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Thursday, 26 June 2014

Private copying and levies: what is the AG Opinion in Copydan all about? A Katfriend explains

Katfriend and private copying guru
Javier Ramirez
As reported by the IPKat, last week Advocate General (AG) Cruz Villalón issued his Opinion in Case C-463/12 Copydan Båndkopi v Nokia, a reference for a preliminary ruling from the Østre Landsret (High Court of Eastern Denmark) regarding - among other things - the private copying exception within Article 5(2)(b) of the InfoSoc Directive, in particular private copying levies. 

Prior to the AG Opinion, Katfriend Javier Ramirez had explained that this case is important because the Court of Justice of the European Union (CJEU) has been asked to address some issues that are critical to both the future of copyright levies in the internal market and the development of legitimate digital licensing models in Europe.

Javier is now back with a very thoughtful analysis of the AG Opinion [not yet available in English: will it ever be?]. Here's what he writes:

“The first challenge for the AG was to simplify the long list of prejudicial questions dealing with multiple aspects of copyright levies which were referred by the Danish court and re-group them to facilitate the analysis. 

He consolidated them around seven different subjects, but before starting to deal with each of those re-formulated questions, the AG made a clear summary of the principles established by the jurisprudence of the CJEU in relation to the private copying exception and the notion of fair compensation (paras 24–30):
·    Member States may adopt an exception or limitation to the reproduction right to allow private copying, but this requires compliance with both the requirements in Article 5(2)(b) of the InfoSoc Directive and Article 5(5), ie the three-step test) (paras 24-25), as well as providing rightholders with a fair compensation (para 26);
·    Such compensation is intended to indemnify rightholders for the harm suffered as a consequence of the establishment of the private copying exception; precisely, the principle of “fair balance” between right-holders and users of protected works requires that such compensation must be calculated based on such harm (paras 26-29);
·    Member States have a wide margin of discretion to determine who has to pay the fair compensation and how, as well as details and level of such compensation. In any case, fair compensation must be based on the harm caused by use of the works, and comply with the limits posed by EU law, including the three-step test and the principle of equal treatment as per Article 20 of the Charter of Fundamental Rights. Moreover, the parameters of the fair compensation have to be set in a coherent manner.

A levy on phone memory cards?

Following these preliminary observations, the first question that the AG addressed (paras 33-39) was whether a copyright levy may be imposed, in principle, on devices such as phone memory cards whose primary function is not to make private copies, but nonetheless are capable of making such copies. 

Having recalled the Padawan decision, the AG concluded that, in principle, levies can be imposed also on devices like phone memory cards provided that there is a link between the application of the levy and use of those devices for private copying. Such use may be presumed when reproduction devices are made available to natural persons acting for private purposes, but not otherwise.

However, this conclusion should not be interpreted to mean that mere suitability for reproduction is sufficient to place a levy upon a device to compensate for any “potential harm” it might cause, as such presumption was subsequently blended when dealing with the next question about the conformity of Danish levy system with EU law.

Danish levy system

Danish system imposes levies on phone memory cards but not on built-in memories of devices such as iPods and MP3 players that are designed and primarily used for private copying. 

The AG concluded that Member States may exclude reproduction devices from payment of levies when an objective justification exists. This justification may consist (and in my view usually does exist) where the likely and actual use for private copying will be low and therefore logically any harm caused will be insignificant as determined under a statistical assessment. 

Moreover the objective justification to exclude levies on devices may also be found within the particularities of the device itself or the practical aspects of the compensation scheme, or further if such devices operate with or in connection with other devices which are already subject to such compensation.  

Lastly and very importantly, there could be also an objective justification if it is difficult or impossible to distinguish between devices used for private or professional purposes. As the AG noted under the application of the Padawan jurisprudence, it is forbidden to impose an indiscriminate application of levies and payment is authorised only on devices made available to natural persons for private purposes (paras 47-49). However, whilst those criteria may apply for devices such as PCs, they do not seem likely to apply to devices such as MP3 players and iPods that are specifically designed and primarily or exclusively used for private reproduction purposes. Moreover, a generic differentiation on payment of compensation based exclusively on whether recordable memory is built-in or removable is against the InfoSoc Directive (paras 50–53).

Double payment? Nice try!
Additional levies in connection with online services

Next, the AG dealt with the critical and controversial issue of whether additional compensation may be sought by means of levies in connection with legitimate online business models, where rightholders have already received direct or indirect compensation in the form of a licence. 

By relying on Recitals 35 and 48 of the InfoSoc Directive, plus the principle that fair balance and adequate correlation must exist between the harm caused and the amount of compensation, the AG concluded that this piece of EU legislation precludes the application of additional levies to reproductions authorised by rightholders which have already resulted in payment of a fee or another form of compensation. 

Practical difficulties which may exist for the application of such exemption, especially if levies are paid at the manufacturer level, cannot justify a double payment under any circumstances. This means that natural persons who have overcompensated rightholders should have the possibility to obtain a refund (paras 57-68) in an easy and effective way.

Technological protection measures and levies

The AG then dealt with the impact that effective technological measures (TPMs) have on the compensation. He mainly relied on VG Wort to conclude that availability and/or application of TPMs does not preclude the right to receive fair compensation, but may nonetheless have an impact on the level of such compensation (paras 69-80). 

In my view, there is a gap in this assessment, because the VG Wort case dealt only with the issue of whether the mere availability of TPMs which were not voluntarily implemented by rightholders may prevent them from receiving fair compensation. A different situation exists when TPMs are effectively applied by rightholders either to prevent reproduction (and no copying means no compensation, and attempts and actions to circumvent TPMs will be illicit and not subject to fair compensation either) or authorise and limit the number of copies that can be made (licensed copies mean minimal or no harm). Therefore, a distinction should be made between the case when TPMs are effectively applied and when they are merely available but not applied by rightholders.

Illegal copies and fair compensation

Subsequently, the AG considered the impact on the validity or otherwise of the level of compensation arising from the making of copies from an illegal, legal, or third-party-owned source. He referred to the recent ACI Adam judgment [on which see here and here], where the Court followed his recommendation [that indeed still happens, from time to time] and concluded that copying from illicit copies cannot be subject to fair compensation. 

The AG also found that a sensu contrario interpretation is not possible either, and that private copying from legal sources must not necessarily result in the payment of fair compensation. Rather an additional and prior harm assessment must be made. 

The particular circumstances of the case must be also taken into account when assessing whether fair compensation is payable for copying from third-party owned sources, as an individual copy of a CD cannot be assimilated to a massive copying of files contained in a borrowed device. Article 5(5) of the InfoSoc Directive is especially relevant to such assessment (paras 81-96).

Suarez's suggested defence:
it was de minimis harm!
De minimis harm

After this, the AG briefly analysed the so-called “de minimis” rule provided in the last sentence of Recital 35 of the InfoSoc Directive, and concluded that Member States have a wide margin of appreciation when implementing such rule in order to exclude from or subject to fair compensation those situations where harm is minimal (paras 97-101) [this bit of the Opinion is crucial, particularly in the context of current UK debate about proposed private copying exception, on which see the recently released take of UK-based IP professors here]

My opinion is that such conclusion may eventually (almost inevitably) result in an incoherent application of the exception at the level of Member States, and undermine the goal of ensuring a smooth functioning of the internal market (Recitals 7, 31 and 32 of the Directive). Therefore, whether this goal is compromised or not should become the threshold to limit the wide discretion of Member States. It is worth remembering also the applicability of the principle of proportionality, which requires that disadvantages caused must not be disproportionate to the aims pursued. Consequently it would require a holistic analysis of the implications of requesting compensation where harm from copying is minimal (eg reproductions for time-shifting, as specifically provided in the Commission statements on Recitals 35 and 50 when the Council Common Position on the Directive was adopted) and consider in particular the distortions that may result for internal market from subjecting to burdensome levy schemes situations where harm is minimal.

Also Benny is all for balance
At what point the levy is imposed

Finally, AG analysed the implications of a levy scheme which is applied at the manufacturer or importer level when these parties in the supply chain do not sell directly to end-users but through distributors, and consequently are not in a position to identify if those finally acquiring phone memory cards are private or professional users. 

The AG recalled that the principle of fair balance requires that a close link must exist between payment of the levy and its use for private copying and that a levy scheme charged at manufacturer/importer level which does not consider the condition of the end-users that then purchase the devices or the use made of those devices, is not in conformity with Article 5(2)b of the InfoSoc Directive. However, such a levy system may potentially conform to the Directive but only if manufacturers/importers (i) may effectively pass the levy onto natural persons who make the private copies or (ii) can get a refund when devices are acquired for ends manifestly different than private copying (paras 102-112), for instance when purchased by subjects other than natural persons acting for private purposes (para 109).

Unfortunately, given that the decision of the referring court did not detail the circumstances under which Danish law exonerates or secures a refund of levies, the AG did not elaborate on the preference of an “ex-ante” exoneration system over an “ex-post” refund system (as results from Amazon judgment, paras 35-36), and does not refer either to the recommendation raised by Mediator Vitorino of shifting the obligation to pay the levies to the last point of sale, who is in direct contact with the end-user customer and has the ability to filter between business users and consumers efficiently and effectively to apply the Padawan  jurisprudence.

In conclusion

Overall, AG Cruz Villalón thoughtfully analysed the role and challenges of copyright law in the Information Society, as it was recently evidenced in ACI Adam and UPC Telekabel, where the Court followed his observations. Let’s stay tuned for the judgment of the Court after the summer break.”

Thanks so much Javier for this detailed and very helpful note!

1 comment:

Anonymous said...

You almost got there a monorail cat!

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