The Finnish government is preparing legislative changes to redefine the grounds under which levies are collected to provide fair compensation against private reproduction of copyrighted works. Arto Linnervuo and Otto Markkanen of Castrén & Snellman Attorneys Ltd discuss the issues at play.
The Ministry of Education and Culture issued a report in May 2012, suggesting new models for redefining the grounds for copyright levies. A new scheme is aimed to enter into force in the beginning of 2013. According the Ministry, the new scheme attempts to ensure and improve the financial position of artists and the creative industry as a whole.
LEGAL BACKGROUND AND STATUS
This fair compensation scheme is, as in the majority of EU countries, based on the idea that copyright holders should be compensated for the statutory right of individuals to reproduce copies of copyrighted work for purely private purposes. As private copying is a statutory right, and therefore free of charge to the individual in question, compensation has to be collected from other sources via special levies.
In the Finnish legal system, the idea of fair compensation, originally called a “cassette fee”, was introduced in 1984. At this stage, the levy encompassed compact cassettes and VHS cassettes, as they enabled significant amounts of private copying of copyrighted material.
Following the introduction of the Information Society Directive (2001/29/EC), the Finnish Copyright Act was amended to widen the scope of the levies. Pursuant to the amended Act, the levies are collected in connection with the importation and production of devices on which sound or images can be recorded, provided that such devices can be used for large-scale reproduction of copyrighted works for private use. The definition of devices includes recordable CD, DVD, Blu-ray and MiniDisc discs, as well as recordable VHS and compact cassettes. Furthermore, terminal devices with hard drives and recording capabilities (eg, MP3 players) also currently fall within the scope of these levies.
As regards the amount of fees collected per device, the current system consists of a total of 18 different tariffs, based largely on the variety of storage capacities of different devices. The individual levy per device varies from 20 cents to €36.
Out of the 27 EU member states, 22 countries have implemented different levy schemes (with only the UK, Ireland, Malta, Cyprus and Luxembourg remaining outside these systems). Of these 22 countries, 21 maintain a scheme whereby levies are collected on the basis of devices allowing recording or storage. Spain, however, has recently switched from a device-based model to government budgetary financing. Within the EEA, Norway has also recently done the same.
In Finland, the levy system has been perceived as problematic for multiple reasons. Firstly, the identification of devices to be included within the scope of the levies is based largely on government decision-making instead of definitive statutory rules and grounds. Secondly, this identification process has imposed economic burdens of different magnitudes on various devices, causing uneven and undesirable market disturbances in the price formation of consumer devices. Thirdly, the current levy scheme does not take into account that identified devices are, to a certain extent, also used for other purposes than private reproduction of copyrighted material. Fourthly, within the current scheme, a major portion (on average 40 per cent) of collected levies is earmarked for collective purposes rather than for compensating individual rights holders. Finally, content reproduction is increasingly done outside the scope of devices, for example, via network-based storage services. This has resulted in the decrease of the total collected via the scheme.
SUGGESTED COMPENSATION MODELS
To address the problems of the current levy system, a report by the Ministry of Education and Culture presents three models. Of these, the “three dot model” would build upon the current scheme by updating and broadening its scope beyond devices with storage capacity. In other words, certain services would be included.
The remaining two models suggest more fundamental changes, whereby fair compensation would be provided via public financing. However, the report focuses only on the first alternative, while the others are only suggested in case the primary option would not work.
THREE DOT MODEL
The primary model is called a three dot model. Its main idea is that levies would be collected in three different categories: (i) devices with storage capacity, (ii) network-based content storage services and (iii) certain content delivery services. The idea of this model is essentially to build upon the current levy scheme, while broadening its scope. The essence of this model is the notion that content reproduction is currently to a large degree carried out not only on a great variety of physical terminal devices, but also through storage and delivery of content via the internet. Thus, in addition to the existing process of device identification, levies should also be collected on the basis of content reproduction on the net. The three dot model suggests a fundamental change to the current scheme. Namely, instead of just devices, services would also fall within the scope of the levies.
The current levy system, which catches devices that are or can primarily be used for the private reproduction of copyrighted material, would essentially fit in its entirety inside the first category of this proposed model. Whether the scope and selection of different devices will be updated currently remains unclear. As an update to the current scheme, at least personal computers and tablets would be included in the levy scheme. However, the report seems to suggest that smart phones, although in this respect de facto more or less comparable to MP3 players, would not be included within the scope of the levies.
While the devices category does not introduce any substantial changes to the current scheme, the same cannot be said about the second category. The three dot model suggests that network-based storage services for consumers would be included within the scope of levy collection. In practice, the new model would, for example, include the currently popular cloud-based storage services directed to consumers within the scope of a levy scheme for fair compensation.
Finally, the third category would broaden the scope of levy collection to include services for providing digital content, whereby said content is provided to consumers for a fee and without effective digital rights nanagement (DRM) restrictions. While the report does not explain the requirement of “non-DRM’d” content, this reasoning likely originates from the Finnish Copyright Act. The Act prohibits the reproduction of copyrighted content that has been restricted by DRM and such content would not fall within the scope of consumers’ right of reproduction for private purposes. As the fair compensation levy scheme was instituted to compensate copyright holders for the “losses” caused by private reproduction, DRM’d content would not fall within the scope of the scheme. However, the report appears to include a requirement for a level of effectiveness of the DRM. To be excluded from the levy scheme, the content in question must be subject to effective DRM restrictions. As regards the effectiveness of the DRM in a particular case, the report does admit that drawing definitive boundaries may be challenging.
However, the third category would contain a variety of services, including pay tv, purchasable digital magazines, audio books as well as digital audio and video store services.
OTHER ALTERNATIVES: GOVERNMENT FINANCING
While the report of the Ministry of Education and Culture relies almost exclusively on the three dot model, alternative schemes have also been suggested. The report suggests that fair compensation could, in the future, be levied via public financing. This would be a fundamental change, as it would alter the model of fair compensation from the current market-based fees to public financing.
Concerning how public financing would be organised, the report suggests that fair compensation would be provided via governmental financing, by collecting a tax-like special fee from all citizens.
The report of the Ministry of Education and Culture has naturally stirred up a considerable amount of public discussion. Furthermore, it is not a surprise that negative opinions about the three dot model have been expressed by many companies engaged in businesses falling within the three proposed categories. As the model would considerably broaden the scope of levy collection, many network-based content storage and delivery businesses would most likely be forced to reconsider their price formation, as additional external expenses would be imposed on their services.
On a political level and apart from this issue, the Finnish government has expressed an interest in advancing the attractiveness of Finland for cloud computing and cloud-based industries, making it an attractive market and jurisdiction for businesses based on cloud services. The three dot model has been criticised as significantly conflicting with this objective, as it would impose undesired economic burdens on the providers of such services.
While the report of the Ministry of Education and Culture offers the three dot model as the preferred solution, public debate seems to have quickly turned the political tides. It is possible that despite the focus on the three dot model, public financing may still be adopted.
In any case, the issue is still subject to both political and official preparation, and final official decisions are yet to be made. Thus, the future of fair compensation levies in Finland remains unstable and certainly interesting for the businesses engaged in digital content delivery and storage.