The case

The case, which has reached the Court of Justice of the European Union, originates from a dispute brought by the German society for the collective management of copyright and related rights on musical works (Austro-Mechana) for the assessment of the enforceability (and consequent quantification) of fair compensation for private copying against the German company Strato AG, a provider of virtual cloud storage services (through the service called “HiDrive”) within the Austrian territory.

According to Austro-Mechana, Austrian law provides for the payment of royalties for any type of recording media that has been placed on the market in Austria, including the provision of cloud storage space, as provided by Strato AG. On the other hand, the application of fair compensation for private copying also to “dematerialised” storage spaces (such as the cloud) was contested by Strato AG, according to which, in the absence of a physical support for the recording of the protected work, the law in question would not be applicable. Strato AG also argued that such remuneration would not be due since the rightholders would have already obtained the payment of the remuneration for private copying (i) from the manufacturers of the devices, without which it would be impossible to upload the protected content to the cloud (i.e. smartphones, tablets, etc.), and (ii) from Strato AG itself for the acquisition of the storage servers located in Germany.

The Commercial Court of Vienna dismissed Austro-Mechana’s claims, finding that the fair compensation for private copying provided by Austrian law was not applicable to the cloud storage space provided by Strato AG, because the user would not have physical access to the media for storing protected content (i.e. servers), but only the possibility to access the storage capacity in some unidentified location in the provider’s cloud. Austro-Mechana appealed the decision and the appellate court raised two preliminary questions before the Court of Justice.

The Advocate General’s Opinion

Both preliminary questions concern the interpretation of Article 5(2)(b) of Directive 2001/29/EC on the harmonisation of certain aspects of copyright and related rights in the information society, which provides that Member States may provide for exceptions or limitations to the exclusive right to authorise or prohibit the reproduction of protected works for reproductions made by private individuals on any medium on a non-profit-making basis, subject to the requirement that the rightholders pay fair compensation. The first question concerns the enforceability of that fair compensation by the holders of copyright or related rights against providers of cloud storage space for private users, while the second concerns the quantification of that fair compensation.

According to the Advocate General, in response to the first question, the terminology ‘reproductions on any medium’ used by the European legislature does not limit the private copying exception to physical media (CD/DVD, etc.) owned by individual private users, but also covers intangible media, such as cloud storage space or capacity, made available by a third party such as an internet service provider and used by private users to obtain and store copies of protected works. That conclusion is based on the assumption that, in itself, any reproduction of protected works constitutes an act adversely affecting the rights of the rightholder, of which the private copying exception is a limitation; consequently, according to the Advocate General, there can be no discrimination between categories of media which do not also include those resulting from technological progress. Obviously, the limit to the applicability of the compensation for private copying would be represented by the legitimacy of the acquisition of the protected work by the private individual, all forms of reproduction/abusive making available which would in themselves constitute an infringement of the rights of the owner being therefore extraneous.

Having determined that fair compensation for private copying is also payable by the rightholder to the third-party provider of cloud storage services, it is not possible, however, to quantify the exact amount of that fair compensation. Hence, the Advocate General’s conclusion, in response to the second question referred for a preliminary ruling, that no additional compensation is payable by the third-party cloud service provider, since there is a risk of imbalance between the rights of rightholders and the rights granted to private users. Only if the rightholder can show that the payment of fair compensation made by the providers of the media (i.e. smartphones, tablets, etc.) may be considered inadequate to the actual prejudice suffered by private uses, will the referring court have to verify and quantify any additional amounts due to rightholders as fair compensation.

Alessandro Bura