Commercial Speech, Content Regulation / Censorship, Licensing / Media Regulation
Irwin toy ltd. v. Quebec
Closed Mixed Outcome
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In this case, the European Court of Justice (“ECJ”) held that while reproduction of media for private use is allowed, it may not be if copies are made from an unlawful source. It was further held that a copying levy system must distinguish between reproduction from a lawful source and reproduction from an unlawful source. The case came to the ECJ from the Supreme Court of the Netherlands by way of a request for a preliminary ruling on matters concerning the interpretation of Article 5(2)(b) and (5) of Directive 2001/29/EC on the harmonization of certain aspects of copyright and related rights in the information society, and of Directive 2004/48/EC on the enforcement of intellectual property rights. The case was between ACI Adam BV and Others, against Stichting de Thuiskopie (“Thuiskopie”) and Stichting Onderhandelingen Thuiskopie vergoeding (“SONT”). The latter were two foundations were responsible for the determination, collection, and distribution of the levy imposed on manufacturers and importers of media designed for the reproduction of literary, scientific, or artistic works with a view to private use. At issue was the fact that SONT, in determining the amount of that levy, took into account the harm resulting from copies made from an unlawful source. The ECJ made clear in the case that restrictions and limitations on copyright giving certain rights to users of works do not apply for reproductions for private use made from unlawful sources.
The Supreme Court of Netherlands stayed proceedings and asked the ECJ for a preliminary ruling concerning the interpretation of Article 5(2)(b) and (5) of Directive 2001/29/EC. ACI Adam and Others – importers and manufactures of blank data media such as CDs and CD-Rs – brought suit against Stichting de Thuiskopie (“Thuiskopie”) and Stichting Onderhandelingen Thuiskopie vergoeding (“SONT”), two foundations responsible for determining, collecting, and distributing the levy imposed on manufacturers and importers of media designed for the reproduction of literary, scientific, or artistic works with a view to private use. At issue before the Court was whether the fact that SONT, in determining the amount of that levy, could permissibly account for harm resulting from copies made from an unlawful source under the Directive.
ACI Adam and Others, under national law, were required to pay a private copying levy to Thuiskopie, the amount of which was determined by SONT. ACI Adam and Others argued that the amount levied incorrectly took into account the harm suffered by copyright holders as a result of copies made from unlawful sources. In other words, ACI Adams and Others asserted that the private copying levy as provided for in Article 16c(2) of the AW in the Dutch law was intended exclusively to remunerate copyright holders for acts of reproduction falling within the scope of paragraph 1 of that article, and therefore, the amount of that fee should not take into account compensation for harm suffered as a result of copies of works made from unlawful sources. ACI Adams and Others’ application was dismissed by the trial court in 2008, and that ruling was upheld by the Regional Court of Appeal in The Hague in 2010. On further appeal, the Supreme Court of the Netherlands found that Directive 2001/29 did not specify whether reproductions made from an unlawful source must be taken into account in determining the fair compensation referred to in Article 5(2)(b) of the Directive. For that reason, the Court decided to stay proceedings and refer three questions to the Court of Justice for a preliminary ruling:
(1) Should Article 5(2)(b) — whether or not it should be read in conjunction with Article 5(5) of the Directive, to be interpreted to mean that the limitation on copyright referred to applies to all reproductions regardless of whether the copies of the works from which the reproductions are taken were lawfully obtained or does the limitation apply only to reproductions taken from works that were made available to the person making the reproduction without infringement of copyright.
(2) (a) If the limitation applies only to reproductions made from legally obtained works, can the application of the “three-stage test” referred to in Article 5(5) of Directive form the basis for the expansion of the scope of the exception of Article 5(2), or can its application only lead to the reduction of the scope of the limitation?
(2) (b) Further, is a rule of national law providing for fair compensation for reproductions made for private use, without any direct or indirect commercial objective, regardless of whether the making of those reproductions is authorized under Article 5(2) of Directive contrary to Article 5 of the Directive, or to any other rule of EU law? And finally, with regard to the Article 5(5) “three-stage test”, is it important when answering the above question that the technological measures to combat the making of unauthorized private copies are not (yet) available?
(3) Is EU Directive 2004/48 applicable to these kinds of proceedings? Proceedings where a Member State has, on the basis of Article 5(2)(b) of Directive 2001/29, imposed the obligation to pay the fair compensation referred to in that provision on producers and importers of the media used for the reproduction of works, and has determined that the fair compensation be paid to an organization tasked with the collection and distribution of the fair compensation and those liable to pay the compensation have brought an action for a declaration by the courts, regarding circumstances which have a bearing on the determination of fair compensation against the organization concerned?
Judges L. Bay Larsen, K. Lenaerts, M. Safjan, J. Malenovský and A. Prechal delivered the judgment in this case.
The Court began by noting the relevant provisions of Directive 2001/29. Article 2 provides that Member States must give authors the exclusive right to authorize or prohibit direct or indirect, whole or part, temporary or permanent reproduction by any means and in any form of their works, while also reserving the option, under Article 5(2) of that directive, of providing for exceptions and limitations to that right. The Court found that the scope of such exceptions and limitations, according to settled caselaw, must be interpreted strictly. Furthermore, Article 5(5) of Directive 2001/29 requires that the exceptions and limitations to the reproduction right are applied only in certain special cases which do not conflict with the ordinary exploitation of the work nor unreasonably prejudice the legitimate interests of the right holder. Article 5(2)(b) – known as ‘the private copying exception’ – allows Member States to provide for exceptions to the author’s exclusive reproduction rights in his or her work when a natural person makes reproductions for private use. The provision, however, does not address the lawful or unlawful nature of the source from which a reproduction of the work may be made.
Therefore, the principle of strict interpretation will apply. Such an interpretation leads to an understanding of Article 5(2)(b) as meaning that the private copying exception prohibits copyright holders from relying on their exclusive rights to authorize to prohibit reproductions of their works for private use but not to the extent that copyright holders would have to tolerate infringements of their rights which may accompany the making of any private copies. The Court held that Article 5 exceptions have to ensure a balance between the different legal traditions in Member States and the proper functioning of the internal market. Thus, Member States have the option of introducing different exceptions, but once they have made the choice to introduce such exceptions, they must apply them in a way that does not undermine the objectives of the Directive to ensure the proper functioning of the internal market. The Court held that if Member States were to adopt legislation which allowed reproductions for private use to be made from unlawful sources, the result would clearly be detrimental to the proper functioning of the internal market. In addition, it was held that recital 22 in the preamble to Directive 2001/29 made clear that national legislation that doesn’t distinguish between private copies made from lawful and unlawful sources cannot be tolerated and not drawing such a distinction may infringe certain conditions laid down by Article 5(5). Such reproductions would encourage the circulation of counterfeited or pirated works and reduce the volume of sales and other lawful transactions relating to protected works thereby adversely affecting the a normal exploitation of those works and unreasonably prejudicing copyright holders. Thus, in answer to the first and second question the Court held that in the light of all of the foregoing considerations, EU law, in particular Article 5(2)(b) of Directive 2001/29, read in conjunction with paragraph 5 of that article, must be interpreted to precluding national legislation, such as the kind in the present case, which does not distinguish between situations in which the source from which a reproduction for private use is made is lawful from that in which that source is unlawful.”
The Court also looked at whether in order for national legislation to be in conformity with EU law it must consider whether or not the technological measures referred to in Article 5(2)(b) and within the meaning of Article 6 of Directive 2001/29 do not, or do not yet, exist at the time when that legislation is implemented. It was held that the fact that no applicable technological measures to combat the making of unlawful private copies exists would not change the fact Article 5(2)(b) aims to prevent unauthorized acts of copying such as reproductions made form unlawful sources and that Member States in authorizing private use exceptions must distinguish between reproductions form unlawful and lawful sources. Therefore, the Court said, it follows that, in assessing whether national legislation is in conformity with EU law, there is no need to take into account the fact that technological measures, within the meaning of Article 6 of Directive 2001/29, and to which Article 5(2)(b) of that directive refers, do not, or do not yet, exist.
With regards to “fair compensation” as referred to in Article 5(2)(b) the Court held that if Member States are free to determine the limits of ‘fair compensation’ in an inconsistent and unharmonized manner that may vary from one Member State to another, it would be at odds with the overall objective of the Directive to harmonize certain aspects of the Law on copyright and related rights. The purpose of such compensation is to compensate authors for private copies made of their protected works without their authorization as remedy for the harm suffered as a result of such unauthorized copies. However, practically, this can be difficult and so the Court has accepted that Member States may establish a levy for the purposes of financing fair compensation. Such a system looks at harm caused to authors by reproductions for private use both from a lawful source and from unlawful sources. The compensation is paid by users of protected works when they purchase equipment, devices and media which enable private copies to be made which means that they are penalized since they inevitably contribute towards the compensation for the harm caused by reproductions from unlawful sources thereby assuming an additional, non-negligible cost in order to be able to make the private copies. The Court held that such a private copying levy system, such as the one at issue, which did not distinguish the between copies made from lawful and unlawful sources in calculating fair compensation does not strike a fair balance between the rights and interests of those receiving the compensation and the rights and interests of users.
Finally, the Court looked at whether Directive 2004/48 on the enforcement of intellectual property rights is applicable to a situation such as that in issued where the parties liable for the payment of compensation are suing a the organization or body tasked with collecting and distributing such compensation to rights holders. The Court held that Directive 2004/48 seeks to ensure the enforcement of intellectual property rights by means of various measures, procedures and remedies within the Member States. The Court pointed to previous decisions in which it was held that Directive 2004/48 provisions are intended to govern only the enforcement of rights and the infringement of those rights by requiring that effective legal remedies to prevent, terminate or rectify any infringement of an existing intellectual property right. The proceedings before the Court in this case related to the scope of the private copying exception and its impact on the collection and distribution of the fair compensation, which has to be paid by importers and/or manufacturers of media devices in accordance with Article 5(2)(b) of Directive 2001/29. Therefore, since this was not an action brought by right holders seeking to prevent, terminate or rectify any infringement of an existing intellectual property right, the answer to the third question is that Directive 2004/48 cannot apply.
Decision Direction indicates whether the decision expands or contracts expression based on an analysis of the case.
This case does not specifically expand expression, nor does it inappropriately limit expression. Private use exceptions to exclusive copyrights are considered expansive of expression. This case limits the application of such exceptions to only being valid if private use is derived from lawfully obtained copies of protected works. Further, the court holds that compensation, provided to rights holders through a levy system on providers of copying services, equipment, and devices for private use be calculated only with regard to private use that is related to lawfully obtained copies, so that users are not being unfairly penalized for copies obtained through unlawful means. The Court interprets the European laws relating to private use and compensation this way, and thus, strikes a fair balance between the rights and interests of those receiving the compensation – the authors and holders of copyright – and the rights and interests of users.
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