Germany's Copyright Levy

By: Sam Vaknin, Ph.D.

Also published by United Press International (UPI)

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Based on the recommendation of its Patent Office and following fierce lobbying by VG Wort, an association of German composers, authors and publishers, Germany is poised to enforce a three years old law and impose a copyright levy of $13 plus 16 percent in value added tax per new computer sold in the country.

The money will be used to reimburse copyright holders - artists, performers, recording companies, publishers and movie studios - for unauthorized copying thought to adversely weigh on sales.

This is the nonbinding outcome of a one year mediation effort by the Patent Office between VG Wort, Fujitsu Siemens Computers, Germany's largest computer manufacturer and other makers. VG Wort initially sought a levy of $33 per unit sold.

But Fujitsu and the German Association for Information Technology, Telecommunications and New Media (Bitkom) - including Microsoft, IBM, Alcatel, Nokia, Siemens and 1300 other member firms - intend to challenge even the more modest fee in court.

They claim that it will add close to $80 million to the cost of purchasing computers without conferring real benefits on the levy's intended beneficiaries. They repeated similar assertions in a letter they have recently dispatched to the European Commission.

The problems of peer-to-peer file sharing, file swapping, the cracking and hacking of software, music and, lately, even e-books - are serious. Bundesverband Phono, Germany's recording industry trade association, reported that music sales plunged for the fifth consecutive year - this time, by more than by 11 percent.

According to figures offered by the, admittedly biased, group, 55 percent of the 486 million blank CDs sold in Germany last year - c. 267 million - were used for illicit purposes. For every "legal" music CD sold - there are 1.7 "illegal" ones.

Efforts by the industries effected are underway to extend the levy to computer peripherals and, where not yet implemented, photocopying machines. Similar charges are applied today by many European countries to other types of equipment: tape recorders, photocopiers, video-cassettes and scanners, for instance. Blank magnetic and optical media, especially recordable CDs, are - or were - taxed in more than 40 countries, including Canada and the United States.

Nor is Germany alone in this attempt to ameliorate the pernicious effects of piracy by taxing the hardware used to affect it.

The European Union's Directive on the Harmonisation of Certain Aspects of Copyright and Related Rights in the Information Society, passed in 2001, is strenuous, though not prescriptive. It demands that member states ensure "fair compensation" to copyright holders for copies made by means of digital equipment - but fails to specify or proscribe how. It has been incorporated into local law only by Greece and Denmark hitherto.

In Austria, Literar-Mechana, the copyright fees collection agency, negotiated with hardware manufacturers and importers the introduction of a levy on personal computers and printers. The Swiss are pushing through an amendment to the copyright law to collect a levy on PCs sold within their territory. The Belgian, Finnish, Spanish and French authorities are still debating the issue. So do Luxemburg and Norway.

According to Wired, the Canadian Private Copying Collective, the music industry trade group, has proposed "new levies to be applied to any device that can store music, such as removable hard drives, recordable DVDs, Compact Flash memory cards and MP3 players".

Precedent is hardly encouraging.

The aforementioned Canadian Collective has yet to distribute to its members even one tax dollar of the tens of millions it inexplicably hoards. In Greece, a 2 percent levy on all manner of computer equipment provoked a hail of legal challenges, still to be sorted out in the courts. The amounts collected hardly cover the government's legal expenses hitherto.

The United Kingdom, Ireland, Sweden and Denmark are against the levy, claiming, correctly, that hardware is used for purposes other than pilfering intellectual property digitally. The Italians, Portuguese and Dutch haven't even considered the option.

Hardware manufacturers are livid. In a buyers' market, their razor-thin profit margins on the commoditized goods they are peddling are bound to be erased by a copyright levy. The European Information and Communications Trade Association (EICTA) implausibly threatens to pass on such extra costs to consumers and recommends to stick to technological means of prevention, collectively known as Digital Rights Management (DRM) systems, or to novel CD copy protection measures.

Moreover, the fuzzy nature of the surcharge leaves a lot to be desired. Peter Suber, a prominent advocate of free online scholarship, analyzed the various post-levy scenarios in his FOS blog:

"What I can't tell is whether the copyright levy on hardware will come with universal permission to copy. If so, that's a big gain for a small cost... If the levy does not imply permission to copy, then which copying does it cover? If it covers copying without prior permission, then users will simply stop asking for permission, and convert all copying to pre-paid copying. If it covers copying without pre-payment, then that begs the question: what does the levy pre-pay? (It's not clear) how the plan would continue to distinguish authorized from unauthorized copying."

Yet, at this stage, it is difficult to see how to avoid the kind of rough justice meted out by Germany. Even the most advanced DRM systems lack a reliable model of remunerating copyright holders. Hence the conspicuous absence of DRM in the EU's Copyright Directive.

Suber raises some practical concerns, though he broadly supports a copyright levy on hardware:

"To make the system fair, we would need reasonably accurate measurements of the amount of copying. Otherwise we wouldn't know whether to bump up the price of a computer $35 or $350 or whether to give Elsevier 1% or 10%. Download counters wouldn't catch the peer-to-peer traffic. So would you put up with packet sniffers or other eavesdropping technologies to take random samples of the copy traffic, as long as your identity was not recorded?"

Even what constitutes copyrighted work is not entirely clear. The European Court of Justice heard arguments last week in a case pitting two American companies, IMS Health and NDCHealth, against each other. IMS Health vends aggregated German data pertaining to the sales of pharmaceuticals.

NDCHealth tried to emulate an organizational element of the IMS Health database. The Court is faced with seemingly intractable questions: Can IMS Health be compelled to license its database to a potential competitor? Is the structure of the database - the way Germany is divided to 1860 reporting zones - protected in any way?

In essence, copyright is a temporary monopoly on creative work granted to the authors, publishers and distributors of such products. It is intended to compensate them for their efforts and to encourage them to continue to originate in future. Yet, the disintermediation brought on by digital technologies threatens to link author and public directly, cutting out traditional content brokers such as record companies or publishers.

This is the crux of the battle royal. The middlemen are attempting - in vain - to sustain their dying and increasingly parasitic industries and refusing to adapt and re-invent themselves. Everyone else watches in amazement and dismay the consequences of this grand folly: innovation is thwarted, consumers penalized, access to works of art, literature and research constrained.

Also Read:

The Future of Electronic Publishing

Revolt of the Scholars

The Kidnapping of Content

Will Content Ever be Profitable?

The Disintermediation of Content

The Internet and the Library

The Future of the Book

Free Online Scholarship - Interview with Peter Suber

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