Following a reference from the Supreme Court of the Netherlands, the Court of Justice of the European Union (CJEU) held that EU law precludes member states from having national copyright laws that do not distinguish between reproductions for private use made from lawful sources and those made from unlawful sources, irrespective of the availability of effective technical protection measures (TPMs). ACI Adam BV v Stichting de Thuiskopie, Case No. C-435/12 (CJEU 2014).

Background

Under the EU Copyright Directive, member states are permitted to lay down an exception to the exclusive right of a copyright holder to make private copies of a work. Where such exception is provided for in a national law for the benefit of a third person, such third person must provide copyright holders with fair and adequate compensation in return. In the Netherlands, such fair and adequate compensation takes the form of a private copying levy, payable to Stichting de Thuiskopie (Thuiskopie), which then distributes the levy to the rights holder. The amount of the levy is determined by the foundation Stichting Onderhandelingen Thuiskopie (SONT).

The claimants in this case, including ACI Adam, are importers and/or manufacturers of blank data media such as CDs and CD-Rs. They are therefore subject to the Dutch private copying levy. They brought proceedings against Thuiskopie and SONT alleging that the amount of the copying levy had been incorrectly determined as it erroneously took into account harm suffered by copyright holders as a result of copies made from unlawful sources.

The Supreme Court of the Netherlands found that the EU Copyright Directive does not explicitly state whether reproductions made from unlawful sources must be taken into account when determining “fair compensation” and therefore referred three questions to the CJEU. They are summarized as follows:

• Is the exception that is permitted under the EU Copyright Directive limited to reproductions made from lawful sources?

• If that is the case, taking into account the three-stage test set out in the directive, are national laws that do not distinguish between reproductions made from lawful and unlawful sources contrary to the directive or any other rule of law?

• Is this answer affected by the availability of TPMs? 

Judgment

The CJEU found that the exception provided under the EU Copyright Directive must be interpreted strictly. This exception is to be applied only in cases which do not conflict with the normal exploitation of the copyright and do not unreasonably prejudice the legitimate interest of the rights holder. The CJEU held that the EU Copyright Directive must be understood “as meaning that the private copying exception admittedly prohibits copyright holders from relying on their exclusive right to authorise or prohibit reproductions with regard to persons who make private copies of their works.” However, this does not mean that copyright holders must tolerate infringements that may accompany the making of private copies. In other words, the private copying exception does not cover reproductions for private use made from unlawful (unlicensed) sources.

The CJEU further found that this interpretation was in line with the underlying objectives of the Copyright Directive. If member states had the option of adopting legislation that allowed reproductions for private use to be made from an unlawful source, the result would clearly be detrimental to the proper functioning of the internal market. Such national legislation would encourage piracy and would unreasonably prejudice copyright holders.

Lastly, the court looked at the “fair compensation” offered to rights holders in the Netherlands. According to the case law of the CJEU, the purpose of such compensation is to compensate copyright holders for private copies made of their protected works without their authorization. The levy system imposed in the Netherlands is not imposed directly on the end users making the copies, but on the manufacturers and importers of data storage media, who may pass on the amount of that levy in the price charged for the product. The burden of that levy is thus ultimately borne by the private user. In this context, the CJEU emphasised that the levy system imposed by a national government must ensure that a fair balance is maintained between the rights and interests of authors (the recipients of the fair compensation) and the rights of the users of the protected subject matter.

The court held that the Dutch legislation failed to respect that balance. The failure to distinguish between lawful and unlawful sources results in a situation where all users who purchase reproduction equipment subject to the levy are indirectly penalized. This is because they bear the burden of the levy that  is determined regardless of the lawful or unlawful nature of the reproduction source. They therefore inevitably contribute towards the compensation for the harm caused by reproductions for private use made from an unlawful source. Users therefore find themselves required to bear an additional cost in order to be able to make private copies (a cost that cannot be considered negligible).

Practice Note:  The CJEU found that EU law, and more particularly the EU Copyright Directive, prohibits national legislation that fails to distinguish between private copies made from lawful sources and those made from counterfeited or pirated sources. Whether (or not) there exists applicable technological measures to combat the making of unlawful private copies, does not affect that finding.