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ACI ADAM BV and others v STICHTING DE THUISKOPIE and another


JUDGMENT                                                                                                                        
COURT OF APPEAL OF THE HAGUE
Commercial Division
Case number:                200.018.226/01
Court case-list number:  05-2233

Judgment issued by the fifth civil division on 15 November 2010
In the case of

1.     ACI ADAM B.V.,
Established in Maastricht,
2.     ADVANCED OPTICAL DISC HOLLAND B.V.,
Established in Utrecht,
3.     ALPHA INTERNATIONAL B.V.,
Established in Lent,
4.     AVC NEDERLAND B.V.,
Established in Haarlemmermeer,
5.     DAZY DIRECT B.V.,
Established in Amsterdam,
6.     DESPEC B.V.,
Established in Sneek,
7.     DEXXON DATA MEDIA AND STORAGE B.V.,
Established in Bodengraven,
8.     FREDERIK JOHANNES DRIESSEN, trading under the name DRIESSEN TRADING,
Residing in Pijnacker,
9.     The legal entity according to foreign law EMTEC CONSUMER MEDIA BENELUX N.V.-S.A.,
Established in Andelst, Belgium,
10.  EUROGRAM INTERNATIONAL B.V.,
Established in Heerhugowaard,
11.  The legal entity according to foreign law FUJI MAGNETICS NEDERLAND,
Established in Kleve, Germany,
12.  IMATION EUROPE B.V.,
Established in Rotterdam,
13.  MAXELL BENELUX B.V.,
Established in Amsterdam,
14.  MMORE INTERNATIONAL B.V.,
Established in Diemen,
15.  NASHUA MEDIA PRODUCTS, B.V.,
Established in Almere,
16.  PHILIPS CONSUMER ELECTRONICS B.V.,
Established in Eindhoven
17.  RIMAFRA B.V.,
Established in Hillegom
18.  The legal entity according to foreign law SKY MEDIA MANUFACTURING S.A.,


Established in Yvonand, Switzerland
19.  SONY BENELUX B.V.,
Established in Badhoevedorp,
20.  The legal entity according to foreign law VERBATIM GmbH,
Established in Eschborn, Germany,

Appellants, respondents in the cross-appeal,
Hereafter referred to as: ACI et al.,
Advocate: Mr P.J.M. von Schmidt auf Altenstadt of The Hague,

And

1.     The foundation, STICHTING DE THUISKOPIE,
Established in Amsterdam,
Respondents, appellants in the cross-appeal,
Hereafter referred to as: Thuiskopie
Advocate: Mr H. Ferment of The Hague,

2.     The foundation, STICHTING ONDERHANDELINGEN THUISKOPIE,
Established in The Hague
Respondent,
Hereafter referred to as: SONT,
Advocate: Mr E. Grabandt of The Hague.


Course of proceedings

ACI et al. submitted an appeal on 22 September against the judgment of the District Court of The Hague dated 25 June 2008, in the case between ACI et al. as claimants and Thuiskopie and SONT as respondents. ACI et al. submitted “a statement of appeal, including an additional claim” (MvG) against this judgment on three grounds. SONT referred to the judgment of the Court in its statement of defence on appeal (MvG). Thuiskopie submitted a “statement of defence on appeal, including a response to the change in claim and a statement of appeal in the cross-appeal”(MvA/MvG-inc), which disputed the grounds for appeal submitted by ACI et al. and included a conditional and two unconditional grounds of appeal against the judgment. ACI et al. subsequently submitted a statement of defence on appeal in the cross-appeal (MvA-inc).

The parties’ submissions were heard on 1 July 2010; ACI et al. were represented by Mr D.J.G. Visser and Mr A.M.C. Alkema, both advocates in Amsterdam, Thuiskopie was represented by Mr E.A.P. Engels, advocate in Amsterdam and SONT was represented by Mr E.P.A. Keyzer, advocate in Amsterdam. Counsel made use of the written summaries of the arguments which have been included in the file. ACI et al. submitted additional arguments at the hearing, as well as written submissions regarding a “suggestion of prejudicial questioning and change of appellants”. Thuiskopie also submitted parliamentary papers at the hearing pertaining to a letter from the Werkgroep Auteursbeleid – Copyright Policy Working Group and a response to the government’s position on the Gerkens’ report (Reactie Kabinetsstandount Rapport Gerkens). The parties subsequently requested a judgment.

Evaluation of the appeal

1. The facts and the dispute

1.1. The case concerns the following.


a.     Pursuant to article 1 of the Copyright Act (Aw) only the author of a work is entitled to duplicate the work (including reproducing or copying), with the exception of some restrictions imposed by the law. This right belonging to the author will hereafter be referred to as: the reproduction right. The reproduction along with the exclusive right of the author to publish his material (the publication right) collectively form the copyright. One of the restrictions to the reproduction right imposed by the Act is defined in article 16c Aw, and is also referred to as the “Private Copying Regulations” (Thuiskopieregeling). Parts 1 and 2 of article 16c Aw read as follows:

             1. Reproduction of the work or any part thereof shall not be regarded as an         infringement […] if the object is to play the work, enact the work or display the             work provided that the reproduction is carried out without any direct or indirect     commercial motivation and is intended exclusively for personal exercise,            study or            use by the natural person who made the reproduction.

           2. Fair compensation will be owed to the author or his successor
           in return for reproducing the works as described in the first paragraph. The          obligation to pay the compensation rests on the manufacturer or the        importer of the objects described          in the first paragraph.

Article 16c Aw implies that a private individual copying a CD-R (the “object” referred to in part 1), for instance, for personal use, is not infringing the copyright – or more specifically the reproduction right – of the author of the piece of music in question, provided that fair compensation is provided for that copy (“private copying compensation”). The Court will hereafter refer in respect to article 16c Aw to “private electronic copy” to distinguish this from “private paper copy”, which is subject to a restriction in the author’s reproduction right pursuant to article 16b (part 1) Aw.

b.    The claimants are importers and/or manufacturers of “objects” as described in part 2 article 16c Aw. These objects are “empty” (blank) storage devices, such as CD-Rs.

c.     The private copying compensation should be paid to Thuiskopie by the manufacturers or importers. Thuiskopie has been appointed by the minister as the legal entity charged with collecting and distributing this compensation (article 16d Aw).

d.    SONT has been appointed by the minister as the foundation charged with determining the level of the compensation (article 16e Aw). The board of directors of SONT comprises seven individuals; Thuiskopie has three members on the board and three individuals are (indirectly) appointed by Stichting Overlegorgaan Blanco Informatiedragers (STOBI, Consultative Body for Information Carriers). The minister appoints an independent chair. Article 11 of SONT’s articles of association reads as follows:

            If in the opinion of the chair any proposals made regarding the level of compensation          and/or the scope of the compensation are so disparate, that he believes that


            no further proposals could be made which would lead to decision by the board, then            he is authorised to determine a period in which the relevant decision has to be taken,             in the absence of which the chair is authorised to determine the level of the    compensation and/or determine how long the decision is to remain in force. The             other board members may be excluded from this decision, which has a binding effect         on the entire board.

e.     As no agreement has been reached for any case within the SONT board, the level of the private copying compensation has virtually always been determined by the SONT chair in recent years. This includes the decision of 30 November 2004.

1.2        ACI et al. believe it is important that clarity is provided regarding the preconditions and criteria which apply to determining the level of the private copying compensation for the circumstances as described in 1.1 part e, and that levels of compensation will, in the future, be determined using preconditions and criteria which ACI et al. believes to be correct. ACI et al. therefore submitted a request for a ruling in this matter, comprising parts I subsection A to P and II. The District Court only ruled on part I subsection I – ruling that copying activities which the rightholder has explicitly or implicitly allowed did not need to be taken into consideration when determining the level of private copying compensation. The Court rejected the remaining ACI et al.          claims partly through a lack of interest for that party.

1.3        ACI et al. submitted an appeal against the ruling to reject parts I subsection G, K, N and O of its claim. ACI et al. have requested that the Appeal Court overturns the District Court’s ruling in respect of these claims, and to allow these claims as well as the additional claims it has submitted on appeal. ACI et al. have submitted to the Appeal Court that it rules that:
            I.          The fair compensation described in article 16c Aw is explicitly intended to                                   compensate rightholders for any disadvantage they may experience through                          copying activities within the scope of article 16c Aw.
            II.          That when determining the level of the private copying compensation:
A.    Any damage incurred as a result of illegal copying (incl. downloading) from an illegal source (the original section I subsection G) should not be taken into consideration;
B.    Any damage or disadvantage to the rightholder which is either primarily nil or minimal or secondarily nil (part of the original section I subsection K) resulting from copying activities should not be taken into consideration;
C.    Copying activities for “time-shifting purposes” and “porting” (another part of the original section I subsection K) pertaining to copying activities should not be taken into consideration;
D.    Any threatened imbalance between the average price of the relevant blank storage devices and the levy should be taken into consideration (original section I subsection N);
E.    The level of compensation for copying


in other member states should be taken into consideration (original section I subsection O);

III.         That technological security measures which could prevent home copying, including DRM technologies are available (an amended version of the original sections I subsections L and M), with the costs to be borne by both Thuiskopie and SONT.

1.4       Thuiskopie submitted three grounds for appeal in the cross-appeal, including a conditional           ground for appeal. The conditional ground for appeal I refers to the previous claim by ACI et al. referred to under II. A. above. The second ground for appeal, II, submitted by Thuiskopie is            against the ruling allowing section 1 subsection I of the original ACI et al. claim. The third      ground for appeal, III, submitted by Thuiskopie is directed against the decision by the District Court to allow a particular point to stand.

1.5        SONT has subjected itself to the opinion of the Appeal Court in the appeal on the           understanding that it has submitted a number of comments.

1.6        ACI et al. have let it be known under section 39 of the document suggesting prejudicial    questions and changes to the appellants that the appellants 2, 8, 9, 10, 14, 17 and 18 have             withdrawn as the relevant enterprises have entered into bankruptcy. Counsel for ACI et al.   submitted at the hearing that he no longer represents the bankrupt companies. Counsel for       Thuiskopie subsequently submitted – and in doing so distanced himself from his own written       submission on page 20 – that it may indeed be assumed that the companies are bankrupt     and that this “was of no concern” to him. The Court understands by this that Thuiskopie has    not submitted nor intends to submit a request for the case to be adjourned, and that the       organisation does not intend to pursue any further claims in respect of the bankruptcies.             Therefore, pursuant to article 27 of the Bankruptcy Act (Failissementswet) the case against the bankrupt appellants will be pursued without costs to the estate.


2.     EU legal framework

2.1        EU law, in particular the regulations described in Directive 2001/29/EC of the European    Parliament and Council of 22 May 2001 regarding harmonisation of certain aspects of             copyright and related rights in the information society (the Copyright Directive, hereafter     referred to in abbreviated form as: ARI) plays an important role in this case.

The Copyright Directive (ARI)

2.2        The author’s reproduction right is established in article 2 ARI; article 3 establishes the right to       communicate and make the work available to the public (this is what is globally referred to in          The Netherlands as the publication right, and will hereafter also be referred to using this          abbreviated term). A number of limitations on these rights are detailed in article 5 ARI. Part 2       of article 5 ARI contains limitations on the reproduction right alone. The Home Copy        Regulations enshrined in European Law are described in the preamble to article 5 part 2 and   subsection b of the ARI, and reads as follows:
            Member States may provide for exceptions or limitations to the reproduction right   provided for in Article 2 in the following cases:


a.     (…)
b.     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, on condition that the rightholders receive fair compensation which takes account of the application or non-application of technological measures referred to in Article 6 to the work or subject-matter concerned.
            The Court will hereafter refer to “fair compensation” or “private copying compensation” when        referring to that concept in article 16c Aw. Compensation which is owed pursuant to article 5        ARI will hereafter be referred to as “fair compensation”. Where reference is being made to          both concepts this will be detailed as: “fair compensation”.

2.3        Part 5 of article 5 ARI determines general restrictions on the option of including the         limitations referred to in the previous parts (the Roman numerals have been included by the   Court):

                        The exceptions and limitations provided for in paragraphs 1, 2, 3 and 4 shall (i) only                        be applied in certain special cases which (ii) do not conflict with a normal exploitation                of the work or other subject-matter and (iii) do not unreasonably prejudice the                            legitimate interests of the rightholder.

            The test required by article 5 part 5 ARI is also referred to as the “three step test”.

2.4        The Dutch Home Copy Regulations of article 16c Aw were in existence prior to the drafting of      the ARI. Article 16 Aw was amended in respect of the implementation of this directive by the           Act of 6 July 2004 (Bulletin of Acts & Decrees, Stb, 2004, 336) amending the 1912 Copyright   Act (Auteurswet) to implement the ARI (hereafter referred to as: the “2004 Reform Act”,        Aanpassingswet).

The effect of the Directive within Dutch Law

2.5        A Directive is aimed member states who need to implement the regulations contained in the        directive within their own legislation in a given time period. When a member state fails to        implement the Directive within its national law within this time period or has not implemented             this correctly, then private individuals – in all cases where the stipulations in a Directive,          viewed substantively, are both unconditional and defined with sufficient accuracy – may appeal on the grounds of those stipulations to a national court against the state. This is well-    established case law of the Court of Justice of the European Communities (ECJ), refer, for    instance, to point 103 in its judgment of 5 October 2004 in the Pfeiffer case (consolidated    cases C-397/01 to C-403/01).

2.6        The term “state” is also taken to refer to organisations or bodies under the authority or     supervision of the state or those that have specific, extended powers than those flowing from         the rules governing relationships between private individuals refer, for instance, to the       judgment by the ECJ of 12 July 1990 in the case of Foster, case C-188/89).

2.7        Thuiskopie is taxed pursuant to the Act with collecting and distribution of private copying            compensation, and within this process acts as a legal entity representing rightholders (a        representative, refer to article 16d Aw). In the explanatory note


            to the Decree of 19 March 1991, which assigned SONT as the foundation “charged with determining the level of compensation intended in article 16c of the Copyright Act” it was noted that this is set by the foundation and “not the government”. The board of SONT largely consists of members of Thuiskopie and members of the interest group, STOBI.  These board members exercise their role according to the articles of association of SONT independently and are not bound by any instructions. The six board members originating from the interest groups have a broad majority with SONT. As is apparent from, amongst others, comments made by the minister on p. 4 of the explanatory memorandum to the Decree of 17 February 2007 regarding the designation of objects as described in article 16c of the Copyright Act (Exhibit 30 to MvG), SONT is a “platform of self-regulation” whose primary role remains to determine the level of fair compensation. Fair compensation for the use of someone else’s goods is not an unusual legal concept in private law, nor is it unusual in private law for a third party to be charged with establishing the level of compensation. Given this fact neither Thuiskopie nor SONT should be considered as a “state” when measured against the criteria determined in 2.6. This dispute is therefore a dispute between separate private individuals.
2.8       The ECJ case law determines that a directive by itself cannot impose obligations on private individuals and that a stipulation in a directive cannot, as such, be invoked against private individuals. It follows from this – as confirmed once again under point 109 of the Pfeiffer judgment referred to previously – that a stipulation in a directive aimed at extending rights to private individuals or imposing obligations on them, cannot be applied, as such, in disputes between separate private individuals. 
2.9       This does not mean that a directive does not have any significance within a dispute between separate private individuals. The Court cites the following deliberations by the ECJ in the Pfeiffer judgment:
113. (…) when it applies domestic law, and in particular legislative provisions specifically adopted for the purpose of implementing the requirements of a directive, the national court is bound to interpret national law, so far as possible, in the light of the wording and the purpose of the directive concerned (…)
114. The requirement for national law to be interpreted in conformity with Community law is inherent in the system of the Treaty, since it permits the national court, for the matters within its jurisdiction, to ensure the full effectiveness of Community law when it determines the dispute before it.
2.10      In terms of the above, the caveat remains that an interpretation that accords with the directive may only be applied to the harmonised parts of a directive, that is, those components which the member states have to adopt in their domestic legislation. Directives often also contain non-harmonised parts, by, for instance, allowing member states to opt for different alternatives or allowing them to provide further details to or additional implementation of a harmonised regulation. There is, in other words, a minimum harmonisation. The non-harmonised components cannot provide a basis for a directive-compliant interpretation due to the freedom extended to member states.


Limits to a directive-compliant interpretation
2.11      It is apparent on the one hand from the words “as far as possible” under point 113 of the Pfeiffer judgment described above that a civil judge should utilise all the means at his disposal in order to interpret domestic law in accordance with a directive, although on the other had that the civil judge should not be asked to undertake the impossible. There are therefore limits on the injunction to provide an interpretation that accords with a particular directive. The ECJ has only pronounced on these limits within a criminal law context, and within this context came to the conclusion that the obligation to impose a directive-compliant interpretation finds its limits in general legal principles, in particular the principle of legal certainty (ECJ 7 January in the matter of Rolex, case C-60/02), and that the principle of a directive-compliant interpretation cannot form the foundations of an interpretation contra legem to domestic law (ECJ 16 June 2005 in the matter of Pupino, case C-105/03). The Dutch Supreme Court – Hoge Raad (HR) – has issued judgments regarding the boundaries of directive-compliant interpretations in a civil law context, for instance in its judgments of 25 October 1996 in the matter of Pink Floyd/Rigu Sound (Nederlandse Jurisprudentie  - Dutch Jurisprudence, NJ 1997, 649) and 20 October 1995 in the matter of Van Asseldonk/Ter Schure (NJ 1996, 330). These, in brief, have determined that the wording of the national stipulation taken in consideration with the associated legislative history may entail that a directive-compliant interpretation is not possible, particularly when the principle of legal certainty lies in the way. In addition, reference should also be made to i) the judgment by the tax division of the HR of 10 August 2007 (LJN – National Case Number: AZ3758), from which it may be deduced that there should not be readily assumed that the limits of a directive-compliant interpretation have been reached, and ii) point 112 of the judgment by the ECJ in the Pfeiffer case previously referred to, which states that the domestic courts should assume “The national court must presume that the Member State, following its exercise of the discretion afforded it under that provision, had the intention of fulfilling entirely the obligations arising from the directive concerned”, which establishes that a domestic provision that can reasonably be interpreted as being in compliance with the directive given its legislative history, should, as such, be interpreted as complying with the directive. Given this and other matters, the Appeal Court has come to the conclusion that, within a civil law context, an interpretation not compliant with the directive may only be applied if the substantive difference between domestic provisions and the provisions in the directive is so great that this cannot be reasonably be bridged by an interpretation (refer also to M.H. Wissink, Richtlijnconforme interpretatie van burgerlijk recht – Directive-compliant interpretations of civil law, Kluwer 2001, page 187, penultimate paragraph).
2.12      This case does not involve any appeal regarding the boundaries of a directive-compliant interpretation. The case does however concern a legal principle which the Court has to supplement in its capacity pursuant to article 25 of the Code of Civil Procedure (Rv). Parties may take this into consideration (refer to the grounds described in the judgment by the HR of 20 January 2010, LJN: BK3066). Nevertheless, the Appeal Court discussed the tenet of directive-compliant interpretations at the hearing on 1 July 2010 in relation to the question of copying from illegal sources, and the Court subsequently afforded the parties the opportunity to provide submissions regarding this and the potential consequences of this to that question. The parties elected not to exploit this opportunity.


Prejudicial questions
2.13      Where there is a lack of clarity in terms of the way in which the ARI should be interpreted the Court is entitled to ask prejudicial questions to the ECJ. In its documents suggesting prejudicial questions and changes to the appellants, ACI et al. submitted suggestions for questions such as this regarding the disputes concerning:
            - Copying from an illegal source (proposed questions 1, 1a and 1b);
            - Technological provisions (proposed questions 2, 2a and 2b);
            - The implicit or explicit consent (proposed question 3);
            - Time-shifting / porting (proposed question 4).

            Thuiskopie indicated at the hearing that it did not believe these questions were necessary, and submitted a counter-proposal subsidiary to questions 1, 1a and 1b. The Court will consider those proposals submitted by ACI et al. in respect of the prejudicial questions that are relevant. It is noted here that the Appeal Court is not obliged to ask prejudicial questions, and separate to this, there is no need to do as such where it is clear how the ARI is to be interpreted in terms of the relevant point (acte clair or acte eclairé), nor where the answer to the relevant question is not of relevance to the decision to be taken by the Court.

3.     Further evaluation: introductory comments
3.1       The Appeal Court is of the opinion that it is important to initially focus on the nature of fair compensation / private copying compensation and the associated levying system. It should be noted in advance that the ECJ in its judgment of 21 October 2010 in the case of Padawan/SGAE (case C-467/08) ruled – after the oral submissions in this case – that “fair compensation” is a harmonised concept which has to be interpreted uniformly in all member states and that member states only have the authority to determine the format, method of financing and collection, as well as level of “fair compensation” within the limits set by European Union law and the ARI (refer to points 36 and 37 of that judgment). All of which is against the background that member states are free not to include the limitation stipulated in article 5 part 2 subsection b ARI within their domestic law.  
3.2       It is apparent from the text of article 5 part 2 subsection b ARI, in particular the word “provided” taken in consideration with the 3rd sentence of point 35 of the preamble to that directive, which reads as follows (underlining by the Appeal Court):
“a valuable criterion would be the possible harm to the rightholders resulting from the act in question”
that “fair compensation” is intended to compensate the harm incurred by the rightholder as a result of the fact that he is unable to exercise his copyright in respect of the acts referred to in that article. Private copying compensation referred to in article 16c part 2 Aw is therefore, according to that particular article section, only owed for the copying activities referred to in part 1 of that article. On the basis of the stipulations described in this article section those copying activities referred to in part 1 do not constitute copyright infringement. It therefore follows from this that private copying compensation is only intended as compensation for the fact that the copying activities described in part 1 do not constitute copyright infringement. This is also emphasised in the MvT to the 2004 Reform Act which states that:


-       (…) a certain level of compensation will be awarded in relation to the application of a limitation (TK Parliamentary Papers Dutch House of Representatives, 2001-2002, 28 482, no. 3, p. 20);
-       Compensation which can only be awarded for the reproductions made in due consideration of the stipulations in article 16c, part one (and therefore does not apply to reproductions not falling within the scope of the first part) (…). (TK, 2001-2002, 28 482, no. 3, p. 46).
Pursuant to both ARI and Aw it therefore follows that “fair compensation” is not owed on copying activities falling outside the scope of article 5 part 2 subsection b ARI / article 16c part 1 Aw. The copyright holder retains his exclusive right for activities such as these pursuant to article 2 ARI and/or article 1 and 13 Aw.
3.3       The ARI does not prescribe a specific levying system for the “fair compensation” (refer also to the considerations under 3.1). The Netherlands has opted for a system where the private copying compensation is paid for by the manufacturers or importers of the objects described in article 16c part 1 Aw, which are also described in part 4 of that article (such as, for instance, CD-Rs), and in a format where the levy is applied to the objects manufactured or imported by the manufacturers and importers respectively. Part 3.2 has established that no private copying compensation is due for copying activities falling outside of the scope of article 5 part 2 subsection b ARI / article 16c part 1 Aw. However, where such copying activities involve objects that are subject to the aforementioned levy – for instance, such as the case of copying to a CD-R – then private copying compensation will be paid. Therefore, the levying system is “global” and does not specifically focus on relevant copying activities.
3.4       It appears from the submissions by Thuiskopie including point 5.3 of the MvG and 2.2 of its submission on appeal that it is of the opinion that the global nature of the levying system means that not only should payments be made in certain de facto cases for copying activities falling outside the scope of article 16c part [… ] Aw, but also that any (in all events: significant) harm caused by copying activities falling outside the scope of article 16c part 1 Aw  should also be included in determining the level of private copying compensation. However, this opinion is not correct as is apparent from the passages cited above from the preamble to the ARI and MvT to the 2004 Reform Act. The Dutch levying system is global, yet not that global.
3.5       The Appeal Court will now (re-)consider the (partly amended) claims submitted by ACI et al. on appeal on the basis of the grounds in the principal and cross-appeal, and in an order deemed most suitable by the Court.

4. Claim I ACI et al.: harm
Introduction
4.1       Claim I was the first submission by ACI et al. on appeal as it included an amendment to the claim.


4.2       The parties agree that “harm” is a criterion which should be taken into consideration when determining the level of “fair compensation” – this is also apparent from point 35 of the preamble to the ARI referred to below. The parties, however, have a difference in opinion regarding the following two points:
            - What should be included under the concept of “harm”?
            - Is “harm” the only criterion that should be considered?
           
            Before evaluating this difference in opinion the Court will consider a number of introductory remarks regarding the relevant considerations of the preamble to the ARI.

4.3       Point 35 of the preamble to the ARI reads as follows (Roman numerals included by the Appeal Court):

(i) In certain cases of exceptions or limitations, rightholders should receive fair compensation to compensate them adequately for the use made of their protected works or other subject-matter. (ii) When determining the form, detailed arrangements and possible level of such fair compensation, account should be taken of the particular circumstances of each case. (iii) When evaluating these circumstances, a valuable criterion would be the possible harm to the rightholders resulting from the act in question. (iv) In cases where rightholders have already received payment in some other form, for instance as part of a licence fee, no specific or separate payment may be due. (v) The level of fair compensation should take full account of the degree of use of technological protection measures referred to in this Directive. (vi) In certain situations where the prejudice to the rightholder would be minimal, no obligation for payment may arise.

            Point 38 of the preamble to the ARI reads as follows:
(i) Member States should be allowed to provide for an exception or limitation to the  right for certain types of reproduction of audio, visual and audio-visual material for private use, accompanied by fair compensation. (ii) This may include the introduction or continuation of remuneration schemes to compensate for the prejudice to rightholders.
Hereafter where reference is made, for instance, to sentence (iii) of point 35, the following notation will be used: sentence (iii)-35.
4.4       Only 3 of 21 limitations and restrictions described in article 5 ARI stipulate that “fair compensation” is compulsory where member states have included these in their domestic law, that is – in addition to the case referred to in sentence (iv)-35 – limitations on “private paper copy” (article 5 part 2 subsection a), limitations relevant to this case, namely “private electronic copy" referred to in article 5 part 2 subsection 2 and the limitations described in article 5 part 2 subsection e for reproductions of broadcasts by public bodies with non-commercial purposes, such as hospitals or prisons. Sentence (i)-35 stipulates that rightholders should receive “fair compensation” in “cases of exceptions”. It follows from this that the word “cases” in that sentence is aimed at the 3 limitations previously referred to. It should be


            assumed that the word “case” occurring later on in point 35 also refers to one of the 3 limitations.
4.5       It is apparent from sentence (i)-38 that point 38 of the preamble to the ARI applies specifically to the limitation described in article 5 part 2 subsection b ARI.
The first point of dispute; what should be included under the concept of “harm”?
4.6       The Court is led to believe that ACI et al. is submitting under point 30 MvG  that the concept of “harm” in the context of “fair compensation” is intended to mean something other than the price the rightholder is entitled to request for copyright activities involved in home copying. The party repeats this under 100/101 MvG, in slightly different words, with a submission that “fair compensation” does not represent compensation for use. Thuiskopie has disputed this submission reasoning that the option of demanding compensation for the use of their work is removed from the rightholders through the limitation described in article 5 part 2 subsection b ARI, and that they therefore suffer a loss in potential income and consequently incur harm (point 2.5 MvA / MvG-inc). According to Thuiskopie the distinction made by ACI et al. between harm and compensation for use is therefore primarily, although not entirely, theoretical in nature.  
4.7       The starting point in evaluating this point of dispute is that rightholders should receive “fair compensation” in order – in the words of sentence (i)-35 - to compensate them adequately for the use made of their protected works or other subject-matter. In general terms the compensation for the use (in this case: reproduction) of a work consists of the amount the rightholder could have demanded for in providing his permission for the work to be used: the licence fee. The loss of licence fee is the harm the author incurs should his work be used without his permission or payment. Taken in this perspective there is – contrary to what has been submitted by ACI et al. - therefore no (demonstrable) difference between the “compensation for use” referred to in sentence (i)-35 and the concept of “harm” referred to further along under point 35. This is also expressed in sentence (2)-38, which, does not refer to compensation “for use”, rather to compensation for “harm” although self-evidently they are intended to mean the same. It should also be noted here that ACI et al. limited itself to the submission that “fair compensation” does not represent compensation for use, and yet have not in any way provided what the scope of this compensation should be. There can be no other conclusion for this state of affairs that the concept of “harm” should, in the context of article 5 part 2 subsection b ARI, be taken to refer to: the loss of a licence fee resulting from a particular copying activity. Some additional comments should be included here. A consumer would normally be perfectly prepared to pay a (small) part of the amount of the original CR in return for being permitted to make a copy, for instance, of a CD. This has been established in this case as both ACI et al. as Thuiskopie have submitted through their counsels’ statements on 1 July 2010 that “fair compensation” is lower than the licence fee.
4.8       Article 16c et seq of the Aw does not stipulate anything regarding “harm” or the meaning of that concept. However, parliament’s intention is clear, as witnessed by the following comments made by the minister during the parliamentary debate on the 2004 Reform Act:


“Fair compensation is exclusively owed for the loss of income by rightholders resulting from private copying pursuant to article 16c” (Memorandum to the Report, TK, 2002-2003, 28 482, no. 5, p. 33).
            It is apparent from the section “loss of income” that pursuant to article 16c Aw harm should also be taken to mean: loss of licence fee resulting from a particular copying activity.
Second point of dispute: Should harm be the only criterion?
 4.9       According to ACI et al. it is apparent from point 35 of the preamble to the ARI that “fair compensation” in article 5 part 2 subsection b ARI only intends to compensate the rightholders for the harm incurred from home copying (MvG point 27). Thuiskopie has submitted in reference to the same point that the ARI does not stipulate there has to be “harm”, but simply that “harm” is a criterion which may be taken into consideration in determining the level of compensation.
4.10      There is a difference between the circumstances of the three limitations (“cases”) referred to under the considerations in 4.4. In accordance with sentence (ii)-35 “[w]hen determining the form, detailed arrangements and possible level of such fair compensation, account should be taken of the particular circumstances of each case.  
4.11      The starting point for the authors of the Directive is therefore that the level of fair compensation should be determined on the basis of the particular circumstances of each case. However, this principle fails provide a solid foundation as long as there are no criteria set which can be used to determine which factors should particularly be taken into consideration and the weight that needs to be placed on the various circumstances of the case. This lacuna is described in sentence (iii)-35 which states that “[w]hen evaluating these circumstances, a valuable criterion would be the possible harm to the rightholders resulting from the act in question. The phrase “a valuable criterion would be” falls somewhere between the phrase “a valuable criterion is” and “a valuable criterion could be”. This indicates that “harm”, although the most readily available, is not the only conceivable criterion in the consideration of the authors of the Directive.
4.12      Where the rightholder has already received a payment in another form then this harm has been removed. Sentence (iv)-35 should therefore be viewed as elaborating the harm criterion, just as sentence (v)-35 describes a fact which, should it arise, would mean that no harm had been incurred (refer also to the considerations below under 6.8). It is also apparent that reference is being made to the harm criterion with the use of the word prejudice in sentence (vi)-35. Therefore the last three sentences of point 35 of the ARI confirm that a particular emphasis should be placed on the harm criterion. It should also be noted here that although prejudice is a broader concept than harm, there is, in this context, no relevant difference between these two concepts.
4.13      Harm is the only criterion mentioned – in other words – in sentence (ii)-38 which is specifically concerned with the limitations in article 5 part 2 subsection b ARI.
4.14      It is apparent from the analysis described in 4.10 to 4.13 that the authors of the Directive


            clearly considered “harm” as the exclusive criterion for determining the level of compensation. It is possible that the authors of the Directive did not want to immediately exclude other criteria, yet the text and preamble to the ARI do not contain any indication that the authors of the Directive were considering one or more alternative criteria, nor has Thuiskopie referred to any other criteria. Taking all of this into consideration the Appeal Court has come to the conclusion that the ARI has established that – in reference to the limitation described in article 5 part 2 subsection b ARI harm should be considered as the most important, although not the all prevailing criterion in determining the level of “fair compensation”. This has been established by the ECJ in its judgment in the Padawan/SGAE case previously referred to, which ruled that article 5 part 2 subsection [..] ARI should be interpreted to mean that:
“fair compensation must be calculated on the basis of the criterion of the harm caused to authors of protected works by the introduction of the private copying exception”.
4.15      No criteria have been included in the text of the Dutch Aw as a supplement to the concept of “fair compensation”. The minister made the following comments during the parliamentary debate on the 2004 Reform Act (Memorandum of the Additional Report, TK, 2002-2003, 28482, no. 8, p. 13):
“The level of compensation for private copying is therefore, of course, of importance. This concerns compensating rightholders for the harm they incur resulting from copying in a digital environment”.
It may be deduced from this that the concept of “fair compensation” in article 16c Aw should be interpreted in such a way that “harm” is the sole criterion for determining the level of compensation. This is in agreement with the ARI.
Conclusion
4.16      Claim I submitted by ACI et al. is admissible on the understanding that the word “harm” is to be detailed in the ruling as described in the considerations under point 4.8.

5. Claims II, B and C submitted by ACI et al: minimal harm, time-shifting and porting
Introduction
5.1        Part I subsection K of the original claim submitted by ACI et al. requested a ruling that copying activities should not be taken into consideration where the damage or harm to the rightholder is minimal, should as copying for time-shifting purposes and porting.
5.2        The District Court dismissed this claim on the basis of the following considerations which are succinctly stated here. Contrary to the submission by ACI et al. it does not follow from sentence (vi)-35 that “fair compensation” should be considered to be null if the harm incurred is minimal. It is apparent from that sentence, in particular the word “may”, that member states are free to determine the scope of compensation. The Dutch government has not made use of the option afforded by sentence (vi)-35 of removing the payment obligation where the harm incurred is minimal. This follows from the fact that, according to the MvT, the Dutch government


            made a distinction in the 2004 Reform Act between copying activities, for which, given the limited significance of the activity, there is, in principle, no compensation due, and which are covered by article 16b Aw (“the private paper copy”), and those for which compensation is due, which are covered by article 16c Aw (“the private electronic copy”). This claim is therefore not admissible, given that ACI et al. has requested a ruling on the compensation described in article 16c Aw and given that the basis of their submission is that compensation should be set to zero where the harm incurred is minimal.
5.3        ACI et al. submitted grounds for appeal, submission 2, against this judgment. Part I subsection K of the original claim was amended on appeal by dividing into two parts which have been described in part 1.3 as claims IIB and C. The Appeal Court will firstly consider claim IIB regarding “minimal harm” and then consider IIC concerning time-shifting and porting.
Minimal harm
5.4        ACI et al. has submitted grounds for appeal against the District Court disputing, in submission 2, the Court’s ruling that the member states are free to stipulate “fair compensation” for minimal damage. The appeal is based on a linguistic argument concerning the way in which sentence (vi)-35 should be interpreted. The sentence – which has already been included in 4.3 – reads as follows:
In certain situations where the prejudice to the rightholder would be minimal, no obligation for payment may arise.
The English version of the text refers to the word “may”, and according to ACI et al. in this context the word “may” means “should”, in the sense of “no obligation for payment should arise”. This, according to ACS et al., means that for copying activities where the harm to the rightholders is minimal no payment obligation arises (MvG point 82). This submission compels the Appeal Court to investigate the question of how sentence (vi)-35 should be interpreted. It is true that the ECJ briefly considered that sentence under point 46 of its judgment in the Padawan / SGAE case previously referred to, however given that the prejudicial question concerned was not aimed at that sentence and the intended considerations were more or less subsidiary in nature, those considerations cannot provided a(n) (adequate) foundation to answer the questions posed by ACI et al.
5.5       In point 35 to the preamble of the ARI an explanation is provided to the three limitations in article 5 ARI which may only be applied by member states where fair compensation to rightholders has also been provided for (refer to the grounds referred to under 4.4). Limitations described in article 5 part 2 subsection a ARI for “paper copies” and those described in article 5 part 2 section b ARI for “electronic copies” are also part of this. In respect of the claim that these limitations should only be applied where there is “fair compensation”, there is a single exception in article 5 ARI to this, namely in article 5 part 3 subsection o, that is where:
use in certain other cases of minor importance where exceptions or limitations already exist under national law, provided that they only concern analogue uses and do not affect the free circulation of goods and services within the Community (…).
For this use member states are entitled to impose a limitation without having to require that “fair compensation” is owed for this.


5.6       The Appeal Court is of the opinion that the background to article 5 part 3 subsection o ARI should be considered in brief. At the time the ARI was drafted a (large) number of member states had a limitation in the reproduction right for analogue copies for private use without there being any compensation in place for rightholders. For instance, in the Netherlands there was an exception for “private paper copies” described in article 16b part 2 of the Aw, which was in place until 6 July 2004. However, pursuant to article 5 part 2 subsection a ARI a limitation on “paper copies” was only possible where there was also a provision for “fair compensation”, even if this only concerned “private paper copies”. Article 5 part 3 subsection o was included in the ARI in order to allow member states to maintain the existing practice concerning “private paper copies” where these involved “analogue uses”. This afforded member states the opportunity to maintain existing limitations or restrictions for less significant cases involving analogue use. 
5.7       Given that the authors of the ARI have explicitly stipulated that there should be “fair compensation” in respect of the limitations described in article 5 part 2 subsection a and b ARI and that they included an exception in the text of the ARI to this strict requirement which is explicitly applicable to less significant cases, it may not be assumed that they also (only) intended to include an exception to this strict requirement for other cases in the preamble to that Directive. Therefore, sentence (vi)-35 cannot be interpreted in any other way than as an explanatory note to article 5 part 3 subsection o ARI, particularly given that the wording of that sentence agrees with the text of that article: the words “certain situations” in that sentence agrees with the words “cases of minor importance” from that article, whilst the words “minor importance” and “only analogue uses” in that article determine that these involve “situations” where “prejudice (…) would be minimal”. The Appeal Court also refers to another phrase in point 38 of the preamble to the ARI, that in “certain respects” a distinction should be made between digital and analogue copying for private use.
5.8       Given that sentence (vi)-35 has to be viewed as an explanatory note to article 5 part 3 subsection o ARI and that member states may, although are not obliged to include this stipulation in their domestic law, there is no evidence to support ACI et al.’ contention that the word “may” in that sentence introduces an obligation.
5.9       On the contrary, it follows from the considerations in 5.7 that the ARI means that member states are not free to determine within their own legislation that no “fair compensation” is owed where harm resulting from digital copying is minimal. Member states are only free within the boundaries set out by article 5 part 3 subsection o ARI to include a stipulation such as this within their legislation in respect of analogue copying. Thuiskopie’s submission in point 6 of the MvA/MvG-inc that there are no grounds in the ARI obliging member states to ensure that no payment obligation arises in the event of minimal harm, is correct.
5.10      Articles 16c et seq of the ARI do not discuss the question at hand. Therefore, in terms of the approach adopted by Dutch law on this point, legislative history will have to be consulted. It is of importance to a proper understanding of parliamentary papers


            to note that when these refer to “reproduction” they mean: creating a “private electronic copy”, and that the (broader) concept of “copying” is used for “paper copies” or more specifically “private paper copies”; it should also be noted that this terminology is applied consistently.
5.11      The starting point here is the following pages from the MvT (TK, 2001-2002, 28 482, no. 3, p. 21).
It is possible, in certain situations where the harm to the rightholder is minimal, that no payment obligation would arise in general. This is included in the proposed regulations. This consideration afforded some member states the opportunity to agree to the fair compensation condition, as this would allow compensation not to be provided in certain carefully delineated activities falling within the scope of a limitation stipulated by the Directive.
The Appeal Court notes that the first sentence in this passage refers to sentence (vi)-35 and the last sentence of this passage refers to article 5 part 3 subsection o ARI. The MvT therefore establishes a relationship between both of these. The following is notes on pp. 24/25 of the MvT:
A split is being proposed in terms of the regulations regarding private copying in due consideration of the distinction between reproduction (to which the Directive applies) and other forms of copying (to which the Directive does not apply) (self-evidently pursuant to article 5 part 3 subsection o ARI, the Appeal Court)
(…)
(…) Article 16b (comprises) reproductions for which fair compensation is owed, in principle, which currently are not being subjected to any plausible claims due to their limited importance and scope. This particularly concerns reprographic copying for private purposes.
(…)
Article 16c limits copyright in respect of reproduction without any commercial motivation by a natural person by establishing that the object should be to play the work, enact the work or display the work provided that the reproduction is carried out is intended exclusively for personal exercise, study or use. This limitation is also bound to the stipulation of fair compensation.
It is apparent from these passages that the Dutch legislature has made a distinction between analogue and digital private copying – in line with the regulations in article 5 part 3 subsection o ARI – and subsequently identified these two categories with, successively article 16c Aw relating to “private paper copies” and article 16c Aw relating to “private electronic copies”. It is also apparent from theses passages that the legislature only considered cases falling under article 16b Aw not to be liable for “fair remuneration” (this term was subsequently replaced by “fair compensation”) due their “limited importance and scope”, as considered by the District Court. The Appeal Court also notes that article 5 part 3 subsection o ARI allows that “fair compensation” does not have to be provided in “cases of minor importance” for analogue “private electronic copies” through cassette or videotapes, however that the Dutch legislator


indicated through the de minimis exception in article 16b Aw that it did not intend to or could not implement this provision.
5.12     Therefore, article 16c Aw has to be interpreted to mean that copying activities involving minimal harm are also subject to private copying compensation. This interpretation agrees with the ARI as discussed above.
5.13     ACI et al.’ primary submission in IIB can therefore not be upheld, although the subsidiary claim can be upheld given the considerations in 4.16.

Time-shifting and porting
5.14     ACI et al.’s claim IIC rests on the submission – disputed by Thuiskopie – that the rightholders do not incur any harm or at least only incur minimal harm through copying for time-shifting and porting, and that these copying activities should not be taken into consideration when determining the level of private copying compensation. Given that it has already been previously considered that activities falling under article 16c part 1 Aw should be taken into consideration even where there is minimal harm, it only needs to be established whether these activities result in any harm to the rightholders.
5.15     Time-shifting purposes refers, according to the definition provided by ACI et al. in its submission under point 75 of the MvG, for instance, to instance where a natural person records a television programme for viewing at a later stage. The Appeal Court will hold ACI et al. to this definition in its subsequent deliberations.
5.16     Harm is only incurred where the consumer, in the absence of Home Copy Regulations, is at least prepared an amount to the author in order to be permitted to undertake a particular copying activity (refer to the grounds considered under 4.7).
5.17     Thuiskopie has submitted – and this has not been contested – that it very often happens that a “library” of favourite programmes is stored (on the hard drive of a DVD recorded) with a view to watch these, often on numerous occasions, at a later date. This situation falls under the definition of copying for time-shifting purposes provided by ACI et al. The Appeal Court believes it is reasonable to assume that in a none (or not entirely) negligible number of cases the person creating such a library would have been prepared to at least pay a certain amount in order to be allowed to create a copy of a film or popular TV series in the absence of a Home Copy Regulation. Therefore, it cannot be submitted that no harm is created, in general, by copying for time-shifting purposes.
5.18     Given that ACI et al. has not included a more limited definition of the concept of time-shifting purposes in its claim, including in a subsidiary sense, and that a more limited definition cannot be found which would have offered ACI et al. a more solid foundation due to the absence of concrete submissions, ACI et al.’ claim IIC cannot be upheld. This conclusion does not address whether there are other forms of copying for time-shifting purposes which may be deemed not to cause the rightholders any harm.


5.19     Porting is the copying of legally acquired materials, such as CDs, to other equipment available in people’s homes, such as a PC or MP3 player or creating a copy of a CD to, for instance, play in a car. It is reasonable to assume that the consumer would be prepared in all instances to pay a certain amount to the rightholder in exchange for his permission to copy for porting purposes, in the absence of a Home Copy Regulation. Therefore, it is also the case for porting that it cannot be said that the rightholders do not incur any harm as a result of this process.
5.20     The prejudicial question 4 formulated by ACI et al. in this matter rests on the one hand on the factually incorrect submission that time-shifting and porting do not incur any harm and on the other on the incorrect principle that no “fair compensation” is owed where the harm is minimal. There is therefore no reason to submit this question to the ECJ.
5.21     It follows from these considerations that the District Court ruled correctly on the issue of time-shifting and porting.

6. ACI et al. claim III: technological measures and DRM
Introduction
6.1       The phrase “technological measures” is defined as follows in article 6 part 3 ARI:
“any technology, device or component that, in the normal course of its operation, is designed to prevent or restrict acts, in respect of works or other subject-matter, which are not authorised by the rightholder of any copyright (…).”
Technological measures are intended to prevent the copying of protected material. In brief this concerns copy protection. For Digital Rights Management systems (DRM systems) technological protection measures are combined with access control to the material by the rightholders (Rome Convention point 67). DRM also falls under the definition of “technological measures” in article 6 part 3 ARI as this always includes copy protection. “Technological measures” will be discussed in brief below. This phrase will be used as a collective term for all forms of copy protection including DRM.
6.2       The original claims by ACI et al. under I subsection L and M that the availability of protection to prevent home copying and respectively the availability of DRM technologies should be taken into consideration, and not just the actual use to which these measure are employed. The District Court rejected this submission as a minor issue, given that there was only a difference of opinion between the parties in response to the question of when it may be assumed that technological measures are available, and that the request for a ruling was not aimed at that dispute. ACI et al. changed their claim on appeal following this, in the sense that they are now requesting (under III) a ruling that technological measures which may prevent home copying, including DRM technologies are available to such an extent 


            that these should be included in the level of private copying compensation as specified by ACI et al in their submissions on appeal.
6.3       As is apparent from point 46 MvG, ACI et al, in their appeal, take “available” to mean: technically workable, economically achievable and acceptable to the consumer. Thuiskopie is not disputing, as ACI et al have submitted, that technological measures are available in that sense of the word. However, in its appeal it has provided a different meaning to the concept of “available”. According to Thuiskopie technological measures are only “available” once they are commercially achievable, and are actually accepted by consumers and are accepted and applied by service providers (MvA / MvG-inc under points 3.1 and 3.2). It may be concluded from the phrase in point 3.2 MvA / MvG that “none of these criteria are (or have been) satisfied” that Thuiskopie is disputing that the current technological measures are “available” by its definition of the word.
6.4       The dispute is therefore focused on the question of whether the technological measures need to be considered when determining the level of compensation when they are already available in the sense intended by ACI et al (hereafter referred to in brief as: economic availability) or that the technological measures only need to be taken into consideration when they become available in the senses intended by Thuiskopie (hereafter referred to in brief as: commercial availability). Given that Thuiskopie is not disputing that the technological measures are available in the sense intended by ACI et al, there is no longer the need for evidence to be furnished as offered by ACI et al under point 31 of their submission on appeal.
The relationship between technological measures and “fair compensation” in the ARI
6.5       The Appeal Court recalls that it is stipulated in article 5 part 2 subsection c ARI that “fair compensation” takes account of the application or non-application of technological measures referred to in Article 6 to the work or subject-matter concerned. Thuiskopie has submitted that this article explicitly refers to the “application” of technological measures, and not their availability (submission on appeal under point 7.1). Although both parties have assumed that the availability of the technological measures gives rise to a reduction in “fair compensation” – even Thuiskopie has not submitted that there should only be course to do this when these measures are actually being applied – the Appeal Court believes it is necessary to evaluate what the authors of the Directive were intending when the cited phrase was included in article 5 part 2 subsection b ARI, in order to place the dispute between the parties in the right context.
6.6       “Technological measures” in relation to the limitations described in article 5 part 2 ARI are considered in more detail under points 35 and 39 of the preamble to the ARI.
6.7       Sentence (iv)-35 reads as follows:
In cases where rightholders have already received payment in some other form, for instance as part of a licence fee, no specific or separate payment may be due.
This sentence relates to the situation where a copy may be produced against payment (licensing), such as is the case for DRM. If in the context of a licence payment has already been made for copy activities, then the rightholder has already


received compensation for the use of his work as such, and as such no specific or separate payment is no longer due.
6.8        Sentence (v)-35 reports that:
The level of fair compensation should take full account of the degree of use of technological protection measures(…) and the German text reads: [h]insichtlich der Höhe des gerechten Ausgleichs sollte der Grad des Einsatzes technischer Schutzmassnahmen (…) in vollem Unfang berücksichtigt warden.
This sentence clearly relates to copy protection in the broader sense of the word. When it is not possible to create copies of a work due to the (actual) use of copy protection, then the work cannot be used as described in article 5 part 2 subsection b ARI and compensation for such use is not due. This also applies if a licence fee is received for the (actual) use of DRM for those reasons just referred to in the considerations under point 6.7. Therefore, the degree of use / Grad des Einsatzes of technological measures needs to be “fully” taken into consideration when determining the level of fair compensation.
6.9       Point 39 of the preamble to the ARI reads as follow (Roman numerals have been applied by the Court of Appeal):
(i) When applying the exception or limitation on private copying, Member States should take due account of technological and economic developments, in particular with respect to digital private copying and remuneration schemes, when effective technological protection measures are available. (ii) Such exceptions or limitations should not inhibit the use of technological measures or their enforcement against circumvention.
6.10      It is apparent from the phrase in point 39 in particular with respect to digital private copying and remuneration schemes that this consideration is aimed at remuneration schemes in particular, which are part of the limitation on digital private copying,  that is the limitation described in article 5 part 2 subsection b ARI. It should be noted in brief here, that the available technological measures should be taken into consideration. Sentence (ii)-39 postulates that this limitation, and therefore, in particular, the associated remuneration scheme should not interfere with the use of technological measures. It is important in this respect that the authors of the ARI – as has also been emphasised by ACI et al – intended for direct licensing ensured through technological copy protection to ultimate replace “fair compensation” as described in article 5 part 2 subsection b ARI and, where possible, even those limitations described in article 5 ARI, and that this material would eventually become a market issue and one of self-regulation. Point 39 should be interpreted as follows in this light. If a remuneration scheme is being employed where the level of “fair compensation” is not reduced where there technological measures are available, then there is no or a reduced incentive on offer to the rightholders


            to actually employ/apply those technological measures given that they would still receive “fair compensation”. However, it is the aim of the authors of the Directive that rightholders do indeed do this. Therefore the member states’ remuneration schemes need to be setup in such a way that the available technological measures are taken into consideration to such an extent that the level of “fair compensation” is adjusted downwards. Point 39 therefore builds on sentence (v)-35. In article 5 part 2 subsection b AIR there is another core issue in the phrase “takes account of the application or non-application of technological measures”, where the word application provides for situations where such measures are actually being used, and the word non-application provides for those situations where these are not being used, but may potentially be available.
6.11      The ARI is striving for a high level of protection of copyright – as emphasised by Thuiskopie – as the protection of this right contributes to the maintenance and development of creativity in the interests of authors, performers, producers, consumers, culture, industry and the public at large. This is apparent from the points 4 and 9 of the preamble to the ARI. Point 10 of the preamble proposes that authors should receive an appropriate reward for their work if they are to continue their creative and artistic work. This also applies for works subject to the limitation described in article 5 part 2 subsection b ARI. According to sentence (i)-35 of the preamble to the ARI authors should also receive fair compensation to compensate them adequately for the use made of their protected works or other subject-matter. It is apparent from the passages cited here from the ARI  that the authors of the Directive believed that it is necessary for authors to receive appropriate reward to allow them to continue their creative work which is also of importance for industry and the public at large. The principle of the ARI is therefore that authors receive an “appropriate reward” or “fair compensation”. Viewed in this light point 39 of the preamble to the ARI and article 5 part 2 subsection b therefore concern the level of availability of technological measures offering real options for application. It is only under these circumstances that authors are actually able to claim “fair compensation” themselves (in the form of a licence fee). The actual opportunity to apply technological measures only exists once this is also available in a commercial sense. It is apparent from ACI et al.’s argument that any other conclusion than their own would lead to “fair compensation”  in fact functioning as a bonus for rightholders who are not making use of technological measures that are available in an economic sense, that ACI et al. have not given sufficient weight to the ARI principle referred to above. This argument can therefore not be accepted. The ARI should therefore be interpreted as meaning that when determining the level of “fair compensation” due consideration only needs to be given to technological measures that are commercially available.
6.12      The Appeal Court believes there is no reason to submit ACI et al.’s questions 2, 2a and 2b to the ECJ given that the answers to these questions are (sufficiently) clear.

The relationship between technological measures and private copying compensation in the Aw
6.13      No additional details are provided in artciel16c Aw regarding the concept of “fair compensation”


and nothing is recorded in article 16e Aw about the factors to be included in determining the level of compensation. Therefore legislative history will need to be consulted for the contents of the stipulations applicable to the point under consideration. During the parliamentary debate of the 2004 Reform Act the following was discussed about the technological measures related to fair compensation:
-       Article 5, part two, subsection b of the Directive explicitly stipulates that when determining the level of “fair compensation” due consideration should be given to the technological and economic developments, in particular the effect of effective copyright protection measures. If these measures are able to regulate and control copying at home, then no reimbursement or compensation is due; this will then be deemed to have been included in the agreement the rightholder is able to conclude with the user of the protected material.
(…)
-       The Directive has, however, established an important relationship between the technological protection measures and “fair compensation”. The rightholder is only entitled to reasonable reimbursement if direct compensation is not possible. This direct compensation is available through the technological measures. Although the rightholder cannot be compelled to use these technological protection measures, he should not be reimbursed for not applying these measures, when this protection is available (MvT, TK, 2001-2002, 28 482, no. 3, p. 25).
-       The expectation is that in the future technological protection measures by offering users a range of options for use will be able to have such a hold of private copying that there will be no further need of a compensation regulation (MvT, TK, 2001-2002, 28 482, no. 3, p. 46).
-       The regulations regarding the relationship between private copying and the availability of technological measures also lies in article 5, part 2, subsection b of the Directive (which takes account of the application or non-application of technological measures referred to in Article 6 to the work or subject-matter concerned). This means that there should not only be an evaluation of the extent to which these technological measures are actually being applied, but also whether these measures are actually available, and to whom they are available and to what type of material are they being applied. If technological measures are practically available, that is available in an economically viable sense, which may be the case where industry standards have been agreed through negotiation, then the levy does not have to function as a bonus for rightholders not wishing to make use of the measures. In that event there is less, or depending on the state of affairs no cause in general for a compensation regulation as intended here. These developments may be taken into consideration in the proposed scheme (MvT, TK 2002-2003, 28482, no. 3, p. 46).

The phrase [i]f technological measures are practically available, that is available in an economically viable sense could be viewed as an indication that the minister was considering “economic availability”. The use of the words actually available and the reference to industry standards (…) agreed through negotiation on the other hand


create grounds to suspect the minister was considering “commercial availability” as being relevant. The minister’s statement in the Memorandum following the report is also important in this respect that:
[t]he development of DRM is continually evolving, but there is as yet no European or international standardisation, general interoperability of hardware components, broad and economically achievable business models, or any level of consumer acceptance (…) (TK 2002-2003, 28 482, no.5).
Therefore, both the wording and the legislative history of article 16c et seq Aw allow the interpretation described in point 6.11. In any event, the difference between the contents of ARI and Aw on this point are so great as to hinder a directive-compliant interpretation. Article 16c et seq Aw should therefore be interpreted in accordance with the ARI, and therefore in the sense that where there is commercial availability the level of private copying compensation should be adjusted downwards. The minister’s letter of 13 October 2004 following the Reform Act refers to “technically workable, economically achievable digital rights management systems which are acceptable to the consumer” cannot be interpreted in any other way, contrary to ACI et al.’s submission.

6.14      Therefore, in the Netherlands due consideration only needs to be given to technological measures when determining the level of private copying compensation where these are available in a commercial sense. ACI et al.’s claim III, which is based on a different interpretation of the concept “available”, can consequently not be upheld, insofar as where this is based on a different interpretation. There is another basis for this claim which will be discussed below.

Use of technological measures

6.15      The concept of “availability” comprises use, as is also included in the meaning attached by ACI et al and Thuiskopie to the word. Measures that are being used are available, after all. There is therefore a subsidiary claim in the request for a ruling submitted by ACI et al., that technological measures which can prevent private copying, as well as DRM technologies are being used to an extent that should be reflected in the level of private copying compensation. Given that ACI et al. have included a number of statements in points 40-46 MvG as evidence that technological measures are in fact being used, it has to be assumed that they intended this to be part of a subsidiary claim. ACI et al. have provided as examples of the technological measures being used, the secure website environments, subscription and pay-per-view television, Windows Media Data Session Tool, iTunes with the “luxury” option giving the consumer the right to make unlimited music copies at a slightly higher price and the copy protection application for DVDs. However, in their submission suggesting prejudicial questions and changes to appellants (refer to point 25 of that document) they based their arguments on the report by Hugenholtz, Guibault and Van Geffen which reports that technological measures and DRM are being applied selectively by rightholders, as well as the report by the Copyright Working Group which notes that although the technology is generating a lot of opportunities rightholders are making “sparse” use of it. ACI et al. have added to this in point 6 of their submission on appeal that technological


measures are not being “adequately” applied. The Appeal Court is led to understand from this that ACI et al. are submitting that technological measures are currently being used, their usage is very limited and “sparse”. They are hereby confirming, albeit in broad brush strokes, the submissions made by Thuiskopie under 3.2 – 3.4 MvA / MvG-inc, that all large record companies have already distanced themselves from applying DRM, that the Windows Media Data Session Toolkit is no longer being used, and that protected material within iTunes and other providers is being offered free of DRM – as the Court has been led to believe from exhibit 29 to MvG submitted by Thuiskopie. ACI et al. have, in any event, not disputed these submissions by Thuiskopie even though they have had the opportunity to do so in the submission referred to above and at the hearing. These statements have therefore been established. On the other hand Thuiskopie has not disputed that technological measures are being used albeit “sparsely”, and therefore this statement has also been established. However, the latter is of no benefit to ACI et al. as will be discussed below. Thuiskopie has submitted – and this has not been contested – that SONT is already taking the application of technological measures into consideration when determining the level of compensation (by for instance using a lower tariff for DVD+). It should therefore be assumed in this case, given the absence of any submissions by ACI et al. to the contrary, that the current “sparse” use of technological measures is already being taken into consideration when determining the level of compensation. This means that ACI et al.’s claim III, insofar as it rests on the fact that technological measures are being used, cannot be upheld due to an absence of any grounds.

7. ACI et al.’s claim II: copying from an illegal source

Introduction

7.1        Copying from an illegal source is taken to refer in particular or to include copying to a CD-R or DVD-R of music or films which have been placed (uploaded) onto the internet without the rightholder’s permission, as happens via “peer-to-peer” or “BitTorrent” networks. It has not been contested that this uploading without permission constitutes an infringement of the author’s publication right.

7.2        It is ACI et al.’s view that copying/downloading from an illegal source also infringes copyright – or more specifically: the reproduction right – and therefore the Home Copy Regulation described in article 16c Aw is not applicable. They have requested a ruling that the level of damage resulting from illegal copying (incl. downloading) from an illegal source should be taken into consideration when determining the level of private copying compensation. However, according to Thuiskopie this ruling should not be applied as copying from an illegal source does fall under the Home Copy Regulations (CvA, penultimate sentence).

7.3        The District Court ruled in this matter as described briefly below:
(a)        Creating a private copy of illegal material is also an illegal act – as this does not satisfy the three-step test in article 5 part 5 ARI. Therefore, the creation of a private copy from illegal material does not fall under the scope of article 16c Aw;
                                       


(b)        However, the ARI does consistently highlight that there should be a provision at a national level to ensure that rightholders receive compensation for the harm incurred through private copying of illegal material. The ARI does not shrink back from this. Therefore, there is no reason to stand against the private copying of illegal material being taken into consideration in determining the level of private copying compensation.
The District Court dismissed claim I subsection G (claim IA on appeal) on these grounds.
7.4       ACI et al.’s submission I on appeal – which considers the District Court’s ruling on (a) to be correct – comes up against ruling (b) by that Court. Thuiskopie has based its submission on ruling (b) by the District Court, however in the event that this judgment is overturned on appeal, Thuiskopie has contested ruling (a) by the District Court in its (conditional) submission in the cross-appeal I.
ACI et al.’s submission on appeal I against ruling (b) by the District Court
7.5       In assessing ACI et al.’s submission on appeal I there has to be a presumption that copying from an illegal source does not fall under article 16c Aw, and, nor does it fall under the limitation described in article 5 part 2 subsection b ARI given the reference by the District Court that it conflicts with the three-step test.
7.6       Following from this principle – as also follows from the considerations in 3.2 and 3.4 – the rightholder would not be entitled to the specific compensation referred to in article 16c Aw / article 5 part 2 subsection […] ARI and therefore copying activities such as this cannot be included in determining the level of the compensation. The District Court’s judgment (b) can therefore not stand, insofar as this was its intention.
7.7       However, it may also be that the District Court in judgment (b) had an alternative in mind for fair compensation which is not further detailed, and although it does not represent private copying compensation does amount to the same thing. The following would then apply. Given that the presumption here is that copying from an illegal source does not fall under article 16c Aw / article 5 part 2, preamble and subsection b ARI then rightholders would have an exclusive right in respect of copying from an illegal source on the grounds of article 1 Aw / article 2 ARI. Where rightholders following copying from an illegal source have a claim to fair compensation which is not further specified, then this entails that either:
            (i)          the fair compensation replaces the exclusive right;
            (ii)         the fair compensation stands alongside the exclusive right.

            Option (i) results in the rightholders losing their exclusive right without justification – that is in the form of a permitted restriction in the reproduction right. This option can therefore not be accepted. Option (ii) in contrast leads to an excessive compensation to the rightholders: an exclusive right and fair compensation. This is in conflict with the Aw and ARI systems, which introduce fair compensation in (some) cases where the exclusive right has been removed. Contrary to the judgment by the District Court the ARI therefore does not allow the option to stand that in cases falling outside the scope of the limitations provided in the ARI fair compensation is provided at a national level. This also follows from point 36 of the preamble to the ARI which reads:


The Member States may provide for fair compensation for rightholders also when applying the optional provisions on exceptions or limitations which do not require such compensation.

It should be noted from this that the thought behind the ARI is that there is only place for the limitations and restrictions described in article 5 ARI alongside fair compensation. Finally, in this respect, it is also noted that it is not easy to see where SONT’s authority to determine the unspecified levels of fair compensation (as part of the private copying compensation) could be derived from. Pursuant to the Aw SONT is only authorised to determine the level of “real” private copying compensation.

7.8       Finally, should copying from an illegal source not fall under the scope of article 16c Aw then this should not be taken into consideration when determining the level of private copying compensation. Judgment (b) by the District Court described in 7.3 can therefore not stand. ACI et al.’s submission on appeal I is therefore upheld.

(Conditional) submission on appeal I by Thuiskopie in the cross-appeal

7.9       The criterion by which Thuiskopie submitted its appeal I against ruling (a) of the District Court, that is, that illegal downloading does not fall under the Home Copy Regulations, has been satisfied, and this submission on appeal will therefore be considered. The submission on appeal rests on the following arguments.

a.     There is no requirement in article 16c Aw that the copied work is published lawfully and it is apparent from the legislative history that it was not the legislature’s intention that copying form an illegal source should not fall under the scope of that stipulation. During the parliamentary debates the Dutch government stated on numerous occasions that downloading from an illegal source would fall under the Home Copy Regulations;
b.    Downloading from an illegal source is not in conflict with the three-step test as
(i)             It is impossible for rightholders to exercise their exclusive right on private copies and in this respect there is therefore no normal exploitation which is being harmed, and
(ii)            The legal interests of rightholders are not being harmed through the application of the Home Copy Regulations to downloading from illegal sources; the rightholders – who are not able to exercise their exclusive right on private copies would, in this instance, still receive some compensation in any event.
7.10      The District Court did not provide any further details why it was of the opinion that copying          from illegal sources does not satisfy the three-step test. ACS et al., in supporting their position         that allowing downloading from an illegal source is in conflict with that test, have submitted,          amongst others, that an illegal activity cannot in anyway be unified with the statutory interests         of rightholders (MvA-inc point 19), that a levy is not able to repair the harm to the rightholders’      interest to be able to determine the way their work is offered by themselves and that it is             impossible that the “gigantic” loss incurred through the downloading from an illegal source    could be compensated by the levy either in full or to a great extent (submission on appeal


            point (25). The Appeal Court is aware that ACI et al. intended to express their submission as        follows. Copying (“downloading”) from an illegal source presupposes that there is another             individual who illegally – that is to say: without the permission of the copyright holder - copied   that work prior to making it public by placing it on the internet (“uploading”). By making this     public without either permission or payment (the “illegal activity” intended in MvA-inc point 19)             does not only undermine the author’s exclusive authority to decide whether and under what          circumstances he would make his work available to the public, but also that the author does           not receive any payment for this publication. Downloading from an illegal source encourages             illegal uploading and a system is maintained whereby one individual downloads and the other           illegally uploads, and vice versa. Illegal uploads (ultimately) stop to a large extent when there             are no more downloads from an illegal source. Taken in this light, copying from an illegal            source is a demonstrable factor in bringing about harm to rightholders. Given that these       detrimental consequences of illegal downloads cannot be prevented by a home copy           compensation system, which is designed to provide reimbursement for the copying which    takes place during the download, this means that copying from an illegal source produces             unreasonable damage to the statutory rights of the rightholders (the 3rd step in the three-step       test). Given the injunction to provide an interpretation in line with the Directive, article 16c et         seq Aw should therefore be interpreted in the sense that downloading from an illegal source is            prohibited, as has been submitted by ACI et al.
7.11      The Appeal Court submits that article 5 part 2 subsection b ARI which stipulates that member states are permitted to include a limit on the exclusive reproduction right in their legislation for creating “private electronic copies”, does of itself not make a distinction concerning where the copy of the work is acquired. There can therefore only be a conflict with the ARI when the application of the limitation in article 5 part 2 subsection b ARI on downloading from an illegal source has to be considered to conflict with the three-step test in article 5 part 5 ARI. In point 44 of the preamble refers to the fact that “the provision of such exceptions or limitations by Member States should, in particular, duly reflect the increased economic impact that such exceptions or limitations may have in the context of the new electronic environment” and that “therefore, the scope of certain exceptions or limitations may have to be even more limited when it comes to certain new uses of copyright works and other subject-matter”.
7.12      Article 16c et seq Aw does not provide any stipulations either regarding the admissibility of copying from an illegal source. However, this question was explicitly addressed during the parliamentary debate on the 2004 Reform Act as is evidenced by the minister’s comments:
            - The internet user making use of the opportunities offered by Napster, KaZaa and comparable peer-to-peer services in order to copy works of literature, science or art for private use is operating within the margins of the copyright when taken in the round. This also applies when a private copy is made of an original, which is illegal, that is to say, which has been published without the permission of the copyright holder (…). The absence of a requirement for the original to have been a legal copy, may therefore lead to legitimate copies being made from


            an illegal source (…) (Notes to the Report, TK 2002-2003, 28482, no. 5, p.32);
-       My preference is that a private copy should only be created from a legitimate source. Article 5, part two, subsection b, of the directive and article 16c do not stand in the way of that a legitimate private copy could be created from an illegal source. As members of the CDA fraction have already noted it is usually not possible to ask the user to determine whether or not it is a legal original. Furthermore, I have doubts about the enforceability of such a requirement. Finally it should be pointed out that the requirement for the copy to only have been created from a legitimate source also results in the level of fair compensation being reduced. After all, fair compensation is exclusively owed on loss of income by rightholders due to private copying pursuant to article 16c. This loss has to be separated from the loss in turnover resulting from illegal copies which are outside the scope of article 16. (Note to the Report, TK 2002-2003, 28482, no. 5, p. 33).
-       Article 16c binds the condition to private copying that compensation has to be paid. The compensation is owed irrespective of whether it involves a legitimate or illegal source (…). If the private copying from an illegal source is not taken into consideration in determining the level of compensation, then the user copying illegal works would in fact be better off financially. The law would in that instance have set a premium on the use of illegal work. As that could not have been the intention it can therefore be stated that the Directive is also not stipulating that copying has to involve a legitimate source. (Note to the Addition Report (Nader Verslag), TK 2002-2003, 28482, no. 8, p. 13).
            It is apparent from these comments that the Dutch government is of the opinion that copying      from an illegal source is permissible according to the Aw as this falls under the scope of           article 16c part 1. Article 16c et seq Aw should therefore be interpreted in that sense. The           government has consciously stipulated this, as it evidently believes it accords with the ARI.
7.13      The comments by the minister referred to above clearly rest on the following thought processes. As long as technological measures are not available in sufficient numbers (refer to 6.10 for this) a prohibition on the creation of private copies from an illegal source cannot be enforced in practice (in subsequent letters to the Dutch House of Representatives regarding copyright policy, the minister has added to this that such a prohibition would also lead to objections in terms of privacy infringement, TK 2008-2009, no. 6 and TK 2009-2010, 29838, no. 22, p. 13). Rightholders will de facto not receive any payment following a ban on downloading from illegal sources. Given this fact the statutory interests of rightholders are currently better served by a system where downloading from an illegal source is permitted given that this leads to private copying compensation to rightholders in each case. Therefore the interests of rightholders are not being damaged unreasonably by downloads from an illegal source and this therefore satisfies the requirements of the ARI, at least this is what, as the Court understands it, the government has stated.
7.14      The Appeal Court has determined that the system advocated by the government maintains that downloads from illegal sources result in encouraging illegal uploads and that the rightholders therefore continue to be confronted in that system


            with the detrimental consequences of illegal uploads which are not reimbursed through private copying compensation. However, it cannot be stated that for these reasons that downloading from an illegal source is in conflict with (the 3rd step of) the three-step test in article 5 part 5 ARI as it is highly conceivable that this test requires a concrete consideration of all the relevant circumstances, including the situation that a ban on downloads from illegal sources is currently not enforceable in practice and that rightholders are therefore better off if downloads from illegal sources are permitted, and the minister’s approach to this is therefore in accordance with the (3rd step of) the three-step test. If this were to be the case then Dutch law as described/interpreted in point 7.12 would in fine be directive-compliant, and downloads from illegal sources would be permissible.
7.15      However, if it were the case that the (3rd step of) the three-step test prohibited downloads from illegal sources as this would lead to encouraging illegal uploads and if the abovementioned consideration of all the interests and questions of enforcement were (therefore) not to play a decisive role in the assessment based on that test, then article 16c Aw would, as such, be in conflict with the ARI. Given the considerations in the first sentence of 7.14 the distance between the stipulations in the ARI and Dutch law would under those circumstances be so great that the border of a directive-compliant interpretation would have been reached. This applies even more given that the Cabinet’s response (Kabinetsreactie) of 30 June 2009 to the Copyright Working Group’s report once again confirms that in the government’s opinion “the downloading of copyright protected material (…) is currently permissible” (TK, 2009-2010, 28838, no. 22, p. 14), which given the context of the wording can unmistakeably be taken to mean: downloads from an illegal source. It is certain given the latter that the principle of legal certainty would be unduly threatened if, in respect of the issue of downloads from an illegal source, article 16c Aw were to be interpreted in the way submitted by ACI et al. If Dutch law were to conflict with the ARI , then Dutch law would nevertheless remain valid, as established in fine in point 7.12, and that downloads from illegal sources would be permissible in the Netherlands.
7.16      In summary, either the three-step test has been satisfied in which case article 16c Aw, as interpreted under 7.12 in fine, is accordance with the ARI, or the three-step test has not been satisfied in which case article 16c Aw, as interpreted in point 7.12 in fine would be in conflict with the ARI to such an extent that an interpretation in line with the Directive would not be possible, and that therefore the interpretation of article 16c Aw, as described in point 7.12 in fine would prevail. Thuiskopie’s argument referred to in point 7.9 a is therefore well-founded, and therefore its submission on appeal I in the cross-appeal is upheld.
7.17      There is no cause to allow ACI et al.’s proposed prejudicial questions 1, 1a and 1b regarding, in brief, the admissibility under ARI of copying from illegal sources, as given the above deliberations it is apparent that the answer to these questions is of no interest to the Appeal Court in arriving at its decision.
7.18      The above leads to the final summary that copying (including downloading) from illegal sources falls under the scope of article 16c part 1 Aw. These activities should therefore be taken into consideration when determining the level of Private copying compensation. ACI et al.’s claim IA is therefore dismissed. The District Court’s judgment in this matter will be reinforced


            through a change of grounds.
8. The original claim I subsection I: question of permission
8.1       In the preliminary summons ACI et al requested a ruling under claim I subsection I that copying activities should not be taken into consideration were the rightholder has explicitly or implicitly provided permission. The District Court upheld this claim. Thuiskopie submitted an appeal, II, against this judgment in the cross-appeal. This submission on appeal rests on the following three propositions:
            a)          It is not appropriate in a global levy system, in cases where a rightholder has given                     his permission for a private copy to be made, to conclude from this that      the                                level of compensation should be reduced;
            b)         Permission cannot be granted for copies falling under the article 16c Aw regime,                         given that this stipulates that the creation of a private copy does not infringe copyright                   and therefore no permission is required; whether or not permission is granted is                                 therefore irrelevant;
            c)          If a rightholder has granted permission for a private copy to be made, it cannot be                      concluded from this in any sense that he is waiving his “statutory right to home copy                        compensation”.
8.2       It has to be assumed that by “permission” ACI et al. had in mind the situation where the copyright holder waives his rights flowing from his reproduction right in respect of another party (hereafter: the user). The Appeal Court along with the District Court is of the opinion that under these circumstances it cannot be the case that the rightholder has incurred any harm. Given the deliberations in 4.16 copying activities for which the rightholder has given his permission do not have to be included in determining the level of private copying compensation. Even, if it is assumed that there has been some harm incurred, this would nevertheless lead to the same outcome. The Appeal Court has provided an explanation for this which is described below. Article 5 part 2 subsection b ARI and article 16c part 1 Aw form a limitation on the reproduction right. There is therefore nothing left to limit. This means that copying activities which have been permitted do not fall under the scope of the articles referred to above, and any harm incurred by these activities may not be incorporated in determining the level of the private copying compensation, as explained in 3.4. Thuiskopie’s propositions a) to c) therefore fail.
8.3       Propositions b) and c) submitted would be correct if – and only if – “permission” is taken to mean: a statement or action by the rightholder whereby he confirms that (as follows from article 16c Aw) that the user is entitled to copy the work for personal use. However, this does not in fact reflect “real” permission, that is permission in the normal sense of the word and the original claim I subsection I submitted by ACI et al. – as Thuiskopie has had to understand – does not shy away from this.
8.4       The conclusion is that Thuiskopie’s submission on appeal II in the cross-appeal fails where this is based on propositions a) to c). Copying activities


            for which permission has been granted may not be considered when determining the level of private copying compensation. Given that the judgment on this point is in favour of ACI et al., it is of no further interest to ACI et al. to submit the prejudicial questions they have formulated in this matter.
8.5       In the context of Thuiskopie’s submission on appeal II, Thuiskopie has argued that the District Court did not establish when permission arises. The District Court, as submitted by Thuiskopie, should have dismissed this claim on the basis of lack of grounds, given that there was a fundamental difference between the parties and that the requested ruling had not provided any clarity on the matter. The argument fails in respect of a request for a ruling on explicit permission. It is sufficiently clear what is intended by this, namely a written or oral statement granting permission in some many words. However, the argument does succeed in terms of a request for a ruling on implicit permission, particularly given that the discussion in the first instance between the parties and continued on appeal, centres on the question of whether not applying technological measures that are available should be considered as implicit permission for copying the work concerned – as submitted by ACI et al., but disputed by Thuiskopie. The ruling issued by the District Court is not concrete enough in terms of this point, and as such its judgment on this point cannot be upheld. The Appeal Court will issue another judgment in this matter.
8.6       “Implicit” permission may be taken to mean a) an action by the copyright holder expressing his intention to grant permission (article 3:33 of the Civil Code, BW) and b) statements or actions by the copyright holder which a user may reasonably assume to mean that he is expressing his intention to grant permission (article 3:35 Civil Code). The judgment to be issued by the Appeal Court will contain a precise definition of this matter.
8.7       According to the above standards, failure to apply the available technological measures cannot be viewed as implicit permission, even where, as submitted by ACI et al., the application of these measures has consciously been avoided. There may, after all, be numerous reasons behind this choice, so that the user could not reasonably, on that basis, be of the opinion that the rightholders intended to waive their reproduction right.
8.8       The disputed judgment will therefore be overturned on that point, although only in respect of the “implicit permission” concept included therein. The new judgment agreeing with the core rulings in the disputed judgment will include a ruling with a precise definition of that concept.
9. Compensation for copies in other member states
9.1       Part I subsection O of the original claim submitted by ACI et al., which is claim IIE in this case, requests a ruling that the level of fair compensation in other (EU) member states should be taken into consideration when determining a private copying compensation. The District Court dismissed this claim, whereby it determined that the situation where there are (or could be) large differences in the levels set by different member states is inherent to the choice by


            the European legislature not to harmonise the level of fair compensation. ACI et al.’s submission on appeal 3 challenges this decision (amongst others). They have added to this that “fair compensation” is a European concept that has to be interpreted, supplemented and applied in the same way by each member state, and that (large) differences between the tariffs in the member states could be in conflict with the principle of the free movement of goods.
9.2       Thuiskopie noted in MvA/MvG-inc that in the event of a member state determining significantly higher tariffs than those in other member states, an import restriction prohibited under article 28 of the EC Treaty or a similar measure would be in order (point 4.2) and that SONT does indeed compare its tariffs with others (point 7.1, last sentence). Thuiskopie in counsels’ submissions at the appeal hearing has stated that compensation in the Netherlands should not fall out of step with levels of compensation set abroad, as this would otherwise lead to a cap on import restrictions. It is apparent from this that Thuiskopie is not (or no longer) disputing this claim, and that this claim may therefore be upheld. ACI et al.’s submission on appeal 3 is upheld insofar as this is directed against the dismissal issued by the District Court.
9.3       In the context of that claim there does not have to be an assessment of whether the tariffs in the Netherlands are the highest in Europe, as submitted by ACI et al. in point 86 MvG, which has been disputed by Thuiskopie. ACI et al. intend to establish with this claim that tariffs in other member states should be taken into consideration, and not to determine the extent to which that should occur.
10. The disparity between the price of the storage device and the levy
10.1      Part I subsection N of the original claim submitted by ACI et al., which is claim IID in the appeal, requests a ruling that a potential disparity between the average price of the blank storage device and the levy should be taken into consideration when determining the level of the private copying compensation. The District Court dismissed this claim on the grounds of the consideration that it is reasonable, as submitted by Thuiskopie, to relate the level of private copying compensation to value of the works to be copied, and not to the value of the storage device. ACI et al. submitted an appeal against this decision, under submission 3 (again).
10.2      this appeal is based on the following propositions (MvG points 52, 53, 84-87 and 92-93, and submissions on appeal points 1 to 3). The wholesale price of an ordinary CD-R is 7 eurocents and the private copying levy is 14 eurocents, which is therefore a levy of 200%. This percentage is 600% for blank DVDs. Currently the level of private copying compensation amounts, in many cases, to approximately 40% of the sales price. The level of this levy should not result in the storage devices becoming so expensive that a profit is no longer possible in real terms.
10.3      The level of private copying compensation should be determined on the basis of statutory standards established in article 16c et seq Aw, which should – “as far as possible” – be interpreted in the light of article 5 part 2 subsection b ARI. This ensures that authors will be reasonably compensated for the use of their work (refer to point 4.7). The levy corresponding with the level of compensation determined in this manner will normally, along with the wholesale price, form the lower limit for the sales price of blank


            storage devices. It is apparent that Dutch manufacturers and importers are unable to maintain their prices at that “normal” level due, in particular, to the illegal imports of (considerably) cheaper blank storage devices. It is apparent that ACI et al. have come to the conclusion that the damage incurred by the manufacturers and importers through this should be passed on either partially or in full to the rightholders. However, there is nothing in either the ARI or the Aw to suggest that damages such as this to manufacturers or importers should be taken into consideration when determining the level of fair compensation. This claim is therefore not admissible and the disputed judgment will be upheld on this point. ACI et al.’s submission on appeal 3 fails in this respect.
11. Thuiskopie’s submission on appeal III in the cross-appeal
11.1      In the preliminary summons ACI et al. had requested under I subsection A a ruling that the in determining the level of private copying compensation “account should be taken with the fact that compensation is exclusively owed on objects that are intended to play, show or display a work”. ACI et al. intended to establish in law that the level of private copying compensation should not take account of the use of the work on storage media, which are appropriate for playing, showing or displaying a work, but are not intended for those purposes, such as a dictaphone tape, diskettes, memory/USB sticks (intended for storage of personal information) and DVD-RAM (which can be used to create backup copies). In subsequent submissions ACI et al suggested that objects which are only partly intended to play, show or display works should also be considered as objects in the sense of article 16c Aw. However, Thuiskopie is of the opinion that this definition by ACI et al. I too restrictive, and that all objects the normal use of which includes the storage of images or sounds in order to be able to show or play these images or sounds, such as MP3 players and DVD Recorders with a hard drive, fall under the Private Copying Regulations (point 2.5 in the counter-submission). Thuiskopie therefore requested that claims I subsection A be dismissed (p. 20 and 22 in the counterclaim) on lack of grounds (counter-submission, p.5 last sentence). The District Court subsequently dismissed ACI et al.’s claim I subsection A on the grounds that ACI et al. had no interest in this matter.
11.2      Thuiskopie submitted a cross appeal against this decision – submission on appeal III, which submits that the District Court was incorrect in not determining whether equipment (such as MP3 players and DVD recorders with hard drives) could also be considered as objects that are intended or intended in part to play a work in the sense of article 16c Aw. As the District Court dismissed ACI et al.’s claim I subsection A, as requested by Thuiskopie, the latter no longer has an interest in its appeal against this decision. The submissions included by Thuiskopie in its submission III in the cross-appeal could nevertheless have been considered on appeal – as a counterclaim against this claim – had ACI et al. submitted an appeal against the dismissal of their claim I subsection A, although they chose not to do so. It should be noted here that Thuiskopie did not, in the first instance, submit a claim against the request for a ruling that equipment (such as MP3 players and DVD recorders with a hard drive) could also be considered as objects intended or partly intended to play a work in the sense of article 16c Aw.


            Insofar as the claim for relief in the MvA / MvG-inc should be read as a claim regarding this proposition, it cannot be taken into consideration as a claim, not even in the form of an additional claim, given that the counterclaim was the last opportunity to submit any claims to the contrary (refer to article 353 part 1, last sentence of the Civil Procedure Code, Rv) and that this counterclaim was not submitted.
11.3      The above means that Thuiskopie and its submissions on appeal regarding the question of whether MP3 players and similar items fall under the scope of article 16c Aw has failed to recognise that the (appeal) court only has to decide, and is only allowed to decide on claims which are still to be considered (on appeal), and not on points of difference which although of interest to the parties, have no relevance to the evaluation of the claims.
11.4      It is apparent from the above that Thuiskopie does not have any further interest in its submission III on appeal (in accordance with the law), and therefore this does not have to be considered further.
12. Conclusion
12.1      Only ACI et al.’s submission on appeal 3 succeeds in the principal appeal, and Thuiskopie’s submission on appeal II succeeds in the cross-appeal, albeit only partially for both. To that extent the judgment of the District Court will be overturned and a new judgment issued as recorded in points 8.8 and 9.2. The remaining parts of the judgment will be upheld including the costs of the proceedings – given that ACI et al. should be considered as the unsuccessful party both in first instance as well as on appeal.
12.2      Only claim I including the detailed definition referred to in 4.16, and the subsidiary part of IIB submitted by ACI et al. on appeal are admissible. The remainder of their submissions on appeal will be dismissed.
12.3      ACI et al. were largely unsuccessful in the principal appeal, and they will therefore be ordered to pay the costs of the proceedings. Thuiskopie will be ordered to pay the costs of the cross-appeal given that this party was largely unsuccessful here. SONT appealed to the Court’s judgment in the case between SONT and ACI et al. The costs in those proceedings will therefore be compensated.
Decision
The Court of Appeal
-       Overturns the disputed judgment insofar as this concerns the decisions on parts I subsection I and I subsection O of the original ACI et al. claim, and issues a new judgment

# Ruling that copying activities for which the rightholder has either explicitly given his permission or for which the rightholder has given his permission on the basis of the standards referred to in grounds 8.6 should not be taken into consideration when determining the level of private copying


compensation;
# Ruling that the level of compensation for copying in other EU member states should be taken into consideration when determining the level of private copying compensation;
# Dismisses the other claims;
-       Upholds the remaining decisions in the disputed judgment;

-       Ruling – as result of the appeal submitted by ACI et al. through a claim in its original claim - that the fair compensation intended in article 16c Aw is exclusively intended to compensate the harm (to be interpreted as: the loss of licence fee resulting from particular copying activities) to rightholders resulting from copying activities falling within the scope of article 16c Aw;

-       Ruling - as result of the appeal submitted by ACI et al. through a claim in its original claim – that copying activities where the damage or harm to the rightholder is negligible do not have to be taken into consideration when determining the level of private copying compensation;

-       Dismisses the amended claim submitted on appeal;

-       Orders ACI et al. to pay the costs of the principal appeal, which Thuiskopie has currently estimated to amount to €2985, of which €303 in disbursements and €2682 for counsel’s costs;

-       Orders Thuiskopie to pay the costs of the cross-appeal, which ACI et al. has currently estimated to amount to €1341 for counsel’s costs;

-       Compensates the costs in the case between ACI et al. and SONT on appeal, and that each party therefore bears its own costs.

This judgment was issued by Messrs M.Y. Bonneur, G.J. Heevel and M. De Cock Buning and was pronounced at a public hearing on 15 November 2010 in the presence of the Clerk of the Court.

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