EU Court Asked to Solve Questions Relating to Copyright Levies on Devices

It was reported on 17 November 2014 that the Spanish Supreme Court has rendered a resolution requesting a preliminary ruling from the European Court of Justice. This request relates to the compatibility, with EU law, of the procedure established in Spanish Royal Decree 1657/2012 for paying compensation to copyright holders for private copying.

Hong Kong sellers of copiers, printers, scanners, computers and other devices that are capable of making copies may be aware that, pursuant to Article 2 of Directive 2001/29/EC on the harmonization of certain aspects of copyright and related rights in the information society, Member States have to provide the author and holder of the copyright the exclusive right to permit or prohibit the reproduction of their protected works.

However, Article 5 of said Directive also provides for exceptions to this principle. Thus, Member States may provide for exceptions or limitations to the reproduction rights, allowing, for instance, the making of private copies, or the reproduction on paper or any similar medium, using any kind of photographic technique or other process having similar effects. In turn, however, copyright holders should receive a fair compensation for the reproduction of their work when this has been done without their express consent. For such fair compensation to be ensured, several Member States have decided to tax devices such as CDs, DVDs and multifunctional devices.

It is in this legal context that a controversy arose in Spain. The Spanish Government adopted, on 7 December 2012, Royal Decree 1657/2012 regulating the payment procedure for fair compensation for private copies, financed by the State’s budget. This Decree, which entered into force on 8 December 2012, abolished the previously established “canon system”, a private copy levy on digital systems, pursuant to which manufacturers and importers of copying devices had to pay for the fair compensation of copyright holders.

The new regime set out by the Royal Decree provides that such fair compensation shall now be paid through the Spanish Budget. As a result, this cost is no longer borne solely by the end consumer (since this cost was included in the selling price of the copying devices), but by all Spanish taxpayers.

Several collecting societies appealed against the adoption of this Royal Decree before the Spanish administrative Courts, and, eventually, before the Spanish Supreme Court. The latter decided to request a preliminary ruling from the European Court of Justice. This mechanism provides for the possibility, for a national Court, to ask questions to the European Court of Justice on the interpretation of European law.

The first question asked relates to the debtor of the fair compensation. According to the European case-law, “the person who has caused harm to the holder of the exclusive reproduction right is the person who […] reproduces a protected work without seeking prior authorization from the right holder. [Hence] it is for that person to make good the harm[…] ”.

The European Court, therefore, has already considered, in previous decisions, that the person who copied the work has to compensate the author or copyright holder. The Spanish Decree, however, states that it is for the State to compensate such copies, through its own budget. The exact wording of the question asked to the Court of Justice reads as follows: “Is a private copying compensation system, that – taking as a basis the estimation of the actual damage – is financed through the State budget, thus not guaranteeing that the costs of this compensation are only supported by the users of the private copies, compliant with Article 5(2)(b) of Directive 2001/29/EC?”.

The second question relates to the fair compensation criterion set out by the EU Directive. The Spanish Decree provides that “the appropriate amount to compensate the harm caused to the right holders of the copyright for the establishment of the private copying exception […] shall be determined, within the [government’s] budgetary limits set for each exercise”.

The Supreme Court asks whether such budgetary limitation could entail a breach of the fair compensation requirement. The exact wording of the second question reads as follows: “If the answer [to the first question] is in the affirmative, is it compliant with Article 5(2)(b) of Directive 2001/29/EC that the total amount set aside by the government for this compensation, which is calculated on the basis of an estimation of the actual damage, is conditioned on the [government’s] budget restrictions for each financial year?”.

This procedure for compensation is also laid down in the Spanish Copyright Act, which will enter into force on 1 January 2015. Neither the enforcement of the Copyright Act nor the enforcement of the Royal Decree will be suspended during the proceedings before the European Court of Justice. However, should the new Spanish system of fair compensation be found to be contrary to EU law, it would then be declared void.

Depending on the answers provided by the European Court, this request for a preliminary ruling could therefore have an important impact on Hong Kong’s manufacturers and importers of copying devices. The effects would also have consequences in Norway, which adopted a similar regulation, relying on public funding to provide for a fair compensation.