Will EU Consumers Choose DRM or Double-Taxation?

Reuters reported this afternoon that the heads of two of the Netherlands' leading corporations worldwide, Nokia and Philips, co-authored a joint letter urging the European Commission to strongly consider renegotiating -- if not striking altogether -- levies collected from consumers from the sale of MP3 players and disc recording media.

These levies were designed to enable consumers to pay their fare share of copyright fees, but electronics companies and consumers groups alike are complaining that since copyright fees are also collected from legal song downloads, consumers are effectively double-taxed.

Consumers can avoid double-taxation, argue European industry groups, if they would be willing to adopt what for them seems the most appropriate alternative: strong digital rights management.

Countries throughout Europe resolved -- or thought they resolved -- the issue of copyright holder compensation decades ago, with the imposition of levies on the sales of recording equipment. Sure, a VCR owner was allowed to record television over the airwaves or through licensed cable, so long as he had paid his levy for the recorder and for the blank tapes.

With minimal adjustment to the various EU member countries' laws since that time, MP3 players are considered recording devices, subject to levies of up to 25 euros, according to an estimate provided to Reuters by long-time Dutch electronics industry attorney Dirk Visser.

With the EU having adopted a central copyright licensing agreement earlier this week, the time has come, argues Nokia executive vice president and general manager for multimedia Anssi Vanjoki, and Philips CEO Rudy Provoost, for member countries to stop double-dipping from consumers' pockets.

In the Netherlands, levies have been collected since 1991 from the sale of recording media. According to the Dutch Foundation for Information Policy Research, the amounts of those levies has generally been determined by a private cooperative called the Foundation for Negotiation of Private Copy Compensation, abbreviated SONT. In an attempt to maintain balance, SONT is comprised of three groups of copyright holders plus three representatives from the recording industry, moderated by the partition of an independent advisor appointed by the Minister of Justice. But the Netherlands does not then collect a separate levy from MP3 players or TiVos.

That distinction belongs to, among other countries, France. There, according to an economic study published last May for the Copyright Levies Reform Alliance (CLRA), a levy contributes as much as 9.09% to the price of the average MP3 player, which may sell for around 100 euros.

Plugging those numbers into an economic model, the study's analysts calculated that about 974,000 more MP3 players could be sold each year without the additional 10 euros levy than with it.

The study then concluded that such an increase in French MP3 player sales -- 18.2% higher than what was actually reported for 2005 -- would have led to additional sales of online music tracks of an additional 1.8 million euros. In all, the study concluded, the digital music market in France was impacted in 2005 by about 158 million euros, in order that the government might collect 53.6 million euros in levies.

Earlier in 2005, SONT proposed a levy be imposed on MP3 players, totaling about 3.28 euros per gigabyte of storage. Such a tax could have added the equivalent of $300 or more to the price of a high-end iPod; since that time, the plan on the table has been dramatically scaled back.

So flying the pro-consumer banner, Philips and Nokia have come out in strong support of drastically scaling back the levy system, arguing it's simply better for the economies of member countries if the levies weren't there. What today's statement appears to omit is that both companies are founding members of the CLRA, along with Apple, Sony, Dell, Intel, and HP, plus four European electronics industry organizations.

One of those organizations, known now as just EICTA, states the working group it assembled that led to the founding of CLRA "promotes viable alternatives to the archaic copyright levy system, namely, Digital Rights Management (DRM) systems."

"The preparatory documents of the [EU] Copyright Act state that TPMs [technological protection measures] should be considered when setting the level of levies to be paid," states a CLRA legal study from earlier this year, "and that if TPMs become more widely used in the future then this may result in a reduction, or elimination of levies. That said, no decision has been made regarding how to implement such considerations in practice and there are no guidelines suggesting how levies should be calculated where DRMs or TPMs are available."

Without explicitly advocating the use of DRM and/or TPM schemes as an alternative measure for protecting the interest of copyright holders, the CLRA's studies effectively did their job: They brought the subject up, and don't think for a moment that EU legislators haven't noticed.

Once again, the man in the spotlight with regard to this aspect of EU copyright reform is Charlie McCreevy, Commissioner for Internal Market and Services. In a speech before Parliament last November, he identified precisely the legal lever that alternates between levies and DRM:

"The 2001 Copyright Directive states that fair compensation must take account of the use of DRM. In practical terms, this should mean that as the use of DRMs increases, the use of levies should decrease. This does, however, not appear to be the case. This effectively means that consumers who use legitimate on-line services to download music against payment, pay twice."

With protests worldwide yesterday to mark the "Day Against DRM," today was not the day either for lawmakers or electronics industry executives to be touting digital rights management as a populist cause. Probably for this reason, today's public call for fairness in taxation from Nokia and Philips appeared "DRM-free."

But the two issues are now intertwined, and perhaps before the end of the year -- when the EC is due to make its recommendations on per-device levies -- consumers may find themselves deciding which necessary evil -- taxes or DRM -- they hate the least.