The private copying exception and fair compensation: Opinion of Advocate General Hogan

There are many and very diverse conflicts and decisions regarding the reproduction right and, more specifically, the application of the private copying exception. It is a controversial issue, and technological developments in the information society make interpreting the application of this exception even harder.

The ongoing case Austro-Mechana (C-433/20) will allow the Court of Justice of the European Union (“CJEU”) to determine whether the private copying exception applies and, if so, to what extent, to (i) copies of copyright-protected content made by natural persons for private use in the digital environment; and, in particular (ii) reproductions in the cloud. If the CJEU finds the exception applicable, it will also have to determine the compensation payable to the copyright holder.

Advocate General Hogan (the “AG”) responds to these questions in his Opinion on the case discussed below.

The Higher Regional Court of Vienna (the “referring court”) requested a preliminary ruling in proceedings between copyright collecting company Austro-Mechana-managing remuneration rights related to the right of reproduction on storage media-and Strato AG (“Strato”), a cloud storage service provider based in Germany.

According to Austro-Mechana, compensation for exploiting the right of reproduction on storage media is payable when any kind of storage media are placed on the market within a national territory in the course of a commercial activity by whatever means, including cloud storage space. Strato argues that an interpretation including both cloud services and physical storage is not possible, since they are not comparable. Regarding the payment of fair compensation, Strato claims that both the company and its users have already paid the copyright fee, so additional remuneration cannot be due.

The referring court has some doubts about whether the expression “on any medium” in article 5(2) of Directive 2001/29 (the “InfoSoc Directive”) also includes third party servers providing cloud storage space for private use which the customers use for reproduction. The referring court also asks if Strato must pay compensation for the rights of reproduction on the storage media it provides in Austria.

On the application of the private copying exception to cloud computing services

As for the first question, the AG recalls that the private copying exception is optional. Therefore, in those Member States introducing the exception, any copies within the scope of the exception will be legal as long as copyright holders receive fair compensation. In other words, introducing the exception is optional for Member States, but payment of fair compensation will be required if the relevant Member State has implemented the exception.

The AG notes that article 5(2) of the InfoSoc Directive grants certain discretion to Member States for defining the exception in their legal systems. However, according to the AG, this discretion does not allow Member States to lay down compensation rules unreasonably discriminating between the (i) different categories of economic operators marketing comparable goods; or (ii) different categories of users of the protected services. In this context, the AG cites CJEU Judgment of March 5, 2015 in Copydan.

Therefore, the main issue in this case is the actual scope of the private copying exception under article 5(2) of the InfoSoc Directive, and not the extent to which Member States can restrict that scope to certain goods and services. The AG considers that the use of broad and technologically neutral terms like “reproductions on any medium” means that article 5(2) includes reproductions in both analogue and digital form within the private copying exception.

In the AG’s view, this interpretation is in line with the copyright protection objectives pursued by the InfoSoc Directive, which would be undermined if the exceptions and limitations were interpreted so as to exclude technological developments and the appearance of new digital media like the disputed cloud computing services.

The AG considers that this conclusion stands even if the copyright-protected content is made available to users by an internet service provider. The AG cites the Judgment in VCAST, (C-265/156), in which the CJEU confirmed that, for relying on article 5(2) of the InfoSoc Directive, it is not necessary that the natural persons have the reproduction equipment, which could be provided by third parties.

The infringement in VCAST was more serious and harmful for copyright holders (in that case, VCAST used cloud technology for providing access to protected television programs), but the AG still considers that both cases involve the unauthorized reproduction of copyright-protected content on a medium by a natural person. So, the AG concludes that the CJEU had already implicitly admitted that article 5(2) also applies to reproductions of copyright-protected content in the cloud. However, the AG recalls that the private copying exception only refers to content accessed from a lawful source, and that the rightholder will have the exclusive right to authorize or prohibit access to the content of which natural persons want to make copies for private use.

Based on this analysis, the AG suggests that the CJEU respond that the expression “on any medium” in article 5(2) of the InfoSoc Directive includes the reproduction in cloud computing services provided by third parties.

On fair compensation

The AG then examines if the cloud computing service provider must pay a levy or compensation for exploiting the right of reproduction on storage media, considering that, as in the case at hand, national legislation already imposes levies on a wide range of specific media.

The requirement of fair compensation is, in essence, an approximation of the harm caused to rightholders. Based on this, the AG’s line of reasoning rests on two premises: (i) compensation will be fair if it does not over or under compensate rightholders for the harm caused by private copying; and (ii) when rightholders have already received payment “in some other form,” a separate payment may not be due (recital 35 of the InfoSoc Directive).

Considering that (i) Austrian legislation requires levies for a wide range of media used by customers for private copying; and (ii) lump sum levies are necessarily imprecise, the AG states that we must be cautious before imposing additional levies on cloud services without verifying that additional harm is actually caused to rightholders, in order to avoid that these rightholders be overcompensated (paragraph 70).

Exercising this caution, the AG reaches the following conclusion: if a Member State applies a levy system regarding devices or media, as in the case at hand, it may be unnecessary to impose a separate levy on reproductions by natural persons for private use in cloud computing services provided by third parties. It will not be necessary only if the existing compensation makes up for the harm caused to the rightholder by the reproduction.

As in other cases, national courts are responsible for making this assessment. If national courts determine that the required payment is inappropriate or insufficient to compensate the harm caused to rightholders (based on economic criteria and industry knowledge), they may require a separate compensation.

The AG is not ruling out an additional payment for content reproduction in the cloud. Rather, the AG leaves in the hands of rightholders and national courts the difficult task of proving that levies on equipment, devices and media applicable in Member States “under compensate” the damage caused by copies made in cloud storage services.