German Federal Court of Justice decides that reprographic levies should not be raised on Personal Computers up to 2007

03 December 2008

Dr Fabian Niemann

This case looks at a recent decision in the German Courts regarding whether reprographic levies should be raised on personal computers. Since the end of 2007, new legislation has come into place in this area. Although PCs face copyright levy claims, no reprographic levies have to be paid up to 2007.

On 2 October 2008, the German Federal Court of Justice, the Bundesgerichtshof, decided in a test case that no reprographic levies would be applied to PCs. The case related to an action brought by the collecting society VG Wort against Fujitsu Siemens (reference number I ZR 18/06).  This decision has saved the PC industry between €500-1000 million. This is the latest of four Bundesgerichtshof judgments on the application of reprographic copying levies in the past 12 months. Previously, the Bundesgerichtshof has refused to apply reprographic levies to single function printers (judgment of 6 December 2007, reference number I ZR 94/05) and CD copy stations (i.e. devices which can copy multiple CDs at the same time) (judgment of 30 January 2008, reference number I ZR 131/05). However, the Bundesgerichtshof applied levies to multifunctional devices which consist of a scan, copy, print and, in some cases, fax function (judgment of 17 July 2008, reference number I ZR 206/05). All of these judgments relate to the application of reprographic levies under the old German copyright levy regime applicable until 31 December 2007. They do not cover the audio and video copying levy, which was the second levy existing under the old German copyright levy regime, or the new German copyright levy regime applicable from 1 January 2008. Under the old audio and video copying levy as well as under the new law, PCs are still liable to copyright levy claims. Nevertheless, the judgment of 2 October 2008 is significant, and it is likely to be of great economic significance to the industry.

The background

Copyright levies were introduced into the German Copyright Act (in common with some other European copyright acts) to compensate rightholders for acts of private copying. This private copying would take place on photocopiers and similar audio and video recorders where rightholders could not technically prevent the copying. In Germany, the wording of the old law had not been changed since 1985 and was clearly focused on reprographic and analogous copying devices and similar storage media. Additionally, the levy provisions do not cover digital products where rightholders are able to control copying by use of Digital Rights Management. Despite this, collecting societies claim copyright levies for many products which are able to copy third party content (e.g. PCs, burners, printers, scanners, fax machines, mobile phones). As the legal situation under the old legislation was unclear and due to the economic significance of this issue, there is still litigation in Germany relating to most products on which levies were claimed.

The reasoning of the judgment

The reasoning of the judgment of 2 October 2008 followed the pattern of the Bundesgerichtshof's judgment of 6 December 2007 in which the Bundesgerichtshof decided that copyright levies do not apply to single function printers (for details click here). The Bundesgerichtshof considered that reprographic copying only happens if a PC is used together with a scanner and a printer. Only in this case will a hardcopy be made from another hardcopy. In the case of a series of devices only one device is subject to copyright levies to avoid multiple payments. For example, where a scanner, PC and printer are used the scanner is the relevant device (see the judgment of the Bundesgerichtshof on scanners of 5 July 2001; reference number I ZR 335/98). Without a scanner, a PC (as well as a printer) can only undertake digital copying. As digital copying is substantially different from reprographic copying (because copying can be prevented by copyright protection mechanism), the reprographic copying levy cannot be directly applied to PCs.

The Bundesgerichtshof also argued that there could not be analogous application (application mutatis mutandis). The Bundesgerichtshof noted that copyright levies are only applied to manufacturers, importers and dealers of electronic hardware in limited circumstances, in light of practical considerations. The beneficiaries of private copying privileges are the end users. Therefore, the application levies may only be placed on manufacturers, importers and dealers as third parties who are not beneficiaries where there is a clear legal basis. An analogous application may only be made if the situation is analogous to the situation the legislator had in mind, in particular with respect to the harm caused to the rightholders. The Bundesgerichtshof argued that rightholders are already compensated by licence fees for many digital copies made with PCs (no levies apply to licensed copies) and that most of the free-of-charge content is deliberately provided without copyright protection mechanisms or DRM by the rightholders and therefore covered by an implied licence. The situation of digital copying cannot be compared to reprographic/analogous copying where rightholders have no control over the copies made. Therefore, there is no basis for an analogous application.

Outlook

VG Wort announced that it would file a constitutional complaint against the judgment (as it did against the single printer judgment of the Bundesgerichtshof). Clarity will only be gained after the Constitutional Court's decision. Depending on the procedure chosen by the German Constitutional Court it will take between one and four years for the Constitutional Courts to decide this case.

Although the judgments have clarified the situation relating to reprographic levies under the old law (applicable until 2007), there are still areas of uncertainty. For example, the application of audio and video copying levies on devices such as PCs and certain mobile phones which can record music is still disputed under the old law and will presumably only be resolved by the Bundesgerichtshof in the next few years.

In addition, the German copyright levy regime has changed substantially with effect from 1 January 2008. The basis for applying levies to various products has been broadened.  The new law, however, does not provide any reasonable guidance as to how to calculate the levies (for details, click here). Accordingly, manufacturers, importers and dealers of products involved in copying third party content are currently discussing levies with the collecting societies and may face litigation if they cannot reach a settlement. Examples of the types of technologies covered are PCs, hard discs, burners, printers, scanners, fax machines, multifunctional devices, MP3/4 players, STBs, video recorders/PVRs, mobile phones, memory cards and USB sticks.

The situation is unsatisfactory both for the industry and the collecting societies. The situation becomes even more complex in light of the large variation of copyright levies in the EU: from no levies at all (e.g. in UK and Ireland), modest levies (e.g. in Scandinavia and The Netherlands), to extensive application of levies to many products on a reasonable level (e.g. in some CEE states) or on a very high level (e.g. in Germany, France and, partly, Spain). The EU Commission has launched a consultation on the harmonisation of copyright levies and held a public hearing on 22 May 2008. It remains to be seen whether this initiative will lead to a substantial harmonisation of copyright levies. However, even if it does any developments are likely to take a few years.