IP case law Court of Justice

Judgment of 28 Apr 1998, C-200/96 (Metronome)



JUDGMENT OF THE COURT

28 April 1998 (1)

(Copyright and related rights — Rental and lending right —

Validity of Directive 92/100/EEC)

In Case C-200/96,

REFERENCE to the Court under Article 177 of the EC Treaty by the LandgerichtKöln (Germany) for a preliminary ruling in the proceedings pending before thatcourt between

Metronome Musik GmbH

and

Music Point Hokamp GmbH

on the validity of Article 1(1) of Council Directive 92/100/EEC of 19 November1992 on rental right and lending right and on certain rights related to copyright inthe field of intellectual property (OJ 1992 L 346, p. 61),

THE COURT,

composed of: G.C. Rodríguez Iglesias, President, C. Gulmann, H. Ragnemalm,M. Wathelet and R. Schintgen (Presidents of Chambers), G.F. Mancini,

J.C. Moitinho de Almeida, P.J.G. Kapteyn, D.A.O. Edward, J.-P. Puissochet(Rapporteur), G. Hirsch, P. Jann and L. Sevón, Judges,

Advocate General: G. Tesauro,


Registrar: D. Louterman-Hubeau, Principal Administrator,

after considering the written observations submitted on behalf of:

—    Metronome Musik GmbH, by Hartwig Ahlberg, Rechtsanwalt, Hamburg,

—    Music Point Hokamp GmbH, by Martin Matzat, Rechtsanwalt, Münster,

—    the German Government, by Alfred Dittrich, Regierungsdirektor in theFederal Ministry of Justice, assisted by Sabine Maass, Regierungsrätin in theFederal Ministry of the Economy, acting as Agents,

—    the French Government, by Catherine de Salins, Head of Subdirectorate inthe Legal Affairs Directorate of the Ministry of Foreign Affairs, andPhilippe Martinet, Foreign Affairs Secretary in the same directorate, actingas Agents,

—    the Italian Government, by Professor Umberto Leanza, Head of the LegalService, Ministry of Foreign Affairs, acting as Agent, assisted by PierGiorgio Ferri, Avvocato dello Stato,

—    the United Kingdom Government, by Lindsey Nicoll, of the TreasurySolicitor's Department, acting as Agent, and by Eleanor Sharpston,Barrister,

—    the Council of the European Union, by Bjarne Hoff-Nielsen, Legal Adviser,and Stephan Marquardt, of its Legal Service, acting as Agents, and

—    the Commission of the European Communities, by Jürgen Grunwald, LegalAdviser, and Berend Jan Drijber, of its Legal Service, acting as Agents,

having regard to the Report for the Hearing,

after hearing the oral observations of Metronome Musik GmbH, Music PointHokamp GmbH, the German Government, the Italian Government, the Counciland the Commission at the hearing on 21 October 1997,

after hearing the Opinion of the Advocate General at the sitting on 22 January1998,

gives the following

Judgment

1.     By order of 18 April 1996, received at the Court on 13 June 1996, the Landgericht(Regional Court) Cologne, referred to the Court of Justice for a preliminary rulingunder Article 177 of the EC Treaty a question on the validity of Article 1(1) ofCouncil Directive 92/100/EEC of 19 November 1992 on rental right and lendingright and on certain rights related to copyright in the field of intellectual property(OJ 1992 L 346, p. 61, hereinafter 'the Directive‘).

2.     That question was raised in proceedings between Metronome Musik GmbH(hereinafter 'Metronome‘), which produces sound recordings, including compactdiscs, and Music Point Hokamp GmbH (hereinafter 'Hokamp‘), whose businessincludes the rental of compact discs.

3.     Article 1(1) of the Directive requires the Member States to provide a right toauthorise or prohibit the rental and lending of originals and copies of copyrightworks, and other subject-matter. Pursuant to Article 1(4), those rights are not tobe exhausted by any sale or other act of distribution. Finally, under Article 2(1),the exclusive right to authorise or prohibit rental and lending is to belong to theauthor in respect of the original and copies of his work, to the performer in respectof fixations of his performance, to the phonogram producer in respect of hisphonograms and to the producer of the first fixation of a film in respect of theoriginal and copies of his film.

4.     Under Article 9 of the Directive, without prejudice to the specific provisionsconcerning the lending and rental right, and those of Article 1(4) in particular, thedistribution right, which is the exclusive right to make any of the abovementionedobjects available to the public by sale or otherwise, is not to be exhausted exceptwhere the first sale in the Community of that object is made by the rightholder orwith his consent.

5.     Finally, Article 13, which is concerned with the applicability of the Directive intime, allows the Member States, under paragraph 3, to provide that rightholdersare deemed to have given their authorisation to the rental of an object madeavailable to third parties or acquired before 1 July 1994, the date by which theDirective was to be implemented.

6.     In Germany, the obligations imposed by the Directive were put into effect by theLaw of 23 June 1995 (BGBl. I, p. 842), which amended the Urheberrechtsgesetzof 9 September 1965 (Copyright Law, BGBl. I, 1273, hereinafter 'the UrhG‘). Inparticular, that Law removed rental from the category of 'subsequent distribution‘,which is lawful where the original of the work or copies thereof has been put intocirculation with the consent of the holder of the distribution right.

7.     On the basis of the new provisions of the UrhG, Metronome, which produced thecompact disc 'Planet Punk‘, recorded by the group 'Die Ärzte‘ and issued on 15September 1995, sought an interlocutory injunction from the Landgericht Kölnagainst Hokamp to restrain it from renting out the compact disc.

8.     On 4 December 1995, that court granted an interim order restraining the defendantfrom offering that compact disc for rental or renting it out in Germany.

9.     Hokamp applied to have that order set aside, contending that the abovementionedprovisions of the Directive and those of the UrhG implementing it were contraryto the fundamental rights guaranteed by Community law and by constitutional law,in particular the freedom to pursue a trade or profession.

10.     In those proceedings, the Landgericht Köln entertained doubts as to the validity ofthe introduction of an exclusive rental right, which would in particular adverselyaffect the exercise of a business activity hitherto pursued without restriction.Consequently, the national court decided to refer the following question to theCourt of Justice for a preliminary ruling:

'Is the introduction of an exclusive rental right, contrary to the principle of theexhaustion of distribution rights, by Article 1(1) of Council Directive 92/100/EECof 19 November 1992 on rental right and lending right and on certain rights relatedto copyright in the field of intellectual property compatible with Community law,in particular Community fundamental rights?‘

11.     Metronome, the German, French, Italian and United Kingdom Governments, theCouncil and the Commission consider that the Directive is valid. They maintain,essentially, that the exclusive rental right, which moreover is provided for ininternational conventions to which the Community and the Member States areparties, reflects objectives of general interest in the field of intellectual propertyand does not impair the substance of the right to pursue a trade or profession.

12.     Hokamp contends, however, that the introduction of such a right by the Directivemust be regarded as void since it encroaches upon the fundamental rights ofundertakings which operate rental businesses, including the right freely to pursuea trade or activity, and because it distorts competition in the Member States inwhich that activity was carried on independently of phonogram producers.

13.     It is clear from the grounds of the order for reference and the wording of thequestion submitted that the national court is concerned that the introduction of anexclusive rental right might infringe the principle of exhaustion of distribution rightsin the event of the offering for sale, by the rightholder or with his consent, ofcopyright works.

14.     That principle is expressed in the settled case-law of the Court of Justice accordingto which, whilst Article 36 of the EC Treaty allows derogations from the

fundamental principle of the free movement of goods by reason of rightsrecognised by national legislation in relation to the protection of industrial andcommercial property, such derogations are allowed only to the extent to which theyare justified by the fact that they safeguard the rights which constitute the specificsubject-matter of that property. However, the exclusive right guaranteed by thelegislation of a Member State on industrial and commercial property is exhaustedwhen a product has been lawfully distributed on the market in another MemberState by the actual proprietor of the right or with his consent (see in particularJoined Cases 55/80 and 57/80 Musik-Vertrieb Membran and K-tel International vGEMA [1981] ECR 147, paragraphs 10 and 15, and Case 58/80 Dansk Supermarkedv Imerco [1981] ECR 181, paragraph 11).

15.     However, as the Court pointed out in Case 158/86 Warner Brothers and MetronomeVideo v Christiansen [1988] ECR 2605, literary and artistic works may be the subjectof commercial exploitation by means other than the sale of the recordings made ofthem. That applies, for example, to the rental of video-cassettes, which reaches adifferent public from the market for their sale and constitutes an importantpotential source of revenue for makers of films.

16.     In that connection, the Court observed that, by authorising the collection ofroyalties only on sales to private individuals and to persons hiring out video-cassettes, it is impossible to guarantee to makers of films a remuneration whichreflects the number of occasions on which the video-cassettes are actually hired outand which secures for them a satisfactory share of the rental market. Laws whichprovide specific protection of the right to hire out video-cassettes are thereforeclearly justified on grounds of the protection of industrial and commercial propertypursuant to Article 36 of the Treaty (Warner Brothers and Metronome Video, citedabove, paragraphs 15 and 16).

17.     In the same judgment, the Court also rejected the argument that a maker of a filmwho has offered the video-cassette of that film for sale in a Member State whoselegislation confers on him no exclusive right of hiring it out must accept theconsequences of his choice and the exhaustion of his right to restrain the hiring-outof that video-cassette in any other Member State. Where national legislationconfers on authors a specific right to hire out video-cassettes, that right would berendered worthless if its owner were not in a position to authorise the operationsfor doing so (paragraphs 17 and 18).

18.     As the Advocate General has rightly indicated in point 14 of his Opinion, therelease into circulation of a sound recording cannot therefore, by definition, renderlawful other forms of exploitation of the protected work, such as rental, which areof a different nature from sale or any other lawful form of distribution. Just like theright to present a work by means of public performance (see, in that connection,Case 395/87 Ministère Public v Tournier [1989] ECR 2521, paragraphs 12 and 13),

the rental right remains one of the prerogatives of the author and producernotwithstanding sale of the physical recording.

19.     Thus, the distinction drawn in the Directive between the effects of the specificrental and lending right, referred to in Article 1, and those of the distribution right,governed by Article 9 and defined as an exclusive right to make one of the objectsin question available to the public, principally by way of sale, is justified. Theformer is not exhausted by the sale or any other act of distribution of the object,whereas the latter may be exhausted, but only and specifically upon the first salein the Community by the rightholder or with his consent.

20.     The introduction by the Community legislation of an exclusive rental right cannottherefore constitute any breach of the principle of exhaustion of the distributionright, the purpose and scope of which are different.

21.     Furthermore, according to settled case-law, the freedom to pursue a trade orprofession, and likewise the right to property, form part of the general principlesof Community law. However, those principles are not absolute but must be viewedin relation to their social function. Consequently, the exercise of the right toproperty and the freedom to pursue a trade or profession may be restricted,provided that any restrictions in fact correspond to objectives of general interestpursued by the European Community and do not constitute in relation to the aimpursued a disproportionate and intolerable interference, impairing the verysubstance of the rights guaranteed (see, in particular, Case C-44/94 R v Minister ofAgriculture, Fisheries and Food, ex parte Fishermen's Organisations and Others,[1995] ECR I-3115, paragraph 55).

22.     The object of the Directive is to establish harmonised legal protection in theCommunity for the rental and lending right and certain rights related to copyrightin the field of intellectual property. According to the first three recitals in itspreamble, such harmonisation is intended to eliminate differences between nationallaws which are liable to create barriers to trade, distort competition and impede theachievement and proper functioning of the internal market. As is stated, morespecifically, in the fourth, fifth and seventh recitals in the preamble to the Directive,the rental right, which, as a result of the increasing threat of piracy, is of increasingimportance to the economic and cultural development of the Community must inparticular guarantee that authors and performers can receive appropriate incomeand amortise the especially high and risky investments required particularly for theproduction of phonograms and films.

23.     Those objectives in fact conform with the objectives of general interest pursued bythe Community. It should be borne in mind, in particular, that the protection ofliterary and artistic property, which is a category of industrial and commercialproperty within the meaning of Article 36 of the Treaty, constitutes a ground ofgeneral interest which may justify restrictions on the free movement of goods (seeWarner Brothers and Metronome Video, cited above, paragraph 11). It should also

be noted that the cultural development of the Community forms part of theobjectives laid down by Article 128 of the EC Treaty, as amended by the Treaty onEuropean Union, which is intended in particular to encourage artistic and literarycreation.

24.     More particularly, the inclusion, challenged by the defendant in the mainproceedings, of phonogram producers among the beneficiaries of the exclusiverental right appears justified by the protection of the extremely high and riskyinvestments which are required for the production of phonograms and are essentialif authors are to go on creating new works. As the Advocate General has explainedin point 26 of his Opinion, the grant of an exclusive right to producers certainlyconstitutes the most effective form of protection, having regard in particular to thedevelopment of new technologies and the increasing threat of piracy, which isfavoured by the extreme ease with which recordings can be copied. In the absenceof such a right, it is likely that the remuneration of those who invest in the creationof those products would cease to be properly guaranteed, with inevitablerepercussions for the creation of new works.

25.     Furthermore, as pointed out by most of those who have submitted observations, theobligation to establish, for the producers of phonograms and all other holders ofrights in respect of phonograms, an exclusive right to authorise or prohibit thecommercial rental of those products is in conformity with the combined provisionsof Articles 11 and 14 of the Agreement on Trade-Related Aspects of IntellectualProperty Rights ('TRIPs‘), annexed to the agreement establishing the World TradeOrganisation, signed in Marrakesh on 15 April 1994 and approved by CouncilDecision 94/800/EC of 22 December 1994 concerning the conclusion on behalf ofthe European Community, as regards matters within its competence, of theagreements reached in the Uruguay Round multilateral negotiations (1986-1994)(OJ 1994 L 336, p. 1).

26.     Thus, the general principle of freedom to pursue a trade or profession cannot beinterpreted in isolation from the general principles relating to protection ofintellectual property rights and international obligations entered into in that sphereby the Community and by the Member States. Since it does not appear that theobjectives pursued could have been achieved by measures which preserved to agreater extent the entrepreneurial freedom of individuals or undertakingsspecialising in the commercial rental of phonograms, the consequences ofintroducing an exclusive rental right cannot be regarded as disproportionate andintolerable.

27.     It must also be observed that, regardless of the transitional measures provided forin Article 13, the Directive does not have the effect of eliminating any possibilityof rental. Those engaged in the business of hiring out can negotiate withrightholders in order to obtain an authorisation to hire out the objects in questionor a contractual licence, on terms acceptable to both parties.

28.     As regards the distortions of competition which the defendant in the mainproceedings contends would result from the overall prohibition of rental whichwould be imposed by certain groups producing phonograms, it need merely beobserved that, even if such distortions were proved, they would not be the directconsequence of the contested provisions, which do not necessarily have either theobject or the effect of encouraging interested parties systematically to prohibit therental of their products solely for the purpose of eliminating competitors from therental market.

29.     The answer to be given to the national court must therefore be that examinationof the question submitted has disclosed no factor of such a nature as to affect thevalidity of Article 1(1) of the Directive.

Costs

30.     The costs incurred by the German, French, Italian and United KingdomGovernments, the Council of the European Union and the Commission of theEuropean Communities, which have submitted observations to the Court, are notrecoverable. Since these proceedings are, for the parties to the main proceedings,a step in the action pending before the national court, the decision on costs is amatter for that court.

On those grounds,

THE COURT,

in answer to the question referred to it by the Landgericht Köln by order of 18April 1996, hereby rules:

Examination of the question submitted has disclosed no factor of such a kind asto affect the validity of Article 1(1) of Council Directive 92/100/EEC of 19November 1992 on rental right and lending right and on certain rights related tocopyright in the field of intellectual property.

Rodríguez IglesiasGulmannRagnemalm

WatheletSchintgenMancini

Moitinho de AlmeidaKapteynEdward

Puissochet            Hirsch                JannSevón

Delivered in open court in Luxembourg on 28 April 1998.

R. Grass G.C. Rodríguez Iglesias

RegistrarPresident

1: Language of the case: German.


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