Are anti-copy systems on discs and DVDs illegal? Not necessarily, answered the French Supreme Court on February 28, 2006, after applying the three step test.

Although the question itself and the absence of a clear-cut answer by the court may sound scary to the cultural industry, one must recall that several member states acknowledge the “private copy” system, i.e. a system under which the buyer of a disc or DVD may copy it freely for use in a private circle.

This is where the three step test is supposed to bring a balance between copyright and the rights of consumers.

1. The triple test in the EU Copyright Directive (EUCD): how to conciliate copyright and droit d’auteur ?

NB: “Droit d’auteur” in French, “Derechos de autor” in Spanish, “Diritto d’autore” in Italian, are the continental European equivalent of the Anglo-Saxon “copyright”. For the purpose of this article, we oppose “droit d’auteur” to “copyright” when we want to stress differences between the two systems.

Basically, the three step test is a set of limitations over exceptions to the authors’ exclusive rights.

Following the work of the 1967 Stockholm Revision Conference, Article 9.2 of the Berne Convention first applied the test to the right of reproduction. Since then, the test has been extended to all exclusive rights and transplanted into the TRIPs Agreement (Article 13), and article 5.5 of the EUCD of May 22, 2001.

The test admits limitations to copyright provided that such limitations (i) concern certain special cases, (ii) do not conflict with a normal exploitation of the work and (iii) do not unreasonably prejudice the legitimate interests of the right holder.

Admittedly, the three step test is inspired by an economic approach of copyright derived from the Anglo-Saxon system, which conflicts with the conception of continental droit d’auteur. In the copyright approach, it belongs in the courts to analyse on a case-by-case basis the “fair use” of the rights. In the droit d’auteur culture, the Parliament has jurisdiction over a limited list of exceptions to the rights holders.

The Directive tries to conciliate the continental droit d’auteur together with the three step test. Article 5 provides for a limited list of exceptions (e.g. private copying, short quotation, etc.) which may be admitted under the condition they pass the three step test. The list of exceptions is however not compulsory and there is no obligation for the member states to expressly refer to the test in their implementation.

This certainly explains why the test enjoyed different fortunes in the implementation of the Directive: the test is not expressly imported in national German, Danish, Italian and Dutch laws; Greece and Spain decided on the contrary to refer to it. In France, the Parliament voted a draft law on March 21, 2006 (still to be examined by the Senate), which provides expressly for two steps of the test – the “special case” step being oddly omitted.

The most spectacular consequence of this poor level of harmonisation concerns the private copying exception.

2. The triple test in practice: how to conciliate copyright and private copy?

Admitting private copying without restriction would lead to uncontrolled spread of copies competing with “normal” exploitation of the works, thus deadly threatening the cultural industry. This is where the triple test is supposed to provide safeguards.

Some claimed however that anti-copy systems conflicted with the “right” of private copy, therefore were to be forbidden. The “Mulholland Drive” case in France offered a good perspective of chaos.

The facts in brief: some anti-copy system prevented a consumer from making a copy of a legally bought DVD of Mulholland Drive. Arguing that he had a so-called “right to make private copies”, the consumer sued the film producer and distributor.

In this landmark case, the French Supreme Court did not rule in favor of either party. It simply cancelled the judgement of the Appeal court (which had admitted “private copying” without limitations thus declared illegal anti-copy systems) on the ground that it did not apply the triple test. It is now up to a second Appeal court to handle the case and to decide whether, after applying the triple test, anti-copy systems shall be held illegal.

What is at stake in the French Supreme Court ruling is that for the first time, it expressly refers to the triple test, although not providing guidelines on how to apply it. Also, the Court confirmed that private copy was an exception rather than a “right” and that such exception was to be confined into economic considerations and risks on the industry in the digital environment – i.e. the three steps of the test.

There are few precedents which could help courts to interpret the test. The main sources of information hitherto come from the WIPO’s studies related to copyright in the information age (Limitations and exceptions under the three step test – R. Knights, August 29, 2000; WIPO study on limitations and exceptions on copyright and related right in the digital environment – S. Ricketson, April 5, 2003). In so far, only one case actually required an interpretation of the test in respect of the TRIPs Agreement (a WTO dispute settlement panel has tried a case involving the EU and the United States over an exception to copyright in US law – WTO panel report June 15, 2000 WT/DS160/R).

European countries have legislated about this crucial stake in very disparate ways. Some of them did not take into account the new digital environment and maintained unchanged their rules relating to private copy (Italy). Other countries such as Germany and Austria firmly restrained the scope of this exception and legalised anti-copy systems. The UK sticks to its copyright system letting the judge to decide for the fairness of the private copying exception.

No need to be an adept of bashing to say that the implementation of the Directive in France led to an extreme confusion. After a harsh discussion among the MPs, the draft law glumly proclaims “the right to benefit from the private copying exception” (right to exception???) and concomitantly legitimate the “TPM” (technical protection measures) that obstruct not allowed uses.

It is difficult to foresee a happy future for the cultural industry in Europe without anti-copy systems. The challenge is now to reach a level of harmonisation between the member states. No doubt that the Directive will need serious update.

The Paris commercial court rendered on June 30th, 2008, three judgments holding eBay liable for the online auction sale of counterfeit goods and the breach of exclusive channels of distribution. The total indemnity amounts to €40m, payable immediately to Parfums Dior, Kenzo Parfums, Parfums Givenchy, Guerlain SA, Christian Dior Couture and Louis Vuitton Malletier.

eBay claimed the benefit of the protective status of hosting (as provided for in the Directive 2000-31/EC on e-commerce), under which it could have avoided direct liability subject to the withdrawal of listings on counterfeit goods after the receipt of a formal notification.

This position did not convince the French judges. They considered that eBay qualified as a provider of intermediation services between sellers and buyers in consideration of a commission. The judges expressly denied the protection of the status of hosting, for eBay takes an active role in the information published on its website. As a result, eBay was submitted to civil law (non contractual) liability.

The judges blamed eBay for not having secured that its activity was not generating illegal acts, such as the sale of counterfeit goods or the violation of exclusive channels of distribution. They also considered that eBay breached its duty to check that sellers making a great amount of transactions were duly registered with the Trade Register. This latter ground may cause eBay additional trouble in the future, for buyers might claim the benefit of consumer laws for sales by professionals – and blame eBay for not providing this information.

In the Christian Dior Couture and Louis Vuitton Malletier cases, the judges observed that eBay should have set up effective measures against the infringement, such as (i) the duty for the sellers to provide on demand a receipt or a certificate of authenticity of the goods in sale, or (ii) the immediate and definitive closing of the account of sellers in fault or (iii) the immediate withdrawal of the listings reported as illegal by the claimants. They also underlined that the listings related to sales of counterfeiting goods could be easily identified, either by the “fake” or “imitation” quotes which often appear, or by the low price of the goods.

The judges concluded that eBay was liable for both the wrongful use of the claimants’ rights and the damage caused on their image. Interestingly, the indemnity awarded is an indemnifying royalty based on a percentage of eBay’s commissions. This type of indemnity is unusual, for under French civil law the amount of the indemnity may not exceed the prejudice actually suffered – which is in most cases limited to lost profits and the compensation of lost investments. The concept of indemnifying royalty was introduced in France by law n°2007-1544 of 29 October 2007 implementing the 2004-48/EC Directive on intellectual property rights enforcement. Lastly, the judges released an injunction for eBay to stop auctions on the perfumes, under a restriction of € 50 000 per day of delay.

Although eBay immediately filed an appeal, these judgments may be perceived as an incentive to sue eBay to seek indemnification. The short-term future of eBay is gloomy: in November 2007, the French regulator of public auctions took action against eBay for failure to comply with French rules applicable to public auctions. Another “big” judgment expected this year.