The European Court of Justice ruled Thursday (July 6) that Portugal broke European Union law by failing to provide royalties for copyright holders from the public lending and rental of goods such as C

The European Court of Justice ruled Thursday (July 6) that Portugal broke European Union law by failing to provide royalties for copyright holders from the public lending and rental of goods such as CDs and DVDs.

The Luxembourg-based Court ordered Portugal to amend its laws and provide compensation for rightholders through royalty mechanisms.

The case was brought by the European Commission -- the EU's executive authority -- which said Portugal's interpretation of the royalty rules breached a 1992 EU directive on rental and lending rights. Portugal adopted the 1992 rules, which recognize the right to remuneration but exempted all categories of public-lending establishments.

The Court ruled that this exemption was unauthorized, and unfairly denied rightholders their royalties. "By exempting all categories of public lending establishments from the obligation to pay remuneration to authors for public lending, the Portuguese Republic has failed to fulfil its obligations," the Court said.

The 1992 directive gives authors of music, films, books and any other copyright works an exclusive right to license or ban the lending of their works by institutions like libraries.

The Commission argued that royalty payments were crucial for both copyright holders and for the commercial rental market. If a CD can be borrowed from a public library, according to the Commission's argument, there may be less demand to buy it.