SpicyIP Fellowship: Digital Copyright Exhaustion in India – A Need For an Expansive Application

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We’re happy to bring you a guest post by our Fellowship applicant, Vedangini Bisht, arguing for expansion of the copyright exhaustion doctrine to the digital medium in India. Vedangini is a 3rd year law student at National Law University, Delhi. Her first submission for the Fellowship can be viewed here.

Digital Copyright Exhaustion in India: A Need For an Expansive Application

Vedangini Bisht 

According to the doctrine of copyright exhaustion, when the owner of a copyrighted work gives consent for that work to be put up on the market and it is lawfully sold, the copyright owner’s right with respect to control of the distribution of that copy is exhausted. In India, this doctrine has been recognized under section 14(a)(ii) of the Copyright Act, 1957 (‘Act’).

Digital exhaustion of a copyright means application of the doctrine of exhaustion to digital copies of a work. It is not something which has been explicitly dealt with under the Indian law, except for removing computer programmes from its ambit. This article makes a case for recognition of digital exhaustion of copyright, including computer programmes. It shall also acknowledge the difficulties which shall have to be addressed before the doctrine can be broadened. It is especially important in the time of this pandemic, with people stuck at home and digital consumption at an all-time high.

A Case for its Expansion

First, recognition should be accorded to this doctrine in the digital sphere because its rationale does not undergo change with a change in the medium of expression. Regard needs to be given to the digital age we live in. Mere lack of tangibility can no longer be a plausible justification for non-application of this doctrine. The rapid unfurling of digitisation also results in changes in consumer demands. The possibility of instant access to the internet ensures that the customers do not keep a stock of tangible goods, and access them in a digital form. An absence of its recognition would overthrow the decades of precedents which have supported economic and public benefits of secondary markets.

Second, this would enable affordability. Infinite copies of a digital file can be created without any loss of quality. Further, there are no economic costs attached with sale. There is no requirement of a tangible carrier. What is ultimately sold is a de facto right to use. Affordability is also achieved when there is more intense price competition between the two markets, leading to a more satisfactory consumer experience and an improvement in innovation. It also puts downward pressure on new copies. While this is not particular to digital goods, it still gives the customer additional opportunities to sell products at a below-retail ate. This should be allowed once the author has received an adequate remuneration for the full value of the product with the first sale, known as the ‘remuneration or reward doctrine’. No further control over the distribution should be granted.

Third, it ensures a free movement of goods, which is more effective through digital transfers. It increases access to valuable work and creates an avenue where if a work is withdrawn by the right holder, due to it being out of print or is withheld due to some marketing strategy, the work would continue to remain in circulation. This free flow of goods increases the supply of cultural assets in society and it ensures that movement of goods remains unrestricted. Exhaustion ensures that it is not inhibited by the requirement of users to seek permission each and every time there is a reselling of digital goods.

Fourth, if exhaustion is not extended to digitally transmitted goods, it shall constitute discrimination against the buyers of such goods, compared to the buyers of tangible products. They shall have fewer valuable goods since they cannot resell it or would have to secure licenses for them every time.

Problems to Address

First, the sale of a digital copy not only entails the transfer of an asset, but also making of another copy, extending this principle to reproduction rights. However, exhaustion is a limitation on the copyright owner’s right to distribution, not reproduction. In the case of UsedSoft GBMH v. Oracle International, the CJEU held that reproduction rights shall not be infringed during resale if the original acquirer makes his copy unusable. US has a more conservative approach. In the case of In Capitol Records LLC v. ReDigi Inc, the Court held that a resale of preowned music leads to an infringement of copyright because it requires reproduction of ‘unauthorised’ copies, even when the original copy is destroyed.

However, the law needs to mindful of the end users of the technology. From their perspective, what matters is who has access to the work, not the mechanism of transfer of copies. Courts need to allow reproduction in order to facilitate the transfer of a copy. If Indian law does not want to scupper free movement, it is unlikely that the courts will let reproduction rights undo the exhaustion of distribution rights, just because the technical process requires a copy. Reproduction in this context is mere ancillary. CJEU has already followed this approach in the context of trademarks.

Second, most of the digital copies are not sold in the conventional sense. It falls closer to licensing – a permission to have access to a certain content online for some time instead of getting a copy. End User License Agreements (EULA) are quickly replacing the doctrine.

Unfortunately, the Indian courts tilt towards an exclusive licensee of the copyright holders, as is evident in their decisions regarding copyright exhaustion in tangible goods. This should not be encouraged as it implies that consumers do not own the goods they buy. They are left with empty pockets, empty hands. The courts ought to follow the approach of UsedSoft where they held that the sale of an existing software license shall not be a copyright infringement if the license is perpetual; it is sold as a whole; and the original purchaser disables the copy on resale, regardless of whether it was purchased pursuant to a license agreement. If the case demands, the courts should hold that the restrictive licensing schemes are in contravention of the basic purpose of copyright by being conscionable adhesion contracts or against antitrust laws.

Third, an extension of this doctrine is considered separately for computer programmes and other digital work. In the judgement of Tom Kabinet, the CJEU ruled that sale of e-books qualify as a ‘communication to the public’, as distribution applies only to physical goods. They acknowledged that exhaustion applied to computer programs because they are subject to the Software Directive, which assimilates both tangible and intangible copies of computer programs for the purposes of protection, and while copyright on e-books is meant to protect creative work, computer programs are tool for a creative work. This probably could be the reason why the Indian statute elected for the exception of computer programmes separately and not a generalised exception of digital work.

India does not have a separate Software Directive, hence such a distinction is not a requirement. Further, computer programmes are in themselves creative works, for instance, video games. When viewed from the point of legal certainty of the doctrine of exhaustion, there is no difference between terming one as ‘communication’ and the other as ‘distribution’.

Other issues which will have to be considered are: the fact that one copy can be employed many times can reduce innovation by obviating incentives; the privacy of the consumers with respect to what they read, listen to, play, can be compromised because of the possible large-scale monitoring; it needs to be made clear whether the right holders are required to positively enable the resale, or they can employ a technical protective measure, such as cloud lock-in, to prevent resale.

Digital exhaustion has not been given a precise definition by the Indian legislature or courts so far. Such a clarification is a requisite due to the rapid proliferation of today’s secondary copyright marketplace. There needs to be a more thorough development of jurisprudence on the subject and an openness to amending the statute as per the digital evolution of the market.

The applications for the next edition of the Fellowship close on June 30. If you’re interested in applying, please visit our Fellowship page for the details.

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