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CJEU: private copying levies cannot be replaced with funding through general taxation

Posted by Sam Frances on Tuesday, June 14th, 2016 at 12:19

Private copying levies cannot be replaced by “fair compensation” to rightsholders through general taxation. This is the ruling of the Court of Justice of the European Union (CJEU) in a case referred by the Spanish Supreme Court to determine the compatibility of Spanish law with the EU rules on private copying.

Article 5(2)(b) of Directive 2001/29 [the InfoSoc Directive] must be interpreted as precluding a scheme for fair compensation for private copying which, like the one at issue in the main proceedings, is 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.

“Fair compensation” for private copying

The InfoSoc Directive allows EU Member States to establish a “private copying” exemption to the exclusive rights of copyright holders, allowing natural persons (i.e. not corporate entities) to make copies for private and non-commercial use.

However, the Directive requires that rightsholders receive “fair compensation”, an obligation which many EU Member States discharge by placing a levy on blank media (CDs, hard drives, etc.), and in some cases certain copying devices. These levies are usually administered and collected by national collecting societies, who are tasked with distributing the proceeds to rightsholders.

Since 2012, Spain has compensated rightsholders from general taxation rather than a levy. But in 2013, a group of collecting societies sought to have this system annulled in the Spanish courts. The Spanish Tribunal Supremo then referred the case to the CJEU, asking for a ruling on two 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, 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?’

Rightsholder reasoning

Why have the Spanish collecting societies sought to challenge the decision to compensate rightsholders out of general taxation, rather than by levy? Rightsholders are compensated either way, so why quibble over the details of how the money is collected?

The argument put forward by the collecting societies amounts to this: Private copying exemptions apply to individuals (“natural persons”), as opposed to corporate entities. It is “the natural persons at the origin of the harm to their exclusive right of reproduction” who should be required to compensate rightsholders. Compensation out general taxation means that the cost is shared both by individuals who don’t make private copies, and by corporations, which don’t enjoy a private copying exemption – both of which have to pay taxes but, it is argued, would not have to pay a blank media levy. (The case of individuals who use blank media but don’t make private copies of copyrighted works doesn’t feature in this argument).

Though they don’t feature in the collecting societies’ arguments, there are at least two additional reasons that collecting societies might prefer a blank media levy to subsidy from general taxation.

Firstly, when compensation has to be paid out of the State budget, there may be political pressure to reduce the amount of money allocated to rightsholders in favour of other projects which are deemed more important or more popular, especially at a time when many EU Member States are grappling with severe budgetary constraints.

Secondly, compensation from general taxation means a diminished role for collecting societies in collecting and administering rightsholder compensation. In Spain prior to 2012, levy debtors had to declare their sales each quarter, and collecting societies were involved in making market surveys to identify non-payers, and auditing manufacturers to make sure they were declaring correctly. Such functions, albeit costly, generate revenue, and give the appearance of value created by the collecting society, while a straightforward government subsidy is more obviously the product of political largesse.

The judgement

In its judgement, the CJEU notes that Member States “enjoy broad discretion” in determining “the persons who have to pay that fair compensation, and to determine the form, detailed arrangements and level thereof”. Therefore, the InfoSoc Directive “cannot be regarded as precluding, in principle, ... a fair compensation scheme financed not by such a levy, but by their General State Budget”. However:

27. … it is for 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, to make good that harm by financing the fair compensation provided for that purpose.

Therefore, the Court ultimately sides with the collecting societies in concluding that, since the Spanish system does nothing to ensure that the costs are borne by the individual users of private copies, it is incompatible with the InfoSoc Directive.

Nevertheless, the ruling is not a complete victory for the collecting societies, since it would in principle be possible to compensate rightsholders out of state funds while crafting a tax regime which means that the cost of this compensation is borne by the users of private copies.

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