Copyright Levies

Company information

	Key points

• The current copyright levy regime is a mix of tariffs randomly applied to different goods, at different levels, in different ways in many countries around the world, especially in the European Union (EU). The EU system was designed in the 1960s when digital technologies were only nascent and Europe was made up of several different markets rather than one internal market.
• The current system keeps consumers in the dark as they are unaware that they are paying this fee, in fact frequently charges them twice through additional fees for online content, and has also created a rash of court cases around the globe, particularly in the EU.
• All parties should work together to try to find common ground looking at both adjustments to the current systems and possible new models. The solution should be a harmonized system for private copying compensation that is fair, even and proportionate.

	The issue

Copyright levies were first introduced in the 1960s and are an additional charge applied to a number of products that can be used to copy or store copyrighted content such as music or literature. The levies are applied to products like DVD players, PCs, printers, MP3s, blank CDs and DVDs and are even being extended to games consoles, digital cameras and mobile phones. The money collected is supposed to be redistributed to artists through collecting societies in each country requiring a levy fee, to compensate them for legal private copies made of their work.

EMEA

According to European law a private copy is a copy of 1) legally acquired content; 2) on any medium; 3) made by a natural person; 4) for private use and 5) for ends that are neither directly nor indirectly commercial. It must be noted that every member state has legislation that can differ slightly from the European definition.

The EU Copyright Directive of 2001 allows countries to introduce levies on products to compensate artists for private copies made of their work, although it is not the only option available to compensate rights holders. The European Commission produced an impact assessment in 2006 demonstrating that the system was badly in need of reform, but withdrew a recommendation shortly before it was published in December 2006. The reform was shelved following pressure exerted by a number of member states, in particular France.  In February 2008, EU Commissioner Charlie McCreevy relaunched the consultation and held a public hearing on copyright levies in May 2008.  As a result of the May hearing, a stakeholder platform was initiated that began work in September looking at four areas: gray market; modalities for levies refunds upon product exportation; harmonized method of setting levies, and piracy. The Directorate General (DG) Internal Market and DG Culture in the European Commission are overseeing the stakeholder platform.

France – Levies have been extended from blank media to hardware (external hard disks, USB keys, memory drives) and mobile phones.
Germany – New legislation as of 2008 opened negotiations on levy tariffs between industry and collecting societies. Negotiations on reprography levies (printer, multifunctionals) are due to close while negotiations on PCs are stalled. A recent positive supreme court ruling stated that levies were not applicable on printers sold up to the end of 2007 as they are not deemed devices suitable for copying. From 2008 on, however, levies can be collected from single function and multifunctional printers.
Italy – Currently no imaging products are subject to levies. There is a risk of levies being extended to external hard disks, mobile phones with MP3 capabilities, and possibly PCs. Government is preparing a decree on scope and amount of levies.
Netherlands – The rate and scope of levies are currently frozen until the end of 2008, as the Dutch Government has indicated that the levy system needs to be carefully reviewed and corrected before expansion. Cabinet of ministers has suggested to extend the freeze until January 2010 as a result of the ongoing EU Stakeholders Forum.
Spain – The Spanish government addressed some of HP’s concerns and issued a decree that sets a benchmark for Europe with no or very low levies on digital devices such as multifunctional printers and PCs. However, the Spanish decree sets a minimum yearly income for collecting societies for private copying – regardless of how much consumers actually copy.

Americas

Mexico – Repeated attempts to introduce copyright levies legislation in Mexico have been rejected by the Parliament.
Canada – copyright levies exist in Canada although they are very low and only apply to blank media.
U.S. – There are currently no copyright levies in the U.S.

Asia Pacific

Japan – Has a levies system in place for blank media. Levy tariffs are currently low and a proposal has been put forward to eliminate levies on MP3 players.

	HP's position

The current copyright levy regime is a mix of tariffs randomly applied to different goods, at different levels, in different ways, in different countries, especially in Europe. The EU system was designed at a time when Europe was several different markets rather than one internal market.

• The products subject to levies vary widely from country to country with PCs, blank media, MP3 players and printers subject to levies. Additionally, mobile phones and game consoles are now being targeted in some countries and even paper is levied in Greece.
• The levy system is damaging the internal market through the widely ranging variations in levies applied from country to country. For example, until 2007, a levy of €102.28 is being claimed in Germany  on multifunctional printers costing €100. By comparison in the same time frame, the identical product would be subject to , a €1.28 levy in the Czech Republic and no levy in the Netherlands.
• The criteria for applying tariffs on multifunctional printers vary from country to country – in Belgium it is based on speed of output, in Austria it is based on percentage of price, in the Czech Republic has a flat fee defined within price ranges, in Germany it was based until 2008 on speed and whether it produces color or black & white output.
• Before 2008, the levy claimed in Germany on color multifunctional printers is twice that claimed on black and white multifunctional printers, suggesting that the harm suffered by rights holders is doubled if protected work is copied in color.
• The levy in Spain on multifunctional printers was reduced by 40 percent as it was found to be hugely disproportionate to the amount of material copied during the lifetime of a printer.
• A study by the Gesellschaft fur Konsumforschung (GfK) Group in Germany showed that less than 5% of a multifunction printer’s entire output is eligible for copyright levies. A study conducted by TNS Infratest in Germany showed recently that only 0.7% of all copies done with a PC are relevant for private copying and therefore justify a copyright levy.

	Impact on HP

The current system keeps consumers in the dark as they are unaware that they are paying this fee, in fact frequently charges them twice through additional fees for online content, and has also created a rash of court cases around the globe, particularly in Europe.

• The uneven scale of copyright levies applied across Europe is shifting legitimate trade towards the gray market – in Hungary, France and Italy 70% of the sales of blank CDs are through the gray market to escape the extremely high levies – leading to lost VAT revenue for Governments. In Italy levies represent over two thirds of the price of blank media.
• Currently, there are 44 ongoing court cases in Germany alone. The amount of levies that are claimed and challenged in this country are as high as €3.3 Billion. If industry lost all court cases in Germany, it would have to pay an additional €265 million of interest for levies that were not paid during litigation.
• To demonstrate the scale of the issue: there are currently cases ongoing in Germany, Austria, Italy, Slovenia, Belgium, France, Spain, Greece and the Netherlands.
• Consumers do not know they are paying a levy and what they are paying it for. Additionally, this random fee does not relate to the actual use of the device for copying, so consumers are often being asked to pay levies for copies they will never make.
• German consumers, for instance, could pay an extra €147 on the average home office set-up, with levies imposed on multifunctional printers, scanners, computers and DVD drives.
• Olivetti, an Italian IT manufacturer, was forced to take all multifunctional printers off the market in Belgium as they became uneconomical to sell after a €171 levy was added on to the cost of a €79 multifunctional printer.

	HP actions and outlook

All parties should work together to try to find common ground looking at both adjustments to the current system and possible new models. The solution should be a harmonized system that is fair, even and proportionate.

• Business fully supports the fair compensation of rightholders, however the inefficiencies of the current system can and should be avoided.
• Some of the focus areas announced by the European Commission (gray market, methodology to determine levy rates, refunding paid levies and piracy) represent areas that could yield quick wins and should build momentum for the process going forward.
• The European Commission should undertake studies to ascertain how much citizens actually copy and what proportion is copyrighted material. This would allow a better assessment of the actual harm rights holders are suffering and to set the levy at an appropriate amount.
• The gray market harms business, collecting societies and reduces government revenue. For example, in Romania a reduction in the rate of levies from five percent to 0.5 percent brought about additional income for the collecting society as less trade was done through the grey market.
• To address the issue of the gray market, collecting societies should have the right to audit all liable entities and to boost transparency all around, they themselves should be open to auditing.
• A common methodology to determine levy rates and processes for refunding levies would provide certainty and reduce administrative costs for collecting societies and businesses. 
• It should also be made clear that copyright levies are not intended to compensate for piracy. The Conseil d’Etat in France found that levies are only supposed to be used to compensate for legal private copying and not for piracy.
• Alternative models include a harmonized system administered at the national or European level, levies paid at the retail level, levies collected as direct taxes on digital devices, and payment through a state fund.
• A visible levy fee on the invoice at all stages of the supply chain and clearly indicated in the price to the end user, would promote the adoption of a compliance culture.