Rules on copyright levies on PCs and other IT devices are not harmonized in Europe. Alexander Duisberg and Fabian Niemann examine the implications of some recent disputes in Germany and compare the scope and level of copyright levies in different countries.
On December 15 2005, the Regional Appeal Court of Munich ruled that the so-called “reprographic levy” which has been implemented by the German legislator to compensate for licence-free copying made with traditional photocopiers also applies to PCs. This judgment is the latest and most important in a series of court decision rendered in Europe, in particular in Germany, on copyright levies on IT hardware and media.
In Germany and many other European jurisdictions there are two different levies targeting different kinds of copying: a “picture 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 is disputed whether those levies, in particular the reprographic levy, also apply to modern IT devices.
Reprographic levy claims regarding printers, multi-functional devices and, now, PCs are pending at Germany’s highest civil court, the Federal Supreme Court. The collecting societies in Germany claim reprographic levy payments of €30.00 per PC (irrespective of price and PC capacities), €38.35 to 613.56 per multi-functional device (depending on copying speed) and €10.00 to 300.00 per printer (depending on printing speed). On the lower court level, the Regional Appeal Court of Munich has affirmed a levy of €12.00 per PC in the test claim proceedings against Fujitsu Siemens; the Regional Appeal Court of Stuttgart has affirmed the full levy claim of €38.35 to €613.56 in the test claim proceedings regarding multi-functional devices against Hewlett-Packard and affirmed a levy payment obligation on the merits in the test claim proceedings regarding printers against Hewlett-Packard (there is no decision on the amount yet).
In addition, PCs are facing a picture recording levy claim of €18.42 requested by the collecting societies for each PC (irrespective of price and PC capacities). If these levy claims are approved by the Federal Supreme Court to a full or large extent, such judgments will not only seriously affect the price level of PCs and PC peripherals in Germany, but they are likely to be a (negative) role model for other European jurisdictions which will then also face material price increases in IT hardware.
Rationale behind levies
The rationale behind applying copyright levies to specific devices and media is to compensate the creators of copyright- protected works for statutory copyright exemptions under the national copyright acts which allow users to make free copies of the creators’ works with the help of such devices and media for certain “private and/or other privileged use”. The levies are imposed by national collecting societies and distributed by them to all creators whose works are copied by the devices and media according to specific allocation criteria. The levies have to be paid by manufacturers, importers and/or dealers of the devices and media which are subject to the levy. The legislators assume that the levies will be added to the sales prices and, thereby, borne by the end-users. Thus, the concept is that end-users are allowed to make licence-free copies with the devices and media, but have to pay a lump-sum fee per device and media in exchange for this right, and that the levies collected are used to compensate the creators for such licence-free copying with the devices and media.
There is no uniform European levy system. Copyright levies vary from member state to member state. This is because the statutory copyright exemptions (as the underlying ratio) are different in each member state. Pursuant to Article 5 paragraphs 2 and 3 of the European Copyright Directive 2001/29/EG, national legislators are free to choose from an exhaustive list those copyright exemptions they want to implement in their national laws. The directive only requires that, in the event that any implemented exemption will lead to a “notable prejudice of the right holders”, a fair compensation (a levy) has to be paid to the right holders (see recital number 35 of the directive). For example, Great Britain, Ireland and Luxembourg do not have any “private copying” privilege and, therefore, do not provide for any corresponding levy at all.
Munich decision on levies on PCs
The German copyright levy provisions were implemented to cover analogue copying by video and audio tapes and photocopiers in the 1960s and 1980s and are unchanged since 1983. Their application to PCs is heavily disputed between the collecting societies and the IT industry due to the unclear wording of the law. With its judgment of December 15 2005, the Regional Appeal Court of Munich has confirmed a court ruling of the District Court of Munich I of December 23 2004 on reprographic levies on PCs according to which a reprographic levy of €12 per PC sold in the German market has to be paid.
Before this, the German collecting societies as the later plaintiff, as well as PC industry representatives, including Fujitsu Siemens as the later defendant, had not been able to agree on an equitable reprographic levy for PCs. The collecting societies claimed a reprographic levy of €30. The PC industry argued that PCs are not subject to reprographic levies at all. The arbitrative board at the German Patent and Trade Mark Office which is in charge for levy disputes in the first instance followed the arguments of the collecting societies on the merits, but reduced the levy amount to €12 per PC. The District Court of Munich I and the Regional Appeal Court of Munich as further instances in the matter have confirmed this ruling. The claim is now pending at the German Federal Supreme Court; the collecting societies still claim €30 per PC and Fujitsu Siemens still objects to any levy payment. It will probably take about two years before the German Federal Supreme Court renders a final judgment.
In its reasons for the judgment, the Regional Appeal Court of Munich stated that a PC is intended for copying copyright protected works. Even though it does not see a relevant act of copying when a user saves a work to the temporary memory of a PC to view it on the screen, it does see relevant acts in the event where a user stores a work on the hard drive of the PC or uses the PC to print a copyright protected work with those printers. The court argues that it does not matter that a PC has many other functions apart from copying protected works, as copying of protected works does not need to be the exclusive or primary purpose of a particular device to trigger copyright levies. In this respect, the Regional Appeal Court of Munich referred to case law of the German Federal Supreme Court, which took the same view in its decision about levies on fax machines in 1993.
The three most important objections against the application of the reprographic levy have however not been dealt with by the Regional Appeal Court of Munich properly. These objections are: first, the “reprographic levy” requires, according to the wording of the law, an act of reprography that is not done by a PC; second, there is no need for a levy on digital devices as right owners can prevent users from making licencefree copies from digital works by means of DRM systems or other copyright protection measures (this is the difference with making copies of analogous works by photocopiers); and third, the Federal Supreme Court has stated in its decision on levies on scanners in 2002 that not all, but only one, device within a chain of devices used to copy works should be subject to a copyright levy. The Regional Appeal Court of Munich simply ignored this statement of the Federal Supreme Court. Thus, the PC industry still has hopes that the Federal Supreme Court will overrule the decision of the Regional Appeal Court of Munich.
The claims of the collecting societies cover each PC sold in Germany since January 1 2001. The test proceedings as such only cover PCs imported to and sold in Germany by Fujitsu Siemens Computers GmbH. Nevertheless, the final judgment in this matter will concern all PCs in Germany as the collecting societies have entered into agreements with all important PC manufacturers and importers in Germany according to which the collecting societies will not (yet) sue the other manufacturers and importers in exchange of the manufacturers and importers waiving their right to plead that the claims are time-barred. Therefore, the collecting societies will still be able to sue any manufacturer or importer of PCs in Germany which is not willing to follow the final judgment against Fujitsu Siemens for levy payments due from January 1 2001 onwards. Obviously, such proceedings would most likely have the same outcome as the test proceedings.
The economic importance of the dispute is evident. If a reprographic levy of €30 is affirmed, the additional costs for PCs sold in Germany may well amount to €150 million to €200 million per year. Together with the other reprographic and picture recording levies, German consumers may face additional annual costs in the range of €500 million for PCs, PC peripherals and PC media if the collecting societies succeed. But this will only be the beginning. All hardware and media which can be used to reproduce third party content may be subject to levy claims: not only obvious devices like MP3 players and PVRs, but also mobile phones, BlackBerries, PDAs and devices nobody may think about at the moment. The approach taken so far is, however, bound to reach inherent barriers: in an economic environment which is driven by the convergence of hardware, enabling software and content, a system of copyright levies based on classifying devices is destined to fail to strike any economically reasonable balance between the protection of copyright owners and the producers and users of devices.
The situation in Europe
Levies have been introduced to copyright laws in the analogue age. Whether levies have a right to survive forever in the digital age is questionable. Under all international copyright conventions, it is clear that the individual exploitation of copyright-protected works by licences granted by the right owners has priority over statutory exemptions and levy compensations. Thus, there must always be a specific justification for the implementation of a statutory exemption (and a corresponding levy). Such justification could normally only be based on the “legitimate interests of the public” which outweigh the right of individual exploitation of the right owners (for example, statutory exemptions implemented to facilitate research, education or press coverage). Making copies of movies, music, articles, books or pictures for one’s own private entertainment is certainly not covered by any “legitimate interests of the public” and, accordingly, permitting the making of private copies is a foreign matter under all copyright regimes. It cannot be stressed enough that the often quoted “right to make private copies” simply does not exist.
Nevertheless, many European nations have implemented a private copying privilege and a corresponding private copying levy for practical reasons some decades ago since it was not possible in the analogue age to prevent end-users from making private copies of books, music, movies and other works by means of photocopier, audio and video recorders. Many European legislators decided to allow private copying (to a limited extent) and impose a levy on it instead of not allowing private copying with the consequence that many end-users will make copies nevertheless without the rights owners receiving any kind of compensation for such acts at all. This concept is now challenged in the digital age where it is possible to prevent end-users from making licence-free copies by copyright protection measures.
Therefore, many argue that the private copying privilege should be dropped entirely. An abolition of the private copying privilege would have immediate consequences for copyright levies. With respect to audio and video works, there is not much room for a levy left if the private copying privilege falls. But also with respect to other works it is clear that, without a private copying privilege, levies must be dramatically lower (if kept at all).
However, there is no clear trend within the European Union. Whereas Great Britain, Ireland and Luxembourg never had a private copying privilege or copyright levies, and Greece recently expressly excluded PCs from any levy payment obligation under Greek law, other member states confirm or even extend the levy payment obligations. For example, in the actual draft of the German copyright reform it is set out that the levy provisions shall apply to all IT hardware with which protected works are expected to be copied to a notable extent.
The economic consequences of such different levy regimes within the European markets are dramatic. If some member states impose substantial levies on IT hardware and media and others do not do so, it is clear that many end users located in the member states which have a levy will purchase the products directly from a dealer located in a member state which has no copyright levy. Obviously, this is a material disadvantage of the importers and dealers in the member states that have a levy and, thus, will seriously affect trade between the member states.
Accordingly, a uniform European copyright levy system with comparable levies in all member states is urgently required. It seems, however, that most European nations are avoiding touching this highly sensitive and political issue. As a consequence, the IT industry will face the issue of copyright levies and substantial national differences and variety for many years.
Selected copyright levies on devices across Europe
Audio tapes: €0.06 – €0.12
Video tapes: €0.18 – €0.27
Audio media: €0.18 – €0.36/hour
Data media: €0.17 – €0.27
PCs*: no levies so far
(Supreme Court ruling)
Copiers: €10.80 – €364.048
Faxes: €5.56 – €22.41
Scanners: €3.95 – €331
MFDs** (under discussion): €93.33 – €364.04
Audio devices: 1.5% – 3% of wholesale price
Video devices: 1.5% – 3% of wholesale price
Audio tapes: 0.10 €/hour
Video tapes: 0.10 €/hour
Audio media: €0.23 – €0.59/hour
Data media: €0.12/hour
PCs: could be subject to levy, although only on approval of Council of Ministers
Copiers: €4.16 – €1526.38
Faxes: €4.16 – €1526.38
Scanners: €1. 67 – €83.26
MFDs: will be charged according to main function of the device
Audio and video devices: 2% of cost price
Audio and video tapes: 5% of cost price
2 % of cost price
Audio and video devices: 1.5% to 3% of sales price
Audio and Video tapes: 4% of sales price
Audio and video media: 4% of net price
Audio equipment: 3% of sales price
Copiers: Kcs650 to Kcs12000
Audio tapes: €0.45/hour
Video tapes: €0.63/hour
Audio media: €0.23/hour
Video media: €1.26/hour
Data media: €0.23 – €0.54/disc
Recording devices: 3 % of wholesale price
Recording tapes: 6% of wholesale price
Recording devices: 3% of wholesale price
Recording tapes: 6% of wholesale price
Audio tapes: €0.5/ starting minute
Video tapes: €0.76/ starting minute
Audio media: €0.085-€0.25/starting minute
Video media: €0.125/starting minute
Audio recorders: €0.5/starting minute
Video recorders: €0.76/starting minute
Audio tapes: €0.2851 – €0.43/90 minutes
Video tapes: €0.43 – €1.26 €/hour
Memory cards: €0.34/32 MB
Audio media: CD-R/RW, MD: €0.56/74 min.;
DVD-R/RW: €3.77/180 min; MP3: €0.34/32 MB
Video media: DVHS: €8.8/420 min; DVD-R/RW: €1.26/hour
Data media: CD-R/RW: €0.33/650 MB;
DVD-RAM, DVD-R/RW: €1.59/4.7 GB
Hard drives with digital recording functionality: €8 – €20
Audio devices: €1.28
Video devices: €9.21
Audio tapes: €0.0614/hour
Video tapes: €0.087/hour
CD-R/RW: €0.072 (on 30 % of all CDs sold)
Data media: €0.087 – €0.174
Audio devices: €1.28 – €2.56
CD burner (PC), DVD burner (PC): €7.50 – €9.21
DVD-, HDD-recorder: €9.21 – €18.42
PCs (under discussion): €30 (claim by VG Wort); €18.42 (claim by ZPÜ)
Copiers: €38.35 – €613.56
Scanners: €10.23 – €255.65
Printers (under discussion): €10-€150; double tariffs for coloured devices
MFDs (under discussion): €38.35 – €306.78; double tariffs for coloured devices
Audio devices, video devices, audio tapes and video tapes: 6% of their value when products are imported in Greece or products are produced in Greece
All digital media: 4%–6 % of their value when products are imported in Greece or produced in Greece
PCs: 2% levy has been abolished
Scanners and MFDs: 4% of their value when imported in Greece or produced in Greece
Audio tapes: €0.23/hour
Video tapes: €0.29/hour
Devices exclusively destined to analogue audio or video recording: 3% of the retailing price to the reseller
Audio media: €0.29/hour
Video media: €0.29/hour
Data media: €0.23/650 MB
Devices exclusively destined to digital audio or video recording: 3% of the retailing price to the reseller
Audio and video tapes: 6% of wholesale price
Audio, video and data media: 6% of wholesale price
PCs: new draft on copyright and related rights law (October 7 2005) presented introduction of new copyright levies on PCs including notebooks and palmtops, to the government
Reprography services: €8.69 – €115.85/year (depending on the service provider’s reprographic equipment and on his local distance to educational or science institutions)
Audio tapes: €0.23 per unit
Video tapes: €0.33 per unit
Audio media: €0.42 – €1.10 per unit
Video media: €0.4 – €0.6/4.7 GB
Data media: €0.14 per unit (DVD-RAM and flash memory sticks exempted)
Audio and video devices: 1% – 3 % of sales price
Audio and video tapes: 3% of sales price
Audio and video media: 3% of sales price
Data media: 1% – 3 % of sales price
Audio recorders: 2% – 3 % of sales price
Audio devices: €0.14
Video devices: €0.26
Audio media: €0.13 – €0.27
Video media: €0.14 – €1
Data media: €0.05 – €0.14
Audio and video devices: 3% of sales price
Audio and Video tapes: 6% of sales price
Audio and video media: 6% of sales price
Recording devices: 3% of sales price
Copiers, faxes: 3% of sales price
Audio devices: €0.60
Video devices: €6.61
Audio tapes: €0.18
Video tapes: €0.30
Audio media: €0.35/hour
Video media: €0.7/hour
Data media: €0.16 – €0.3/hour
PC hard discs are considered to be out of the scope of the EU Copyright Directive
Copiers and MFDs with glass plate: €45.08 – €222.37
Audio and video tapes: €0.25
Digital media: €0.00027 – €0.00045/MB
Digital recording devices: €0.66/product
Audio tapes: €0.213/hour
Video tapes: €0.297/hour
Audio media: €0.213/hour
Audio equipment with hard discs: €0.671/GB
Reprography equipment is not levied; however Tariff GT8 applies to ICT companies (tariff related to types of industry and number of employees; billed by collecting societies)
* So far, only in some jurisdictions has it been discussed whether PCs as such should be subject to copyright levies.
** Multifunctional devices (devices with a PC interface which combine at least two of the following functions: copy, print, fax, scan)
Authors’ note: Information is based on public sources and internal research as of November 2005 with some updates where available by February 2006.
First published in the Features section of Managing Intellectual Property magazine – March 2006