Of Megabytes and Men: the private use exception under the judicial lens and lessons for state aid claims

On 19 June 2015, the High Court allowed a claim for judicial review against the decision to introduce a narrow ‘private copying’ exception to the Copyright, Designs and Patents Act 1988 (the “CDPA 1988”). The decision is of interest to EU and competition lawyers for two reasons: (1) its examination of the standard of review in public law cases with an EU law dimension and also (2) its analysis of the state aid issues which were raised.

In R (British Academy of Songwriters, Composers and Authors and ors) v Secretary of State for Business, Innovation and Skills [2015] EWHC 1723 (Admin) (“BASCA”), the Court was faced with an application concerning the Secretary of State’s decision to introduce the ‘personal private use’ exception to the CDPA by virtue of a new section 28B, which allowed a person who had legitimately acquired content (music, films, books) to copy that work for his or her own private use without infringing copyright. However, it did not allow any reproductions to be given to persons other than the acquirer (e.g. family members, friends or colleagues, etc). The central plank of the Claimants’ thesis was that the assumptions on which the Secretary of State had proceeded were legally and factually incorrect, and that the inferences and conclusions drawn from the evidence could be challenged. The claim only succeeded on the latter ground – namely the judge found that “the conclusions and inferences which have been drawn from the evidence the Secretary of State has relied upon are simply not warranted or justified by that evidence” (at [20]).

Mr Justice Green reached this conclusion “applying almost any test of judicial review, howsoever intense or relaxed and deferential” (at [233]). However, a particular issue of contention before him was the standard of scrutiny which the Court should apply in this type of case, with the parties noticeably far apart (see [127]-[134]). The learned judge added to his recent thorough consideration of the issue in R(Gibraltar Betting and Gaming Association Ltd v Secretary of State for Culture, Media & Sport [2014] EWHC 3236 (at [99] – [122]) by identifying six relevant factors which affected the “question of intensity” (at [136]-[148]) namely (i) the nature of the issue being decided (ii) whether any margin of appreciation is incorporated into the decision (iii) the “economic” nature of the decision (although he emphasised (at [144]) that the complexity of a decision did not create a “lacuna in judicial review”, but merely meant that the Courts should not substitute their own view of the ‘correct’ decision) (iv) the effect on rightsholders (particularly restrictions of their fundamental human rights) and (v) the relevant components of “an intensive review”. Finally, he also concluded that (vi) “whether [a] provision [in a Directive] has direct effect or not […] does not mean that adjudication at the national level is always or inevitably a “hard edged” merits issue” (at [162]-[163]).

This approach must be set alongside the recent guidance of the Supreme Court on “the principle of proportionality as it applies in EU law” in the context of its decision on the challenge to the Quality Assurance Scheme for Advocates (R (Lumsdon and ors) v Legal Services Board [2015] UKSC 41), subject to that Court’s caveat that the principle’s application “depends to a significant extent upon the context” (at [23]-[82],  [103] and [108]). BASCA and Lumsdon are likely to be highly significant authorities on this point in the future.

More important for competition lawyers was Mr Justice Green’s approach to an interesting issue raised by the intervener, the Incorporated Society of Musicians. The evidence on which the Government relied had found, inter alia, that “[a] change in copyright exceptions will generate consumer benefits in the “secondary market” (e.g. the market for format-shifting, or back-ups). The total benefits generated may be very large relative to any potential economic damage to agents and creators” (at [59]). In its Updated Impact Assessment, the Government had specifically noted that the copyright exception would create substantial benefits for technology firms estimated as being “in the order of £258 million over ten years”, with value transfers of millions of pounds per year (at [289]-[290]). The Intervener argued that this was effectively a statutory licence granted to the tech industry with the State foregoing the opportunity to operate a levy on this permitted activity. The only issue challenged by the Secretary of State was whether there was an aid “through state resources” (at [287]).

However, Mr Justice Green raised his own “doubts as to whether other conditions of the definition [of state aid] are in fact met”, emphasising that “[t]he consequences of a Court applying Article 107 TFEU may be very serious and should not be so applied, by a side wind, without that Court having undertaken a proper analysis of all the factual conditions precedent” (at [300]). He also considered that “there ha[d] been no detailed evidence [….]” as to these other components and conditions which would have allowed him to make any firm conclusions without more (at [288]). This is a warning shot across the boughs of claimants making state aid points, whether as part of a wider claim or standing on their own, and the strict factual burden which they must meet.

The learned judge went on to derive six “propositions” from the relevant authorities on whether an aid had arisen from State resources where revenue had been foregone (at [306]). He concluded that “a clear line [must] be drawn between the sorts of advantage conferred by the state which do and do not amount to revenue foregone and an advantage conferred through State resources” namely between cases where “there is a clear and direct nexus of a relatively formal character between the advantage and the foregoing of revenue” and others where there is only “an estimation of a diffuse advantage spread across a wide class with no clear shape or definition or formality to it” (at [309]-[312]). The case illustrated the high threshold needed to satisfy this criterion of state aid: the Impact Assessment had arguably identified an advantage, a class of persons who would be beneficiaries, and the formal scheme which would give rise to it (the legislative scheme introduced by the statutory change), but there was no detail as to how the advantage would flow directly from the creation of the exception or any identifiable relationship between the two.

The end result in BASCA is still be decided by the Court following submissions by the parties, but the guidance given in relation to state aid may in fact make reliance upon state aid issues more “infrequent” (at [300]) and onerous than was previously the case.

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