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European IP Bulletin, Issue 36, November 2006 - Copyright

3.  Spain and Italy Forced to Adopt a More Restrictive Public Lending Exemption

Paragraphs 1 and 2 of Article 5 of the Rental and Lending Directive (92/100/EEC) provide that Member States can introduce provisions that derogate from the exclusive right to authorise or prohibit public lending of copyright works, as long as the authors receive some kind of remuneration for such lending. Article 5 (3) goes beyond this and provides Member States with the possibility to exempt certain categories of establishments from the payment of the said remuneration. 

Spain’s implementation of the provision can be found in Article 37 of the Royal Legislative Decree 1/1996.  Under this provision, museums, archives, libraries, newspaper libraries, sound recording libraries and video recordings libraries, which are public or belong to non-profit-making cultural, scientific or educational bodies of general interest or to teaching institutions within the Spanish educational system, do not need to have right holders’ authorisation and are not required to pay remuneration for the lending which they effect.

Along similar lines, Article 69 (1) of the Italian Copyright Law states that libraries, and record libraries, belonging to the State and other public bodies, which lend works with the exclusive goal of cultural promotion and personal study, do not require authorisation from the right holder and no remuneration is due. This however applies only to printed works (except sheet music), and sound recordings and videograms that have already been on the market for a certain number of months.

In Commission of the European Communities v Kingdom of Spain(Case C36/05) and Commission of the European Communities v ItalianRepublic(Case C198/05), analysing these national provisions, the European Court of Justice (ECJ) agreed with the Commission that a restrictive interpretation of Article 5 (3) had to be adopted. In this sense, Italy and Spain had failed to fulfill their obligations under Articles 1 and 5 of the Directive. The Court found that the most likely effect produced by the Spanish and Italian rules was to provide an overly lenient application of the exemption. This was to be avoided because it clearly contravened the overall aim of the Directive of ensuring that appropriate legal protection is given to right holders as a necessary precondition for maintaining a satisfactory level of creative production (Recital 7).

While Italy did not try to defend its position on the matter, Spain produced arguments that validly questioned the meaning of Article 5(3), in particular by arguing that the expression ‘certain categories of establishments’ was not to be interpreted as having a quantitative connotation. Arguably, the beneficiaries of the exemption could be large in number, provided that they belonged to ‘generally separate, differentiated or defined categories of establishments’. The Court disagreed with this view and confirmed that while cultural promotion should be pursued, the protection of the right holders is also an objective of the Directive and this cannot be attained if the meaning of the provision is so broad as to exempt almost all, if not all, categories of establishments from payment of the remuneration. This leaves no doubts that the exemption contained in Article 5(3) is a quantitative as well as qualitative matter.

4. Sony puts Grey Importers Out of Business

In KK Sony Computer Entertainment v Pacific Game Technology [2006] EWHC 2509 (Pat), the Chancery Division of the High Court recently awarded judgment in favour of Sony against Pacific, a Hong Kong company, in respect of their grey market exports of Japanese PlayStation Portables (PSP). This is another 'exhaustion of rights' case with a factual variation in that it involves sales of the claimants' goods into the European Economic Area (EEA) via an internet website.

Pacific Game Technology ran a popular website which gave gamers outside of Japan a chance to buy the genuine Sony PSP consoles that were intended for sale in only Japan. The consoles were in packaging and with instructions printed largely in Japanese. They were also marked "FOR SALE AND USE IN JAPAN ONLY".

Sony, via its UK subsidiaries, markets the latest version of its highly successful PSP consoles in over 100 countries, including countries within the EEA. Sony owns an extensive portfolio of intellectual property rights in respect of the PSP, including a number of registered trade marks, registered designs and a variety of copyright works. Sony alleged that, by targeting customers in the EEA, in particular, the UK, the defendant had infringed its IP rights.

Following an unsuccessful application by the defendant for the court to decline to exercise its jurisdiction, the court had to consider (i) whether Sony had agreed to the sale of those PSPs in the EEA, in which case its IP rights would have been exhausted; and (ii) whether Pacific, by offering the goods for sale on its website, had committed any infringing acts.

The Court allowed Sony's application for relief. The Judge held that the offer for sale had taken place, not in Hong Kong, but in the EEA. It was also evident that the offer had been made without Sony’s consent. The offer to sell was made via the intermediary of a website which did not mean that the offer had not been made within the EEA.

This decision represents a resounding victory for Sony against parallel importers of electronic products, who seek to capitalise on the price differences between Sony's products in the Asian and European markets. The judgment is clear that websites aimed at selling goods into the EEA would be caught by the law in the same way as they will be if they were a shop located in the EEA. It confirms that there is no concept of world-wide exhaustion of rights, and that consent to such exhaustion will not be permitted without "unequivocal" renunciation of rights by the trade mark proprietor and indeed the proprietor of design right and copyrights.

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