Accompanied by heavy lobbying, the German authorities are currently debating an amendment to the Copyright Act – the so-called 'second basket' of copyright reform.

In the autumn of 2003, Germany transposed only the mandatory provisions of the European Union (EU) Directive on Copyright in the Digital Age – the 'first basket'. The Government appears to have expected intensive discussions over the implementation of the remaining clauses of the directive. All of the important statutes involving intellectual property rights in the past year have attracted public interest, confirming the importance of immaterial assets in modern society. Consequently, modernisation of copyright law has been prepared diligently.

After two previous drafts, the Government finally presented its Bill on the modernisation of copyright law to Parliament on 22 March, 2006. The Bill deals with topics including new rules on private copying, copyright protection – and its limitations – and a new system for copyright levies. Those parts of the Bill are subject to protest and the lobbying activities of authors, collecting societies and various industries.

Private use

Digital private copying will remain legal. German copyright law includes specific provisions limiting the control of authors over their works: section 53 of the German Copyright Act lists several exceptions under which a work may be reproduced and used, without the consent of the author, for private and other personal purposes.

In the 1960s, it was decided that the Government could neither eliminate nor control private copying without violating the limits of the constitutional right protecting private homes as set out in Article 13 of the German Constitution. Private copying was, therefore, permitted to a certain extent.

On the other hand, to indemnify authors for the loss of income resulting from such legal private copying, copyright levies were imposed on certain hardware devices and storage materials.

The digital revolution has seen the possibilities of copying – and the number of devices to do so – increase exponentially. In 2003, the authorities decided that the provisions on private copying applied to digital copies as well – a ruling criticised by some sections of the copyright industry.

However, the German legislator now confirms the basic decision of the 'first basket' in stating that the rules on private copying will continue to apply to the digital world.

Furthermore, the legislator now specifies the limits of private copying. Prior to 2003, a legal private copy required the use of a 'legal original', meaning an illegal pirate copy could not serve as basis for a legal private copy. Tracing the legal status of a source can be difficult so to avoid unreasonably burdening the private user, the 'first basket' specified that no "obviously illegally-manufactured copy" could serve as basis for a legal private copy.

Criticism was immediate. A copy made available within a file-sharing system might have been 'legally manufactured'; however, the use of such copy by making it available to the public could violate the author's rights. The Government has now amended the wording to state that even a copy that was obviously made available to the public illegally may not serve as a source for private copying under the Copyright Act.

The Government also expressly stated that it will remain illegal to circumvent copyright protection mechanisms. A Ministry of Justice official once stated that – just like there is "no right to beer for free" – there is no individual 'right' to private copying. Private copying only qualifies as a private freedom which is not enforceable against authors or rights owners. The rules on private copying do not deal with providing access to new information, but simply strengthen an existing access.

Facilitate collection

Copyright levies are the downside of the freedom of private copying. The law's aim is to ensure that authors are indemnified for income lost through legal private copying. To facilitate collection for the collecting societies acting on behalf of authors, such levies are collected, not from the private user making copies,but from the local manufacturers or importers of specific equipment designated to make such copies. According to the legislator, the industry should serve as a point of payment and charge the buyer of the relevant goods accordingly.

Until now, copyright levies were applied only to hardware devices and/or storage media designed to allow private copying. The digital age has introduced countless devices that can be used for many different purposes. Collecting societies have looked to claim levies on nearly every device that is technically capable of being used for storing private copies. With every new device entering the market, manufacturers and collecting societies have argued about the 'designated purpose' of the new device and often ended up in lengthy court proceedings.

The industry is fighting the extension of copyright levies. According to BITKOM – the German association for information technology, telecommunication and new media – the application of the levies claimed by collection societies will rise tenfold in coming years. Market conditions in Germany have deterred the industry from passing on the charges to consumers, resulting in diminishing profit margins for manufacturers.

The Bill includes new rules on the applicability of the levies and on the amounts to be paid. According to the recent Bill, copyright levies will only apply to those hardware devices and storage mediums that are effectively used for private copying on an appreciable scale. In the explanation to the Bill, the Government refers to a 10% limit. Devices that are used for private copying below this threshold will not be subject to a levy.

The amounts to be paid by the industry to collecting societies will remain subject to agreement between the parties. Current legislation includes statutory levy rates which apply in cases where the parties have not been able to agree on the amount. The new Bill will no longer include rates but only methods for determining the scale of those payments. The amount of the levy shall reflect the effective degree of the use of the corresponding device for private copying, which shall be determined by market research or expert opinions.

As the copyright levy is not directly collected from the user who does the private copying but from the industry, which does not itself profit directly from such use, the Government wants to limit this payment obligation to a reasonable amount. In order to avoid any negative effects on the national distribution of devices, the legislator provides that a copyright levy shall not exceed 5% of the sales price of the respective device.

Both limits are subject to fierce protests from collecting societies and authors. On 19 May, the upper chamber of Parliament asked the Government to reconsider whether such limits were appropriate. However, the Government confirmed both provisions in its reply of 14 June. The ongoing discussion within the parties of the grand coalition leaves either side enough room to continue the lobbying before the decisive plenary sessions will be held.

Christian Frank is a partner at Taylor Wessing in Munich.