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EU Copyright – Infringing the distribution right: AG includes warehousing of counterfeits

A Swedish preliminary ruling procedure is currently pending before the European Court of Justice (CJEU) and represents the latest in a run of rulings on the scope of the distribution right under Article 4 of the InfoSoc Directive. It focuses on the question of whether distribution can also be assumed if the infringing goods are located in a warehouse and the identical goods are offered for sale in an actual shop (C-572/17Syed). In his Opinion (German) published on 3 October, Advocate General Sánchez-Bordona affirms this question with regard to the previous case law of the CJEU.

Background

The reference for a preliminary ruling is based on criminal proceedings against Mr. Syed, the owner of a shop in Stockholm. His shop offered goods including, clothing and accessories with rock music motifs which infringe both trade mark and copyright rights. However, the goods at issue were in identical form also in a warehouse adjacent to the shop and another warehouse in another part of the city. The offering of goods in the shop was regularly supplemented by stocks in the warehouse.

Mr. Syed was indicted by the Swedish public prosecutor’s office for the violations and sentenced in the first instance to imprisonment (suspended on probation) and a fine. It is clear that the offering and selling of the goods in the shop infringed the distribution right under Article 4 of the InfoSoc Directive 2001/29. In the context of the copyright infringements, the court also took into account a total of 599 items of clothing that were in the warehouses and identical to those in the shop.

The Svea hovrätt (Svea Court of Appeal) took a different view at second instance and acquitted Mr. Syed of the alleged copyright infringement in respect of the additional 599 items. Their storage did not yet constitute a distribution of the goods to the public.

The Swedish Public Prosecutor’s Office appealed against the decision of the Court of Appeal. Now, the Högsta domstol, the Supreme Court, refers the following questions in dispute to the European Court of Justice:

  • If goods with protected motifs are unlawfully offered for sale in a shop, can there also be an infringement of the exclusive right of the author under Article 4(1) of Directive 2001/29 to authorise or prohibit the distribution of goods as regards goods with identical motifs which are located in a warehouse of the person offering those goods?
  • Does it matter whether the goods are stored in a storage room connected to the shop or in another place?

Opinion

As part of his preliminary remark, Advocate General Sánchez-Bordona first of all addresses the fact that this is a criminal case, which is not very common in copyright law. Copyright penal provisions are not harmonized throughout the EU. Nevertheless, that does not alter the fact that the question referred is limited to the distribution right under Article 4 of the InfoSoc Directive and must be examined independently of any national criminal provisions.

He then affirms the first question on the basis of the previous case law of the European Court of Justice on the right of distribution. In particular, he deals with the extension of the term by means of the decisions in Donner (C-5/11) and Dimensione Direct Sales (C-516/13), which led to the legal situation that acts may also be covered by the distribution right which go beyond the mere transfer of ownership. So, actions which belong to the chain of actions with which the sale of the goods is going to take place can be included, for example the vendor’s advertising.

In the present proceedings, the storage of the goods, which are also offered to customers in identical form in the shop, is also an act which is part of the distribution chain, according to the Advocate General. Although not all steps in the traditional distribution chain may be covered by the distribution right, Mr. Syed’s actions are the last segment of the series, which are aimed at the end consumer. By offering goods in his shop, Mr. Syed also offers the sale of identical goods in the warehouse. This results in a close connection, which allows the classification of the storage of the goods as part of the chain leading to the final sale. This evaluation does also not contradict the main copyright principles.

With regard to the second question, the Advocate General states that, in his view, it should be irrelevant how far away the warehouse, which is not adjacent to the shop, is. Rather, Mr. Syed could provide the desired goods for his customers within a relatively short time from the warehouse in the other part of the city.

Outlook

As the Advocate General rightly points out, the CJEU has expanded its understanding of exploitation rights in past rulings. This applies not only with regard to the right of distribution, but also to the right of the communication to the public (see for instance the decision in the case of Filmspeler (C-527/15) and our related blog post). It is therefore rather likely that the CJEU will follow the Advocate General and will extend the notion of the term “distribution” right accordingly. This is clearly to the benefit of the rights holder. That said, one has to look very closely and on a case-by-case basis before approving an act of distribution even if the actual act is of a rather preparatory nature.