Copying regulations quashed

Since the burgeoning of countless formats of technology for storing, accessing and using music and other works, copyright has had to strike a balance between the rights of copyright owners and the expectations of copyright users.

In particular, questions arise in respect of format-shifting and storage of files in the cloud. Recent legislation has attempted to provide an answer through exceptions for private copying. However, following a judicial review in R (British Academy of Songwriters, Composers and Authors, and others) v Secretary of State for Business, Innovation and Skills [2015] EWHC 1723 (Admin) and [2015] EWHC 2041 (Admin), the High Court has decided that the regulations should be quashed.

Format-shifting

The basic premise of copyright is that, where an author creates an original work, the law assists him in preventing others from copying it without his permission. This effectively prohibits any unauthorised copying unless it falls within a specified exception.

Today, the means for copying music, books and films lies at almost anyone’s fingertips. When purchasing a CD, consumers may wish to ‘format-shift’ the music to MP3, so that they can listen to it on handheld devices. When purchasing a film for digital download, consumers may wish to save a copy in the cloud as their main storage or as back-up. When consumers have an electronic file, it is technologically simple to transfer it to other devices. All of these involve copying and, but for a relevant exception, fall foul of copyright.

It is those forms of private copying which the recent legislation focused on. In 2001, the EU introduced Directive 2001/29/EC relating to copyright. Article 5(2)(b) provided member states with the ability to create a new ‘private copying’ exception, so long as copyright owners received ‘fair compensation’ in return. Following the Hargreaves Review, the UK government took the decision to introduce a limited exception, but without any compensation scheme.

 The 2014 regulations

The exception was implemented by the Copyright and Rights in Performances (Personal Copies for Private Use) Regulations 2014 (SI 2014/2361), which inserted a new section 28B into the Copyright, Designs and Patents Act 1988. In essence, it made it lawful for a consumer to make copies of a work which he owns (and, for example, had not simply rented), provided that it is for his own private use and not directly or indirectly for commercial purposes. The exception does not allow sharing copies with anyone else, and the consumer may keep those copies only for so long as he keeps the initial work.

The secretary of state’s preliminary view was that this was something which everybody was already doing, and expected that producers and retailers already took this into account when setting prices. If correct, the harm to rights-holders was marginal or zero, and so there was no need for any compensation scheme. Indeed, the secretary of state had said that he disliked the idea of a compensation scheme and so, if it was necessary, he might not introduce the private copying exception at all. To test the theory, a consultation process was launched with the Intellectual Property Office. On the basis of that consultation, the secretary of state concluded that his initial view was correct. Music, film and book companies already ‘priced-in’ the format-shifting and other private copying activities, and so nothing more was needed.

Judicial review

However, the powers of industry disagreed and sought a judicial review. It came before the High Court earlier this year, where six issues came to the fore: (1) the basis of the court’s review and the scope of the secretary of state’s discretion; (2) the meaning of ‘harm’ as to which any compensation scheme should focus; (3) the alleged irrationality of the ‘pricing-in’ principle; (4) whether the secretary of state’s decision was flawed; (5) whether the secretary of state had predetermined his decision, regardless of the consultation’s outcome; and (6) whether the decision amounted to illegal state aid. On the substantive questions, all but one, being probably the most important, was decided in favour of the secretary of state.

The court held that issues 2, 5 and 6 were to be decided on their merits – they were questions of fact or interpretation of the law. Otherwise, the secretary of state had a discretion over how he came to his decisions, albeit that discretion was modest within the boundaries of what was allowed by the directive.

As to issue 2, the secretary of state had concentrated on ‘lost sales’ as the key harm to rights-holders (that is, the lost ability to sell, for example, a CD and a digital download to one consumer). The court agreed that ‘harm’ could encompass other things, such as the loss of additional licence fees, but it was within the secretary of state’s discretion to reach his conclusion. As to issue 3, the evidence available had shown that the ‘pricing-in’ principle had a reasonable level of economic support and was not widely rejected. Again, it was within the secretary of state’s discretion. As to issue 5, the court held that there is nothing wrong with lawmakers giving a preliminary indication, provided they keep an open mind. On the evidence, there was no predetermination. As to issue 6, the link between the exception and the advantage conferred on technology providers (for example, cloud storage hosts) was too remote. In any event, this was a general legislative measure designed to achieve other policy objectives and therefore is not ‘aid’ in this sense.

The important point which went against the secretary of state was issue 4: the decision was flawed on the basis of the results of the consultation.

The court criticised the decision on several counts. First, although the secretary of state had recognised the directive’s intention that compensation would not be required if the relevant ‘harm’ was less than de minimis, he had entirely failed to address what this actually meant. The secretary of state had justifiably taken the same stance as other stakeholders (notably, the Hargreaves Review): the whole question required empirical evidence. However, the decision was predominantly based on the Intellectual Property Office’s Research Report, the terms of reference for which were insufficiently precise. The report sought to address whether the industry adopted measures around private copying and how this affected prices; but it did not expressly address the actual extent of pricing-in and whether it met the de minimis threshold. The report did not provide any evidential conclusions at all in respect of the music industry, but instead raised further unanswered questions. In respect of films and books, it at least found evidence of pricing-in, but did not address the de minimis question.

Furthermore, an Updated Impact Assessment purported to rely on other evidence, but instead provided little more than explanations as to why other evidence was not probative, why other avenues of research were not taken, and why other lines of inquiry such as consumer surveys would have been valuable but were not undertaken. Finally, the court noted that the secretary of state had seen evidence that cast doubt upon his conclusions but ignored it entirely.

The court held that, although the available evidence was enough to infer that the ‘pricing-in’ principle happened to some extent, it was only a starting point and not enough to draw the final conclusion that ‘harm’ was below the de minimis threshold. Accordingly, the secretary of state’s decision to introduce the 2014 regulations was flawed, and therefore unlawful.

What happened next?

As a result, the secretary of state accepted that the regulations should be quashed. The private copying exception will no longer apply – but that is not quite the end of the story.

The court’s judgment was expressly limited to matters going forward. The judge was particularly troubled about making any blanket decision over matters which had arisen between the regulations coming into force and their being quashed, on the basis that he did not have the facts to hand. The court therefore expressly left it to be decided in any real case of infringement how the regulations might, or might not, be applied.

The judgment effectively puts the matter back at square one. The secretary of state has said that he is taking the opportunity to consider the matter further, but has not yet decided on any specific course of action. He may undertake a new consultation as to the ‘harm’ caused by the exception, and whether it meets the de minimis threshold. Depending on the outcome of that, he might reintroduce the private copying exception with or without a compensation scheme. Alternatively, the whole question may be consigned to the scrapheap – it is worth noting that the EU directive is permissive only, and does not oblige member states to introduce the exception at all.

In the meantime, that might leave consumers in the position of continuing to do something unlawful on a more-or-less daily basis. That said, as the court noted, the industry tends not to take any direct legal action against these infringers. Of course, that position may change with market conditions. Furthermore, if it is the case that private copying is causing more than de minimis harm to the music, film and publishing industries, then it would be of benefit to them for the exception to be introduced with appropriate compensation.

Jim McDonnell, DLA Piper