Private copy royalty

Francisco Marcos. Professor of Law. Instituto de Empresa

21 September 2004

The appearance of new materials for copying music or audiovisual contents protected by intellectual property rights has reopened the debate about the royalty payment imposed by the Intellectual Property Act for copies made for private use.

One of the rights of anyone who buys literary, artistic or scientific work is the right to reproduce it for private use, provided the copy is not used for collective or lucrative purposes (article 31.2 of Spain’s Intellectual Property Act of 1996). For the copy to be lawful it must be made exclusively for the user’s copier alone, without assignment to third parties and without its use resulting in any benefits, such as professional use.

To compensate intellectual property rights’ holders for sales’ losses due to private copying, the Intellectual Property Act establishes a remuneration mechanism for authors. Through this compensatory remuneration, or royalty, legislators have introduced a “subsidy tax” which seeks to compensate rights’ holders for reproductions made avoiding the purchase of the original - which would of course be necessary if the private copying right did not exist.

This is an imperfect system. Faced with the difficulty of controlling lawful private copies, it imposes a tax on all apparatus, instruments and materials with or on which reproductions of protected works can be made - eventhough they may not be used to make such copies. This mechanism was recommended by the World Intellectual Property Organization (WIPO), when faced with the technical impossibility of controlling copying of protected works. The system has been incorporated into the various European legal systems since the 1960s, and was introduced in Spain with the Intellectual Property Act 22/1987, of 11 November.

Royalty debtors and creditors

Property rights’ holders cannot individually manage rights resulting from private copying, which makes it necessary to resort to collective management entities. These institutions are granted responsibility for collecting the royalties established by law. Amounts collected are distributed among rights holders based on estimates -a system which of course does not guarantee that only holders of copied works are compensated.

The royalty is established on the apparatus, equipment and material which are suitable for reproducing books and publications, phonograms, videograms, plus other audiovisual materials which have been manufactured in Spain or imported for commercial distribution and use. The Intellectual Property Act stipulates that remuneration must be fair and unique for all the above-mentioned reproduction modalities (article 25.1). The royalty must be paid by Spanish manufacturers and distributors (wholesale and resale) of apparatus, equipment and materials which permit reproduction of intellectual property rights.

The Intellectual Property Law sets royalty amounts on the basis of different parameters, which vary according to the work in question. Amounts range from €45 to €223 for apparatus and equipment for reproducing books, depending on copying speed. There is a fixed royalty per unit for equipment for copying phonograms and videograms, which is €0.60 and €6.6, respectively. Royalty on audio or visual reproduction material varies with its capacity (€0.18 per hour and €0.30 per hour, respectively).

The most controversial question raised by private copy royalty today is its application to digital supports (CD-RW Data and Audio, Minidiscs and DVD R/RW Data and Audio). The Intellectual Property Act does not state whether or not they are subject to the royalty, and nothing indicates they should be excluded, as the same reasons exist as for all other material that must pay. Numerous and unanimous judgements by Spanish Courts of First Instance led the Multisectorial Association of Spanish Electronic and Communication Companies (ASIMELEC), which groups over 80 percent of firms that manufacture and distribute digital recording materials in Spain, to sign a peculiar “private agreement in application of the law” with the main collective management entitites involved, on 30 July 2003.

This agreement sets amounts per recorded hour and per disc unit that must be paid as from 30 Sept. 2003. In 2004, this was from €0.13 per hour for CD-R/W Data to €0.70 per hour for DVD R/RW Video; from €0.17 per unit of CD-R/W Data 700MB to €1.40 per unit of DVD-R/RW video 120 minutes). These amounts are substantially lower than any that would have resulted from rigid application of parameters fixed by the Intellectual Property Act for these materials. The agreement is open to all companies (whether or not they are ASIMELEC members), although since 31 Oct. 2003 adhesion has been limited to newly created firms.

Royalty payment on digital supports has sparked debate among owners who use them for purposes other than copying protected works: in their opinion, being charged a “tax” for something they don’t do is unfair. But it should not be forgotten that the same thing occurred in the past with other materials expressly contemplated in the law. The real problem, apart from establishing the amount, is where to set the limit, if there is one. Remember that some people are even calling for imposition of a private copy royalty on personal computers.

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