Padawan Case
Background
Legislation in force before the decision
According to Article 17 of the consolidated version of the Law on Intellectual Property (Texto Refundido de la Ley de Propiedad Intelectual; ‘TRLPI’) ‘[t]he author has exclusive rights of exploitation of his works regardless of their form and, in particular, reproduction rights …which cannot be exercised without his permission except in circumstances laid down in this Law’, and by the following articles which extend that reproduction right to other holders of intellectual property rights. Article 18 of the TRLPI specifies that reproduction means: ‘the fixation of the work on a medium which enables communication of the work and copying of the whole or part of the work’. In accordance with Article 5(2)(b) of Directive 2001/29, Article 31(1)(2) of the TRLPI provides that works which have already been circulated may be reproduced without the author’s permission for ‘private use by the copier without prejudice to Articles 25 and 99(a) of this Law, provided that usage of the copy is not collective or for profit’.
Article 25 of the TRLPI lays down highly detailed rules governing the compensation to which the holders of intellectual property rights are entitled in respect of reproductions made exclusively for private use. That compensation, which must be fair and paid only once, consists of a levy. The levy must be imposed on manufacturers and importers of the equipment and media and on ‘wholesalers and retailers as subsequent purchasers of the products concerned’ (Article 25(4)(a) of the TRLPI), and it is to be paid to intellectual property rights management societies (Article 25(7) of the TRLPI).
The amount of compensation must be approved jointly by the Ministry of Culture and the Ministry of Industry, Tourism and Trade in accordance with the following procedure: first of all, rights management societies and the industry associations, representing in the main persons liable for payment, are granted a period of four months to determine which equipment, devices and media attract fair compensation for private copying, together with the amount payable in each case; second, three months after notification of the agreement, or after expiry of the four-month period if no agreement has been reached, the Ministry of Culture and the Ministry of Industry, Tourism and Trade must approve the list of equipment, devices and media which attract the ‘levy’ and the amount thereof (Article 25(6) of the TRLPI).
In that connection, the law lays down a number of criteria to be taken into account: (a) the harm actually caused to the holders of the intellectual property rights as a result of the reproductions classified as private copying; (b) the degree to which the equipment, devices and media are used for the purpose of such private copying; (c) the storage capacity of the equipment, devices and media used for private copying; (d) the quality of the reproductions; (e) the availability, level of application and effectiveness of the technological measures; (f) how long the reproductions can be preserved; and (g) the amount of compensation applicable to the equipment, devices and media concerned should be economically proportionate to the final retail price of those products (Article 25(6) of the TRLPI).
In order to implement the abovementioned provisions, Orden Ministerial (Ministerial Order) No 1743/2008 of 18 June 2008 laid down which digital reproduction equipment, devices and media must attract payment of the private copying compensation, and the amount of compensation payable in respect of each product by every person liable.
Proceedings
SGAE is one of the bodies responsible for the collective management of intellectual property rights in Spain. Padawan marketed CD-Rs, CD-RWs, DVD-Rs and MP3 players. SGAE claimed payment from Padawan of the ‘private copying levy’ provided for in Article 25 of the CTLIP for the years 2002 to 2004. Padawan refused on the ground that the application of that levy to digital media, indiscriminately and regardless of the purpose for which they were intended (private use or other professional or commercial activities), was incompatible with Directive 2001/29. By judgment of 14 June 2007, the Juzgado de lo Mercantil No 4 de Barcelona upheld SGAE’s claim in its entirety and Padawan was ordered to pay EUR 16 759.25 together with interest. Padawan appealed against that judgment to the referring court.
After consulting the parties and the Public Prosecutor’s office about the expediency of making a reference for a preliminary ruling, the Audiencia Provincial de Barcelona (Provincial Court, Barcelona) decided to stay its proceedings and to refer the following questions to the Court for a preliminary ruling:
‘1. Does the concept of “fair compensation” in Article 5(2)(b) of Directive 2001/29/EC entail harmonisation, irrespective of the Member States’ right to choose the system of collection which they deem appropriate for the purposes of giving effect to the right to fair compensation of intellectual property rightholders affected by the adoption of the private copying exception or limitation?
2. Regardless of the system used by each Member State to calculate fair compensation, must that system ensure a fair balance between the persons affected, the intellectual property rightholders affected by the private copying exception, to whom the compensation is owed, on the one hand, and the persons directly or indirectly liable to pay the compensation, on the other, and is that balance determined by the reason for the fair compensation, which is to mitigate the harm arising from the private copying exception?
3. Where a Member State opts for a system of charging or levying in respect of digital reproduction equipment, devices and media, in accordance with the aim pursued by Article 5(2)(b) of Directive 2001/29 and the context of that provision, must that charge (the fair compensation for private copying) necessarily be linked to the presumed use of those equipment and media for making reproductions covered by the private copying exception, with the result that the application of the charge would be justified where it may be presumed that the digital reproduction equipment, devices and media are to be used for private copying, but not otherwise?
4. If a Member State adopts a private copying “levy” system, is the indiscriminate application of that “levy” to undertakings and professional persons who clearly purchase digital reproduction devices and media for purposes other than private copying compatible with the concept of “fair compensation”?
5. Might the system adopted by the Spanish State of applying the private copying levy indiscriminately to all digital reproduction equipment, devices and media infringe 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 it is applied to different situations in which the limitation of rights justifying the compensation does not exist?’
The claimant in the main proceedings proposed that the reference should be declared inadmissible. It considered it to be obvious that compensation for private copying was merely the subject of minimal harmonisation. Directive 2001/29 lays down neither the methods, pursuant to which fair compensation for private copying should be calculated, nor the equipment, devices and media, the sale of which gives rise to a claim for fair compensation, nor the specific circumstances in which payment should not be exacted.
The United Kingdom Government, the French Government and the defendant in the main proceedings take the view that the indiscriminate application of the levy to undertakings and professional persons who clearly purchased digital reproduction devices and media for purposes other than private copying is not compatible with the concept of ‘fair compensation’. In particular, in the opinion of the Finnish Government, if the Member State has selected a levy system in relation to digital reproduction equipment, devices and media, it is justified to abstain from a levy for those devices which would be used for purely professional purposes.