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Second episode.

The case SGAE v PADAWAN

1. The case

As explained in our previous post, PADAWAN, S.L. runs a shop selling all kind of items related to computers, from hard drives and USB pen drives to spare parts of PC to DVD’s and CD’s. Therefore and according to the system explained in our first post, it had to pay the levy for the selling of those items. When SGAE  required this shop to pay the amounts due by the levy to compensate the private copy, the shop refused to do so and SGAE sued PADAWAN, S.L. claiming the amounts due between November 2004 and January 2006, a total of 18.084,70 € .

 

The Commercial Court of Barcelona ruled against the shop and condemned it to pay a total amount of 16.795,25 € and the costs of the procedure. The judgment contained a lesser amount than the one asked initially as this difference was the only amount recognized by the shop and therefore paid beforehand.
This outcome came to no surprise for anybody as it had been the same ruling for any similar case: the Ministerial Order (or before it, the law that fixed provisionary the devices and the levy charged per each one) applied to any device likely to be used to make private copies and therefore SGAE collected this levy from every sell of these electronic devices, no matter the real use it was bought for.

2. The preliminary request to the Court of Justice of the European Union

However things started to become worrying for the interests of SGAE when in the appeal before the superior Court –the Audiencia Provincial de Barcelona- its Section 15 accepted the petition of the defendants of the appeal to issue a Preliminary Request to the Court of Justice of the European Union (CJUE).

The substantive concern of the requesting Court was on the first place whether the system used by a Member State to calculate the “fair compensation” under Article 5(2)(b) of Directive 2001/29 should ensure a fair balance between the right holders on the one hand and the persons direct or indirectly liable to pay the compensation on the other one. If so, then if such balance should be determined by the harm arising from the private copyright exception.

The second concern of the Spanish Court was whether the amount levied under such system should be necessarily linked to the presumed use of those equipment and media and therefore whether there should be a presumption of such use for private copies to justify the levy.

If so then, if an indiscriminate application of that levy to undertakings and professional persons who clearly purchase  digital reproduction devices for purposes other than private copying was compatible with the concept of “fair compensation”. Or in other words, whether the indiscriminate application of the “levy” (where such system was adopted) was compatible with the concept of “fair compensation”.

And finally the Spanish Court wanted to know if the Spanish system was compatible with Directive 2001/29 in so far it applied indiscriminately to any purchase of any kind of equipment and media regardless the real use it was acquired for.

In other words, the main concern of the Spanish Court was about i) the link between fair compensation and private copying and ii) the weight of the adjective adjective “fair” had to be when accompanying the noun “compensation”.

The ruling, after stating that the concept of “fair compensation” of art. 5.2(d) of Directive 2001/29 is  an autonomous concept as it does not refer to any national law to define its meaning and scope and thus must be interpreted uniformly through the European Union, the Court dives with no hesitation to the core of the question.

The ruling of the Court clears all doubts of the Spanish Audiencia Provincial:

1.- As a matter of principle, the Court rules that fair compensation must be calculated on the basis of the harm caused to authors of protected works by the introduction of the private copying exception. Thus a system as the Spanish one is consistent with the concept of fair “compensation” (the brackets are ours, as the Court literally says balance, which is the cornerstone of the decision as we will explain later).

2.- So the “what” is correct. However, the how is not: the system implementing such compensation must establish a link between the levy on digital equipment and the deemed use of such equipment for private copying and therefore this levy cannot be applied indiscriminately. In other words, the levy on  devices and media not made available to private users and therefore clearly reserved for other uses than private copying is not consistent with Directive 2001/29.

The cornerstone of this decision is the principle of “fair balance” that must be safeguarded not only between the different categories of rightholders but also between these right holders and the users of protected work.

This fair balance justifies both the existence of such compensation and at the same time, its limits.

The existence and thus "the what" of the system is pretty easy to understand: as far as there is private copying and thus harm to right holders, the system consisting on a levy on equipment and media to compensate this harm is consistent with the fair balance justifying the fair compensation.

But at the same time this fair balance is the limit of this system: the levies on equipment cannot be applied indiscriminately and therefore must take into account whether the deemed use of the device or equipment is for private copying use or for any other kind of use.

As far as Spanish system didn't distinguish between professional use and private copying use, it was not consisten with the Directive.

Once the ruling issued, it was then time for the Spanish Audiencia Provincial to rule on the case.

I will discuss that in my next post