Amazon Loses Challenge to Copyright Tax

     (CN) - Austria can tax blank media to reimburse artists for potential copyright infringement, Europe's highest court ruled Thursday, rejecting Amazon's challenge.
     EU law allows consumers to make copies of music and films they have purchased for personal use, provided that each member state enacts a way to ensure the artists receive "fair compensation" for the reproduction.
     In Austria, that takes the form of a private copying tax on all blank CDs, DVDs, memory cards and MP3 players sold.
     Austrian copyright administrator Austro-Mechana sued Amazon for failing to collect the tax - known as the "blank cassette levy" - in 2002 through 2004. The group claimed Amazon owed more than $2.4 million for the first half of 2004 alone and wanted Amazon to turn over accounting data for 2002 and 2003.
     That Austrian court ordered the accounting, but held off on deciding whether Amazon owed the tax. Amazon appealed to the Austrian Supreme Court and argued that the blank media tax violates EU law.
     The Austrian Supreme Court asked the Court of Justice of the European Union to weigh in on the legality of the tax - which is applied indiscriminately to all blank media purchases - and whether Amazon is responsible for paying it. Additionally, the Austrian court questioned whether EU law allowed Austro-Mechana to be the sole distributor of the tax money.
     The Luxembourg-based high court said Thursday that EU copyright law requires member states that allow consumers to make private-use copies of purchased works to "provide for the payment of 'fair compensation'" to copyright holders. Who pays the tax, and how much, is left to member states to decide, according to the ruling.
     Since all consumers do not make private copies of copyrighted works, it makes sense to levy the tax on sellers of reproduction equipment, blank media and recording devices - in this case, Amazon, the court found. Amazon can then pass on the tax to consumers in the prices it charges for the equipment.
     Such a system could also lead, however, to indiscriminate taxing of people who purchase blank media for purposes other than copying the works of others, and the court found that is exactly what is happening in Austria. The EU court tasked the Austrian high court with determining whether its indiscriminate tax is justified to compensate artists for lost revenue.
     "In the present case, the referring court must verify, first of all, whether the indiscriminate application of a private copying levy on the placing on the market, for commercial purposes and for consideration, of recording media suitable for reproduction is warranted by sufficient practical difficulties in all cases," the EU court wrote. "In that context, account must be taken of the scope, the effectiveness, the availability, the publicization [sic] and the simplicity of use of the a priori exemption mentioned by Austro-Mechana in its written observations and at the hearing. Secondly, the referring court must also verify that the scope, the effectiveness, the availability, the publicization and the simplicity of use of the right to reimbursement allow the correction of any imbalances created by the system in order to respond to the practical difficulties observed. In that regard, it must be observed that the referring court itself stresses that the cases of reimbursement are not limited to those expressly covered by Austrian law."
     The court also tentatively approved of a move to use half of the money collected through the blank media tax to fund social and cultural institutions for artists, rather than giving the money directly to them.
     "Such a system of indirect collection of fair compensation by those entitled to it meets one of the objectives of the appropriate legal protection of intellectual property rights, which is to ensure that European cultural creativity and production receive the necessary resources to continue their creative and artistic work and to safeguard the independence and dignity of artistic creators and performers," the court wrote.
     The case parallels a decision by the EU high court last month, which held that European countries can levy a similar tax against printer and copy machine manufacturers to compensate copyright holders for illegal print copying. In that case, German copyright administrator VG Wort compelled production from Canon, Epson, Fujitsu, Hewlett-Packard, Kyocera and Xerox on sales figures for machines sold in Germany between 2001 and 2007 so that it might calculate the appropriate tax.
     The court in that case acknowledged the difficulties associated with the EU's system of pre-emptively compensating copyright holders for potential infringement, and encouraged manufacturers to pass the added costs on to consumers.