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The European Court of Justice Rules on Copyright Levies

I am a little late with this comment on the ECJ’s decision released two weeks ago that tackles issues of copyright levies in Europe. In a nutshell, the idea behind copyright levies is to compensate rights holders (via collection societies) for activities roughly described as “private copying” by imposing charges on media and equipment that enable such activities.

The mechanism has been around for several decades in Europe – long before the 2001 E.U. Copyright Directive introduced its mandatory exceptions’ framework. Article 2 of the Directive secures a robust reproduction right, while Article 5(2)(b) permits exceptions inasmuch as reproductions are: (1) made by a natural person (2) for private use (3) for ends that are neither directly nor indirectly commercial (4) and on condition that the right holders receive fair compensation.

It was only a matter of time until someone would inquire how copyright levies fit within this framework. In the present case, it was a Spanish court deliberating on the dispute between a manufacturer of CD-R, CD-RW, DVD-R and MP3 devices (Padawan SL) and a Spanish collection society (SGAE). At issue was the implementation of the Spanish levy system and liability of Padawan thereunder. The Spanish court, among other things, sought clarifications concerning the structure of a levy system that would satisfy the requirements of Art. 5(2)(b).

As to the element of “fair compensation”, the ECJ held (in para. 42) that the levy imposed “must necessarily be calculated on the basis of the criterion of the harm caused to authors of protected works by the introduction of the private copying exception.”

Levies therefore cannot be determined arbitrarily, but must correlate to harm. But what harm? Well, the ECJ explains it does not necessarily have to be actual (or proved) harm. An assumed harm would suffice. How can the existence of speculated harm be ascertained? Simple! The ECJ explains:

Copying by natural persons acting in a private capacity must be regarded as an act likely to cause harm to the author of the work concerned.

(para. 44, emphasis mine).

I am troubled both with the “must” and with the “likely” in this statement, and especially with the way they play out here. The “likely” – standing alone – dilutes the harm element as it obviates the need to show (prove) harm. Accordingly, the assumption the distribution of copying media and equipment causes economic loss to copyright holders turns irrefutable. And the “must” obviates the need to show any causal relationship between the action (sale of copying media) and its negative impact on the economic affairs of rights holders.

But I think there is a deeper logical flaw in this statement, since “likely” and “must” seem to cancel one another, unless one attributes the “likely” to the fact of actual harm and the “must” to the way in which the law treats certain activities that are potentially harmful, but only potentially. In other words, the legal reality bends the factual reality to be exactly as the law wants it to be, or at least, more convenient to handle.

By the way, there is little new about this set of assumptions. Existing levy systems are based on the same logical and normative construction. The normative rationale for such systems glosses over the linkage between the availability of copying devices/media on the one hand, and damages to copyright holders on the other. What is obviously missing is the requirement that copied materials created with the help of levied merchandise are copyright-protected, not just about anything one can make copies of. (What if I use my equipment to create my private copy of Wikipedia off the net? Where is the harm to copyright holders? I have a license!).

An even under the assumption that the content is copyrighted, there is not guarantee that the unavailability of copying equipment will necessarily drive consumers to the shops in their masses. In other words, the assumption that private copies replace sale of legitimate copies at a rate of 1:1, even at a rate of 1:10, is weak, and to my knowledge, it is yet to be founded empirically. I suppose any empirical model attempting to pin down the ratio between private copying and lost sales would face sever methodological problems.

Back to the decision:

It follows that the person who has caused harm to the holder of the exclusive reproduction right is the person who, for his own private use, reproduces a protected work without seeking prior authorisation from the rightholder. Therefore, in principle, it is for that person to make good the harm related to that copying by financing the compensation which will be paid to the rightholder.

(para 45).

Those “harm-doers”, those “natural persons” sitting at home busy making copies are difficult to police and be forced into paying a “fair compensation” for all the harm they inflict. The solution is the levy system, which subjects middlemen (device manufacturers, importers. etc.) to a duty. This duty is in effect a compulsory contribution to the financial well-being of rights holders, a contribution they roll off on consumers. In the words of the ECJ:

[T]he burden of the levy will ultimately be born by the private user who pays that price. In those circumstances, the private user for whom the reproduction equipment, devices or media are made available or who benefit from a copying service must be regarded in fact as the person indirectly liable to pay fair compensation."

(para. 48, emphasis mine).

It is the same point and the same critique all over again: Why must any honest buyer of a DVD device or an MP3 device with a recording function, in her capacity as such, be regarded liable for ANYTHING at all? This might strike most honest buyers as unfair. (The standard reply levies proponents offer is that this small injustice replaces a greater injustice, namely, massive infringement via private copying).

Speaking of fairness, the Court held that “Article 5(2)(b) of Directive 2001/29 must be interpreted as meaning that the ‘fair balance’ between the persons concerned means that fair compensation must be calculated on the basis of the criterion of the harm caused to authors of protected works by the introduction of the private copying exception.” (para. 50, emphasis mine).

The Court held that the levy system (i.e., the system financing compensation transferred to right holders) is “compatible with the requirements of a ‘fair balance’ only if the digital reproduction equipment, devices and media concerned are liable to be used for private copying and, therefore, are likely to cause harm to the author of the protected work.” (para. 52). Further, “[t]here is … a necessary link between the application of the private copying levy to the digital reproduction equipment, devices and media and their use for private copying.”

Disallowed according to the ECJ is a system resulting in “the indiscriminate application of the private copying levy to all types of digital reproduction equipment, devices and media” (para 53). This statement includes cases “in which [equipment, media, devices etc.] are acquired by persons other than natural persons [z.e.: corporations? robot? aliens?] for purposes clearly unrelated to private copying.”

And again, the stance supporting the whole argument: “Those natural persons are rightly presumed to benefit fully from the making available of that equipment, that is to say that they are deemed to take full advantage of the functions associated with that equipment, including copying.” (para. 55).

Further: “Consequently, the indiscriminate application of the private copying levy, in particular with respect to digital reproduction equipment, devices and media not made available to private users and clearly reserved for uses other than private copying, is incompatible with Directive 2001/29.” (para 59). This last statement can be read to impose some limitations on the scope of national levy systems in Europe.

The upshot: There is a significant precedential value to this decision via its binding interpretation to the “fair compensation” element in the context of levy systems. The ruling is also (indirectly) important for reminding us that centralized, liability rule-style compensation models (as opposed to individual enforcement of exclusive rights) play an ever more dominant role in the system of digital copyright.

However, the arguments legitimizing copyright levies models must be revisited. The justifications highlighted by the European Court of Justice are anachronistic. They have been around since the 1960’s and were problematic from the outset. There is no necessity to cement these notions with new case law.

And more importantly, the traditional arguments miss the main point. Instead of labeling all consumers harm-doers (an unfair and tilted denotation to my mind), let’s just call the system (as several academics have already suggested) a tax technology users must pay to support creative enterprises. We do not call all taxpayers wrongdoers, do we? And no less important: The bargain must include effective protections to honest taxpayers against the punishment for tax evasion, and in this variation, against copyright infringement liability.

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