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Source: bayinghoundales.com
There should be no secret for any individual or company that, while trying to use other people's works of authorship in a commercial manner, you must obtain the approval of the relevant rights' holder over said works. With the advent of Internet and the ease with which one can set up an online shop or a method to sell itself to large audiences, there is a continuous battle between holders of rights of copyrighted works and people trying to economically promote themselves using the works in order to at least provide indication to the users as to the source of the works - not to mention to reach some sort of arrangement whereby the rights' holder is at least notified in order to give its approval, or receive financial compensation for the benefits the works brought to the individual or company using it.
If, in a lucky string of events, the rights' holder is notified and gives its approval for the use of his works (i.e. in cases involving larger or more valuable works, if a written agreement is concluded between the parties), the individual or company which becomes entitled to use the works must observe the limits of such use - this can refer to area, exclusivity or lack thereof, material compensation for the rights' holder or even manner of presentation to its later users. In respect of the latter, we now have some guidelines from the European Court of Justice (ECJ) for what this means in the online world.
Following a referral from a Dutch national court, the ECJ stated that:
The consent of the copyright holder does not cover the distribution of an object incorporating his work if that object has been altered after its initial marketing in such a way that it constitutes a new reproduction of that work. (...) In such an event, the distribution right of such an object is exhausted only upon the first sale or transfer of ownership of that new object with the consent of the rightholder.
The facts in brief related to an e-commerce website (Allposters) selling posters depicting works of authorship for which copyright was managed by a collecting society; the latter had granted to the website the right to reproduce the works on several types of material, but the website went one step too far when it also decided, without prior informing the collecting society, to produce and sell reproductions on other mediums (in this case, canvas) in order to boost their sales with this new product.
The collecting society argued that, while according to European copyright regulations, placing the product bearing copyright on the European Union market - either by the rights' holder or by another entity authorized by the former - leads to an exhaustion of the holder's right to distribute (or forbid distribution of) the copyrighted works within the European Union, this cannot be extended to the case where the works become available on other forms of presentation than prior agreed upon by the rights' holder. In other words, the change in presentation medium is a significant enough alteration and opens new avenues of profitability for the website to an extent that the exhaustion theory cannot take precedence.
From a legal perspective, the applicable norm may be found in Directive 2001/29 on the harmonization of certain aspects of copyright and related rights in the information society, whereby the distribution right is not exhausted in respect of the original or copies of a work, except where the first sale or other transfer of ownership in the European Union of that object is made by the rightholder or with his consent.
Well, by looking closely at the preamble of Directive 2001/29, the purpose of the norm was more evident:
(...) ‘first sale in the [European Union] of the original of a work or copies thereof by the rightholder or with his consent exhausts the right to control resale of that object in the [European Union]. (...)
It naturally follows that, by referring to the object bearing the copyrighted works, the EU bodies wished to give authors control over the initial marketing in the European Union of each tangible object incorporating their intellectual creation. In the end, the ECJ decided that transferring the works on a canvas did lead to requiring the consent of the rights' holder, without which the use would constitute an infringement.
Although this is a major win for rights' holders in that they have grounds to invoke an infringement, it does not do justice for product and sales innovation in the digital era. When dealing with FMCG, clothing or other products that people use with some frequency and which may sometimes have low production costs (as is the case with canvas-printed images, especially for a company as Allposters already running a business in the area), the requirement to extend the limits of use of the copyrighted works may, at some point, prove too strenous compared to short-term economical benefits - the lion's negotiating power lies with the copyright collection society, which may impose high compensation, which could backfire against the rights' holders collectively managed by the society, who would not get their works used in as many medium as possible.
On the other hand, while drafting a copyright assignment or license agreement, there are no newsworthy remarks, actually: lawyers or business owners had already needed to insert "object of agreement" clauses to be as overarching as possible; this proves daunting, because business owners must have a clear view over their verticals of operation for at least the foreseeable future - but the economy, especially in the online world, changes far more rapidly than agreements may be drafted.
Reverting to the legal side of things, the exhaustion doctrine operates regardless of where the rights' holder is situated - any sale directed by or made with its consent in EU territory, under the conditions spelt in the Directive and, now, in the ECJ decision, would lead to its impossiblity to control further resales. So, regardless of whether you're operating on the continent or abroad, keep your antenas in the air and contact your lawyer to tell him about this recent unfolding.