British Academy of Songwriters, Composers and Authors and others, R(on the application of) v Secretary of State for Business, Innovation and Skills and another  EWHC 1723 (Admin) – read judgment
An exception to copyright infringement for private use has failed to survive a challenge in the High Court. But this may not be the end of the story. Although he accepted part of the claimants’ contentions, Green J observed that
the Claimants’ argument does not sit well or easily with the very unusual and particular circumstances which have led to the decision to introduce the private use exception in the first place. These are that the advent of digitalisation has led to a market where device sellers and consumers assume they may copy and where rightholders have not sought private law remedies against infringers.[my italics]
It is a particular feature of this case that there is a widespread consensus that the law has signally failed to keep up with market reality and with reasonable consumer expectations and indeed has been brought into disrepute by its condemnation as illegal of activities which are now accepted by consumers as lawful and which in actual fact form the basic commercial premise upon which copying and storage devices are actively sold throughout Europe.
Having upheld a small part of the challenge, Green J will now hear submissions as to what flows from this conclusion and from the judgment generally. In particular he will hear submissions as to whether any issue of law that he had decided should be referred to the Court of Justice and if so as to the question(s) that should be asked.
Background facts and law
The defendant Secretary of State introduced a new section (“Section 28B”) into the Copyright, Designs and Patents Act 1988 which has the effect of creating an exception to copyright based upon personal private use. Henceforward, any person who legitimately acquires content (music, film, books) can copy that work for his or her own private use without infringing copyright. It can be copied onto other formats or stored in the cloud provided it is for private, non-commercial use. It can now be reproduced without even the theoretical risk of that person being pursued as an infringer of copyright. That purchaser cannot, however, under the exception, copy that content and give it to a family member, friend or colleague and cannot copy it for any commercial use.
This exception was introduced as part of the UK’s exercise of discretion allowed under the 2001 EU Copyright Directive, which permits states to provide for an exception or limitation to the reproduction right for certain types of reproduction of material for private use, accompanied by “fair compensation”. Although states were required to implement the Directive by 22nd December 2002, this did not preclude them exercising discretions under the Directive to introduce exceptions to copyright subsequent to that date. There was, in this regard, no time limit. Other EU countries have dealt with what is perceived to be an inevitable problem in copyright enforcement by allowing a certain amount of copying but imposing a levy. The UK government felt that levy schemes were generally a bad thing:
Consumers did not wish to pay a levy which was akin to a tax on an activity which they strongly believed was legal or ought to be legal; and, therefore, any new exception to copyright should not be accompanied by a levy or compensation scheme.
It therefore proposed to create an exception which either caused “no (zero) harm to rightholders or de minimis harm and this meant that the exception would be strictly limited to private own, non-commercial, use by legitimate bona fide purchasers of content”. Nothing in the provision prevents content owners using technology (insofar as it exists) to control usage, for instance by preventing copying beyond (say) five times.
The government had commissioned expert evidence (“the Hargreaves Report”) on the question and was advised that it could not afford to permit “an outdated legal framework” to impede emerging business sectors. Furthermore, the musician’s copyright organisation, PRS for Music, considered that pricing of content now includes an expectation of personal use extending beyond the original medium, for very practical reasons. Their representative Robert Ashcroft pointed out one such reason, namely that without format shifting it is becoming impossible to play certain content at least through certain (portable) media:
You can barely go into an electronics shop and buy a portable CD player these days. You cannot make it illegal for people to go and buy a CD and then get it on to the only device that they have that plays music. Where you draw the line is the question.
The question before the court was therefore whether, in fact, the introduction of a limited private use exception cause no more than minimal or zero harm.
Arguments before the Court
At the heart of the government’s case was that where a private copy was made, there was no loss of the possibility of duplicate sales, because consumers were not generally prepared to go out and purchase duplicate copies of music or other copyright material in order to achieve multiple use. Absent an ability to copy and format shift, consumers were unlikely to purchase duplicate or incremental copies of the content in question, so the exception proposed by the government would not have an impact on sales.
The Secretary of State also maintained that sellers of content had already priced in to the initial price the fact that consumers treated content as “fair game” when it came to copying for personal use. Green J described this recognition as the “economic realpolitik” behind a consultation scheme carried out to establish evidence for the “no harm” assumption.
The claimants challenged both these assumptions, attacking the consultation scheme, and arguing that the economic effect of this proposed exception was contrary to the European Union Treaty as being in effect a State Aid that had not been notified to the Commission (it was estimated that the new exception would confer a benefit of about £258 million over 10 years on technology providers).
There was also a jurisdictional question as to whether this should be a merits (right/wrong) review or a traditional judicial review in which the Secretary of State enjoyed the widest possible margin of appreciation.
The issues before the court were as follows:
- the margin of appreciation and intensity of review
- the meaning of “harm”
- whether it was irrational to conclude that content sellers had already “priced-in” the likelihood of copying for personal use
- the question of the flawed consultation and the Secretary of State’s conclusions drawn from it
- whether the Secretary of State predetermined the outcome of the consultation because he was so determined to introduce this exception.
- whether this decision constituted unlawful State aid for the technology sector
The Court’s ruling
Green J decided issues 2, 3, 5 and 6 in favour of the Secretary of State. But he accepted the claimants’ argument that the conclusions and inferences which had been drawn from the consultation had not been warranted by the evidence. However, this did not necessarily result in the new section being struck down, as it was possible for the Secretary of State to re-investigate the issue. If he did so, the gap would be plugged and his decision would become justified. Furthermore, the judge pointed out that though he had come to the conclusions on the central legal issues there could be no doubt that the questions of law were of wide significance both in this jurisdiction and in the EU and elsewhere.
He therefore considered the possibility that questions should be referred to the Court of Justice before making any final orders in this case.
Details of the judgment
Green J’s close analysis of the question runs to 300 paragraphs so only a few aspects of this long and interesting discussion will be touched on here (whether this should involve full merits review or traditional judicial review is dealt with as part of the irrationality question).
2. The “harm” question.
The claimants argued that the measure of their loss or “harm” was the total licence fee that might have been charged upon the hypothesis that every violation of copyright deprived the rightholder of some value. The Claimants accordingly computed “harm” upon the basis of a hypothetical licence fee which would be charged to the user in a counterfactual market where enforcement was all pervasive.
In the judge’s view, the defendant had acted lawfully in adopting the more limited “lost sales” concept of “harm” as opposed to the broader “licensing test” advanced by the claimants.
In my view there was a proper basis in economic and legal logic for choosing to adopt this basis in the United Kingdom. The decision taken by the Secretary of State was a rational one which is consistent with EU law. My conclusion is therefore not that the licensing test is wrong in principle; but only that the issue properly falls within the discretion of the Member States and the choice of the sales test was a lawful choice.
Nonetheless, this was an issue of great significance. Green J accepted that if he were wrong and Member States have no discretion and must adopt the licensing test then a conclusion based upon the claimants’ analysis would go to the heart of the legality of the decision to introduce section 28B without a compensation scheme.
3. Flawed consultation
The claimants argued that, in reaching his conclusions from the consultation, the defendant secretary of state had, in effect, written off as legally irrelevant all that vast body of illegal copying which had historically occurred. Instead, they said, he should have adopted the corrected approach which was that harm which flowed from all that copying, now legitimised by the Section, but which hitherto had been illegal.
The judge rejected this criticism by the claimants. The defendant had quite reasonably accepted as a matter of fact that not every act of past unlawful copying led to actual loss or harm.
There is no reason why “harm” should be defined and determined by the entirely theoretical prospect of obtaining judicial compensation based upon lost licence fees. In my view “harm” should be understood in a wider context which takes account of actual consumer expectations and the very specific evolved features of the markets which are covered by the exception.
For these reasons, the concept of “harm” is a matter governed by EU not national law, that it is a concept which seeks to meld disparate common law and civil traditions and therefore leaves member states a discretion as to the threshold below which “harm” is “minimal”, and above which “harm” must be compensated for.
4. The question whether the evidence relied upon to justify the conclusion about harm was inadequate/manifestly inadequate
The thrust of the claimants’ complaint was that across the music, film and books market content suppliers had no real ability to price discriminate and hence the defendant had erred in relying upon a theory of pricing-in that was economically inapplicable. The Secretary of State submitted that his choice of the pricing-in theory was a perfectly rational decision, consistent with evidence, and squarely within his (very broad) margin of appreciation which arises in cases of this sort.
In such a case, said Green J, there is not so much a choice between intensive merits review and traditional “hands-off” review. There is a hybrid approach where the judge listens to the expert evidence on both sides:
If the Defendant’s case rests upon a theory or body of expert opinion that is within the range [of reasonable responses] the Defendant will succeed even though the Claimant’s case also rests upon expert evidence which is reasonable and within the range.
In this case the judge concluded that the defendant had acted lawfully. In the real world, sellers cannot predict the likelihood of passing on or copying nonconsumable goods; there is nothing special about music or other products of copyrightable material in this regard. So the claimants argument, based on the content seller’s inability to price discriminate, fell at this hurdle. In Green J’s view,
the criticism made that in the absence of an ability to price discriminate “private copying is virtually assured of harming rightsholders relative to a case where no private copying occurred” … is one which takes a highly purist and abstract view of “harm” which seems divorced from normal markets. It is also not a concept of “harm” which fits easily with the case law
The facts that the court had to take into account in assessing the rationality of the defendant’s decision had to be drawn from the real world, taking into account –
i) That digitalisation has dramatically increased the ease with which copyright protected products may be copied.
ii) That consumers, in large measure, believe that once they acquire content they either are (or ought to be) able to copy that content for personal use without restriction.
iii) That the supply side of the devices market has evolved in reliance upon the fact that consumers will copy content.
iv) That because of the above rightholders have essentially abandoned any attempt to enforce copyright against legitimate consumers copying for personal use.
The inference that the government drew from the above in making a limited exception for private copying was well within the Secretary of State’s margin of appreciation. On the other hand, this did not render the consultation process judge-proof.
these common sense intuitions were sufficient as a starting point but were not capable of answering the very much more specific legal question which was whether pricing-in was so extensive as to render residual harm minimal or non-existent. It is one thing to say that “to some extent” harm is avoided by pricing-in; it is altogether another thing to say that it is avoided so completely as to pass a de minimis threshold.
Green J was at pains to emphasise that he was not saying that the defendant had to prove on a balance of probabilities with hard-edged quantitative evidence that the residual harm was minimal or zero. But it lay within the competence and discretion of the defendant to use a proper combination of quantitative and qualitative analyses (for instance surveys) in order then to draw inferences. There was an element of art and judgment as well as science inherent in the exercise. But that exercise needed to be conducted, and it was not.
In conclusion, the decision to introduce section 28B in the absence of a compensation mechanism was unlawful.
5. The Secretary of State predetermined the outcome of the consultation
The judge rejected this part of the claimants’ argument. The fact that, as he had found, the defendant erred in this regard did not prove predetermination or the appearance thereof. It suggested only that the defendant had erred in accepting the reasons in the impact assessment. It would thus be rare for inferences of this type to amount to conclusive evidence of predetermination.
6. Unlawful state aid question
In essence, the claimants submitted that the introduction of section 28B constituted unlawful State aid within the meaning of Article 107 TFEU which was not notified to the Commission under Article 108(3) TFEU and so was unlawful.
The nub of the dispute between the parties arose in relation to the intervener’s submission that there had been an aid “through state resources”. A large number of legislative measures will have winners and losers. The intervener maintained that Section 28B would have the effect of granting a statutory licence to technology firms by creating an exception from the general domestic law on copy right. It was said that aid was granted through State resources by creating an exception without providing any compensation arrangements for the content sellers.
The government argued that it had done no more than adopt a beneficial legislative measure which gives rise to potential economic benefits, inter alia, for online service providers. This could not constitute unlawful state aid since they had not been financed by any corresponding cost, expense or burden o the state.
The judge agreed with the defendant. There was no aid granted through state resources, and therefore Article 107 TFEU did not apply. In his judgment
(a) the alleged link between the advantage conferred and the foregoing of revenues on the part of the State is far too remote, indirect and informal for it to amount to aid through State resources; and/or (b) in any event such advantage as does arise is no more than is inherent in the modification to copyright law brought about by section 28B which is a general legislative measure designed to achieve other policy objectives and for this reason also is not “aid”.
So the judicial review application was upheld. Further arguments are to be heard on relief and reference to the CJEU.
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