Why Does the CJEU Always Have to Answer the Question?

The recent judgment of the Fourth Chamber of the CJEU in the case of Egeda C-470/14 is a thoroughly bad decision. You can read more about the case and the judgment in Eleonora's posting on the IPKat here. This article is less about the reasoning of the Court, but more on why it was thought the Court was competent to deal with the matter in the first place. The simple answer is that a referral was made to the Court by Spanish Supreme Court for clarification of Article 5(2)(b) of  the InfoSoc Directive 2001/29. But what the court has actually managed to do is create law where none existed before.

But before we get to that part, was the referral necessary? It is worth bearing in mind that under the TFEU, the EU does not have competency in intellectual property matters. This may come as a surprise to some readers who will wonder why if this is the case, there are a dozen or so Directives and copious EU regulations on exactly that subject area. Of course the reason - often stated in the opening recitals of the various Directives - is to ensure the smooth running of the internal market. In treaty-speak this refers to the free movement of goods and services, as well as of labour etc. But as Article 5 (2) and(3) of the Treaty of the European Union (TEU) (the so-called Maastricht Treaty as amended by the Lisbon Treaty) say:

2. Under the principle of conferral, the Union shall act only within the limits of the competences conferred upon it by the Member States in the Treaties to attain the objectives set out therein. Competences not conferred upon the Union in the Treaties remain with the Member States.
3. Under the principle of subsidiarity, in areas which do not fall within its exclusive competence, the Union shall act only if and in so far as the objectives of the proposed action cannot be sufficiently achieved by the Member States, either at central level or at regional and local level, but can rather, by reason of the scale or effects of the proposed action, be better achieved at Union level.

In other words the overarching principle of harmonizing the marketplace does not automatically give the EU competence to legislate in every area of life within the Member States. Yet to all intents and purposes, by a slow process of mission creep, the reach of the EU has been extended deeper and deeper into the intellectual property law of the member states. As readers in the UK and some others may be aware, this sort of activity by the EU is under some scrutiny here at present, although I doubt if Boris Johnson will be taking up the particular issue of EU copyright reform.

Thus it is that we have the InfoSoc Directive. A document which was approved by the European Parliament, and which thus is deemed to have democratic legitimacy. Regular readers will know that the drafting of this Directive was less than ideal, and this has lead to many referrals to the CJEU for clarification, especially where Article 5 is concerned. Perhaps the most significant thing about Article 5 is that it is the one place in the Directive where the member states are given a degree of freedom about whether and/or in what manner to implement the majority of exceptions and limitations set out there. The Egeda case centred on Article 5(2)(b), concerning the exception to make copies for private use and the requirement for rightholders to be fairly compensated for such activities. As Eleonora has already covered the details of how this was relevant in Egeda, I won't reiterate them here. Suffice it to say that the Directive is silent on how this compensation is to be raised. Even the recitals, which normally provide the principles and reasoning behind certain provisions found in the Articles, make no mention of how the compensation is to be raised, beyond the fact that it must be fair, taking into account matters such as the potential economic harm to the rightholder.

The Commission which drafted the Directive and the Parliament which agreed to it, saw no pressing need to specify the actual means by which the compensation was to be raised, provided that the amount was 'fair'. The various member states have thus quite reasonably adopted several different models for implementing this exception. Countries such as Spain adopted the state funding route, while others approved a levy on the sale of various devices and media used for the purposes of copying, and still others (the UK among them) made no provision whatsoever for general compensation. Interestingly the UK's public lending right, which is not about the reproduction of copyright works, does provide for the centralised funding of compensation to authors of books which are borrowed from public libraries.

But the Fourth Chamber felt that the absence of any explicit EU direction on this particular issue did not mean that the principle outlined in Article 5(3) of the TEU quoted above should apply. Or rather, the Court seems to have assumed that "by reason of the scale or effects of the proposed action, [action would] be better achieved at Union level." But don't forget, what underpins all this is the desire to have a harmonised marketplace. It is hard to see how the scale or effects of whether the compensation is raised through a levy or by a state-funded mechanism truly merits an intervention at the EU level in subject area where it doesn't have competency. Both mechanisms are intrinsically unfair and ineffective at achieving the aim of correctly compensating the rightholder, simply because no-one has any idea of the extent to which private copying is carried out. In countries which have a levy system, media such as blank CDs are 'taxed' on the basis that they will be used to store copies of all manner of digital works be it music, images, literary works or indeed, none of these. Since no-one knows the proportions of CD sales which actually relate to the copying of, say, an individual musician's records, how can that individual be 'fairly' compensated for the potential loss of sales? A single blank tape cassette would be taxed once (at the point of sale) and could theoretically be used over and over to record music, but there was no linkage between the levy and the potential harm. Most CDs on the other hand are only used once, and therefore each unit accounts for many fewer copies. In both cases the actual levy on blank media remains fixed as a percentage of the sale price, irrespective of their relative levels of potential to harm rightholders.

Much the same objections apply to a state-funded model: an arbitrary figure will be set, possibly based on certain metrics such as sales of goods likely to affected by copying, but no-one will have any reasonable way of knowing how much of this central fund should be allocated to the individual rightholders. As a consequence the collecting societies usually provide the conduit to pass the money to their members, many of whom will be totally undeserving of it, because their works are rarely copied. But both methods equally fail to meet the fairness test since there is absolutely no linkage between any possible economic harm to an individual author or artist on the one hand and a calculation of that harm which needs appropriate (or 'fair') compensation. Either system is at best a compromise and at worst a fudge.

Which brings me back to where it is best to make decisions about which system to adopt. Since each member state has its own historic approach to copyright, based on a number of concepts, such as the droit d'auteur or the more Lockean utilitarian or public good concept, it would sensible to also let the member states decide how compensation should be arranged locally, given the need for fairness as it applies to its own population, and the extent to which domestic law on copyright is permissive or restrictive in its application. To take the particular example of photographs, in jurisdictions where the 'originality' threshold is high, fewer works will gain copyright protection in the first place, and so there will be less need overall for compensation to photographers generally than in countries where the originality threshold is low. However the extent to which private copying of photographs may or may not take place in these countries is entirely unrelated to this fact. It seems clear that harmonization of the marketplace no more applies here than it does to the individual fees which various authors and artists can command within their respective national marketplaces. On that basis the decision on how to fund compensation for private copying should be left at the level of the member state. A logical extension to the Fourth Chamber's decision would be that not only should compensation be achieved through a levy system, but that the amount of the levy should be identical in each member state, irrespective of whether they are within the Eurozone or not.

However, none of that analysis troubled the Fourth Chamber in their deliberations. Instead they were more concerned that the person responsible for the copying should actually pay for that privilege, which rather misses the point made in the recitals that the emphasis of the calculation should be based on the (potential) harm suffered by the rightholder.

That is the reason I think the Egeda judgment was wrong as a matter of principle. The CJEU should learn to step back occasionally and ask itself if the Treaties really require the EU to determine policy on a specific topic and thus whether the Court needs to intervene at all. The saying "when all you have in your toolbox is a hammer, it's easy to see every problem as a nail" comes to mind.