November 22, 2021
In proceedings between an Austrian copyright collecting society, Austro-Mechana, and a German company, Strato AG, that provides cloud data storage services, Austro-Mechana issued proceedings in the Austrian courts for an order allowing it to invoice for, and subsequently take payment in settlement of, the remuneration it said was owing to it from Strato for the exploitation of the copyright works that were being copied to and stored on the cloud by Strato’s customers. Strato denied infringement and argued that cloud-based storage services and physical storage media were not comparable. It also said that its customers had already paid a copyright fee for their devices without which content could not be uploaded to the cloud in the first place.
The case was dismissed at first instance and Austro-Mechana appealed. The Austrian appeal court said that the question of whether Article 5(2)(b) of the Copyright Directive, which provides for the private copying exception, covers the storage of copyright-protected content in the cloud was not entirely clear. It has therefore asked the CJEU two questions concerning Article 5(2)(b), which provides that “reproductions on any medium” by a natural person for private use and for ends that are neither directly nor indirectly commercial, can be made without breaching the copyright holder’s reproduction right under Article 2, as long as the copyright holder receives “fair compensation”. The Austrian court has asked:
- whether the expression “on any medium” in Article 5(2)(b) includes reproductions made by customers for private use on cloud computing services provided by a third party; and
- if so, whether the author of the copyright material is entitled to equitable remuneration for exploitation of the right of reproduction on storage media where the copyright work in question, which has been broadcast, made available to the public or recorded on a storage medium produced for a commercial purpose, is likely to be reproduced for personal/private use by being stored on the cloud.
Attorney General Hogan opined that there is no indication in the Copyright Directive that the EU legislature intended to limit the scope of Article 5(2)(b) exclusively to physical media or substrate. The use of the broad and technologically neutral phrase, “on any medium” militated against that interpretation. On a literal interpretation of the phrase, the exception was not restricted to reproductions on physical media or substrate or, indeed, in an analogue or non-digital form. The exception therefore included reproductions on a more intangible media/substrate such as storage space in the cloud.
This conclusion was supported by one of the principal objectives of the Directive, which was to ensure that copyright protection in the EU did not become outdated and obsolete by virtue of technological development and the emergence of new forms of exploitation of copyright-protected content.
Further, the fact that the storage was being provided by a third-party ISP did not change this conclusion. In Case C-265/16 VCAST EU:C:2017:913, which also concerned cloud computing services provided by a third-party ISP, the CJEU said that in order to rely on Article 5(2)(b) it was not necessary that the natural persons concerned possessed reproduction equipment. Devices or copying services could therefore be provided by a third party.
Accordingly, the AG concluded that the phrase “reproductions on any medium” in Article 5(2)(b) does indeed include reproduction based on cloud computing services provided by a third party, such as an ISP.
As for the question of equitable remuneration, the AG said that, given that Article 5(2)(b) is optional and gives no further details of parameters of the fair compensation scheme it envisages, Member States have a broad discretion when implementing it. They can determine who must pay, in what form and at what level. Article 5(2)(b) reflects the EU legislature’s intention to establish a specific compensation scheme triggered by a rebuttable presumption in certain circumstances of the existence of harm to rights holders from copying, which gives rise to the obligation by users to compensate them.
The AG noted that the CJEU has already said that remuneration systems for private copying are necessarily imprecise in respect of most recording media, as it is impossible in practice to determine which work was reproduced by which user and on which medium. The CJEU has also said that, for digital reproduction equipment, devices and media, the levy amount cannot be fixed in advance based on actual harm suffered, as the extent of that harm remains unknown when the devices concerned are put into circulation in a national territory. Accordingly, that levy must necessarily be set as a lump sum.
Recital 35 of the Copyright Directive also makes clear that in those cases where rights holders have already received payment “in some other form, for instance, as part of a licence levy”, no specific or separate payment may be due. Further, case law has said that, where copying has occurred as a result of a single process, but involving a chain of devices, Member States can go back to a pre-copying stage and put in place a system in which fair compensation is paid at that point, provided that the overall amount of compensation paid by the end of the process is not substantially different from the amount fixed for a reproduction achieved by means of a single device.
The AG noted that each step in the process of uploading and downloading copyright-protected content to the cloud from devices such as smartphones constitutes a reproduction of that content which is, in principle, in breach of Article 2 unless such reproduction is justified by virtue of an exception or limitation pursuant to Article 5. Given that both under and over compensation of the rights holder is to be avoided to achieve a fair balance between the private user and the rights holder, the question is whether a separate levy should be paid in respect of each step in the sequence of copies, including the reproduction/storage in the cloud, given that an adequate levy might have already been paid by the user on devices and media used by it in the sequence.
In the AG’s view, given the necessarily imprecise nature of lump sum levies on devices or media, caution should be exercised before combining such lump sum levies with other remuneration systems or grafting other levies on to them in respect of cloud services without first determining whether additional harm is caused to rights holders by the combined use of such devices/media and services, as this could give rise to overcompensation and upset the fair balance between rights holders and users.
On the other hand, if reproduction/storage in the cloud is not taken into account, there may be a risk of undercompensating the rights holder for harm. Nonetheless, as the uploading and downloading of copyright-protected content to the cloud via devices could be classified as a single process for the purposes of private copying, it is open to Member States, in the light of the broad discretion that they have, to put in place, where appropriate, a system in which fair compensation is paid solely in respect of devices or media that form a necessary part of that process, provided that this reflects the harm caused to the rights holder from the process in question.
In summary, therefore, the AG opined that a separate levy or fee is not payable in respect of the reproduction by a natural person for their own personal purposes based on cloud computing services provided by a third party, provided that the levies paid in respect of devices/media in the Member State in question also reflect the harm caused to the rights holder by such reproduction. If a Member State has, in fact, elected to provide for a levy system in respect of devices/media, the court is, in principle, entitled to assume that this constitutes “fair compensation” in the sense of Article 5(2)(b), unless the rights holder can clearly demonstrate that such payment would be inadequate. This was for the national court to decide with the help of economic and sector specific experts. (Case C-433/20 Austro-Mechana Gesellschaft zur Wahrnehmung mechanisch-musikalischer Urheberrechte Gesellschaft mbH v Strato AG EU:C:2021:763 (Opinion of Advocate General) (23 September 2021) — to read the Opinion in full, click here).