Vienna Commercial Court quashes Austrian law on private copying levies

Is there any topic in the copyright world that is more appealing and exciting than private copying and related levies? Following Eleonora's post earlier this week on the recent Opinion of the European Copyright Society in a reference for a preliminary ruling currently pending before the Court of Justice of the European Union (CJEU), this being HP Belgium v Reprobel, today the IPKat is delighted to host a guest contribution by Dr Ulrich Börger (Harte-Bavendamm) on a recent Austrian case on the very topic of levies, in which he acted for one of the parties to the proceedings .

Here's what Ulrich writes:

"The Commercial Court in Vienna rendered a ruling [only available in German] on 26 August 2015, in which it dismissed all claims by Austrian collection society Austro Mechana against Amazon for payment of copyright levies. 

Austro Mechana initiated the proceedings against a number of Amazon entities in October 2007. The main request of Austro Mechana was to oblige Amazon to pay copyright levies for all storage devices sold to customers in Austria. Austro Mechana also filed an information request regarding the quantity and type of storage devices sold to customers in Austria. 

Amazon lost at both first instance and in appeal. After that, as suggested by Amazon, the Austrian Supreme Court submitted a request for a preliminary ruling to the CJEU (September 2011). Amazon had argued that the Austrian law on copyright levies and the procedures implemented by Austro Mechana for the collection of copyright levies complied with neither the InfoSoc Directive nor the jurisprudence of the CJEU. 

The ruling rendered by the CJEU in 2013 was largely in favour of Amazon and the guidance provided on the interpretation of the InfoSoc Directive strengthened our argument according to which Austrian law on copyright levies and the mechanisms introduced by Austro Mechana for the distribution of the levies were in violation of EU law principles. 

After that, the Austrian Supreme Court annulled all prior rulings against Amazon with a decision rendered in October 2013 and sent the entire case back to the Vienna  Commercial Court for further deliberation and fact-finding.  On the basis of the evidence collected and taking into consideration the guidance from the CJEU the court concluded the following:

(1) No sufficient reimbursement right 

Under the InfoSoc Directive national laws can only provide for payment of a private copying levy by natural (private) persons and businesses if there is also a right to reimbursement of the levies paid in the event that the final use of the storage devices is not for private copying. In other words: It is only permissible for national laws to request payment of the private copying levy from private persons and businesses provided there is a right to reimbursement for all those who use storage devices for other purposes than private copying. The right to reimbursement must be “effective” and may not “make repayment of the levies paid excessively difficult”. 

The Commercial Court concluded that the Austrian system of copyright levies "[did] not fulfil the requirements stipulated by the CJEU.” 

On the basis of the evidence presented by Amazon the court ruled that the Austrian levy system was “not suitable to equalise imbalances caused by the indiscriminate application of the levy”. In addition the right to reimbursement as provided for by Austrian law was unknown to most market participants in Austria and therefore was clearly not “effective”. 

Private purchasers of storage devices were completely excluded from any reimbursement right even though there may be many cases where a natural person does not use storage devices for private copying (but for storage of other personal data, e.g. pictures etc.) 

The Commercial Court thus concluded that the rights to reimbursement and to a prior exemption as provided for under Austrian law did not fulfil the criteria set by the CJEU;  they were not “effective” and it made repayment of levies “excessively difficult”.

(2) No distinction between lawful and unlawful sources for private copying 

The Commercial Court also referred to the CJEU ruling from in ACI Adam [Katposts here and here], in which it held that national laws on copyright levies are in violation of the InfoSoc Directive if they do “not distinguish the situation in which the source from which a reproduction of private use is made is lawful from that in which that source is unlawful.” 

The Commercial Court followed our line of argument and it took the view that Austrian law did not sufficiently distinguish between “lawful” and “unlawful” sources used for private copying.
It followed that Austrian law was in breach of the InfoSoc Directive also in this respect. 

(3) Distribution of copyright levies to various institutions 

Under Austrian law 50% of all levies collected used not be distributed directly to rightholders (musicians, authors, composers etc.) but rather to “social and cultural institutions” that would use them for various purposes and not directly for the benefit of rightholders.

The CJEU had ruled that such distribution scheme could only be considered compliant with the InfoSoc Directive “provided that those social and cultural establishments actually benefit those entitled (i.e the rightholders) and the detailed arrangements for the operation of such establishments are not discriminatory, which is for the national court to verify.”

Based on the evidence we presented the Commercial Court concluded that since 1980 it was the very purpose of the distribution scheme to prevent levies from being paid out to recipients outside Austria; this was considered discriminatory.

The aim of the distribution scheme was only to support “native Austrian artists” and the “Austrian music life”; again, this was considered discriminatory. 

The Commercial Court also concluded that non-Austian rightholders or rightholders from countries outside Austria were discouraged from even making a request to be included in the distribution of levies. 

We were also able to demonstrate that the levies paid to the social institutions were used “de facto exclusively for people with Austrian nationality or a residence in Austria”; again a discrimination under EU law principles.

Effective distribution of royalties in practice

Impact on other proceedings: ZPÜ 

The findings and conclusions of the Vienna Commercial Court are likely to influence proceedings pending in other courts initiated by other collection society like the German ZPÜ. 

n fact fairly similar and use more or less the same concepts. German law has the same deficiencies as Austrian law. There is no statutory reimbursement claim at all under German law. It is interesting to note that there is at least some form of reimbursement right under Austrian law; however, it was considered to be not "effective” and therefore in violation of the InfoSoc Directive. 

With respect to Germany the argument may be even stronger, as there is no statutory reimbursement right of any kind the German copyright statute. ZPÜ has only recently decided to grant a reimbursement as an act of "mercy” in very limited cases and only with respect to PCs and certain types of purchasers. Hence, argument according to which German copyright law is violation of the InfoSoc Directive should be even stronger in cases against ZPÜ. 

The same is true in respect of the argument according to which national laws must sufficiently distinguish between “lawful” and “unlawful” sources used for private copying. German law only excludes “clearly unlawful” sources from the copyright levy. As a consequence, there will always be a vast number of unlawful sources used for private copying which are not “clearly” unlawful but should be nonetheless excluded from the copyright levy . Such distinction is not sufficiently made under German law. 

As regards the distribution of 50% of the levies to social and cultural institutions the situation is somewhat different in Germany. ZPÜ and its members (other collection societies) are very secretive about the distribution as there is hardly any publicly available information on how levies are being distributed and to whom. Still, under the CJEU ruling and the Vienna ruling it is perfectly clear that the levies must benefit the rightholders without any discrimination. 

Repayment of levies paid in the past without due legal basis 

The ruling of the Commercial Court of course also raises the question whether dealers, manufacturers or importers may have a claim for repayment of the levies on the principles of unfair enrichment. If such requests would to be made, they might well jeopardise the very existence of Austro Mechana."