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The levy, which ranged from $2 for small devices to $25 for players with a capacity of 10GB or more, was collected by the Canadian Private Copying Collective (CPCC), on behalf of musicians and record labels. It was designed to compensate them for monies allegedly lost due to unauthorised file sharing.

However a coalition of anti-levy campaigners, the Canadian Coalition for Fair Digital Access which includes Apple, Dell and Sony, argued that the levy was unfair as it penalised all music players customers, regardless of how they obtained their music. People who bought a player and then legally bought music, were effectively paying twice for their

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tunes, it said.

In December 2004 the Federal Court suspended the levy and the Supreme Court has now backed that decision. The CPCC will continue to collect levies on CDs and other recordable media, as the Court rejected an attempt to outlaw the entire levy system. However the Canadian Government pledged to re-examine its validity.

'Obviously we're disappointed,' said the CPCC's David Basskin. 'We felt it was self-evident that those products are sold for the purpose of copying music.'

But Fraser Smith, spokesman for the Fair Digital Access Group said that levy, which was first introduced on blank cassette tapes, is unfair.

'People are forced to pay whether or not they use the media for music,' he said. 'A lot of people, including small businesses, use it to back data files and photos.'

The $4m collected through the levy will now be returned to device manufacturers and importers.

The Netherlands is currently considering whether to introduce a similar levy on music players; if it does it should be good news for retailers in Belgium and Germany.