July 5, 2007
Bring home a cheap CD from your holiday in Turkey, and nobody minds. Buy the very same CD at the same price online from a Turkish website and you may be buying an illegal copy.
Copyright, patent and trade mark owners can lawfully divide the market for their goods and charge higher prices where the market will support them. Sellers of such protected goods can therefore sell to buyers in one market at a particular price but, using their copyright, patent and/or trade mark rights, prohibit those buyers from selling on the goods outside their designated market.
This allows rights owners to “manage” pricing and, for instance, to maintain the image of luxury brands by preventing imports from markets where “luxury” comes at a lower price.
The European Economic Area (“EEA” - the 27 EU member states plus Iceland, Norway and Liechtenstein) is treated as one market for these purposes.
Once a product has been (lawfully) sold into the particular market, copyright, patent and trade mark rights are “exhausted”, allowing further sales without the consent of the rights owner. This has created within the EEA a “grey” market for branded, patented or copyright goods produced for and sold in the weaker EEA economies, but then resold (at a premium) into the stronger economies such as Germany, France and the UK.
The critical point comes when protected goods are “put into the EEA market”. The holiday maker returning from Turkey does not “put the goods into the EEA market” because he imports them for his or her personal use. But what is the legal position when an individual buys (authentic, protected) goods from a website based outside the EEA?
In 2002 CD-Wow signed a court-sanctioned settlement agreement with several CD and DVD producers, agreeing not to export their products from Hong Kong into Europe. Later test purchases suggested it was not keeping to the agreement, and the producers went back to court.
The legal arguments centred around who was the importer. CD-Wow argued that the customer was the importer, not CD-Wow, because its terms and conditions stated that the goods were delivered and property passed to the customer when it delivered the CDs to the Hong Kong post office. Not so, said the courts. Although the Treaty of Rome and subsequent single market European law was not clear on the point, English law is: the so-called “postal rule” on which CD-Wow relied is expressly excluded by English law where the buyer is a consumer. A seller offering to, or requested by a consumer to deliver using a third party carrier has only fulfilled his obligation to deliver once the goods actually arrive at the consumer’s address.
The courts also found CD-Wow guilty of contempt of court for breaching the court-sanctioned agreement. It awarded additional damages, stating that the contempt was an aggravating factor in the flagrancy of the infringement. This resulted in one of the highest damages ever awarded for copyright infringement, £41 million.