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;

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(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

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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 …