The European Court of Justice has ruled that the Netherlands can no longer permit its citizens to freely download copyrighted movies and music without paying for them. In its judgment the Court rules that the current system of a "piracy levy" to compensate rightsholders is unlawful.

In common with many other countries around the world, downloading music and movies is hugely popular in the Netherlands. Surveys estimate that a third of the population downloads copyrighted content without paying for it.

Contrary to most other countries, however, downloading and copying movies and music for personal use is not punishable by law. In return, the Dutch compensate rightsholders through a “piracy levy” on writable media, hard drives and electronic devices with storage capacity, including smartphones.

In a landmark ruling, the European Court of Justice has declared this system unlawful. The case was brought by several electronics stores and manufacturers, whose products were made more expensive because of the levy.

In its judgment the Court held that the levy system is a threat to the internal market and that it puts copyright holders at an unfair disadvantage.

“If Member States were free to adopt legislation permitting, inter alia, reproductions for private use to be made from an unlawful source, the result of that would clearly be detrimental to the proper functioning of the internal market,” the Court noted in a briefing on the verdict today.

“Similarly, the objective of proper support for the dissemination of culture may not be achieved by sacrificing strict protection of copyright or by tolerating illegal forms of distribution of counterfeited or pirated works.”

As a result the Court ruled that the Dutch system, in which people are permitted to copy files from pirated sources, can not be tolerated.

The Court believes that “legalizing” file-sharing encourages the distribution of counterfeit and pirated works. In addition, it explains that the system poses “an unfair disadvantage to the copyright holders.”

The Court further notes that the Dutch system also punishes those who buy their digital movies and music from authorized sources, as they also pay the piracy levy on the devices and media they record them to.

“All users are indirectly penalized since they necessarily contribute towards the compensation payable for the harm caused by private reproductions made from an unlawful source. Users consequently find themselves required to bear an additional, non-negligible cost in order to be able to make private copies,” the Court notes.

Today’s judgment is also likely to affect other European countries with similar systems, such as Switzerland where downloading pirated works for personal use is also permitted.

Ironically, copyright holders may be worse off if the Netherlands does indeed outlaw downloading pirated material. This would result in millions of euros in lost revenue through the piracy levy, which may be hard to match by an increase in legal sales, if there’s any increase at all.

Update: The Dutch Government confirmed to Tweakers that downloading copyrighted material for personal use is no longer allowed, effective immediately.

The Government also clarified that in general offenses will be prosecuted through civil cases, not criminal ones. We have updated this article accordingly.