The EU's directive on rental rights (see Information Letter N.S. 180) provides, inter alia, that member states must give the author of a work or the producer of a phonogram which is the subject of copyright the right to prohibit rental or lending of copies of that work or phonogram. In the case of Metronome Musik GmbH v. Musik Point Hokamp GmbH, the Cologne District Court referred a question as to the legality of the directive to the European Court of Justice. The legality of the directive was challenged on the basis that by abolishing the previous freedom to rent out music CD's, the directive breached fundamental EU law in two respects. The first was that the directive encroached upon the fundamental rights of undertakings to operate a rental business. The second ground was that the directive was contrary to the EU's law of exhaustion of intellectual property rights after the first sale of a product embodying that right.

So far as the first was concerned, the Court of Justice held that:


In the present case, the remedy provided by the directive to the damage that would be suffered by the owners of intellectual property rights if they were confined to receiving compensation only from the initial sale of certain products for which there was further commercialization by way of rentals was proportionate to the damage suffered. The existence of the rental right did not prevent entrepreneurs from setting up in the business of renting out, for example music CD's, it simply required them to negotiate for such rights.

So far as the exhaustion issue was concerned, the Court held that there was a difference between distribution rights and rental rights. Whereas the former might be exhausted by the first sale of a product within the EU by the copyright owner or with its consent, the latter was not. Thus it was held:


Therefore the rental rights directive was not in conflict with fundamental EU law.

Similar issues arose in the case of Foreningen af danske Videogramdistributor v. Laserdisken where the Court of Justice held that it was not an infringement of the EU's law on exhaustion to prohibit copies of videodiscs from being offered for rental in one Member State even though the offering of such discs for rental had been authorized in another Member State.