No second-hand market for online video games, declares French Supreme Court

Cour de cassation, 1^st Civil Chamber, 23 October 2024, No. 23-13.738

In a highly anticipated decision for the video game industry, the French Supreme Court (Cour de Cassation) has brought an end to the nearly decade-long legal battle between the video game distribution platform Steam, developed by Valve, and the French consumer advocacy group UFC – Que Choisir (hereafter ‘UFC’). The case centered on the complex issue of whether the distribution rights for online video games are subject to exhaustion. Taking support from the caselaw of the Court of Justice of the European Union (CJEU), the Cour de Cassation decided against it, thereby reinforcing the rights of video games publishers.

In December 2015, UFC filed a lawsuit against Valve, seeking the removal of several clauses from the Steam Subscriber Agreement, including the one that prohibited the resale and transfer by the players of the rights of access and use to video games purchased on the platform. UFC claimed that such a clause violated the rule of exhaustion contained in the French Intellectual Property Code.

Article L. 122-3-1 of the French Intellectual Property Code establishes that the author’s right to authorize or prohibit the distribution of physical copies of their works within the European Economic Area market, is exhausted once the first sale of the work has been authorized within that territory, meaning that the author cannot prevent further sales of the copies concerned. Article L. 122-6, 3° provides that the first sale of a copy of a software within the EEA, likewise exhausts the author’s distribution right. These provisions respectively transpose Article 4(2) of Directive 2001/29 on copyright and related rights in the information society (hereafter the ‘Infosoc Copyright Directive’) and Article 4(2) of Directive 2009/24 on the legal protection of computer programs (hereafter the ‘Computer Programs Directive’). Recital 29 of the Infosoc Copyright Directive provides that the principle of exhaustion does not apply to services, particularly online services, and suggests that, as a result, works which are distributed in an intangible form, unlike those which are incorporated in a material medium, cannot be resold without the consent of the rights holder, who thus retains control over their distribution. The Computer Programs Directive does not contain any similar wording.

The Paris Judicial Court issued a first instance judgment in favour of UFC, finding that the exhaustion principle applies both to tangible and intangible video games (TGI Paris, 17 September 2019, No. 16/01008). This decision was obviously inspired by the UsedSoft case (CJEU, 3 July 2012, C-128/11), by which the CJEU held that the exhaustion principle contained in the Computer Programs Directive applies both to physical and immaterial copies of a computer program, meaning that copyright holders on computer programs cannot prevent resales of program copies sold through download.

The reasoning of the Paris Judicial Court was however too abrupt, since shortly after its decision, the CJEU ruled in the Tom Kabinet case (CJEU, 19 December 2019, C-263/18), that the sale of e-books is governed by the Infosoc Copyright Directive, and that since the latter contains provisions to the effect that exhaustion should only apply to tangible copies of a copyrighted work, it should be interpreted differently from the Computer Programs Directive which makes no such distinction between physical and immaterial copies. The CJEU also considered that such an act pertains to the right to communicate a work to the public rather than to the distribution right. It results from the CJEU caselaw, that copyrighted works which are made accessible through downloading or any other digital means which does not involve the selling of a tangible embodying element, are treated differently depending on whether they fall under the Computer Programs Directive or are governed by the more general InfoSoc Copyright Directive.

Since a video game embodies both software elements and aesthetic creations such as graphics, music, sound effects, a storyline and characters, the question of which of the two regimes should apply is not prima facie obvious.

The Paris Court of Appeal, which was called to decide on this issue following Valve’s appeal, found assistance (i) in the 2014 Nintendo judgment (CJEU, 23 January 2014, C-355/12), in which the Court of Justice had held (although in a different context) that video games constitute complex matter and that “in so far as the parts of a videogame, in this case, the graphic and sound elements, are part of its originality, they are protected, together with the entire work, by copyright in the context of the system established by Directive 2001/29”, and (ii) in the above-mentioned Tom Kabinet case, where the CJEU had said that “even if an e-book were to be considered complex matter (see, to this effect, [the Nintendo case]) comprising both a protected work and a computer program eligible for protection under Directive 2009/24, it would have to be concluded that such a program is only incidental in relation to the work contained in such a book. (…) An e-book is protected because of its content, which must therefore be considered to be the essential element of it, and the fact that a computer program may form part of an e-book so as to enable it to be read cannot therefore result in the application of those specific provisions”.

Building on this reasoning, the appeal judgment concluded that only the InfoSoc Copyright Directive is applicable to video games, which are therefore not subjected to the exhaustion rule (Paris Court of Appeal, 21 October 2022, No. 20/15768).

The recent judgment of the Cour de Cassation upheld the reasoning of the Court of Appeal, including the part which stresses that “unlike a computer program, which is designed to be used until it becomes obsolete, a video game quickly re-enters the market once the game is completed and, unlike software, can continue to be used by new players many years after its creation“, thereby justifying the need for the rights holder to retain control over its distribution.

The Cour de Cassation also rejected UFC’s request to refer the case to the CJEU for a preliminary ruling, as it considered there was no reasonable doubt regarding the interpretation of EU law. By affirming the judgment of the Paris Court of Appeal, the Cour de Cassation put a final ending to any hopes of UFC to see the establishment of a second-hand market for digital video games.