The imminent establishment of a private copying compensation system based on levies for recording devices in Spain

In the latter Judgment, the CJEU held that the private copying compensation model established in Spain in 2012 was contrary to EU Directive 2001/29/CE because it was financed from the General State Budget, meaning that it was not possible to ensure that the cost of compensation was not being borne by commercial resellers and professional users. The CJEU held that any such system must ensure that the cost of compensation is only borne by users of private copies, and not by other parties.

In December 2016 the Spanish press reported that the Ministry of Culture had apparently reached an agreement in principle with the collecting societies, for a return to a system of private copying compensation based on a levy on recording and storage devices, similar to that which existed prior to 2012.

This seems to have been confirmed by the production of a draft Royal Decree by the Ministry of Education, Culture and Sport, which will be approved in the coming months.

The draft Royal Decree sets out the framework of the new system, the general principles of which were expected to be in line with the recent decisions of the CJEU and the Spanish Supreme Court.

The basic principles and language used in the draft Royal Decree resemble the version of art. 25 of the Spanish Copyright Act that was in force until 31 December 2014 (the rules which preceded those now being amended).

The products that will be subject to the levy are equipment, devices and media capable of reproducing books and other publications, phonograms, videograms or other sound, visual or audio-visual formats, which are manufactured in Spain, or acquired abroad for commercial distribution or use in Spain.

However, the most important issues for the public are yet to be determined (such as, for example, the specific devices which will be levied, the concrete amount payable in respect of each type of levied device, etc.). The draft Royal Decree provides the framework for the new system, but these important issues – the details – will be determined in due course by an Order of the Ministry of Education, Culture and Sport.

The amount of fair compensation to be paid shall be calculated on the basis of the damage caused to the entitled parties as a result of the reproductions made under the exception to the right of reproduction provided for in Article 31, paragraph (2) and (3). Among others, the following objective criteria shall be taken into account: the volume of copying and the storage capacity of the devices levied; the relative importance of the device's reproduction function compared to its other functions, the impact of the legal exception to private copying on the sale of copies of the works in question, the unit price of each work reproduced, the nature of reproductions made (i.e., whether they are digital or analogue), the quality and duration of storage of the copies, the availability, degree of application and effectiveness of technological measures for avoiding the making of unauthorised copies, and the amounts of fair compensation for private copying that may be applied in other Member States of the European Union.

It appears that the levy will only apply when the "equipment, devices and media" in question are sold or intended for sale in Spain (manufacturers are subject to the levy only "insofar as they act as commercial distributors" in Spain – art. 25.3), so the issue of double payment in cross-border transactions should not arise where a product crosses a national border within the EU.

Equipment, devices and media for reproduction clearly intended for professional use will not be subject to the requirement to pay fair compensation for private copying; nor will the purchase of such equipment by public bodies be subject to the levy.

Legal or physical persons not exempted from the levy will be able to request reimbursement should they be able to demonstrate (i) professional use of the equipment, device or media purchased; or (ii) that the equipment, devices or media purchased is intended for export or intra-EU delivery.

Some provisions of the draft Royal Decree have room for improvement.

For example, at first glance the system might seem easier to implement were the manufacturers the ones responsible for payment of the levy (as this would require the collecting societies to request payment from fewer parties). However, although this may make the collection of levies easier on one level, in fact this would make the system more complicated, as it would lead to more reimbursement requests by end-users improperly affected by the levy. From the perspective of legitimate users the system would be more efficient if the party responsible for payment of the levy was the  vendor (as they are the only ones able to detect whether sales are made to private users or to professionals).

As such, the solution adopted by the Royal Decree (that manufacturers should be liable for payment of the levy) favors collecting societies, but will generate a substantially higher number of reimbursement requests.

Another controversial point is that control by collecting societies over the purchases of equipment that may be exempted from payment of the levy (under the proposed new art. 25.7.b) is too restrictive. The way to prove entitlement to rely on the exemption should not be a certification issued by the collecting societies, as this presents a clear conflict. At the very least, this form of certification should not be the only acceptable form of proof. Alternative ways of proving entitlement to rely on the exemption should be accepted, and might include, for example, an affidavit or declaration by the end-user himself, or a certification issued by a public authority or administrative body, etc. In fact in other areas of tax law, the taxable person is the one that declares the circumstances applicable to his tax declaration, which may be later subject to inspection by tax authorities.

Further, the negotiation procedure for collecting societies and the industry established in the 2^nd transitional provision for determining the amounts of fair compensation for private copying is doomed to failure, at least in the first instance, when no reliable precedents will exist. Where there is a failure to reach an agreement, the First Division of the Intellectual Property Commission of the Ministry of Education and Culture will end up determining the amounts payable.

The Royal Decree should come into force this year. This means that private copying levies will soon be imposed in Spain.