Is it legal to sell second hand digital games?

Restrictions which prevent consumers from freely selling on digital games have for some time been a source of frustration for consumers, particularly given the well-established second hand market that exists for boxed product games.

Whilst the legality of such restrictions was successfully challenged in relation to computer programs in the potentially ground breaking UsedSoft v. Oracle case, the issue of whether the Court of Justice of the European Union's (CJEU) decision in UsedSoft could be applied to other digital goods such as games purchased on a download-to-own basis remained uncertain. However, recent comments made by advocate general Eleanor Sharpston in light of another case referred to the CJEU, Nintendo v. PC Box, suggests that UsedSoft may be quite limited in effect and may not apply to digital video games.

Historical differences between digital and physical rights

In order to understand the potential magnitude that UsedSoft may have on the European games industry, it is important to recognise the historical differences between the rights that you would obtain when you purchased digital games and boxed product games as it is these differences that may be affected by UsedSoft.

"Whenever you purchased a digital game, your right to sell that copy was limited, or as was almost invariably the case, completely prohibited"

Traditionally, whenever you purchased a digital game, what you tended to get in exchange for your money was a perpetual licence to access the copy of the digital game you purchased. You did not actually acquire ownership of the copy of the game you purchased. This is an important distinction as it meant that your right to sell that copy was limited, or as was almost invariably the case, completely prohibited, by the terms of the licence that was granted to you.

As with digital games, whenever you purchased a boxed product game, you were also granted a licence to access the copy of the game you purchased. However, unlike with digital games, you also actually acquired ownership of something tangible, namely the disc onto which the copy of the game was pressed. This, together with the application of a legal doctrine known as the "exhaustion of rights" principle (EOR Principle), meant that you were able to freely sell on any boxed product game you purchased as you saw fit and in so doing, transfer your licence to access the game itself to the purchaser.

The exhaustion of rights principle

The EOR Principle is reflected in two pieces of European legislation: the Information Society Directive (which applies to all copyrightable works) and the Software Directive (which applies specifically to software and computer programs).

Each of these Directives provides that the owner of the copyright in a work has the exclusive right to authorise or prohibit the distribution of that work. If, however, a copy of that copyrighted work is sold within the EU with the copyright owner's permission in exchange for the payment of a fee, the copyright owner's right to authorise or prohibit any further sales of that copy of the work within the EU is exhausted.

Key to the EOR Principle in each Directive is the notion that the copyright owner's right to authorise or restrict the sale of its work and copies of its work will only be exhausted in relation to the copy of the work that is actually sold with the permission of the copyright owner. In other words, if, for example, a developer develops a game, makes a copy of that game and then sells that copy to a consumer, the developer only loses its right to continue to authorise or restrict sales of that same copy of the game. The developer's rights to prevent the consumer from making any further copies of that game and to authorise or restrict sales of the original game itself (as well as any further copies of the game that the developer makes) remain unaffected.

Until UsedSoft, it had been widely assumed that the EOR Principle only applied to the sale of tangible products within the EU and that sales or licences for digital products (in respect of which no real tangible product exists) fell outside the scope of the EOR Principle. This was a fairly reasonable assumption to make given that Recitals 28 and 29 of the Information Society Directive (which explain the rationale behind the provisions of that Directive) provide, respectively, as follows:

"Copyright protection under this Directive includes the exclusive right to control distribution of the work incorporated in a tangible article"; and

"The question of exhaustion does not arise in the case of services and online services in particular... Unlike CD-ROM or CD-I, where the intellectual property is incorporated in a material medium, namely an item of goods, every online service is in fact an act which should be subject to authorisation where the copyright or related right so provides."

The assumption was questioned in Attorney General Kokott's opinion in FAPL v. QC Leisure. Then came the CJEU's decision in UsedSoft and with it, intense debate over what the implications of the decision would be for the European games industry. Lawyers, in particular, became very animated when discussing the decision that was delivered as it appeared to completely disregard the limitations set out in the Recitals of the Information Society Directive and significantly extend the scope of the EOR Principle.

The decision in UsedSoft

In UsedSoft, the CJEU was effectively asked to decide whether the EOR Principle extended to digital computer programs downloaded from the internet. In reaching its decision the CJEU commented that underlying the EOR Principle is the balance that needs to be struck between protecting intellectual property rights within the EU and upholding one of the fundamental freedoms upon which the EU was built, namely the free movement of goods and services amongst member states. With this in mind, the CJEU stated that the requirement within the EOR Principle for there to be a "sale" should be given a broad interpretation so as to cover licences of an unlimited duration. If not, copyright owners would be able to undermine the effectiveness of the EOR Principle by simply referring to their contracts of sale as 'licences'.

Referring to the limitations of the applicability of the EOR Principle that are contained in Recitals 28 and 29 to the Information Society Directive, the CJEU stated that the Software Directive took precedence over the Information Society Directive in relation to the protection of computer programs and that because the limitations set out in Recitals 28 and 29 to the Information Society Directive do not appear in the Software Directive, those limitations should be disregarded.

The CJEU therefore held that in relation to computer programs, the "abundantly clear" intention of the European Union legislature was that the EOR Principle applied to both physical and digital copies of computer programs as "the online transmission method is the functional equivalent of the supply of a material medium."

Does UsedSoft apply to the European Games Industry?

However, what has not been clear following the CJEU's decision in UsedSoft, was how the European games industry would be impacted by the decision. Some cautioned that the CJEU's decision should be interpreted narrowly as only applying to computer programs and not to games, as games are not simply computer programs. The prevailing view however is that the CJEU's decision meant that consumers were now free to sell on any game they downloaded from the Internet and that attempts to prevent them from doing so would be unenforceable under European copyright law. For example, it has been reported that following the CJEU's decision in UsedSoft, the Federation of German Consumer Organisations (VZBV) has brought a claim against Valve in relation to the terms of use for its digital download platform, Steam, which prohibit consumers from selling any game that they have purchased and downloaded via Steam. Valve reportedly had until today (10 October 2013) to respond in detail to the VZBV's claim.

"The prevailing view is that consumers were now free to sell on any game they downloaded from the internet and that attempts to prevent them from doing so would be unenforceable under European copyright law"

Whilst not having any legal effect, the recent comments made by Advocate General Eleanor Sharpston in her opinion on another CJEU case, Nintendo v. PC Box, appears to be in contradiction with the prevailing view. In her succinct Opinion, AG Sharpston commented that if "games are not just computer programs" but are in fact "complex intellectual works comprising both computer programs and other material" then games should be protected by the Information Society Directive and not the Software Directive:

"[the Software Directive] concerns only computer programs, whereas [the Information Society Directive] concerns copyright and related rights in intellectual works in general... the provisions of [the Software Directive] take precedence over those of [the Information Society Directive], but only where the protected material falls entirely within the scope of the former. If Nintendo and Nintendo-licensed games were computer programs and no more, [the Software Directive] would therefore apply, displacing the Information Society Directive".

As Recitals 28 and 29 of the Information Society Directive appear to rule out the possibility of the EOR Principle applying to digital products protected under the Information Society Directive, AG Sharpston's opinion might support the proposition that UsedSoft's impact on the European games industry may be limited if games are viewed as being more than just computer programs. However, as AG Sharpston's comments are incidental to the main subject of the case (as the Nintendo case is primarily concerned with PC Box's circumvention of Nintendo's use of Technical Protection Measures as opposed to the application of the EOR Principle), it remains to be seen whether they will be followed when the CJEU comes to opine on this very point later this year/early next year in Case C-458/13 Grund v. Nintendo.

More likely, it seems, is that the CJEU will decide that the EOR Principle does apply to digital games "sold" in the EU. After all, if in substance a download of a digital game is the same as the sale of a boxed product game, it is hard to see why the CJEU would adopt any different approach to the one that it took in UsedSoft.

Nic Murfett is a sports and video games lawyer at Harbottle and Lewis