Austrian Constitutional Court declares percentage Cap of Copyright Levies null and void

Copyright levies on recording media have been occupying the Austrian courts, courts of other Member States and the CJEU frequently over the last few years. A recent decision of the Austrian Constitutional Court adds another chapter to this never-ending story.

The background

Based on the InfoSoc-Directive (2001/29/EC), Member States must provide that authors have the exclusive right to prohibit or authorise the reproduction of copyrighted material. Member States may provide for exceptions and limitations to this exclusive right, among others in respect of reproductions on any medium made by a natural person for private use and for ends that are neither directly nor indirectly commercial ("private copy"), on condition that the rightsholders receive fair compensation (Art. 5 (2)(b) InfoSoc-Directive). In Austria, Section 42b of the Copyright Act ("CA") ensures such "fair compensation" by providing for a levy on recording media and one on devices used for reproductions on paper and similar materials.

In 2015, this provision was amended to include a long list of factors to be considered when determining the levy. Section 42b (4)(8) CA provides that there should be an appropriate relationship between the typical price level of the products and the levy, whereby the levy on recording media should not exceed 6 % of the price level, unless the recording media is almost exclusively used for private copying. The rates for the copyright levy agreed on between the collecting societies and industry associations in the so-called Gesamtverträgen in many cases substantially exceed this "cap", in particular regarding rates agreed on before the 2015 amendment of the CA.

The case

Austro-Mechana, the Austrian collecting society entrusted with the collection of the levy, sued a person selling blank CDs. This person only agreed to pay an amount equal to 6 % of the price of the blank CDs, but not the amount requested. In addition, the defendant argued that under the 2015 amendment, another cap of 29 million per year of copyright levy was introduced into the Copyright Act (Section 116 (11) CA) and that this amount was already exceeded in the relevant year.

The Commercial Court Vienna granted Austro-Mechana's claims. Together with its reply to the defendant's appeal, Austro-Mechana filed a request to the Austrian Constitutional Court asking it to annul the 6 % cap provided in regard to the levy on recording media and the 29 million total amount.

The decision

The Constitutional Court granted Austro-Mechana's request regarding the 6 % cap, arguing that the cap provided for in Section 42b (4)(8) of the Copyright Act would prevent collecting societies and industry associations from agreeing on fair compensation. The Court therefore considered the 6 % cap not only inappropriate to ensure the objective of Section 42b, but in fact as an obstacle, and repealed the relevant parts of Section 42b (4)(8) CA as conflicting with the general principle of equal treatment.

On the other hand, the 29 million total amount was considered in line with the constitution, as the Constitutional Court did not consider it a "cap" but rather a "guidance value". In case of deviations, the collecting societies and the industry associations would only be obliged to initiate negotiations regarding the rates.

Concluding remarks

This new decision confirms the position of the collecting societies, which have from the very beginning considered the 6 % cap to be against EU and Austrian constitutional law. Considering that 2019 is the last year in which the 29 million "cap" is applicable (unless the legislator would provide for an extension), the collecting societies may soon try to renegotiate some of the tariffs. Moreover, in its transparency report for 2017, Austro-Mechana states that a survey on the use of the storage space in the "cloud" has been ordered (which Austro-Mechana is obliged to conduct if it wants to publish rates for new recording media for which it intends to collect a levy) that showed substantial use of the "cloud" for private copying. While it is a point of contention in the legal literature whether Austrian law provides the basis for such a levy at all, and while collecting such a levy would also face practical difficulties, the collecting societies have evidently not given up this "project". It looks like 2019 will be another interesting year in the "copyright levy realm" indeed!

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