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A Sequel to the Used Game Lawsuit

RC Taro Hirayama

The Copyright Law is the most frequently amended law among many intellectual property laws. That also proves the Copyright Law is easily influenced by the change of the times. While the litigation is in process, the case is widely reported by the media. But once a decision was made and the case was settled, the coverage quickly decreased and in many cases, people forgot what happened afterwards. However, I suppose verifying the consequence and influence afterwards will shed light on the correctness of the judgment and the hidden problems.

A typical example of such a case is the measures to prevent the importation of unauthorized Japanese music CDs, provided in the Article 113 (5) of the Copyright Law of Japan, the so-called right of importation. Although it was enacted after fierce debate, the raison d'etre of the measures has already faded away within a year since its enactment. The reason is because the trend of music purchasing has changed from CDs to direct music downloading since iPoD came along.

The used game lawsuit is one of the copyright cases which were spotlighted for while. The lawsuit examined whether free selling of used game software was illegal or not. Tow lawsuits: "Osaka lawsuit", where a manufacturer filed a lawsuit against a distributor at the Osaka District Court in July of 1998, and "Tokyo lawsuit", where a distributor filed a lawsuit against a manufacturer at the Tokyo District Court in October of 1998, were differently concluded at the almost same time. That caused a considerable controversy.

There are key points of contention in this case: (1) whether game software falls into the category of cinematographic works, and (2) whether selling of game software constitutes a violation of distribution right which is only granted to movie works. In May of 1999, the Tokyo District Court concluded that selling of used game software was legal because it did not fall under cinematographic works and, thus, did not have the distribution right. In October of the same year, the Osaka District Court showed diametrically opposed logic and conclusion that the selling was illegal because it was one of the movie works and the distribution right should be granted.

Both cases have appealed to higher courts. On March 27, 2001, the Tokyo High Court rejected the appeal, judging the game software was considered as one of the movie works for the key point (1). Then, for the key point (2), the Tokyo High Court concluded that there was no distribution right even though it was movie work. This ruling meant that the distribution right is granted when many people view such reproductions, but it is not granted when only a few people view each of mass reproductions just like music CDs and books.

However, only two days after the Tokyo High Court decision, the Osaka High Court also concluded their decision. It turned down the Osaka District Court's decision, saying that selling of used software was legal. The reason was that later selling is legal because the distribution right was exhausted at the first sale, with the conclusion a game software was a cinematographic work and had the distribution right. As stated above, there were four different decisions by the District Courts and the High Courts in Tokyo and Osaka. In April of 2002, the Supreme Court followed the Osaka High Court's ruling, concluding that selling of used game software was legal.

According to the later media reports or council reports, as a response to the Supreme Court's decision, the manufacturers were making efforts to establish a distribution right that is not exhausted at the first sale. Also the distributors were negotiating to give several percentages of sales back to the manufacturers for reconciliation with the manufacturers. Nothing has come out of such movements yet.

Now four years later since the Supreme Court's decision, what is going on in the used game software market? There have been elimination and consolidation one after another in both distributor and manufacturer sides. A lot of them were caused by their effort to strengthen enterprise vitality such as capacity enhancement for development or cost reduction rather than the game software matter.

In addition, now the manufacturers change the price by releasing a cheap edition at less than half of its original price when a certain period of time passes after the first release. It has an enormous influence on the market. The quality of the content is the same even though it is a cheap edition. Consumers can purchase the product at the cheaper price than the first release. They do not have to buy the used game anymore. The distributors also have no choice but to lower the price to the cheap edition. That has reduced the profit margins of the distributors considerably. Consequently, the distributors are forced to reduce the price of purchasing used software. Therefore, consumers now sell their software on the Internet auction site rather than sell them to the reselling distributors. The distributors have lost the profit margins as well as purchasing quantity. Many of small one-man shops closed their business.

Originally, the market of used game software has grown as business since the manufacturers have tried to maintain the retail price of the software as high as the first sale price. No matter how boring the game is, even though it is ridiculed as a so-called "Kuso-Gei (junk game)", the price was fixed. So consumers sell those boring games immediately after the purchase to buy a new game or they buy the used ones if they were unable to make a decision to buy the game at the first release. Customers started to save money for the games they truly wanted. Such customer behavior brought about a business of selling used video games. If the manufacturers were willing to change prices by detecting consumer wants from the beginning, they would not have been haunted by used video games.

In that way, a cheap edition appeared for game software after a certain period of time and consumers can enjoy the benefit of buying a product at the price relative to the value of the product. The fact is the decision on the used game software lawsuit provided such a benefit. I believe it proves that the decision reached right conclusion whatever their argument is.