Dutch Tax Glosses over Piracy, EU Court Says

(CN) - A Dutch scheme to tax blank-media manufacturers for future legal and illegal copying undermines the EU's efforts to end copyright infringement, Europe's highest court ruled Thursday.

Under EU copyright law, member states can allow consumers to make a single, home-use copy of protected works they've purchased. Those states may also authorize compensation to the rights holders for those copies, usually in the form of a tax on blank-media manufacturers that is passed on to the consumer.

Dutch law requires those manufacturers and importers to pay a private-copying levy to a group called the Copying Foundation, which is authorized by the government to distribute the funds to rights holders. A different organization known as SONT - made up of various Dutch copyright societies - determines the tax amounts for each manufacturer.

But SONT also figures in the cost of potential illegal copies when levying the tax for the legal ones, according to wholesaler ACI Adam and others. The companies sued the two foundations in a Dutch court, which dismissed the action in 2008

On appeal, the Dutch supreme court asked the Court of Justice of the European Union whether the EU law that authorizes taxing blank media for legal copies might also justify the Netherlands' scheme to compensate for potential illegal reproductions.

In its opinion on Thursday, the Luxembourg-based high court said that the Netherlands' levy cannot be tolerated because it makes no distinction between the legal copies made for private use and pirated works.

"First, to accept that such reproductions may be made from an unlawful source would encourage the circulation of counterfeited or pirated works, thus inevitably reducing the volume of sales or of other lawful transactions relating to the protected works with the result that a normal exploitation of those works would be adversely affected," the court wrote. "Secondly, the application of such national legislation may unreasonably prejudice copyright holders."

The court also noted that member states that allow consumers to copy their purchases for private use also have a responsibility to stop piracy and counterfeiting, even where no technological solution currently exists.

"National legislation which does not distinguish the situation where the source from which a reproduction for private use is made is lawful from that in which that source is unlawful is not capable of ensuring the proper application of the private copying exception," the court wrote. "The fact that no applicable technological measures to combat the making of unlawful private copies exist is not capable of calling that finding into question."

Furthermore, the Dutch copy tax fails because it cannot strike a fair balance between rights holders and paying customers since it lumps legal and illegal copying together. Everyone involved ends up paying indirectly for the pirates' misdeeds, according to the court.

"All the users who purchase such equipment, devices and media are indirectly penalized since, by bearing the burden of the levy which is determined regardless of the lawful or unlawful nature of the source from which such reproductions are made, they inevitably contribute towards the compensation for the harm caused by reproductions for private use made from an unlawful source, which are not permitted by EU copyright law and are thus led to assume an additional, non-negligible cost in order to be able to make the private copies covered by the exception," the court concluded.

Thursday's ruling seems to run against a case from 2013, where the EU high court gave the go-ahead for a German scheme that taxes the manufacturers of printers, computers and copy machines for any potential copyright infringements involving the use of those devices.

In that case, the court acknowledged the difficulties associated with the EU's system of preemptively compensating copyright holders for potential infringement but said manufacturers could pass the added costs onto their customers.

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