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Private copying: A pause for thought in Copydan (C-463/12)?

Posted on    by Martin Kretschmer

Private copying: A pause for thought in Copydan (C-463/12)?

By 22 December 2014No Comments

The European private copying exception under Art. 5(2)(b) of the 2001 Information Society Directive, and its varying implementations among EU member states, is continuing to cause a great deal of controversy and litigation. The Musicians’ Union (MU), The British Academy of Songwriters, Composers and Authors (BASCA) and UK Music have just launched an application for Judicial Review of the UK implementation that introduced a narrowly conceived exception for “Personal Copies for Private Use” on 1 October 2014 – without providing for compensation. There is also an ever-longer string of cases before the Court of Justice of the European Union (ECJ), challenging the basis for charging compensatory copyright levies on media and equipment that may be used for making private copies.

At the heart of the policy debate is the uncertainty about what the levy system is really for: Is it a form of taxation for the benefit of artists; Is it a licence to consumers for certain activities? EU law has skirted around these fundamental questions, focussing instead on the requirements in the InfoSoc-Directive to provide “fair compensation” taking account of the “possible harm to the rightholders” (Recital 35 and Padawan Case C-467/08). However, a current case at the ECJ may actually address one of the critical issues: Can rightholders permit certain uses, and still require compensation through the levy system?

CREATe has offered a prize among the LLM class taking “Copyright in the digital environment” at the University of Glasgow for the best blog on Copydan (Case C-463/12). The winning entry was written by Susan Bischoff and Kristina Wagner. Congratulations!

Susan Bischoff and Kristina Wagner

Two shots at the private-copying-exception

The decision of the European Court of Justice (ECJ) in the case Copydan Båndkopi (C-463/12) is keenly awaited and expected to deliver clarifications on the private copy exception of Art. 5(2)(b) of the Directive 2001/29/EC on the harmonisation of certain aspects of copyright and related rights in the information society (“InfoSoc-Directive”) and its levy system. In the case of Copydan a Danish collective management organisation seeks levies for private copies from Nokia that sold memory cards for mobile phones in Denmark between 2004 and 2009. Although the ECJ addressed the private copy exception in previous cases such as Padawan (C-467/08), VG Wort (C-457/11 – C-460/11) and ACI Adam (C-435/12), it now has been asked by a Danish court to further clarify several key points such as the legal position of the rightholder in this regard.

However, what shall be of interest here is the question whether an authorisation by a rightholder dispends the obligation for levies or if the implementation of a private copy exception triggers the preclusion of the rightholder to contractually authorise these copies.

The exception of Art. 5(2)(b) InfoSoc-Directive allows private users to make copies without the rightholder’s consent. In contrast to other exceptions and limitations, this regulation requires the implementing Member States to provide a fair compensation. This must take the interests of rightholders into account. They, however, might still have a reasonable interest in negotiating the royalty terms of licensing agreements on their own. Although the ECJ already addressed the rightholder’s position within the private copy exception in the VG Wort ruling, it remains unclear if such a two-tier levy system as suggested by Advocate General Cruz Villalón in the current Copydan case could comply with Art. 5(2)(b) InfoSoc-Directive and might even be preferable.

With respect to this issue, two conflicting points of view can be taken. Both positions shall be argued in this blog. First, Susan Bischoff will take the stand in favour of a two-tier system that excludes licensed copies from the levy regime. In the second part, Kristina Wagner will argue that such a regime would conflict with the previous ECJ jurisprudence in VG Wort – only the Member State is empowered to authorise private copies.

Two-tier system

Advocate General Villalón suggests a two-tier levy system excluding uses that are explicitly authorised by the rightholder and for which some sort of remuneration or fair compensation has already been discharged. As this section will show taking an authorisation into account for evaluating levies complies with the provisions of the InfoSoc-Directive and the underlying rationales of the levy regime.

Does the InfoSoc-Directive require a one-tier system?

It is a moot question whether the proposal of a two-tier system would comply with the rationales of the private copy exception of Art. 5(2)(b) InfoSoc-Directive and the implemented levy system.

The underlying objective could be identified as compensating the harm of the rightholder emerging from copying his work. If Art. 5(2)(b) InfoSoc-Directive is understood to compensate the rightholder absolutely without regard to an individual agreement, this interpretation would leave an authorisation without any legal effect as to eliminate the obligation for levies. This understanding could be based on Recital 35 that speaks of “harm to the rightholders resulting from the act in question”. However the Recital names harm only as one valuable criterion. Moreover this opinion might be based on the statement of the ECJ in Padawan that fair compensation “must necessarily be calculated on the basis of the criterion of the harm caused to authors” (para. 42). But the court also ruled that the purpose of fair compensation is to reimburse authors adequately for the use without their authorisation. Even if one relies on the rationale of compensating harm one has to ask: Where is the harm in making a copy for which a license has been paid? If Recital 35 excludes obligations for payments in the case of mere minimal prejudice (de minimis rule) how can a levy regime be justified in the complete absence of any harm?

Rather the right of fair compensation can be understood as a “substitute” for the reproduction right of the copyright holder (Art. 2 InfoSoc-Directive). The levy regime compensates the lack of licensing possibilities for copies made in the personal sphere. Thus it can be replaced by a licensing agreement. This understanding retains the opportunity of the rightholder to contractually dispose of his rights where it is actually possible. It is not the aim of Art. 5(2)(b) InfoSoc-Directive to guarantee revenues that can be achieved via contracts. That complies with the three-step-test of Art. 5(5) InfoSoc-Directive – if a normal exploitation of the work is possible (e.g. by licensed online platforms) the exception/limitation of Art. 5(2) InfoSoc-Directive should not be implied. Only such an understanding values the essential strict interpretation of exceptions as requested by the ECJ in Infopaq (para. 56f.). Moreover the legislator clearly wanted the co-existence of exceptions and contractual systems as shown in Recitals 30, 35, 44, 45, 51 and 52. Online platforms offer the possibility to deliver content to the consumer as requested in exchange for a licence fee. In contrast to the actual impossibility for rightholders to reach out to private users in the analogue environment they now can effectively and adequately conclude contracts and moreover protect their content with technical protection measures.

Villalón further refers to Recital 35 (para. 60) of the InfoSoc-Directive which states that “[i]n cases where rightholders have already received payment in some other form, in instance as part of a licence fee, no specific or separate payment maybe due”. Villalón discusses whether the member states shall have the discretion to prevent any over-compensation. Whereas the broad wording might allow this interpretation, the rationales of the Directive of fair compensation and balancing interests prohibit this (para. 61-63).

Would it work?

Finally Villalón acknowledges the practical difficulties to split the levy regime but does not accept this as a valid justification for over-compensation (para. 66f.). In fact precluding rightholders from licensing in those Member States that implemented Art. 5(2)(b) InfoSoc-Directive would lead to further territorial fragmentation and harm the single market, especially for online businesses. Eventually this conflicts the objective of the InfoSo-Directive to create a functioning internal market (Recital 2, 7).

One-tier system

The ECJ already clarified the relation between the private-copy-exception or -limitation pursuant to Article 5 (2) (b) of the InfoSoc-Directive and the rightholder’s ability to authorise reproductions in its VG Wort decision:

To the extent a Member State established a private-copy-exception or -limitation,  “any authorising act the rightholders may adopt is devoid of legal effects” and, consequently, “does not affect the harm caused to the authors, and cannot therefore have any bearing on the fair compensation owed” (para. H7-H8).

This decision provides interesting insights into the concept and the very nature of the private-copy-exception pursuant to Article 5 (2) (b) InfoSoc-Directive. It seems to be a clear plea in favour of a one-tier levy scheme. There can only be one in charge for authorising – the rightholder or the Member State.

According to Article 2 (a) InfoSoc-Directive, the Member States shall provide an exclusive right to authorise reproductions for authors. This exclusive right, however, can be narrowed when a Member State issues an exception or limitation in accordance to Art. 5 (2) InfoSoc-Directive, i.e. an exception or limitation for private copies on condition that the rightholders receive fair compensation, Art. 5 (2) (b) InfoSoc-Directive. In this case, the rightholder’s consent is not necessary.

With respect to the private-copy-exception, the court distinguishes between these two authorisation schemes in a way that they exclude each other. Either, the Member State did not make use of the private-copy-exception so that the rightholders maintain their exclusive authorisation right; their authorisation would be required for each private copy (para. 36). Or the Member State introduced a private-copy-exception so that a private copy can be made without the rightholder’s consent. Only in this case, the fair compensation levy scheme applies (para. 37).

The decisive distinction is that in the latter the rightholders are not even empowered to authorise anymore. If a Member State issues a private-copy-exception, only the Member State has the right to authorise, whereas the Member State has already authorised the making of a private copy by establishing the exception (para. 53). Regarding private copies, the authorisation right has been transferred from the rightholder to the Member State. This is a more profound encroachment upon the authorisation right than a mere justification of an infringement through an exception or limitation. By establishing a private-copy-exception, the Member State partially dispossesses the rightholders of their power of disposition. The levy scheme can be seen as a balancing tool for this profound loss (Recital (35) of the InfoSoc-Directive).

The lack of power of disposition explains why the rightholder’s authorisation is void. If a right is not assigned to the proprietor anymore, he or she cannot dispose of this right effectively. As a consequence and like the court pointed out, a void authorisation cannot have any effect on the harm which shall be compensated by the levy (para. 37).

In sum, the ECJ clarified the scope of the private-copy-exception or -limitation pursuant to Article 5 (2)(b) InfoSoc-Directive as well as the legal position of the rightholder. For the purpose of private copies, this exception or limitation transfers the authorisation right to the Member State. As a consequence, any authorisation act of the rightholders is devoid of legal effects and only the Member State remains empowered to authorise.

Although both sides have reasonable arguments, we await with anticipation which side the ECJ will take.