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Major Economic Problem: Copyright levies claimed by national collecting societies for the manufacture, import and/or sale of electronic devices and media which can be used to store or copy text, picture, audio or video works have become a major economic problem for the IT and entertainment hardware industry in Europe.

The European Community has realised the economic importance of the issue and launched a consultation process for the harmonisation of copyright levies on 14 February 2008. All stakeholders are invited to comment by 18 April 2008.

Bird & Bird has outstanding experience in the field of copyright levy issues and has represented clients in landmark copyright levy court precedents. Bird & Bird offers European and consolidated national copyright levy advice covering all relevant jurisdictions and has established a copyright levy task force with dedicated experts in the key jurisdictions.

This note aims to provide a brief overview of copyright levies in Europe.

Introduction

Many European copyright laws provide for levies to be paid by manufacturers, importers and, in some cases, dealers of IT and entertainment hardware devices and storage media that might be used for private and other privileged copying. However, there is no uniform copyright levy system in the European Community. In some countries no copyright levies exist at all (e.g.the United Kingdom, Ireland and Luxembourg). In most continental-European countries, copyright levies apply but targets, scope and amounts of copyright levies vary substantially.

In many countries copyright levies target different groups of devices and/or media. There are "picture and audio recording levies" claimed for audio and video recorders and/or the respective recording media which aim to compensate for private audio and video recordings; "reprographic levies" claimed for photocopying machines which aim to compensate for reprographic copying of text and picture works; or even comprehensive "copying levies" claimed for all kinds of devices capable of storing or copying copyright protected content.

In many European countries, there is confusion as to whether copyright levies also apply to modern digital IT and entertainment hardware and storage media (such as PCs, handheld computers, single function printers, multifunctional printers, mobile phones or navigators with music function, MP3 players, TV set-top-boxes, memory cards and USB sticks) and, if so, which levy amounts are applicable. Most of this equipment is not primarily intended to act as a private copying device, but only include a copying function. Nevertheless, the collecting societies in the respective countries claim very substantial levy amounts for such devices and media.

Whereas copyright levies with respect to certain devices or media in some EU Member States are moderate, levies are excessive in other Member States and partly even exceed the retail prices of the respective devices or media.

Looking Forward – Will The EC Initiative Lead To A Harmonisation And Reduction Of Levies?

Levies were introduced into copyright law in the analogue age. Whether levies have a right to exist forever in the digital age is questionable. Under international copyright conventions, it is clear that the individual exploitation of copyright protected works by licences granted by rights holders has, in principle, priority over statutory exemptions and levy compensations. It cannot be stressed enough that the often-quoted “right to make private copies” simply does not exist. Instead, private copying has been allowed for purely practical reasons. It is therefore arguable that copyright levies should be dropped entirely. At the very least, it is essential that the present system of copyright levies is reformed to reflect technical developments and harmonised across Europe. The potential for economic confusion and inequality arising from the application of different copyright levy regimes in cross-border internet sales is obvious.

An initiative launched by Internal Markets Commissioner Charlie McCreevy in 2006 to harmonise levies and to limit the excessive application of levies in certain Member States was discontinued after political pressure from certain Member States in December of that year. Now, however, McCreevy and the Commission have relaunched the consultation process on private copying levies. All stakeholders are invited to comment by 18 April. This relaunch, announced on 14 February 2008, raises hopes for harmonisation and for the introduction of clear limits on the application of levies.

However, even if the initiative towards harmonisation is successful, it will still take some years before agreement is reached at European level and the decision is implemented by Member States. Accordingly, the uncertainty and inequality highlighted here will remain for a number of years yet. 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.

In the following section, a brief introduction on copyright levies in key European jurisdictions is set out. Please note that this overview cannot replace individual advice.

Situation In Key Jurisdictions

Belgium

The Belgian Copyright Act stipulates on the one hand that authors, performers and producers of phonograms and audiovisual works are entitled to remuneration for reproductions of their works or performances for private use (1st category) and on the other hand that authors and publishers are entitled to remuneration for reproductions for private use or for illustration purposes in education or for scientific research of works set down on a graphic or similar support (2nd category). Therefore, copyright levies exist with respect to reprographic copying devices, audio and video recording media and audio and video recording devices. The debtor of the levy is the person who introduces the media/devices on the Belgian market (manufacturer, importer or intra-Community purchaser).

Currently, levies with respect to phonograms and audiovisual works are only due on consumer entertainment devices and media (1st category). In regard to this 1st category, the rates are, inter alia (i) 3 % of the retail price on devices allowing the reproduction of protected works; (ii) € 0,1 per hour on sound/ audiovisual analogue media; (ii) € 0,23 per hour on digital media which are specifically intended to the reproduction of sound works; (iii) € 0,12 per unit on digital media of compact disc recordable or re-recordable (CDR); (iv) € 0,59 per unit on digital media of DVD recordable or re-recordable (DVDR); and (v) levies for PCs which can be used for the reproduction of audio and audiovisual works is set at 0% - this could be changed by Royal Decree.

With regard to the 2nd category, the fixed remuneration applicable to copiers is set by reference to the reproduction capacity, i.e. the number of copies per minute. However, the Royal Decree makes no clear reference on how to calculate the number of copies per minute, i.e. with respect to the quality of the copy (such as “standard”, “superior”, “draft” or even “recto/verso”).With respect to devices which integrate several different functions, the amount of the flat fee is the highest amount amongst those applicable to the device.

Belgium implemented the Directive 2001/29/EC by law on 22 May 2005 which modified the Belgium Copyright Act. However, some of the relevant new provisions with respect to copyright levies are still not in effect (a royal decree must decide when they will take effect). Therefore, the scope of future copyright levies in Belgium is still unclear. In particular, please note that the recent change of majority in the Belgian government could however imply the modification of these “new” provisions.

France

Copyright levies have existed in France since 1985. They are aimed at compensating the authors, performers and producers of works on phonogram or video media for the loss they suffer as a result of individuals legally copying music or movies. Copyright levies are economically borne by the consumers but are legally due by any manufacturers, importers or beneficiaries of intra-Community acquisitions on marketing certain recording media in France. The taxable media are determined by a specific Commission known from the name of its president (currently Mr. d'Albis). The Commission d'Albis' role is to follow the technological developments in order to decide which new media shall be subject to copyright levies and to fix the applicable rates of levies.

Media taxable to copyright levies range from analogue recording media (e.g. video tapes: € 42.84 for 100 hours), digital recording media (e.g. DVD-Ram: € 21.27 for 100 Go), memories and hard disks (from € 5 to € 50 depending of the nominal storage capacity), to - since 1st October 2007 - external hard disk drives (e.g. € 6.66 for 200 Go), USB memory drives (e.g. €0.72 for 5 Go) and memory cards (e.g. € 0.36 for 5 Go).

It is worth noting that the Commission d'Albis voted on 27 February 2008 for the application of copyright levies to certain multifunctional mobile phones. This decision should apply in April 2008. This latter decision, as well as the preceding decision relating to USB memory drives and memory cards, gave rise to lively discussions in the Commission between manufacturers of the media and the beneficiaries of the levies. It is predicted that the legality of the decision on mobile phones, such as the legality decision on USB memory drives and memory cards (and most of decisions before), will be attacked before the French Conseil d'Etat, the administrative supreme court. This evidences the poor acceptance of copyright levies in France, which are often compared to a tax.

It should also be noted that there has been a specific tax on copying and printing devices applicable in France since 1976. This tax is due by the manufacturers (including re-sellers), importers and beneficiaries of intra-Community acquisitions on the sales, self-supply and intra-Community acquisition in France of different copying and printing devices such as offset printing machinery of 500 kg or less, duplicating machines, printers, copying and facsimile machines, etc. The rate of the tax is 2.25% of the price of the taxable device excluding VAT. Like VAT, the tax is economically borne by the consumers.

Germany

Copyright levies have existed in Germany since 1965. Originally, there have only been levies on analogous audio and video recording devices and respective storage media (blank tapes). In 1985, levies on reprographic photocopying devices were added. New copyright levy provisions became effective as of 1 January 2008. Under the new law, there is no limitation to reprographic devices and audio and video recording devices and media anymore, instead any kind of devices and media which are typically used for privileged private copying may face levy claims. The levy debtors are local and foreign manufacturers, importers and large dealers of the respective devices and media. In case of export, no levies are due and the collecting societies have to reimburse already paid levies.

The new copyright levy provisions do not provide for any list of relevant devices and media nor set out any levy amounts. The new law only foresees that levies are payable if, and to the extent, necessary to create a reasonable compensation for losses which the right holders suffer due to privileged private copying typically made by the respective device or media. In addition, the levy amounts must be in a reasonable proportion to the sales price of the devices or media. The legislator did not provide any guidance to judge whether a device will be typically used for copying private or other privileged purposes or to judge which amounts are reasonable. Therefore, it is unclear whether multifunctional devices and media (such as PCs, hard discs, printers, PDAs, STBs, game consoles, navigators or mobile phones with music function, USB sticks and memory cards) will be subject to levies at all under the new law and, if so, which levy amounts apply to them. Further, the amounts applicable to digital audio and video recording devices (such as MP3 players, audio and video recorders and respective recording media) are unclear as well.

The old law included statutory fixed rates for photocopiers (€ 38.35/76.70 to € 306.78/613.56 for black-and-white/coloured devices, range depending on copying speed), audio recorders (€ 2.56 with internal storage possibility and € 1.28 without internal storage possibility), video recorders (€ 18.42 with internal storage possibility and € 9.21 without internal storage possibility), audio storage media (€ 0.0614/h) and video storage media (€ 0.087/h). For an interim period of up to two years (i.e. until 31 December 2009 at the latest), the old rates may also be claimed by the collecting societies as "Interim Tariffs" under the new law – notwithstanding the right of the IT industry to challenge these rates as "unreasonable" under the new law. Under the new law, the application of levies on devices and media not subject to levies under the old law requires either an agreement between the collecting societies and the concerned debtors or a tariff of the collecting societies. A tariff can only be issued after negotiations have failed and a consumer survey exploring the relevant use with the respective product have been undertaken. Tariffs can then be challenged by the relevant debtors in court.

With respect to many devices, it is still open whether levies have to be paid under the old copyright levy provisions in force until 31 December 2007 (and may accordingly be subject to the Interim Tariffs under the new law – see above). The sums still in dispute between the collecting societies and the industry under the old law amount to more than a billion Euro. The German Federal Supreme Court decided on 6 December 2007 and 30 January 2008 that reprographic levies apply to multifunctional printers which can photocopy, but not to mere printers. However, it is still disputed and not yet decided by the Federal Supreme Court whether levies apply to PCs (claim of collecting societies: € 49.42), mobile phones with a music function (claim of collecting societies: € 2.56 with internal storage possibility and € 1.28 without internal storage possibility) and to multifunctional storage devices such as memory cards for mobile phones (claim of collecting societies: approx. € 1 per GB).

Italy

The private copy of phonogram and videogram with the respective copyright levies were introduced in Italy in 1992. Later, in 2000 levies on reprographic photocopying devices were added. Referring to the reprographic levy, the law provides the right to make photocopies of a maximum of 15% of a copyright protected works and only for private use. With reference on the copyright levy on phonogram and videogram, in 2003 the Italian legislator ratified the Directive 2001/29/EC and introduced new provisions which narrowed the private copying privilege and provided principles regarding the copyright levy amounts (“fair compensation”). Overall, levies have been paid for analogue and digital audio and video recording devices and storage or blank media in recent years. The levies have to be paid by manufactures, importers and dealers of the devices and media to the Italian Collecting Society of Authors and Publishers ("SIAE").

For analogue and digital audio and video recording devices, the levy amount is calculated as a percentage of the sales price. For devices exclusively destined to record audio or video contents the levy amounts to 3% of the retail price. Regarding multifunctional devices the levy amount is exclusively calculated on the dedicated internal part for recording. In case the recording part of the device is not dedicated to private copying only (e.g. CD and DVD burners in a PC) the levy amount is further reduced. In case a parts price is not definable for CD/DVD burners, the total levy amount is equal to € 1.20 for CD burners and € 4.20 for DVD burners. The levies applicable to storage media depend on the respective storage capacities, e.g. analogue audio storage media: € 0,23/hour; digital audio storage media dedicated to private copying of audio/video, such as minidisk, CD-R audio and CD-RW audio: € 0,29/hour; digital audio storage media not dedicated, such as CD-R data and CD-RW data: € 0,23/650 MB; analogue video storage media: € 0,29/hour; digital audio storage media dedicated to private copying of audio/video such as DVHS, DVD-R video, DVD-RW video: € 0,29/hour; digital audio and video storage media not dedicated, such as DVD Ram, DVD-R e DVD-RW: € 0,87/4,7 GB.

Manufactures and importers have to provide to SIAE a quarterly declaration containing the sales and the levies amount that they have to pay out contextually. The violation of this obligation may cause a pecuniary administrative sanction for the levy debtors, in serious cases the administrative sanction can be the suspension or cancellation of the trade licence. In case of default in paying, the legislator provides that the dealers are jointly liable with the original manufactures and importers.

It is important to note that there are gaps in the Italian copyright levy legislation. First of all, the levy amounts for copy of phonogram and videogram, regulated in the Copyright Act (Law 633/1941), are only interim amounts and a Decree by the Ministry of Cultural Heritage and Activities shall set out binding amounts. However, until now no Decree has been issued, therefore, the interim amounts are still in force together with the different agreements between the SIAE and the trade associations. Another issue concerns technological protection measures to prevent unlicensed copying. The law establishes that, when there are technological protections measures in place which only allow an analogue copy, the levy amounts should consider that consumers must not pay copyright levies for digital copies they cannot make.

The Netherlands

In The Netherlands, copyright levies apply to certain products. The levy is payable by the "importer". An individual can also be considered an "importer" but not if the individual imports the goods for private use only. However, when consumers order products shipped to The Netherlands from another EU Member State, these consumers may be liable for the levies because they are "importers". According to recent case law, in such an event the on-line retailer is also liable. A subsequent purchaser can be held liable for payment of the copyright levies if he cannot prove that the levies have been paid by either the manufacturer or the importer nor cannot tell (by means of documents) who the manufacturer or the importer is. Goods produced in The Netherlands for export are not subject to levies. When levies have been paid for goods that are subsequently exported, a refund can be obtained.

From 17 February 2007 until 31 December 2008 the following levies apply on storage media in the Netherlands: Data CD-R/RW: € 0,14/disk; Blank DVD-R/RW: € 0,60/4,7 GB, Blank DVD+R/RW: € 0,40/4,7 GB, Audio CD-R/RW: € 0,42/hour, HI MD: € 1,10/carrier, Blank DVD-RAM: exempted from copyright levies, Video Analogue (video tapes): € 0,33/hour, Audio Analogue (cassette tapes): € 0,23/hour, Mini Disc: € 0,32/hour. Thereafter, the rates may be changed. Products may be exempted if the debtor documents towards the Dutch collecting society "Stichting Onderhandelingen Thuiskopievergoeding" (Association on Negotiations for Compensation for Home Made Copies) (“SONT”) state that the products are only used for professional use.

Currently, no devices are subject to levies. The Dutch Minister of Justice, in particular, did not give permission to SONT to impose copyright levies on MP3 players and certain IT hardware. SONT, therefore, imposes a levy of 0% on MP3 players and hard disc recorders. Recently, the Dutch Minister of Justice also denied the request to impose a copyright levy of € 0.15 on USB sticks.

The levies are collected by SONT which distributes the collected levies to the organisations of copyright owners. The manufacturer or importer has to submit a declaration to SONT. A distinction is made between companies that have a contract with SONT and those that have not. The obligation to provide information is eased for companies having a contract with SONT.

Spain

Copyright levies have existed in Spain since 1987 whereby the private copy compensation was foreseen in relation to analogue devices only (systems and devices for the reproduction of books, systems and devices for the reproduction of phonograms, systems and devices for the reproduction of videograms, audio or visual reproduction devices). The private copy compensation must be paid by (i) the manufacturers in Spain provided they are also distributors; (ii) the persons who buy the concerned devices outside Spain but distribute them within SpanishTerritory. The private copy compensation may be collected by the collecting societies SGAE (author’s collecting society), EGEDA (collecting society of audiovisual works’ producers), AGEDI (collecting society of phonographic producers), VEGAP (collecting society of sculptors and plastic artists) and CEDRO (collecting society of authors of books, magazines and other publications).

The Spanish Copyright Act ("SCA") was amended in 2006 in order to include new digital means of reproduction. However, as currently drafted, the SCA only establishes that the levy is due when the systems, devices, or support materials (all of them understood as storage media but excluding support materials such as the paper used in a photocopier) are "suitable" for reproducing a copyrighted work and, therefore, only when they are suitable for the making of a copy of that work. The particular digital devices and the applicable rates were not included in the text. Rather, the SCA establishes that the specific systems, devices and support materials subject to the private copy compensation and the applicable rates shall be identified by the Ministry of Culture and the Ministry of Industry, Tourism and Commerce taking into account the evolution of technology, the market conditions, and the allegations of the concerned parties (e.g. collecting societies and debtor's representatives) which may arise.

A preliminary list of levied devices was sent by the Ministries to the collecting societies and debtors representatives in December 2007 in order to negotiate – according to that established in the SCA - the particular storage media levied and the applicable rates. According to the list, not only audio, video and DVD recorders, but also other devices and media shall become subject to the levies, e.g. memory sticks (€ 0.30), USB cards (€ 0.30), MP3/MP4 devices (€ 3,15), PDA's (€ 3.15) and hard disks (€ 12 - however not including PC hard disks, which are expressly excluded). Mobile phones may also be levied if they are capable of reproducing phonograms and are considered equivalent to MP3 players (if any). Should that be the case, the levy provisionally established in the preliminary list is € 1.50 per device.

The preliminary list, however, is still under discussion but will probably be approved by the concerned parties in the coming months. Notwithstanding that, it is worth noting that the private copy compensation is currently being the subject-matter of a number of discussions between the two principal political parties in Spain. In particular, the opposing party has proposed the modification of this levy if they win the elections in March 2008.

Sweden

Copyright levies have existed in Sweden since 1999 and are regulated in The Swedish Copyright Act ("The Act"). The levies apply to audio and video media only. They do not apply to any devices or to reprographic copying. The Act applies an abstract definition of leviable media namely "material supports on which sounds or moving images may be recorded and which are especially suitable for the making of copies of works for private purposes". The debtor to the levy is the local manufacturer or importer of the product in question. Voluntary arrangements can be made with the collecting societies resulting in the retailer paying the levy instead of the importer.

The levies are only applied to media which are specifically intended for use in connection with private copying of copyrighted material, such as external and internal storage media for audio and video recorders. As of February 2008 levies apply to the following products: audio and videotapes, minidisk, CD-R, CD-RW, DVD-R/+R, DVD-RW/+RW, DVD-RAM, DVD-R/+R Double Layer, audio players with internal storage capacity (e.g. flash memory in MP3-players) and video players with internal storage capacity.

All products which fall within the scope of the levy legislation may face levy claims. In practice, however, the issue of whether a levy shall be applied or not is decided in negotiations between COPYSWEDE (an umbrella collecting society whose membership consists of the organisations that represents Swedish authors and performers) and the industry organisations. The Act includes general statutory tariffs on the remuneration pursuant to leviable products but these tariffs can be replaced by an agreement between COPYSWEDE and the relevant business organisations. Since the negotiated tariffs are lower than the statutory tariffs, this is an incentive for the business organisations to negotiate with COPYSWEDE regarding leviable products.

In case of non-compliance with the levy legislation, COPYSWEDE can file a complaint with the district court. COPYSWEDE is only entitled to initiate legal steps to receive the levies and information.

UK

The United Kingdom has never operated any system of copyright levies on equipment which has the potential to be used for copying. The official policy has been to treat recovery for copyright infringement as wholly the responsibility of the copyright owner in every case. The UK's private copying exception is very much narrower than those of other European countries, being limited only to recording of broadcast programmes for the purpose of time-shifting (watching at a more convenient time).

Accordingly, the private individual who in fact uses any recording or copying equipment to make an unauthorised copy for any other purpose infringes copyright and is liable for damages including, where the infringement is flagrant, the possibility of aggravated damages. On the other hand the manufacturer of the equipment used is not liable unless it can be shown that they actively procured the use of their equipment for the making of infringing copies. This, of course, can almost never be done. It is not sufficient to show that the manufacturer was aware that the equipment was capable of being used for that purpose if the equipment is also capable of being used for legitimate purposes. Rather, the manufacturer must have procured the specific infringement.

The UK Government is currently consulting over the possibility of introducing a new private copying exception, for format shifting rather than time shifting, to permit consumers who have acquired a legitimate copy of a work to transfer it between devices in order to listen to or watch it in a more convenient location as well as time. In the course of this consultation the question of introducing a levy has once more been raised. At present, it is understood that the official preference is not to introduce any such levy, leaving the onus on copyright holders to police infringement by individuals for the foreseeable future.

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