Some European countries allow the unauthorised copying of material that a person legitimately owns, as long as that is for private use. The European Copyright Directive says that this is permitted as long as there is 'fair compensation' to the copyright holders.
Countries which allow private copying ensure this fair compensation by charging a levy on the media – discs, media players – that material is typically copied on to. That levy is then distributed through collection societies to rights holders.
The ECJ has ruled that this levy is compatible with EU copyright law when charged on goods sold to individuals because it can reasonably be assumed those media will be used for copying. It should not be charged when items are sold to businesses, though, because that assumption cannot be made, it said.
"Where the equipment at issue has been made available to natural persons for private purposes it is unnecessary to show that they have in fact made private copies with the help of that equipment and have therefore actually caused harm to the author of the protected work," said the ECJ ruling.
"Those natural persons are rightly presumed to benefit fully from the making available of that equipment, that is to say that they are deemed to take full advantage of the functions associated with that equipment, including copying," it said.
"A link is necessary between the application of the levy intended to finance fair compensation with respect to digital reproduction equipment, devices and media and the deemed use of them for the purposes of private copying," it said. "Consequently, the indiscriminate application of the private copying levy, in particular with respect to digital reproduction equipment, devices and media not made available to private users and clearly reserved for uses other than private copying, is incompatible with [the Copyright Directive]."
Spanish rights management agency Sociedad General de Autores y Editores (SGAE) sued Padawan, a distributor of discs and devices, claiming for unpaid copyright levies. Padawan claimed that the indiscriminate application of the levy was not compatible with EU law.
Padawan lost the case and appealed, and the appeals court asked the ECJ to rule on what European law meant in the case's context.
The Court ruled that when businesses bought the media no levy should be paid because the payment should be linked to either direct harm to the author of works or to the possibility of harm.
"The purpose of fair compensation is to compensate authors ‘adequately’ for the use made of their protected works without their authorisation," said the ruling, referring to the preamble to the Directive. "In order to determine the level of that compensation, account must be taken – as a ‘valuable criterion’ – of the ‘possible harm’ suffered by the author as a result of the act of reproduction concerned, although prejudice which is ‘minimal’ does not give rise to a payment obligation. The private copying exception must therefore include a system ‘to compensate for the prejudice to rightholders'."
"It is clear from those provisions that the notion and level of fair compensation are linked to the harm resulting for the author from the reproduction for private use of his protected work without his authorisation," it said. "From that perspective, fair compensation must be regarded as recompense for the harm suffered by the author."
The ECJ said that private individuals were likely to use material to copy and that a levy was a reasonable mechanism for getting those individuals to pay for the harm caused to authors. It must not apply to other sales, though, because the levy cannot be applied indiscriminately.
The ruling is broadly in line with an opinion published earlier this year by the ECJ's advisor, one of its Advocates General.
The European Commission said last year that it wanted to end the situation where private copying was legal in some EU countries and not in others.
The Commission said in a statement that it wanted to give "consumers certainty about what they can and cannot do with copyrighted songs, videos and films they download, by ending the current fragmentation of laws on 'private copying'".