Questions of copyright levies are hotly debated, since the decision as to whether such levies have to be payed or not has a significant influence on the price of the affected technical products and the movement of these goods within the European Community. Based on a request for a preliminary ruling by the Danish Court (Østre Landsret), the Court of Justice of the European Union (CJEU) now has issued another landmark decision on copyright levies with clarifying guidelines.1  Particularly important was the question of whether a levy may be paid if the storage of legal private copying is not a primary purpose of the memory cards.

Background 
The Danish collecting society Copydan Båndkopi2 asked Nokia to pay copyright levies (about €2 million) for the reproduction of copyright protected material through memory cards which were used for Nokia mobile phones imported and marketed in Denmark. If a user stores protected works in a mobile telephone with both an internal memory and a memory card, such works are, as a rule, stored on the memory card. However, if the user alters the settings of the telephone, he may also store those works in the internal memory. Nokia replied that such levies are not payable, as mobile telephone memory cards are rarely used exclusively for copied material which may not be lawful or authorized by the copyright holder.  The Danish Court stayed the proceedings and referred six questions to the CJEU.

Legal framework
Art. 5 (2) (b) of Directive 2001/29/EC allows Member States to introduce an exception to the right of reproduction for natural persons who copy for private use and for non-commercial purposes. As a compensation for these allowed acts of private copying, the Directive stipulates a ”fair compensation” to rightholders.

Member States implemented private copying exemptions and corresponding systems of fair compensation. However, as the Directive merely establishes a general framework and is neutral as to the form of compensation, national provisions regarding private copying exemptions and copyright levies (in particular relating to the rates) are very diverse, even for identical technical products.3  Predominantly, Member States impose copyright levies on manufacturers, importers or distributors of equipment or media that allows consumers to copy. Some Member States even impose private copying levies on final consumers. There are also differences in equipment and media that are subject to private copying levies.4  Thus, a Europe-wide levy system does not exist, which leads to legal uncertainty and to selective distribution of goods within the European Community. Additionally, it was again the CJEU which had to provide further binding uniform guidelines for European copyright harmonization.

Decision

Concerning a number of questions referred by the Dutch Court, the CJEU referred to several of its previous decisions on copyright levies. Therefore, the current judgment also contains a mix of old and new. However, the Court points out some new guidelines:

  1. Regarding the obligation to pay a fair compensation, it is, in principle, irrelevant whether a medium is unifunctional or multifunctional, such as mobile telephone memory cards, or whether the copying function is ancillary to other functions. Art. 5 (2) (b) of Directive 2001/29/EC does not preclude national legislation which provides that fair compensation is to be paid irrespective of whether the main function of such media is to make copies for private use. However, the fact that the copying function is multifunctional and of an ancillary nature may affect the amount of fair compensation payable. This implies to consider the medium’s capacity to reproduce works for private use.
  2. Since Member States cannot lay down fair compensation rules which would discriminate, without any justification, multifunctional media, such as mobile telephone memory cards, on the one hand, and integral components, such as internal memories of MP3 players or mobile phones, on the other, both are, in principle, covered by the obligation to pay a fair compensation. However, the Court states that there may exist other circumstances which would justify the conclusion that, notwithstanding the fact that the integral components have the same copying function as multifunctional media, those components are not comparable from the point of view of the requirements relating to fair compensation. As a result, internal components, even such components whose main purpose is to store copies for private use, may be excluded by national law. However, the determination of the requirements shall be a matter for the national courts.
  3. In practice, it is often unclear whether the media is sold for private use at the end of the supply chain. As the compensation is a compensation for private copying and, hence, does not apply if the components are clearly sold to business customers5,  the Court was asked for a solution. The referred question was whether Art. 5 (2) (b) of Directive 2001/29/EC is to be interpreted as precluding national legislation which requires payment of the private copying levy by producers and importers who sell mobile telephone memory cards to business customers and are aware that those cards will be sold on by those customers but do not know whether the final purchasers of the cards are individuals or business customers. Again, the CJEU states that it is open to Member States establishing a private copying levy chargeable to the businesses but not to the private persons.6  Further, the private copying may apply to media where the final use of the media does not meet the criteria set out in Article 5 (2) (b) of Directive 2001/29/EC, if the introduction of such a system is justified by practical difficulties (such as the impossibility of identifying the final users or practical difficulties associated with identifying those users or other similar difficulties)7,  though media must be exempt from the copyright levy in question where the producer or importer establishes that he has supplied the media to persons other than natural persons for purposes clearly unrelated to copying for private use.

Conclusion

As the relevant Directive 2001/29/EC does not provide any further details concerning the various elements of the fair compensation system, the Member States enjoy broad discretion in that regard. As the CJEU states, in its judgment, it is for the Member States to determine who must pay that compensation and to establish the form, detailed arrangements for collection and the level of compensation. As a result, there are many differences in the way copyright levies are treated in national law. However, the current judgment establishes general rules as well. The decision seems to be strict, as the obligation to pay copyright levies is quite expansive. This results from the principle of equal treatment. Differences of treatment must be justified. Again, the Court states that if digital reproduction equipment, devices and media are made available to natural persons as private users, the simple fact that equipment is able to make copies is sufficient in itself to justify the application of the private copying levy. Therefore, the basic message is that compensation is to be paid for a variety of equipment and/or media, such as mobile telephone memory cards. However, Directive 2001/29/EC, as well as earlier decisions of the Court, already lay down a range of exceptions to the obligation to pay copyright levies. In accordance with the current decision, a new way to avoid the obligation could be proof offered by the producer or importer that it has supplied the media in question to persons other than natural persons for purposes clearly unrelated to private use copying.