Phones, game consoles and other hardware under copyright levy attack

23 January 2007

Dr Fabian Niemann

This month the German Collecting Society "ZPÜ" sent a written claim to the German IT Industry Association "BITKOM" requesting that the copyright levy applicable to conventional audio recorders and MP3 players should also be applied to all other devices that include MP3 players or other audio recording functions, such as mobile phones. The claim also covers handheld computers, GPS navigators or game consoles that are able to store external content and is the most recent example of a series of copyright levy claims the PC and consumer electronic industries face.

Background

Most European copyright laws provide for levies to be paid by manufacturers, importers and, in some cases, dealers in hardware that might be used for private copying. There are two kinds of levies: a "picture and audio recording levy" which aims to compensate for private audio and video recordings and which traditionally targets audio and video recorders as well as the respective recording media, and a "reprographic levy" which aims to compensate for reprographic copying and which traditionally targets photocopying machines. In most European countries it has been, and in many cases still is, disputed whether copyright levies also apply to modern IT devices such as PCs, printers, CD/DVD burners, MP3 players and mobile phones.

The rationale behind imposing a copyright levy on a device is to compensate the authors of copyright-protected works for statutory copyright exemptions which allow users to make free copies of the creators' works for "private and/or other privileged use". The levies have to be paid by the IT industry to national collecting societies who distribute the proceeds to the authors. The legislators assume that the levies will be added to the sales prices and paid for by the end-user. Thus, the end-user is allowed to use a device to make copies in exchange for paying a lump-sum fee.

There is no uniform European levy system. Copyright levies vary from member state to member state because the statutory copyright exemptions forming the underlying reason are different in each country. Under the European Copyright Directive 2001/29/EG, national legislators are free to implement a “private copying” privilege into their copyright acts. However, Directive 2001/29/EG makes it a requirement of any exemption that a fair compensation or levy be paid if the private copying materially impairs the exploitation of the work.

MP3 players, HD personal video recorders, CD/DVD burners

Great Britain, Ireland and Luxembourg do not have a "private copying" exemption so do not provide for any corresponding levy. In most other EU countries, picture and audio recording levies are imposed not only on analogue but also on digital recording devices. Hard disk video recorders, CD and DVD burners are subject to substantial levies that exceed €100 in some Member States. In many European jurisdictions, levies on MP3 players and similar devices are set by statutory tariffs, collecting society tariffs or through contractual arrangements between collecting societies and the industry.

PCs, mobile phones, handheld computers, GPS navigators, games hardware

There are now discussions over whether picture and audio recording levies should also apply to equipment that is not primarily intended to act as a recording device, but nonetheless include MP3 or other audio/video recording functionality. The German collecting society ZPÜ has written to the German IT association BITKOM stating that the levies applying to MP3 players should also apply to all other devices which have a MP3 or similar functionality, and in particular mobile phones. The ZPÜ has not yet stated the precise levy to be paid, but it can be expected that it will be similar to the amount payable for MP3 players in Germany (i.e. between €2 and €2.50).

This recent development is of particular importance for a number of industries including those dealing with mobile phones, GPS navigators, game consoles and other devices with an audio or video recording functionality. Not only is Germany Europe’s biggest market but Germany also frequently plays a leading role in introducing new copyright levies. It can be assumed that other European collecting societies will issue similar claims in the near future and discussions are already taking place in some countries.

At a first glance, it seems reasonable that a device with an audio or video recording function should be treated like a conventional audio or video recorder. However, closer examination shows that these arguments can be challenged. Firstly, copy protection mechanisms and digital rights management systems would suggest that digital devices should be looked at differently from analogue devices. Secondly, in the current age of convergence of both media and of devices, most single-purpose devices evolve into multifunctional devices that can be used for purposes that may or may not be the subject of a copyright levy.

For instance, it cannot simply be said that a PC is generally used for copying to the same degree as a photocopier or for copying video and audio recordings to the same extent as a video or tape recorder. It is obvious that most mobile phones with an audio recording function can be used for various purposes but in reality will be primarily used for communication with the music recording capability used to a much lesser extent than would be the case with a single function MP3 player. There might be devices where the recording function is key, while for other devices it is simply an “extra”. The number of multifunctional devices with an audio and video recording function as a simple add-on increase every day. GPS navigators, handheld computers and gaming hardware are just a few examples.

For the IT industry, it is necessary to look at each individual case to assess whether any actual or potential levy claims can be justified. A careful analysis is essential to ensure that proper retentions are made (if necessary) and that appropriate arguments against the claims of the collecting societies are developed.

The Outlook for European Harmonisation

Levies were introduced into copyright laws in the analogue age. Whether private copying exemptions and corresponding levies should continue is questionable since individual licensing takes priority over levy compensation under all international copyright conventions. In the digital age it is possible to limit end-users’ activities using copyright protection measures. Further, the traditional approach of assessing using levies on single-use devices so that they constitute a reasonable reflection of the loss suffered by right holders no longer works in these times of convergence and multi-purpose devices. It is therefore arguable that copyright levies should be dropped entirely.

At the very least, it is essential that the current system of copyright levies should be reformed to reflect technical change and there is an urgent need for European harmonisation. Some jurisdictions such as France and Germany take a broad view when deciding whether levies should be applied to new digital devices. Others such as Italy, Greece & Finland are more restrictive. Great Britain, Ireland and Luxembourg do not apply copyright levies at all. The potential for economic confusion and inequality arising from different copyright levy regimes in times of cross-border internet sales is obvious.

Hopes of reform were raised last year when the EC Internal Markets Commissioner Charlie McCreevy introduced an initiative to harmonise and limit the application of levies in order to adapt them to the digital age. However, political pressure from certain member states and dissenting views within the Commission have led to the initiative being abandoned at the end of 2006. It now seems that the IT industry will have to continue to deal with a diverse and inconsistent copyright levy regime in Europe for a number of years into the future.