CJEU provides guidance on whether private copying needs to be compensated by way of a levy: Copydan Bandkopi (C-463/12)
Unlike the UK, most EU countries have a private copying levy system. Questions of how the levies should be applied are hotly debated, so this guidance will be welcomed. The CJEU's decision will have a direct impact on the EU mobile phone industry, amongst others.
For the UK, the most important aspect of the case may be the CJEU's guidance on "de minimis" harm. The Court has made it clear that, in the same way that they can decide whether to adopt a private copying exception at all, Member States have discretion to set the minimum threshold for when a levy is payable, provided this is applied in a manner consistent with the principle of equal treatment. This appears consistent with the UK Government's position that its own recently introduced private copying exception (see here) need not be combined with a fair compensation levy because of the low level of harm caused by the exception. In the Government's opinion, the new UK exception is much narrower than in other EU states (for example it does not allow copying by families and friends) and it merely legitimises what is already being done. While ordinary consumers will no doubt support the UK system (with no levy on the devices they might use to format shift their personal copies), copyright owners in the music industry believe that they are losing revenue and have applied for a judicial review of the Government's decision to introduce the private copying exception but no levy (see here). The result of that hearing (in May) is eagerly anticipated.
The case referred to the CJEU concerned a dispute in Denmark between Nokia and a Danish collecting society, Copydan Båndkopi ("Copydan").
Many mobile telephones, including some manufactured by Nokia, use memory cards to supplement the phone's internal memory. The data stored on these memory cards can include telephone numbers, emails, and photographs taken with the phone's own camera, but also copyright works obtained via online shops (or otherwise). Conceivably the memory cards can also be used to store private copies of copyright works (such as music purchased in CD form and then format-shifted into .mp3 format for use on the phone). Nokia imports the phones into Denmark and sells them to distributors who, in turn, sell them to individuals and other business customers.
Copydan demanded that Nokia pay the Danish private copy levy in relation to the importation of these memory cards. Nokia’s response was that the scale of private copies of works made onto the memory cards was so minimal that no compensation should be payable. In addition, the cards were used for storing licensed content downloaded directly from online shops (i.e. not copied under the exception) and/or unauthorised copies of copyright works (i.e. infringing copies falling outside the exception): in both cases the levy would not apply.
The law – basis for the private copying exception and fair compensation
Member States may adopt an exception or limitation to the reproduction right, in order to allow private copying in compliance with Article (5)(2)(b) and Art 5(5) of the InfoSoc Directive 2001/29/EC (the "Directive").
Article 5(2)(b) states that "Member States may provide for exceptions or limitations to the reproduction right… in respect of reproductions on any medium made by a natural person for private use and for ends that are neither directly nor indirectly commercial, on condition that the right-holders receive fair compensation…".
Article 5(5) states that "the exceptions… shall only be applied in certain special cases which do not conflict with a normal exploitation of the work or other subject-matter and do not unreasonably prejudice the legitimate interests of the right-holder". (the "Three-Step test").
Recital 35 of the Directive states: "In certain cases of exceptions or limitations, right-holders should receive fair compensation to compensate them adequately for the use made of their protected works or other subject matter….In cases where right-holders have already received payment in some other form, for instance as part of a licence fee, no specific or separate payment may be due… In certain situations where the prejudice to the right-holder would be minimal, no obligation for payment may arise.”
The CJEU simplified and re-ordered the questions referred from the Danish Court as follows:
- Can a copyright levy be imposed on multi-functional media such as phone memory cards which are capable of making private copies but whose primary function is NOT to make such copies?
Applying the Padawan case (C-467/08), any levy compensation must be linked to the harm caused to the rights-holder by the making of copies for private use. It is unnecessary that private copies are actually made with a particular device or class of device for a levy to be payable: the law presumes that consumers will benefit fully from its available functions and a levy should be applied accordingly. Multi-functionality is in a sense immaterial, although the ancillary nature of the copying function may affect the fair compensation payable.
- Can a private copying levy be imposed on memory cards but not on integrated components such as the internal memories of MP3 players?
Here the Court emphasised the principle of equal treatment: any difference in application of the law to comparable situations requires objective justification. It is for the national court to determine whether circumstances may exist to justify the different treatment (e.g. where the actual use for private copying is low or if it is difficult or impossible to distinguish between private and business purposes).
- At what point in the distribution chain can the levy be imposed?
In this case, Nokia was selling to business customers in the knowledge that its products would then be sold on to both individuals and business customers. A system charged at the manufacturer or importer level will only conform to Article 5(2) if: (i) this is justified by practical difficulties; (ii) the system provides for an effective right to reimbursement of that levy; and (iii) supplies to non-private customers can be exempt. Again, these are issues for the national court.
- De minimis harm
The CJEU confirmed that Member States have a wide discretion to set the minimum threshold for when a levy is payable (as explained in Recital 35), provided this is applied in a manner consistent with the principle of equal treatment.
This wide discretion to determine the de minimis threshold will be a key factor in the debate over the UK private copying exception.
The UK private copying exception
In October 2014, the UK introduced an exception to copyright infringement which is relatively modest (especially when compared to other EU member states). This is limited to the making of personal copies for private use, such as allowing someone to copy a CD they have bought so they can listen to it on their tablet computer. It does not allow for the sharing of works nor for the making of copies from sources which the user does not own.
Representatives of the UK music industry have argued that this exception for personal copying does not comply with Article 5(2)(b) of the Directive because is not accompanied by some form of compensation (by way of a levy). The British Academy of Songwriters, Composers and Authors (BASCA), the Musicians Union and UK Music have therefore applied for a judicial review of the government decision to implement the exception in its current form. The application surmounted its first hurdle in January 2015, with the High Court deciding that it should proceed to a hearing in May.
The UK Government's position is that there isn't a need for compensation because of the narrow scope of the exception. The UK exception only applies where the user has lawfully acquired an initial copy, which they hold on a permanent basis (rather than on loan). It is therefore very much targeted at situations where a person has purchased their own copy and wishes to “format shift” so as to have a copy on a different device. It is also is limited to “personal” not “private” use so would not permit copying for the family. In the Government's view, there is very little harm caused by introducing the exception which merely legitimises what was already taking place. The explanatory memorandum which the Government published when the relevant law was introduced makes clear that it considered these issues to have been addressed in advance; the legal challenge will therefore consider whether in deciding to pass the law the Government exceeded its jurisdiction or acted irrationally or in a procedurally unfair way.
- Can levies be imposed where rights-holders have consented to the use of their work for private copying purposes?
The CJEU concluded that such consent has no bearing on whether fair compensation is owed. In doing so, the judgment provided some interesting comments on the licensing of works by rights-holders. While these do not appear to affect the position in the UK, they may require further analysis in countries with a wider private copying exception.
- Technical protection measures ("TPMs")
The CJEU confirmed the position stated in VG Wort, (C457-11) that the availability and/ or application of TPMs does not automatically preclude the right to receive fair compensation. However, Member States have discretion to consider whether such TPMs are being applied when calculating the actual level of compensation owed to rights holders.
- Illegal copies and fair compensation
Again the CJEU confirmed the position in ACI Adam (C-435/12) that copying from illicit sources cannot be subject to fair compensation.
- Third party devices
The CJEU confirmed that the Directive does not preclude national legislation which provides for fair compensation in respect of copies of works made by a person using a device which belongs to a third party.