CJEU rules on state-financed private copying compensation scheme
Private copying and compensation schemes continue to be a hot topic in Europe (amidst the EU Referendum and Euro 2016!) and the latest case brought by various collecting societies (EGEDA and others) has looked at whether it is in line with EU law for rightsholders to receive compensation for private copying of their works through a 'General State Budget' (i.e. a pool of money funded by tax payers, whether or not they avail themselves of the private copying exception).
While some Member States finance their compensation scheme for private copying by way of levies e.g. on electronic equipment/devices, Spain decided in 2011 to replace its digital levy scheme with a fair compensation scheme financed from the General State Budget. Spanish copyright collecting societies have contested this and claim that this state budget scheme is incompatible with EU law.
The CJEU ruled that while those Members States which have introduced a private copying exception are allowed to finance it from their state budget, such a scheme will not be compatible with EU law if it does not guarantee that the cost of fair compensation for private copies made is ultimately borne by the users of private copies.
The law
To re-cap, Article 5(2)(b) of the Copyright Directive (2001/29/EC) provides for copyright holders to receive 'fair compensation' for any harm caused by the private copying of their protected works by third parties. Given the provision is merely optional and the Directive does not provide any further details concerning the various parameters of the fair compensation scheme that it requires to be established, Member States are left with a broad discretion as to how they compensate rightsholders for any harm done. In particular, it is up to Member States to determine who pays that fair compensation, and to determine the form, detailed arrangements and level etc.
Questions referred
The Tribunal Supremo (Spanish Supreme Court) referred the following questions to the CJEU:
- Is a scheme for fair compensation for private copying compatible with EU law 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 actual users of private copies?
- If the first question is answered in the affirmative, is the scheme compatible with EU law 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 ruling and reasoning
Taking into account the broad discretion, and looking back at the case-law that has been developed in relation to fair compensation schemes by way of a levy (e.g. on electronic devices), the Copyright Directive cannot be regarded as disallowing Member States which have decided to introduce the private copying exception from choosing a fair compensation scheme financed by their General State Budget, rather than by such a levy. The Court emphasised that even though the most commonly chosen scheme for financing compensation has, so far, been by way of a levy, that was not the only compensatory method envisaged under the Directive. The Directive did not, in principle, disallow Member States with private copying exceptions, from opting to finance it through their state budget (which was a solution already adopted in Estonia, Finland and Norway).
However, the Court went on to say that the private copying exception is intended exclusively for 'natural persons who make, or have the capacity to make, reproductions of protected works or subject matter for private use and for non-commercial ends'. They are the people who cause the harm to the rightsholder when they reproduce protected works without authorisation, and who should, in return, finance the fair compensation due to that rightsholder. Legal persons, on the other hand, are excluded from benefitting from that exception and should not therefore ultimately bear those costs.
Although Member States are free to establish a scheme where 'legal persons' can finance the fair compensation under certain conditions and for practical reasons, those legal persons should not be ultimately liable for the payment. That requirement applies in all cases where a private compensation scheme has been introduced, whether by way of levy or by budget.
In this case, the CJEU agreed with the Tribunal Supremo's analysis in the order for reference that this scheme for financing the fair compensation from the Spanish State Budget did not guarantee that the compensatory cost was ultimately borne solely by the users of private copies. There was no definite allocation of revenue (such as revenue from a specific levy) to particular expenditure, which meant that the budgetary item intended for the fair compensation payment had to be considered as being financed from all the budget resources within the state budget and as such, from all tax payers including 'legal persons'.
Comment
This recent ruling means that whilst Member States with a private copying exception are within their rights under EU law to implement a compensation scheme funded by a central state budget, they can only do so provided they ensure that the cost is borne by users of private copies. The ruling does not clarify, however, whether all of the costs must be borne by such users or whether legal entities can in some way contribute to those costs.
While this case is interesting in its analysis of the types of fair compensation schemes allowed under the Directive, it is still largely only of academic interest in the UK given that we, together with Ireland, are the only members states not to have a private copying exception with a compensation scheme. It will no doubt become much more relevant (as well as the Belgian case of Reprobel and the pending Nokia Italia) should the UK Government decide to re-introduce a private copying exception (click here for our blog on the previous quashing), coupled with a compensation scheme. The Government, however, currently has more important things to worry about for the foreseeable future.....