The British Academy of Songwriters, Composers and Authors (BASCA), the Musicians’ Union (MU) and UK Music have succeeded in judicial review proceedings against the Secretary of State for Business, Innovation and Skills in relation to the introduction into UK law of a copyright exception for private copying, without a related compensation scheme for rights-holders. As a result, the High Court has since confirmed that the Copyright and Rights in Performance (Personal Copies for Private Use) Regulations 2014 (Regulations) should be quashed in their entirety with prospective effect.
The exception for private copying had the effect of creating an exception to copyright based on personal, private use. From 1 October 2014, when it came into force, any person who legitimately acquired content (music, film or books) could copy that work for his or her own private use without infringing copyright. The work could be copied onto other formats or stored in the cloud, provided that the copying was for private, non-commercial use. The exception permitted reproduction without even the theoretical risk that the purchaser might be pursued for infringement of copyright. Under the exception, the purchaser could not, however, copy the content and give it to a family member, friend or colleague, or copy it for any commercial use.
The exception was introduced into UK law under the exercise of a discretion vested in the Secretary of State under Article 5(2)(b) of the Copyright Directive. A condition of the exercise of this discretion is that, if the use permitted by the exception would cause more than de minimis harm to the copyright owner, fair compensation must be payable.
The limited private-copying exception introduced by the UK Government was, however, introduced without a related compensation scheme. The Government’s stated justification for doing so was that the value of the copying that would occur under the new exception had been (and would continue to be) built into the initial price of content by rights-holders. As such, there was no harm for which compensation would be required.
BASCA, the MU and UK Music launched judicial review proceedings. They challenged the assumptions made by the Secretary of State as both legally and factually incorrect and flawed, and the inferences and conclusions drawn from the evidence actually collected by the Government. They attacked the procedure adopted by the Government when it put its economic theses on the impact of the introduction of a private-copying exception out to consultation, submitting that the outcome of the consultation had been predetermined by the Secretary of State, who had closed his mind to the evidence and generally acted unfairly.
The Incorporated Society of Musicians (ISM), which intervened in the judicial review proceedings, submitted that the economic effect of the Regulations was to confer a quantifiable advantage on the technology industry, particularly cloud service providers, and was contrary to Articles 107 and 108(3) of the Treaty on the Functioning of the European Union (TFEU), which prohibit certain types of state aid that have not been notified to the EU Commission.
Six issues fell to be determined by the court:
- The relevant legal principles, namely: the intensity of review; and whether Article 5(2)(b) of the Copyright Directive has direct effect.
- The meaning of “harm”; the claimants submitted that the Secretary of State had misunderstood the concept and had therefore misapplied Article 5(2)(b).
- The alleged irrationality and/or inapplicability of the pricing-in principle.
- The claimants’ submission that the decision to introduce the exception was flawed because the evidence relied on to justify the conclusion that the exception would lead to de minimis harm was inadequate.
- The claimants’ contention that the Secretary of State had predetermined the outcome of the consultation.
- Whether the introduction of the exception without a compensation scheme constituted unlawful state aid, within the meaning of Article 107 TFEU, which was not notified to the EU Commission under Article 108(3) TFEU and so was unlawful. The impact assessments recorded that the new exception would confer a benefit worth about £258 million over ten years on technology providers. The ISM submitted that this amounted to un-notified illegal aid granted “through State resources”.
Mr Justice Green, sitting in the Administrative Court, found for the Secretary of State in relation to the majority of the substantive issues. He found for the claimants, however, in relation to their contention that the decision to introduce the private-copying exception without a compensation scheme was flawed. This was because the evidence relied on to justify the conclusion about harm was inadequate. Taking each of the issues in turn:
Issue 1: Green J concluded that he should conduct a “relatively intensive” review of the evidence relied on by the Secretary of State to justify the decision to introduce the private-copying exception. The judge noted that he was concentrating on the process of evidence collection, its fairness and thoroughness, any acknowledgments as to its inherent limitations and the inferences drawn from the evidence by the Secretary of State that ultimately led to his decision to introduce the exception. Green J did not accept that Article 5(2)(b) of the Copyright Directive had direct effect; he did not consider that it was sufficiently precise or unconditional to have direct effect.
Issue 2: In Green J’s judgment, the Secretary of State had acted lawfully in adopting a more limited “lost sales” concept of harm, as opposed to a broader “licensing test”, which the claimants had submitted was appropriate. The judge considered there was a proper economic and legal basis for the Secretary of State having done so, and that the Secretary of State’s decision was rational and consistent with EU law. Obiter dicta, he noted expressly that he did not conclude that the licensing test was wrong in principle, but rather that the issue properly fell within the Secretary of State’s discretion, and that his choice of the sales test had been lawful.
Issue 3: Green J held that the Secretary of State had acted lawfully: it was within his margin of appreciation to adopt the pricing-in theory in the music, film and book sectors. This was because there was a reasonable literature base on which he was entitled to rely for support for the pricing-in principle. Further, expert criticism of the pricing-in principle was not so self-evidently true or compelling that it could amount to a reason to disturb the Secretary of State’s exercise of discretion to adopt the pricing-in principle. Also relevant was the fact that the Secretary of State had put the pricing-in theory on the table at the outset and had invited views on it.
Issue 4: In relation to the issue on which the claimants succeeded, Green J held that “the decision adopted by the Secretary of State was nowhere near to being justified by the evidence that the Minister specifically accepted and endorsed”. This was because, when consulting, the Secretary of State had posed the de minimis question as the relevant issue, but had failed to set out what was meant by the term. He had adopted the stance that the question needed to be answered on the basis of empirical evidence. The empirical evidence on which he predominantly placed reliance was a Research Report issued by the IPO. The terms of reference for that report had, however, been insufficiently precise. In particular, they had not focused the researchers on the de minimis issue, and, in relation to music, the Research Report had not provided an evidence base for the Secretary of State’s de minimis conclusion. Instead, it had raised a series of questions that had never been pursued or answered. In relation both to books and films, the Report had found evidence of pricing-in, but there was no analysis of how this related to the de minimis question. The Secretary of State had also been presented with credible evidence that cast doubt on the correctness of inferences he had drawn in relation to films, which, in the judge’s view, appeared to have been ignored. He had also ignored historical pre-digitalisation sales in their entirety, which was a potentially relevant category of harm.
Issue 5: Rejecting the claimants’ contention that the Secretary of State had predetermined the outcome of the consultation, Green J held that the Secretary of State was entitled to have a strong predisposition, which was not the same as a predetermination. Further, he had not been obliged to introduce the copyright exception; indeed, one of the options in the consultation had been to “do nothing” (i.e. not to introduce the exception). No evidence was before the Court which showed that the Secretary of State had actually predetermined the consultation. Finally, Green J considered that it could not be inferred from the outcome (i.e. the introduction of the exception) that the Secretary of State had unlawfully closed his mind, fettered his discretion and predetermined it.
Issue 6: In relation to the final issue for determination, Green J concluded that there was no aid granted through state resources and so Article 107 TFEU did not apply. This was essentially because the alleged link between the advantage conferred on technology providers and the forgoing of revenues on the part of the state was too remote, indirect and informal for it to amount to aid through state resources. Further, or alternatively, in any event such advantage as did arise was no more than was inherent in the modification to copyright law brought about by the introduction of the Regulations, which was a general legislative measure designed to meet other policy objectives. For this reason, too, the exception did not constitute state aid.
In light of the second judgment handed down on 17 July 2015, there is a return to the status quo, in that private copying is, once again, illegal and is likely to remain so, at least in the short to medium term. This is good news for rights-holders, even if in practice, in most instances (historically at least), rights-holders have not enforced their rights in relation to private copying. The decision is likely to have been met with some disappointment by technology providers, who would no doubt have been looking forward to receiving a share of the £258 million benefit that it had been estimated that the exception would generate over 10 years.
The introduction of a private-copying exception is not yet necessarily dead in the water, and it is possible that one may be introduced at some point in the future. The Secretary of State stated in his submission to the court that he “will now take the opportunity to reflect further and in due course take a view as to whether, and in what form, any further factual enquiries should be carried out and whether a new private copying exception should be introduced”, and that he “has not decided on any specific course at this stage and wishes to take time to reflect before making any further decisions”.
Green J declined to make any ruling as to whether the Regulations should be quashed with retrospective effect, holding that this was something that it was appropriate to address in the circumstances of private-law litigation between a specific rights-holder and an alleged infringer. He noted that it would be for a defendant in such proceedings to explore and raise this issue, including whether the Regulations (while in force) created an estoppel, legitimate expectation or fair use defence. It is possible that rights-holders may step up enforcement of their rights in relation to private copying to bolster their position in case the introduction of a private-copying exception were to return to the legislative agenda. But in view of those potential defences it seems rather unlikely that rights-holders will seek to enforce their rights in relation to the relatively short period from when the Regulations came into force until they were quashed.
Eleanor Steyn, Associate, Michael Simkins LLP
Article written for Computer and Telecommunications Law Review
 The Queen on the application of (1) British Academy of Songwriters, Composers and Authors, (2) Musicians’ Union and (3) UK Music 2009 Limited -and- Secretary of State for Business, Innovation and Skills, with the Incorporated Society of Musicians intervening  EWHC 1723 (Admin).
 SI 2014/2361.
 The Queen on the application of (1) British Academy of Songwriters, Composers and Authors, (2) Musicians’ Union and (3) UK Music 2009 Limited -and- Secretary of State for Business, Innovation and Skills, with the Incorporated Society of Musicians intervening  EWHC 2041 (Admin).
 Which were that:: (a) the only relevant “harm” that would, in principle, need to be compensated for was the risk to rights-holders of lost, duplicate sales (i.e. the only harm for which compensation would be due were the sales that were lost as a result of legitimising what had hitherto been unlawful acts); and (b) either fully, or very substantially, sellers of content had already priced into the initial sale price the fact that consumers treated content that they purchased as fair game when it came to copying for personal use.
  EWHC 1723 (Admin) at 233.
  EWHC 2041 (Admin).
  EWHC 2041 (Admin) at 5.