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Is it legal to sell second hand digital games?

Is it legal to sell second hand digital games?

Thu 10 Oct 2013 7:25am GMT / 3:25am EDT / 12:25am PDT
RetailLegal

Nic Murfett looks at two recent legal cases and questions the current laws on digital content

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

15 Comments

Neil Young
Programmer

270 300 1.1
Interesting discussion of similar points from Jas Purewal here: http://www.gamerlaw.co.uk/2012/the-legality-of-second-hand-software-sales-in-the-eu/

Posted:9 months ago

#1

James Prendergast
Research Chemist

730 411 0.6
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:

This seems an impossible distinction to make given that any computer programme can have "other material" (such as music, graphics etc) included within them.

Posted:9 months ago

#2

Steven Hodgson
Programmer

77 120 1.6
Popular Comment
If you can't legally duplicate it and give it away, you should be allowed to resell it

Posted:9 months ago

#3

Rick Lopez
Illustrator, Graphic Designer

1,269 941 0.7
I certainly hope this can be done.

Posted:9 months ago

#4

Gil Salvado
3D/2D Artist

33 37 1.1
The idea of ownership itself is a concept that we created. So, the principle one cannot own something that is not material is up to our understanding of ownership.

Posted:9 months ago

#5

Craig Burkey
Software Engineer

151 142 0.9
Seems simple you buy a license and you should be allowed to sell or gift that license like anything else you buy to someone else at a later date

Posted:9 months ago

#6

Alex Comer
Technical Designer

9 14 1.6
... 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'.
That makes total sense and hopefully will prevail. If it is clear a product is licensed to you for a limited period of time, it is also clear you do not have ownership rights over that product – when you rent a house, you can't sell it. If, on the other hand, a product is sold to you in perpetuity, it should make no difference whether it is physical or digital: you own it, so you can sell it.

Posted:9 months ago

#7

Luke Giddings
Programmer

22 5 0.2
I find it interesting that all the forum opinions/comments so far seem to be that the ability to resell digital games is A Good Thing(tm). If this is the general feeling in the industry, why aren't we doing more to actually facilitate this? Why are we waiting for the EU / CJEU to force us to do something?

Or is it just that the current commentators aren't exec and there is a division between upper-management and non-execs about if this is good thing? In which case it would be good to get a exec level person to comment/explain why they think it is a Bad Thing(tm).

Posted:9 months ago

#8

Nicholas Pantazis
Senior Editor

1,011 1,405 1.4
I absolutely disagree with the article's assertion that the ruling made it illegal to prevent people from selling games. They made it illegal to sue over someone finding a way to sell software, they did not require companies to do so. So yes, you can legally sell your Steam account to your friend, but Valve has no legal obligation to provide you with a means to sell individual games.

Posted:9 months ago

#9

Morgan King
Animator

46 90 2.0
I have a hard time accepting that data in infinite supply has value as a unit instead of as an experience. When the content is divorced from the medium - like going to a movie or an arcade - there doesn't seem to be any need to artificially create an aftermarket. If resale value is baked into the price of the content, reduce the price by the assumed resale value.

Posted:9 months ago

#10

Darren Adams
Managing Director

222 383 1.7
As a consumer of games I would think it is perfectly reasonable to sell a digital game on to someone as you would with a physical copy of a game.

But....

As a business owner and managing director I can understand why this is a touchy subject for games developers. Movies for example will get day one sales when the film is released, then it will be made as a DVD, then box set, directors cut etc etc. I think the opportunities for making money back after a game is released are much less than in other media. Of course this is changing with DLC and in-app purchases, but it still requires quite an outlay to keep developing this content, whereas a movie can be re-released without much cost going into it.

Saying that though, I think the day will come when you will be able to sell digital games to people. I would hazard a guess that Steam will be the ones to do this first. making a market place where you can sell your Steam games on to other people (with them taking a cut of course).

IMO, the responsibility to make more revenue after a game is released is up to the developers. We have to address the "one shot" revenue model and come up with more ways to get returns from our games without having to spend too much money doing so.

Edited 1 times. Last edit by Darren Adams on 11th October 2013 6:50pm

Posted:9 months ago

#11

Andrew Ihegbu
Studying Bsc Commercial Music

436 146 0.3
The problem is fundamental within the concept of Intellectual Property as it stands. Whilst dames were always protected by the IP contained within them (Trademarks, Characters etc), that only protected the distributor/Pub/Dev from copying, the Game itself as a completed material is never defined as an actual discrete entity. Before, that was okay, because the argument was that CD/Cartridge was physical and we already had very well defined principles for the sale of preowned physical items, computer related or not. This is what made the whole 'you can't sell your game CD's because we never authorise a transfer of license' argument pretty ineffective and silly sounding. If it wasn't for statutory rights laws I think certain developers wouldn't even give refunds.

Now they got rid of CDs, we really need to turn around and actually start making proper statutory rights laws for Digital Goods.

Posted:9 months ago

#12
There's loads of things you can't transfer ownership off e.g. Most gym, golf club etc types of memberships.

It's not up to the courts to decide these issues. They should be honest and say there is no law either way so it's down to any private contract i.e. the terms and conditions/license and if anyone is unhappy then it's up to them to lobby the government to make a new law.

My view is that ultimately it should be up to the person selling his/her product to decide the terms and conditions and the person buying deciding if it's something they're willing to purchase. Computer games are not a basic need that the government or courts need to stop the public being exploited from.

Posted:9 months ago

#13
I agree with Nicholas' view. The courts have said that you can't stop someone from selling a license on. There is nothing to say that you have to authorise or facilitate the re-sale of that license. Reselling of disc based console games works because the license is tied to the physical media. You can resell your PC boxed product if you like, but once you've burnt the license key the disc is worth next to nothing.

Another important part that the article leaves out is that the under the UsedSoft decision the seller would have to put the content beyond their own use, something that would be almost impossible to police unless such transactions were performed through Steam / Origin / whatever under the platform owners rules.

Also worth reading Valve's Subscriber Agreement. http://store.steampowered.com/subscriber_agreement/

Section 3
D. Trading and Sales of Subscriptions Between Subscribers

Mostly seems to be about the card trading, but could easily be extended to full products if Valve wished and Valve - Publisher agreements allowed.

Posted:9 months ago

#14

Tom Wilhelm Ødegård
Dpt. head Gaming

30 1 0.0
If you can't resell your digital games, then physical copies will always be better. They are mine for as long as I want, and not up to some EULA bull.

Posted:9 months ago

#15

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