Copyright Levies Scrutinized by the European Commission

Martti Kivistö
Director, Legal Affairs
TEOSTO, Finnish Composers´ Copyright Society

The Directive on the harmonisation of certain aspects of copyright and related rights in the information society (2001/29/EC), adopted in May 2001, provides for an extensive exclusive right of reproduction to authors and other right holders.

Article 2 of the Directive applies to ”direct or indirect, temporary or permanent reproduction by any means and in any form, in whole or in part”. However, Article 5 includes a number of exceptions and limitations to this right.
The exception in Article 5 paragraph 2(b) regarding reproductions made for private use, accompanied by the right of authors and other right holders to receive a fair compensation, is currently under specific attention. In June 2006 the European Commission launched a stakeholder consultation on copyright levies in the context of the on-going review of the Infosoc Directive.

Article 5(2)(b) in a nutshell:

o The exception applies to natural persons and their private use only
o It is applicable on all technical forms and platforms used for copying
o It is applicable on all objects protected in Article 2, i.e. works, fixations of performances, phonograms, fixations of films, and fixations of broadcasts
o The copies made shall not be used for direct or indirect commercial purposes
o Right holders shall receive a fair compensation
o Fair compensation shall take into account the application or non-application of technological measures referred to in Article 6 of the Directive.

It is not mandatory for a Member State to legislate on an exception for private copying. The Directive only provides for a possibility to that effect, and Member States may also provide for exclusive rights to right holders. For instance, the United Kingdom, Ireland and Cyprus have opted for this approach and no remuneration system exists in those countries. However, if there is an exception in force in a Member State fair compensation must also be provided to right holders.

Fair compensation for the use of content
Before possible guidelines or recommendations are set out by the Commission the only lead for Member States to the practical application of fair compensation is in recital 35 of the Directive:
”In certain cases of exceptions or limitations, right holders should receive fair compensation to compensate them adequately for the use made of their protected works or other subject-matter. When determining the form, detailed arrangements and possible level of such fair compensation, account should be taken of the particular circumstances of each case.
When evaluating these circumstances, a valuable criterion would be the possible harm to the right holders resulting from the act in question. In cases where right holders have already received payment in some other form, for instance as part of a licence fee, no specific or separate payment may be due. The level of fair compensation should take full account of the degree of use of technological protection measures referred to in this Directive. In certain situations where the prejudice to the right holder would be minimal, no obligation for payment may arise.”

On this ground it appears quite clear that fair compensation shall be paid to right holders for the use of their content, not of the harm or prejudice caused to them by private copying. In this respect fair compensation may be compared with actual exercise of copyright and related rights, i.e. licensing the use of works and collection of royalties or fees thereof. However, the notion of harm, which was under a lively debate during the legislative stages of the Directive, has once again been brought to the arena as a part of the Commission´s stakeholder questionnaire.

Many kinds of practical arrangements possible
The Directive does not take any stand on the administration or practical arrangements of fair compensation in Member States. For instance, there is no guidance as to how the collection or funding of fair compensation should be organised. This means i.a. that tax funding or other public financing, as in Norway, is possible.

Nevertheless, most Member States have retained their existing collection systems, adopted prior to the Directive, which are based on levies imposed on blank carriers or copying devices. In effect, this means that fair compensation continues to be financed by consumers of those products. However, the new features of digital copying have led to a shift of the levy setting parameters towards the reproduction capacity of a carrier or a device instead of the duration of time generally applied before.

No harmonisation on the level of compensation
It is note-worthy that the Directive does not suggest any harmonisation on the level of compensation or on the copying technology to be included within compensation. It only lays down the basic grounds for setting the compensation on a general level. This makes sense because even on the Internal Market there may exist significant differences between the Member States for instance as regards general price level, grade of technical development, market penetration of consumer electronics, and other similar parameters.

Although there are no guidelines given in the Directive for the allocation or distribution of the collected funds, it is fair to assume that the main aim is to allocate fair compensation to right holders in the form of direct, individual payments as in any developed copyright management system.

But allocating a part of the collected funds to collective purposes, such as promotion of culture or new productions, would also seem to be within the framework of the Directive. Such models of indirect compensation are applied in a number of Member States.

The Directive does not deal with international scope and applicability of fair compensation. For the time being, the practical implementation of cross-border distributions presumably remains mostly at the discretion of the national organisations collecting and distributing fair compensation. These practices are one point of interest in the Commission´s consultation document.

Relation between fair compensation and DRM under discussion
Among other things, the stakeholder consultation addresses the relation between fair compensation and DRM. In 2001, when the Directive was first adopted, workable DRM/TPM solutions in the exploitation of copyright protected material were distant future. Today, such features are becoming more commonplace although they are still at early stages. For instance, the 2006 Digital Music Report by IFPI indicates that digital online and mobile sales accounted for 6% of the global music sales in 2005.

The capability of DRM systems to serve as a tool for managing private copying and fair compensation has recently become an issue raising diverging views. Indeed, the Directive prescribes that fair compensation shall take account of the application or non-application of technological measures.

Commissioner for the Internal Market and Services, Mr. Charlie McCreevy, has on several occasions expressed his will to replace existing copyright levy schemes with DRM based systems closer to the actual online sale of content.

In practice, this should mean that as the use of DRMs increases, the use of levies should decrease. The ICT industry, i.e. manufacturers, importers and distributors of copying equipment and media have by and large supported this approach.

Right holders fundamentally entitled to fair compensation
While European right holders have not opposed to the application of DRMs per se they have pointed out that according to the Directive right holders are fundamentally entitled to fair compensation. As long as the penetration of DRMs is low and they are not in practice used to monitor private copying and address fair compensation due to right holders, DRMs cannot replace levy systems.

Imposing levies on multi-functional devices, such as mobile phones or computers, is another controversial subject raised in the consultation paper. According to the Commission, ”copyright levies were intended to be limited in scope and applied to consumer copying executed with dedicated copying devices”. The Directive seems to give little support to this approach since Article 2 applies to ”reproduction by any means and in any form” and Article 5(2)(b) to ”reproductions on any medium”, implying that the technology or context of copying bears no significance.

Nevertheless, the treatment of multi-functional devices within the framework of fair compensation is but one example of the many challenges that the rapidly changing technical and market environment poses to the fair application of fair compensation.