the original download were ‘intended to make the copy usable by the customer, permanently, in return for payment of a fee … corresponding to the economic value of the copy of the work’. If developers were looking for a glimmer of hope in these cases, they may have found one in the Court’s reminder in UsedSoft that a developer could use ‘all technical means at his disposal’ to ensure that the reseller’s original download was rendered unusable once it had been ‘resold’.
What remained unclear was whether a developer could protect his interests through the use of ‘technical means’ which restrict not only unlawful acts but also those uses of a program which require no authorisation from the rightsholder in the first place. In Case C-355/12 Nintendo v PC Box, the Court has had an opportunity to interpret the Copyright Directive’s provisions on technological protection measures (‘TPM’) in the context of videogames. As shall be seen later in this article, however, there are limits on how much light this decision really sheds on measures used to protect rights in computer programs.
The CJEU’s guidance as to TPM protected by the Copyright Directive
The ongoing proceedings in Nintendo concern the TPM used by Nintendo both on its DS and Wii consoles as well as on the media onto which its games are encoded. PC Box supplies tools capable of circumventing these measures, enabling users not just to play pirated games but also to use Nintendo consoles for non-infringing purposes, eg to play music CDs.
The arguments before the Court can be summarised as follows. Nintendo says that its TPM are necessary to protect its works from third parties engaging in unauthorised acts. It claims that, since PC Box’s tools circumvent those TPM, Nintendo is entitled to a remedy pursuant to Article 6 of the Copyright Directive. PC Box disagrees and says that Nintendo’s TPM prevent third parties from engaging in acts which require no authorisation from the rightsholders. PC Box claims that this alleged disproportionality means the Copyright Directive does not protect Nintendo’s TPM against circumvention.
The decision of the CJEU holds that, although the Copyright Directive’s concept of ‘effective technological measures’ must be interpreted broadly in order to afford rightsholders a high level of protection over their intellectual creations, these measures must nonetheless remain proportionate. This means that, where a range of equally effective technological measures is available, rightsholders must use those means which cause the least interference with the lawful activities of third parties in order for those means to be protectable under the Copyright Directive.
The Court then held that where TPM is so protectable, the national court must engage in a separate analysis of how the circumvention tools at issue are being used in the marketplace. If those tools have only a limited commercially significant purpose or use other than to circumvent TPM, or are primarily made or used for that purpose, then, and only then, can the rightsholder prevent their continued distribution.
Litigation over TPM circumvention is therefore likely to require an assessment of both technologies at issue in the dispute. First, the national court must be presented with evidence of alternative TPM that the rightsholder could have used and must make a determination as to whether, in light of the cost and effectiveness of those TPM, the rightsholder’s measures are proportionate. It would seem that the rightsholder must bear the burden of proving that its TPM are proportionate but it is not clear how high this threshold really is, since a rightsholder need not analyse the entire universe of TPM in order to present prima facie evidence that its TPM are proportionate. The circumventer, by contrast, may have to present just such an analysis in order to displace the rightsholder’s prima facie evidence of proportionality. (It is worth noting that the anti-DRM and anti-TPM movement has a strong incentive to assist with the development of better and more effective TPM following this decision.)
Where TPM has been found to be proportionate, the Court must then be presented with evidence of the purpose of the disputed circumvention tools and how they are being used in the real world. It is likely that the rightsholder, once again, must bear the burden of proof here and must demonstrate that the defendant’s circumvention tools have limited commercial value or purpose beyond facilitating unauthorised acts. Interestingly, a rightsholder seems to face an uphill battle to prevent the distribution of a tool which has clear, even uncontested, unlawful capabilities, at least in the absence of evidence of the extent of its use for those unlawful purposes. Such evidence is likely to be expensive and time-consuming to obtain and to verify: it is unlikely that too many will be willing to come to court on behalf of a rightsholder to testify to their use of mod chips to play pirated videogames.
The consequence of the CJEU’s ruling for computer programs and the wider digital resale market
At the outset it was noted that, although this decision is significant for videogames developers, it may not have a significant impact on TPM used to protect computer programs. This is because the CJEU, agreeing with the referring court and the Advocate General, has accepted that although videogames are programmed to run and be consumed exclusively on computers, they are not ‘computer programs’. The Advocate General had opined that such a conclusion was ‘difficult to call into question as a matter of EU law’ and had endorsed that position in the following terms:
‘Where complex intellectual works comprising both computer programs and other material are concerned – and where the two cannot be separated – it seems to me that the greater, and not the lesser, protection should be accorded’.
The CJEU has adopted that argument, holding that:
‘The protection offered by [the Software Directive] is limited to computer programs. As is apparent from the order for reference, videogames, such as those at issue in the main proceedings, constitute complex matter comprising not only a computer program but also graphic and sound elements, which, although encrypted in computer language, have a unique creative value which cannot be reduced to that encryption. In so far as the parts of a videogame, in this case, the graphic and sound elements, are part of its originality, they are protected, together with the entire work, by copyright in the context of the system established by [the Copyright Directive]’.
Strictly speaking, therefore, this decision applies only to TPM protecting works governed by the Copyright Directive and not to TPM protecting computer programs governed by the Software Directive. Could this distinction be important? Certainly, the Software Directive’s provisions on TPM do not use the same language as those in the Copyright Directive. More specifically, the Software Directive’s prohibitions concern the distribution or possession of ‘any means the sole intended purpose of which is to facilitate the unauthorised removal or circumvention of any technical device which may have been applied to protect a computer program’ and do not, unlike the Copyright Directive, make any mention of ‘proportionality’. Nonetheless, there are clear similarities between the directives: broadly speaking, both require an assessment of whether the relevant technological measures have been applied to protect the rightsholder’s legitimate interests or for some other purpose, and both require an assessment of the real purpose behind the circumvention tool. It remains to be seen how the Court will weigh these differences, particularly as it has affirmed in Nintendo that the Software Directive is a lex specialis, taking it outside the more general Copyright Directive.
Aside from what Nintendo does or does not mean for TPM in computer programs, its meaning for any possible secondary market in digital products is both clear and significant. By determining that ‘complex matter comprising elements which have a unique creative value that cannot be reduced to encryption’ is not a ‘computer program’, the CJEU has confirmed that the exhaustion principle set out in UsedSoft, which permits the resale of computer programs without the rightsholder’s consent, is in practice a very narrow one. In fact, the test adopted by the Court covers much more than just videogames and is likely to put ebook, music and video downloads outside of UsedSoft. Indeed, given the relatively low threshold required to demonstrate ‘intellectual creation’, it is conceivable that, depending on the GUI, some software might not even be a ‘computer program’ and that its developers might be able to prevent the resale of ‘used’ versions after all. Some of these issues were discussed in an earlier SCL article ‘UsedSoft: Do Creative Industries Need Creative Judges?’.
Conclusions
It remains to be seen how national courts will interpret Nintendo, in particular where they will place the burdens of proving TPM proportionality and of proving the lawful (or unlawful) intent in and use of circumvention tools. As to the substance of those issues, there is no guidance in the CJEU’s decision as to how strictly the effectiveness of alternative TPM should be assessed, or what thresholds national courts should use to determine the commercial significance of the various purposes or uses of circumvention tools. Answering these questions may require several rounds of litigation, meaning that since Nintendo does not restrict the ability of rightsholders to use disproportionate TPM (only their right to stop third parties from circumventing those TPM), many rightholders may prefer to continue their anti-counterfeiting efforts through technology rather than the courts.
The narrow definition of ‘computer programs’ in Nintendo appears to mean that only very few products fall within the UsedSoft decision and can be resold without the rightsholder’s permission. Of course, this does not mean that there cannot be a European resale market for digital goods under another principle. Nintendo did not specifically address the question of resale, and in UsedSoft itself the Court did appear sceptical that the Software and Copyright Directives should be interpreted differently in this regard. For the time being, however, all that can be said with certainty is that the Court has not yet had to address the issue in detail and that it remains an open question.
The case is Case C-355/12 Nintendo v PC Box. The CJEU’s judgment, and Advocate General Sharpston’s Opinion, can be read in full here.
Gareth Dickson is a litigator in the Litigation practice in Edwards Wildman’s London office. He is a UK qualified solicitor and New York admitted attorney whose practice focuses on the resolution of technology and intellectual property disputes.
