Private Copying Levy: CMO Negotiation Global Practices

10/ 06/ 2020

Author: Ilarion Tomarov, Counsel, Vasil Kisil & Partners An importer must pay a private copying levy upon importing recordable media and equipment into Ukraine. A buyer of the device (smartphone, TV set or memory stick) would be the end payer of this levy. Previously it was the government’s responsibility to set the levy rates; however, after the 2018 reform, this right is now vested in a accredited collective management organization (CMO). Such CMO has published preliminary rates for public discussion. The European Business Association’s Consumer Electronics Committee raised its concerns that suggested levy rates are excessive. The first round of negotiation has taken place already, so that the parties are waiting for the end of the quarantine to go on. At the same time, CMO itself has not agreed with Ukrainian radio broadcasters an amount of the fee payable for public broadcasting. The reason is that the rates are unreasonably overestimated (according to a representative of the National Media Association, in 40 to 100 times). The counteroffer suggest dividing radio stations (broadcasters) into local and national ones. The former must pay a fixed amount regardless of the content consumed, while the latter must pay a rate for public broadcasting per work. What will happen if the parties fail to agree?. Ukraine is not the first country to have such a conflict. There was a lawsuit in 2019 between CMO and public broadcasting fee payers in Israel. Having failed to reach an agreement with radio broadcasters, the local CMO (ACUM) set rates that exceeded three times the previous ones, so that the broadcasters refused paying them. ACUM filed a lawsuit claiming to confirm the rate according to the formula 10% pro-rata. The claimant justified the rate based on two publications by WIPO and UNESCO with respect to the fees for public broadcasting. The court noted that both publications were based on recommendations of CISAC (International Confederation of Societies of Authors and Composers, whose member ACUM is), which was an interested party. Therefore, its recommendations are not impartial. The court found that the author of the UNESCO publication expressed her own views, rather than an official position of the organization. Moreover, the court noted that the publication concerned developing countries and, accordingly, the fee model so proposed can not be applied to Israel as a developed country. The radio broadcasters pointed out that ACUM did not inquire with foreign CMOs what actual fees were payable for such manner of use. The radio broadcasters proved that various discounts were available in the other countries, as well as a significant percentage of deductions for development of the countrys culture. The court dismissed the claim on 5 January 2020, because ACUM did not prove that (1) the “10% pro-rata” rate was economically justified and (2) such rate was used in Israel or in the present international practice. The court recommended ACUM to consider the following in relation to radio broadcasters costs and revenues: introducing a day and night rates, because radio broadcasters has less advertising revenues at night time and they should not pay the same rate as during the active part of the day; setting different rates of the fee payable in the relevant parts of the country, because regions with a smaller population have the same costs for radio broadcasting as those in regions with a larger population, but their revenues are significantly lower. It is worth keeping in mind what the private copying levy is paid for. Firstly, it is not about liability for illegal use of works and phonograms, because there is no use (i.e., violation) at the time of levy payment. After the levy is paid, no one cares if anyone has ever made at least one copy with the use of the device. Secondly, it is not a fee for use (such as, for example, a fee for public performance or public broadcasting of phonograms), because none of the users becomes entitled to make copies. The private copying levy is like a tax. We assume that every citizen can use the police’s services for his or her protection, so that they must pay taxes that are applied to maintain law enforcement bodies. Likewise, we assume that most of end users of devices will use them to make copies of works without permission. Since we cannot control this, let all of the users pay in advance for such potential use. Have CMOs paid their attention to how the consumption of audio and video content has changed? How many users have been actually involved in private copying? How does the amount of the levy paid on imported goods correlate with the harm that could be caused to the right holders by actual use of recordable devices? IFPI Global Music Report 2018 shows that streaming services dominate in sales of music on tangible media and downloadable digital copies. The research carried by Mazars auditing firm in Spain in 2017 at request of DIGITALEUROPE (an association of globally known companies active in the digital industry and technology manufacturers) shows that 1.6% of users only made copies on CD or other media, while 0.9% of respondents copied movies. The private copying levy collected was 7 to 10 times higher than the actual damage caused by private copying in Spain. The streaming service works differently: even if it allows downloading some of the content on the users device, such a copy is not permanent (which is a condition to charge the private copying levy); the rights holders have already received royalties from the service provider, so that no harm is done to their property interest. It would be an unjustified double payment if the private copy levy is charged per device that allows consuming content without making permanent copies (DIGITALEUROPE 2019 Review). So, it is time to review the device-based approach to reflect the trend when a user does not need to buy a copy but have a subscription only, i.e., access to consume the content without making copies. The rates are about economic justification. The rate should be fair to both parties and take due account of the factors that affect the payers revenues and expenses in particular country. If the amount of the tax (private copying levy) should be a compromise between the parties, but one of the parties does not want to hear the other’s arguments, then the payers of levy will challenge them in court.

Author: Ilarion Tomarov, Counsel, Vasil Kisil & Partners

An importer must pay a private copying levy upon importing recordable media and equipment into Ukraine. A buyer of the device (smartphone, TV set or memory stick) would be the end payer of this levy. Previously it was the government’s responsibility to set the levy rates; however, after the 2018 reform, this right is now vested in a accredited collective management organization (CMO). Such CMO has published preliminary rates for public discussion. The European Business Association’s Consumer Electronics Committee raised its concerns that suggested levy rates are excessive. The first round of negotiation has taken place already, so that the parties are waiting for the end of the quarantine to go on.

At the same time, CMO itself has not agreed with Ukrainian radio broadcasters an amount of the fee payable for public broadcasting. The reason is that the rates are unreasonably overestimated (according to a representative of the National Media Association, in 40 to 100 times). The counteroffer suggest dividing radio stations (broadcasters) into local and national ones. The former must pay a fixed amount regardless of the content consumed, while the latter must pay a rate for public broadcasting per work.

What will happen if the parties fail to agree?

Ukraine is not the first country to have such a conflict. There was a lawsuit in 2019 between CMO and public broadcasting fee payers in Israel. Having failed to reach an agreement with radio broadcasters, the local CMO (ACUM) set rates that exceeded three times the previous ones, so that the broadcasters refused paying them.

ACUM filed a lawsuit claiming to confirm the rate according to the formula “10% pro-rata.” The claimant justified the rate based on two publications by WIPO and UNESCO with respect to the fees for public broadcasting. The court noted that both publications were based on recommendations of CISAC (International Confederation of Societies of Authors and Composers, whose member ACUM is), which was an interested party. Therefore, its recommendations are not impartial.

The court found that the author of the UNESCO publication expressed her own views, rather than an official position of the organization. Moreover, the court noted that the publication concerned developing countries and, accordingly, the fee model so proposed can not be applied to Israel as a developed country.

The radio broadcasters pointed out that ACUM did not inquire with foreign CMOs what actual fees were payable for such manner of use. The radio broadcasters proved that various discounts were available in the other countries, as well as a significant percentage of deductions for development of the country’s culture.

The court dismissed the claim on 5 January 2020, because ACUM did not prove that (1) the “10% pro-rata” rate was economically justified and (2) such rate was used in Israel or in the present international practice.

The court recommended ACUM to consider the following in relation to radio broadcasters’ costs and revenues: introducing a day and night rates, because radio broadcasters has less advertising revenues at night time and they should not pay the same rate as during the active part of the day; setting different rates of the fee payable in the relevant parts of the country, because regions with a smaller population have the same costs for radio broadcasting as those in regions with a larger population, but their revenues are significantly lower.

It is worth keeping in mind what the private copying levy is paid for.

Firstly, it is not about liability for illegal use of works and phonograms, because there is no use (i.e., violation) at the time of levy payment. After the levy is paid, no one cares if anyone has ever made at least one copy with the use of the device.

Secondly, it is not a fee for use (such as, for example, a fee for public performance or public broadcasting of phonograms), because none of the users becomes entitled to make copies.

The private copying levy is like a tax. We assume that every citizen can use the police’s services for his or her protection, so that they must pay taxes that are applied to maintain law enforcement bodies. Likewise, we assume that most of end users of devices will use them to make copies of works without permission. Since we cannot control this, let all of the users pay in advance for such potential use.

Have CMOs paid their attention to how the consumption of audio and video content has changed? How many users have been actually involved in private copying? How does the amount of the levy paid on imported goods correlate with the harm that could be caused to the right holders by actual use of recordable devices?

IFPI Global Music Report 2018 shows that streaming services dominate in sales of music on tangible media and downloadable digital copies. The research carried by Mazars auditing firm in Spain in 2017 at request of DIGITALEUROPE (an association of globally known companies active in the digital industry and technology manufacturers) shows that 1.6% of users only made copies on CD or other media, while 0.9% of respondents copied movies. The private copying levy collected was 7 to 10 times higher than the actual damage caused by private copying in Spain.

The streaming service works differently:

even if it allows downloading some of the content on the user’s device, such a copy is not permanent (which is a condition to charge the private copying levy);
the rights holders have already received royalties from the service provider, so that no harm is done to their property interest.

It would be an unjustified double payment if the private copy levy is charged per device that allows consuming content without making permanent copies (DIGITALEUROPE 2019 Review). So, it is time to review the device-based approach to reflect the trend when a user does not need to buy a copy but have a subscription only, i.e., access to consume the content without making copies.

The rates are about economic justification. The rate should be fair to both parties and take due account of the factors that affect the payer’s revenues and expenses in particular country. If the amount of the tax (private copying levy) should be a compromise between the parties, but one of the parties does not want to hear the other’s arguments, then the payers of levy will challenge them in court.