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Padawan case – Legal assessment

Indiscriminate application of the levy to undertakings and professional persons (de)

Indiscriminately charging a levy, without duly taking into account the fact that, owing to factors specific to a certain line of business, the devices in question could be acquired for purposes other than private copying, may not be based on Article 5(2)(b) of Directive 2001/29. It is not ‘fair compensation’ within the meaning of that provision, especially since, as shown by recital 35, the Member States are expressly urged, (78) when determining the form, detailed arrangements and possible level of such fair compensation, to take account of the particular circumstances of each case. In addition, in the prevailing circumstances, such legislation would particularly disregard the link which, according to Article 5(2)(b) of Directive 2001/29, must exist between the act of interference and the corresponding financial compensation. The main requirement for compensation is a reproduction made ‘by a natural person for private use and for ends that are neither directly nor indirectly commercial’.

Indiscriminately burdening an undertaking by means of a levy as compensation for private copying could not be justified, since first of all the private copies must have been made ‘by a natural person’, so that a reproduction ‘by an undertaking’ is not covered, at least on the basis of the wording. However, even looking at the reality of the situation, whereby the act of reproduction must necessarily be carried out by a natural person, for instance an employee of the undertaking, the attribution of an act of reproduction to the undertaking would raise legal questions upon which a conclusive opinion cannot be given. On the other hand, it follows indirectly from the spirit and purpose of the provision in Article 5(2)(b) of Directive 2001/29 that the copy in question must in any case be intended ‘for the private use of a particular person’. The making of a private copy for use by a legal person would therefore for example be excluded, in so far as that is understood to mean the use of the copy by a number of people.

However, even if exceptionally the act of reproduction were regarded as attributable, the factual conditions for application of Article 5(2)(b) would not be satisfied. That provision expressly excludes any type of copying for commercial purposes, regardless of whether it is for legal purposes (for example backup copies) or illegal commercial purposes (for example music piracy). In a case where undertakings or professional persons ‘clearly purchase for purposes other than private copying’, the digital reproduction devices and storage media, for example for professional purposes, that would not be covered by the limitation in Article 5(2)(b). Financial remuneration for the rightholders would accordingly in those circumstances go beyond what Directive 2001/29 actually required with regard to ensuring ‘fair compensation’.

Article 5(2)(b) clearly lays down the circumstances in which the rightholder is entitled to remuneration. In addition, the person who may be held liable may be ascertained with precision from the spirit and purpose of the provision: in case of doubt, it is the user who benefits from the private copying rule. Against this background, it must be assumed that Article 5(2)(b) contains an exhaustive Community law regulation of ‘fair compensation’ for private copying, which prevents the Member States – at least as far as private copying is concerned – from unilaterally expanding the circle of those who can be held liable to other groups of people such as undertakings and professional persons, who from experience purchase digital reproduction devices and media for purposes other than private use.

Therefore, remuneration which is granted to rightholders, as a result of the indiscriminate application of a levy to undertakings and professional persons on the basis of a private copying rule, is in any case not ‘fair compensation’ within the meaning of Article 5(2)(b) of Directive 2001/29. A compensation system for private copying financed by a levy, which for practical reasons determines ‘fair compensation’ by means of a lump sum is, in the light of the broad discretion enjoyed by the Member States, essentially compatible with Directive 2001/29.

However, the national legislature must ensure that the correlation required by Article 5(2)(b) of Directive 2001/29 between the interference with the comprehensive reproduction right of the rightholder and the corresponding financial compensation is substantially maintained. Where such correlation no longer exists, for instance because the relevant levy is largely applied to different situations in which there is no limitation of rights which would justify the financial compensation, the remuneration granted to the rightholders does not in any case constitute ‘fair compensation’ within the meaning of Article 5(2)(b) of Directive 2001/29. Therefore, national system which indiscriminately provides for a levy for private copying on all equipment, devices and media infringes Article 5(2)(b) of Directive 2001/29 in so far as there is insufficient correlation between the fair compensation and the limitation of the private copying right justifying it, because to a large extent the levy is applied to different situations in which the limitation of rights which would justify the compensation does not exist.