A landmark decision from the CJEU on private copying levies? Case C-463/12 Copydan Båndkopi

This morning the Court of Justice of the European Union (CJEU) issued its decision in Case C-463/12 Copydan Båndkopi, a reference for a preliminary ruling from Denmark, seeking clarification on key questions relating to the so-called ‘private copying’ exception under Article 5(2)(b) of the Information Society Directive 2001/29. [For those seeking a high-level refresher on this copyright exception, see yesterday’s Katpost here]

In reaching its decision, the CJEU has certainly taken its time: almost 9 months have passed since Advocate-General Villalón’s Opinion of 18 June [finally now available in English here]. It is a lengthy decision (almost 100 paragraphs) covering a wide range of vexing issues relating to the private copying exception, with the CJEU handing down eight rulings in response to the six lengthy questions referred to it [For an overview of the CJEU preliminary reference procedure, see previous Katpost here].

Having had an initial read of the Rulings and the preceding explanatory paragraphs, this Kat has sought in this post to summarise (and to some extent, paraphrase the often inaccessible CJEU language) to draw out the key issues before the CJEU and their responses. Copydan is likely to give our readers plenty to chew on and is ripe for further detailed analysis - but for now, here is a high-level overview of this important decision.

Key factual background 

• Finland-based Nokia sold mobile phones to business customers in Denmark, who resold them to both individuals and business customers.
• Whilst all Nokia phones have an internal memory (i.e. the storage device is non-detachable), certain models have an additional memory card (i.e. which is detachable). 
• On these detachable memory cards, users could store data (e.g. contact details, photographs) as well as files containing audiovisual works (e.g. music, films which may have been downloaded from the web or from DVDs, CDs, MP3 players etc). 
• In this regard, these memory cards are “multifunctional media” with the capacity to be used for private copying (in relation to the audiovisual files), as well as for uses unrelated to private copying (e.g. storing personal data). 
• Nokia disputed its liability to pay a private copying levy to the Danish collecting society, Copydan Båndkopi, in relation to the detachable memory cards that were imported into Denmark for use in its mobile phones between 2004 and 2009. 

As is now customary, the CJEU ‘re-organised’ the six referred questions and answered all of them (except one) in its eight Rulings, as summarised below:

Multifunctional media (Question 4 / Ruling 1)

Q: In relation to multifunctional media (e.g. a memory card capable of being used for both private copying and unrelated purposes), to what extent does its function affect the requirement to pay fair compensation?

CJEU's response: 

• Article 5(2)(b) permits national legislation to require fair compensation to be paid in principle where at least one of the functions of the media enables the operator to use them for private copying purposes – even where that is merely an ancillary function. [This is because, as indicated in Case C-467/08 Padawan, final users are deemed to take full advantage of all the functions provided by the medium – and there is no requirement to show that private copies are actually made.]

•  The amount of fair compensation payable is liable to be affected by:

• whether its function to enable private copying is a main or an ancillary one; [which presumably would be a question of fact for the national court in each case] and

• the relative importance of the medium’s capacity to make copies.

•  Where prejudice to the rights holder is “minimal” [on which, see Ruling 4 below], the making available of such a function need not give rise to an obligation to pay fair compensation.

Minimal or de minimis harm (Question 3 / Ruling 4)

[As a quick reminder to readers: although one of the conditions under the private copying exception is that rights holders receive “fair compensation”, recital (35) of InfoSoc provides that “in circumstances where the prejudice to the rightholder would be minimal, no obligation for payment may arise”.]

Q. At what point is harm considered sufficiently minimal (or de minimis) such that fair compensation is not required to be paid?

CJEU’s response: 

• Just as Member States have the discretion to decide whether or not to adopt the private copying exception into their national law, they also have the discretion to decide where the threshold lies below which prejudice or harm might be classified as “minimal” for the purposes of recital (35). [A classic CJEU gloss over?] 

• However, Member States must apply the threshold in a manner which is consistent with the principle of equal treatment. [i.e. comparable situations must not be treated differently and different situations must not be treated in the same way unless such treatment is objectively justified.]

[The concept of de minimis harm is of particular significance to the UK, where the private copying exception recently came into force via The Copyright and Rights in Performances (Personal Copies for Private Use) Regulations 2014 (SI 2014/2361).

The UK government’s implementation of the private copying exception is currently being challenged due to its failure to provide for a private copying levy in the implementing regulations. In a judicial review claim filed in late November last year, the claimants (BASCA, the Musicians’ Union and UK Music) claim that, in failing to make any provision for compensation, the UK government acted contrary to EU law such that the implementing regulations as a whole are ultra vires (i.e. invalid) and liable to be quashed. 

It is a little disappointing in this Kat’s view that the CJEU did not use this opportunity to provide more meaningful guidance on what constitutes de minimis harm, over and above highlighting the importance of the principle of equal treatment.]

Detachable vs. Non-Detachable Integrated Media (Question 5 / Ruling 2)

Q. Is it permissible for national legislation to distinguish between detachable and non-detachable integrated media in determining the application of the levy system?

CJEU's response: 

• Yes – but only where in making that distinction, the national legislation is consistent with the principle of equal treatment.

• It is for the national court to decide whether the detachable and non-detachable media in question are comparable. If they are comparable, their different treatment must be objectively justified. Such objective justification might arise, for instance, in respect of the non-detachable integrated components where rights holders receive fair compensation “in another form” [an example of which might be downloading music from lawful sources such as iTunes onto your smartphone, where fair compensation is provided via the licence fee].

[This ruling is likely to be of particular interest to the smartphone industry (amongst others), where the recent design trend (e.g. iPhones and Samsung’s Galaxy S6) appears to be towards integrated storage only]  

The relevance of technological protection mechanisms (Question 1(c), (d) and 2; Ruling 6)

Q. What effect, if any, does the implementation of technological protection measures (TPMs) on relevant media have on the requirement to pay fair compensation?

CJEU’s response: 

• Even where it is possible to implement TPMs on relevant media to reduce the risk of unauthorised copying, this does not affect the requirement to pay fair compensation in principle. [The CJEU followed its previous reasoning in Case C-457/11 VG Wort (see previous Katpost here) in reaching this conclusion]

• However, Member States have the discretion to consider whether such TPMs are being applied when calculating the actual level of compensation owed to rights holders. [The underlying rationale was to encourage the rights holder to make use of TPMs and “thereby voluntarily contribute to the proper application of the private copying exception” ([72]) – although whether this is practicable at a commercial level is an entirely separate matter...]

Rights holder’s consent for private copying uses (Question 1(a)-(b); Ruling 5)

Q. Where the rights holder gives their consent to the use of their work for private copying purposes, what effect, if any, does this have on the requirement to pay fair compensation?

CJEU’s response: Such consent or authorisation has no bearing on whether fair compensation is owed [following its approach in Case C-457/11 VG Wort]

Knowledge of the end-user: individuals or business customers? (Question 6 / Ruling 3)

[Essentially, when Nokia sold its memory cards to business customers in Denmark, it did not know whether the ultimate users of those memory cards would be individuals or business customers. The Danish levy system provides an exemption from paying the levy where the memory cards were sold to businesses customers who were registered with the organisation responsible for collecting the levy (the “Exemption”)] 

Q. Is it permissible for national legislation to have a levy system which requires producers / importers of memory cards to pay a levy in respect of memory cards sold to business resellers where the producer / importer does not know whether the final purchasers of those cards are individuals (who might use it for private copying purposes) or business customers?

Is the answer to that question affected by:

a) the existence of the Exemption; or

b) the producer / importer being able to obtain a reimbursement of that levy if the memory card is used for business purposes (i.e. not for private copying) given that in practice, only the end-user is able to apply to the levy organisation to obtain a reimbursement?

CJEU's response:

It is permissible for national legislation to have such a levy system in place (as explained in the question above) provided that: 

• it is justified by “practical difficulties” [e.g. in identifying the final users of the memory card and requiring them to compensate rights holders for the harm caused by private copying – see further Case C-521/11 Amazon, in particular at [24], [31]-[35] (see here)];

• the producers / importers responsible for paying the levy are exempted if they can establish that the memory card was provided to “persons other than natural persons” (i.e. business customers) for purposes unrelated to private copying;

• that exemption should not be restricted solely to those business customers who are registered with the organisation responsible for administering the levy;

• the system provides for a right to reimbursement of that levy which is effective and does not make it excessively difficult to repay the levy; 

• only the final purchaser of the memory card may obtain reimbursement by submitting an appropriate application to that levy organisation.

Copies via third party devices (Question 1(e); Ruling 7)

Q. Is it permissible for fair compensation to be provided in relation to copies of works made by an individual “by or with the aid of a device belonging to a third party”?

CJEU's response with somewhat questionable analysis: 

• Article 5(2)(b) indicates that the private copying exception is applicable to “reproductions on any medium”, but it does not contain any reference to the legal nature of the connection (e.g. a right in property) between the person making the copy and the device used by that person to do so.

• The absence of any such reference indicates that “the EU legislature did not consider [the legal relationship between the person making the private copy and the device used to make that copy] to be relevant, in the light of the objective which it pursued by its measure of partial harmonisation.”

• “It follows that the question whether the device used by a private individual to make copies for private use must belong to that person or whether it may belong to a third party falls outside the scope of Article 5(2)(b)”

• “In the light of the foregoing, the answer to question 1(e) is that Directive 2001/29 does not preclude national legislation which provides for fair compensation in respect of reproductions of protected works made by a natural person by or with the aid of a device which belongs to a third party.”

Copies made from unlawful sources (Question 1(f) / Ruling 7)

Q. Is it permissible for national legislation to provide for fair compensation in respect of reproductions made using unlawful sources – i.e. where the work has been made available to the public without authorisation?

CJEU’s response:

• In order to strike a fair balance between the interests of rights holders and users, a private copying levy system must distinguish between copies made from lawful and unlawful sources.

• In light of this, fair compensation is not required to be paid in respect of reproductions made from unlawful sources, that is where works are made available to the public with the rights holder’s consent. [This is not a surprising outcome, given the CJEU’s previous approach in C-435/12 ACI Adam (see here and here).]

The Danish court had also asked the CJEU at Question 1(g) to consider whether fair compensation should be provided in respect of “files copied lawfully by some other means from, for example, the internet (from lawful sources where no licence has been granted)”. In response, the CJEU appears to have run out of steam and decided that the referring court had failed to provide sufficient factual or legal material necessary to enable it to give a “useful answer” – and thus rejected the question as inadmissible.

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There is plenty of scope for more detailed analysis on today’s judgment, but for now, this hopefully provides readers with an overview of the key issues.