A recent decision by the Court of Justice of the EU ("CJEU”) has held that a system in Spain whereby the equitable remuneration payable in respect of private copying paid to rights holders out of the General State Budget is not compatible with EU copyright law.

Under Spanish law, as permitted as an option under the InfoSoc Directive (2001/29/EC), private copying of copyrighted works is permitted provided that “fair compensation” is paid to the copyright owner. This is normally achieved in Member States with private copying exceptions by introducing a levy that is then collected and paid to the relevant rights holders. This levy could, for example, be paid directly or indirectly by end users of digital reproduction equipment, devices and media in the cost of acquiring such equipment, devices or media. Spain replaced its levy with a blanket payment from its general state budget which was challenged by Spanish rights collecting agencies.

Private Copying Exception

Article 5(2)(b) of the InfoSoc Directive provides that Member States may provide for an exception to the right of the copyright holder to payment for reproduction “in respect of reproductions on any medium made by a natural person for private use and for ends that are neither directly nor indirectly commercial, on condition that the rightholders receive fair compensation…”.

The essential question put to the CJEU was whether a scheme for fair compensation which is financed out of the Spanish general state budget was lawful where it is not possible to guarantee that the cost of that fair compensation is borne by the users of private copies.

While the CJEU acknowledged the general and non-specific requirements of the InfoSoc Directive on this point, it did take the view that, to determine the level of fair compensation, account must be taken of the harm suffered by the copyright holder concerned as a result of the act of reproduction at issue. Therefore, the CJEU decided that it is for the user to make good that harm by financing the fair compensation. As per the wording of Article 5(2)(b), the CJEU also confirmed that the exception only applies to natural persons.

Accordingly, the CJEU concluded that as there was no definite allocation of a particular source of revenue (such as a levy) to particular expenditure, the payments to rights holders was in effect financed by all taxpayers including legal persons who are neither entitled to the benefit of the exception nor liable to pay fair compensation. Accordingly, the measure was incompatible with the InfoSoc Directive.

Conclusion

This principle may in the future be held to apply to other levies under EU law. While Ireland does not have a private copying exception, it has the option to introduce such an exception in the future and this decision would impact on any legislative approach adopted in Ireland.