Today, the German Bundesrat approved a reform of the German Copyright Act that will bring substantial changes to the German copyright levy provisions as of 1 January 2008. The new law will then principally allow levies on all electronic hardware devices as well as on storage media that can be used to process or store content, e.g. PCs, handheld computers, navigators, mobile phones, MP3 players, gaming consoles, audio and video recorders, set-top-boxes, CD/DVD burners, printers, photocopiers, digital customisable alarms, blank tapes and discs, USB sticks and memory cards.
Under the existing law, copyright levies are traditionally applied to certain reprographic copying devices, audio and video recording devices and media such as photocopiers, video recorders and blank discs. The levies are, however, until now disputed with respect to other "modern" devices such as PCs, printers and mobile phones with MP3 functions.
Under the new law, the basis for levy claims will be remarkably extended. Not only will manufacturers, importers and dealers of
• set-top-boxes, audio and video recorders;
• MP3 players;
• PCs, CD/DVD burners and printers; and
• blank tapes and discs
have to deal with a changed legal environment, but also most likely the levy claims will be extended by the copyright collecting societies to many new devices and media, e.g:
• mobile phones with and without MP3 function;
• handheld computers/PDAs;
• gaming consoles; and
• USB sticks and memory cards (e.g. FLASH and SDRAM).
As the new law extends the application of the levies on the merits, but does not list any devices and does not stipulate concrete tariffs, all electronics companies have to consider how to cope with the higher risk of levy claims and the uncertainty about the applicable amounts as well as the effect on accruals.
Most European copyright laws provide for levies to be paid by manufacturers, importers and, in some cases, dealers of hardware devices and storage media that might be used for private copying. In Germany – as well as in many other jurisdictions – 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. However, 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 is to compensate authors of copyright-protected works for end-users' statutory allowance to make free copies of the creators' works for "private and/or other privileged use". The levies have to be paid by the industry to national collecting societies who then distribute the proceeds to the authors. The legislators assume that the levies will be added to the sales prices and thereby will be paid for by the end-user. Thus, the end-user is allowed to use a device making copies in exchange for paying a lump-sum fee.
There is no uniform European levy system. As a consequence, copyright levies vary from Member State to Member State. 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 to be granted that a fair compensation or levy is to be paid if the private copying materially impairs the exploitation of the work. Whereas Great Britain, Ireland and Luxembourg do not have a "private copying" exemption and, thus, do not provide for any corresponding levy, most EU countries have some kind of copyright levies.
The New Law
The German Copyright Act reform which will come into effect on 1 January 2008 has been discussed controversially for many years – mainly because of the copyright levy provisions.
The new law abolishes the limitation of levies to "picture and audio recording" and "reprographic" acts. In future, all devices and media technically capable of storing or processing content protected by copyright may be subject to copyright levy claims. Requests of the industry to include a "de minimis"-threshold to avoid an excessive application of copyright levies to devices which are only randomly used to store or process content, have not been granted by the legislator. The new law only sets out that the levy amounts shall always be "reasonable". In the event that a device or media is hardly used to store or process third party content, a levy of zero would be reasonable. However, by refusing to set a concrete threshold, the German legislator opened the door for levy claims on basically any kind of device or media capable of storing or process contenting.
The German legislator further did not meet the industry's request to introduce a cap of the levy. The industry had suggested to agree on a certain percentage of the sales prices of the device or media to ensure that the levy amounts are in a reasonable relation to the sales prices and do not lead to market disturbances because of lower levies in other European countries. Although such purchase price related caps have been introduced in many European Copyright Acts in the last years (between 1% and 6%), the collecting societies succeeded with their argument that such a cap would be unfair and unconstitutional to the creators – in comparison to the practice in other European countries, a very isolated approach.
Instead, the German legislator has decided to introduce a two-step-test for reasonableness under the new German Copyright Act to determine an appropriate levy amount. First, the levy should be reasonable with respect to the intensity of the respective device's or media's use for private copying. Second, the amount of the levy should not prevent or materially impede the trade with the respective device or media in Germany. However, the law does not provide any concrete indications when this is the case, thus leaving much room for speculation and uncertainty.
Whereas the old law at least listed concrete levy amounts for certain devices like photocopiers and audio and video recorders, the legislator did not introduce any concrete tariffs, nor did he give any numbers which might indicate what kind of levies could be deemed to be reasonable. Instead, he requested that the industry and the collecting societies agree upon appropriate levy amounts regarding the concerned devices and media. In practice this means that if the industry and collecting societies fail to do so – and that they will fail does not seem unlikely – the appropriate tariffs will be set by the courts.
Consequences for the Practice
Due to this cautious legislative approach, currently a very high degree of uncertainty exists in Germany with respect to what future levies are to be expected. The legislator has even restrained from delivering concrete orientation points. The industry expects lower levies concerning most devices already leviable under the old regime. There are indeed very good arguments supporting lower levy amounts, but it remains to be seen whether this expectation can be realised.
Thus, it is necessary for manufacturers, importers and dealers of electronic devices and media to look at each individual case to assess whether levy claims could be justified and, if so, what amounts might be appropriate. A careful analysis is essential to ensure that proper retentions are made (if necessary) and an appropriate defence strategy against potential claims of the collecting societies is placed in time.
The European Perspective
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 increasing priority over levy compensation under all international copyright conventions. In the digital age it is principally 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 will be reformed to reflect technical change and there is an urgent need for European harmonisation. 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, including the German copyright levy regime with its high levy exposure and its high degree of uncertainty, for a number of years into the future.