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Thursday, 9 June 2016

BREAKING: CJEU says that fair compensation for private copying cannot be funded through general state budget

Can the 'fair compensation' for private copying pursuant to Article 5(2)(b) of the InfoSoc Directive be funded through a Member State's general state budget?

This is in a nutshell the issue that the Court of Justice of the European Union (CJEU) had been asked to consider in EGEDA, C-470/14, a reference for a preliminary ruling from the Spanish Supreme Court seeking clarification about the compatibility of Spanish law on private copying with EU law.

More specifically, the Spanish court had referred the following questions:

"(1) Is a scheme for fair compensation for private copying compatible with Article 5(2)(b) of Directive 2001/29 [the InfoSoc Directive] where the scheme, while taking as a basis an estimate of the harm actually caused, is financed from the General State Budget [as is the case in Spain, but also Norway, Estonia, and Finland], it thus not being possible to ensure that the cost of that compensation is borne by the users of private copies?

(2) If the first question is answered in the affirmative, is the scheme compatible with Article 5(2)(b) of Directive 2001/29 where the total amount allocated by the General State Budget to fair compensation for private copying, although it is calculated on the basis of the harm actually caused, has to be set within the budgetary limits established for each financial year?"

The AG Opinion

Readers may remember that back in January in his Opinion [still unavailable in English, but noted here] Advocate General (AG) Szpunar held the view that a system like the Spanish one would not be necessarily incompatible with EU law. The reason for this would be three-fold:

(1) The InfoSoc Directive says who the beneficiaries of the fair compensation are [this was indeed addressed in Reprobel, noted here]but is silent as regards how fair compensation should be funded;

Alternative proposals on
taxable items
(2) Previous CJEU case law, including the judgment in Padawan, cannot be read in the sense of considering fair compensation funded through a state budget incompatible with the InfoSoc Directive;

(3) Technological evolution is such that discourse around fair compensation for private copying should not crystallised around the topic of levies.

Today's judgment

This morning the CJEU delivered its judgment, substantially departing from the AG Opinion.

The CJEU noted at the outset that - further to Recitals 35 and 38 in the preamble to the InfoSoc Directive - the possibility for Member States to introduce a private copying exception is linked to the contextual introduction of a fair compensation scheme. This is "triggered by the existence of harm caused to rightholders, which gives rise, in principle, to the obligation to ‘compensate’ them" [para 19]. Furthermore the provision of a fair compensation scheme imposes on Member States an obligation to achieve a certain result, ie to guarantee "the actual recovery of the fair compensation intended to compensate the rightholders" [para 21]

This said, the Court conceded that the InfoSoc Directive leaves Member States with a significant discretion regarding how this result is to be achieved [para 22], including determining who has to pay that fair compensation, in what form, in what amount, etc [para 23].

The CJEU noted that nothing in the InfoSoc Directive precludes, in principle, the
Reassuring postcard
from Luxembourg
establishment of a fair compensation scheme financed by the general state budget of a Member State in lieu of a levy system 
[para 24]. However, it is ultimately the persons who reproduce the protected works or subject matter without the prior authorisation of the rightholder concerned, and who therefore cause harm to them, who have to make good that harm by financing the fair compensation provided for that purpose [para 27].

This would not be the case of a scheme – like the Spanish one - financed by the generality of taxpayers [para 39]. Indeed, "such a scheme for financing the fair compensation from the General State Budget of the Member State concerned is not such as to guarantee that the cost of that compensation is ultimately borne solely by the users of private copies." [para 41]

The Court concluded that Article 5(2)(b) of the InfoSoc Directive precludes a  fair compensation scheme financed from the general state budget in such a way that it is not possible to ensure that the cost of that compensation is borne by the users of private copies.
Conclusion
The outcome of this case is not particularly surprising. However what may be interesting to consider is that - contrary to heterogeneous national practices - Article 5(2)(b) of the InfoSoc Directive as interpreted by the CJEU in recent times leaves Member States with a freedom that, although broad, is not limitless.
From a statistic standpoint, this is the second time in a few months' time that the CJEU has quashed national laws on private copying. Today was the turn of Spain; back in November (with the Reprobel decision) it had been the case of Belgium. Who's next?
Perhaps Italy, pending the Nokia Italia reference …

7 comments:

The Cat that Walks by Himself said...

Maybe not entirely in the context of this particular ruling,

recently we start to hear suggestions on introducing a State tax for certain types of Internet activities and possible State subsidies/compensations to owners of copyright protected works.

With that, I start wondering about two things. First, why would a State impose a tax for something it does not own or otherwise participate in, such as private copyright. And second, why those who could make money on their own, from their works, should seek compensations or subsidies from a State.

Anonymous said...

Great post Eleonora!

Anonymous said...

The UK's "orphan works" scheme relates to payment for use of copyright works that the UK government does not own, but participation is not compulsory. I am not clear what is to happen to the funds that the orphan works scheme holds if (as seems likely) the owners of the orphan works never claim them, but I wold be surprised if the government didn't find some way of appropriating them.

Anonymous said...

One is left with the conclusion that CJEU must be trying to push the whole interpretation of this clause to the point where all sane implementations are precluded, so the whole concept has to be rewritten or abandoned.

(in common with various other recent CJEU decisions?)

Most blank media is not used for private copying. But apparently it's okay to put a levy on all blank media purchases.

Most citizens may not be private copying. But apparently it's not okay to put a levy on all citizens (ie use general taxation) -- even if this would be much more efficient, and less distortive.

Anonymous said...

"[S]uch a scheme for financing the fair compensation from the General State Budget of the Member State concerned is not such as to guarantee that the cost of that compensation is ultimately borne solely by the users of private copies."

Can not the same be said about blank media levies, which have substantial non-infringing uses?

The Cat that Walks by Himself said...

RE: But apparently it's not okay to put a levy on all citizens (ie use general taxation) -- even if this would be much more efficient, and less distortive.

A State would be an intermediary between two market players: copyright owners and users of those protected works. The use of intermediary increases the distance between the actual market players, which means the increase of the distance between the work and its value/reasonable remuneration. It brings more regulation into the market, whether it would also bring efficiency for any/all/some parties is not so obvious. Therefore, a tax does not seem to be a first-choice solution.

The situation is, of course, different with "orphan works", where one of two market participants is not known/uncontactable and a State acts as representative, not as intermediary.

Anonymous said...

Matt:

It's probably a "tax on knowledge" issue thing. Europe has had a long history of censorship based on copyright since the 19th Century. The court probably wanted to evade a scheme that reintroduce that sort of notorious arrangement into European practice again.

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