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Earlier this month the Copyright Board released the latest decision in the ongoing saga of SOCAN's "Tariff 22." For those unfamiliar with its history, this is the same tariff that was originally proposed to apply to internet service providers in 1996. When the Supreme Court of Canada held that neutral network providers aren't liable for communications of copyright-protected content, SOCAN restructured the tariff to focus on entities that sell downloads, stream songs, podcast or otherwise use music on their websites. The Board held that online music services must pay SOCAN 3.4% of the purchase price for a digital download, 6.3% of fees for subscription-based download services and 7.6% of fees for subscription-based streaming services.
Michael Geist and Howard Knopf have provided comments on the case. So too have other notables including copyright guru Bill Patry and Eliot Van Buskirk of Wired's Listening Post. Those folks have already addressed some of the most noteworthy aspects of the Board's decision, so I'll focus on only a few points in the following remarks.
Consensus south of the border seems to be that we Canucks have got it
right when it comes to setting royalty rates for online music. Van
Buskirk, for example, appears to prefer our percentage-based formula
over proposals in the States for a set fee per transmission to each
listener. I agree with him on this, but we're sort of comparing apples
and oranges. The U.S. proposal pertained to webcasting royalties.
SOCAN's Tariff 22 will eventually include rates for webcasters (as well as
podcasters, simulcasters, gamers and others who use music on websites),
but we don't yet know what those rates will be, or how they'll be
calculated. It is likely that the rate will somehow be tied to advertising revenues and/or operating expenses, rather than retail pricing, but we'll have to wait and see. So this praise for the Canadian approach is a bit premature.
At this point, we've only got the rates for "online
music services" (e.g. Apple's iTunes Music Store). And, actually, in
the U.S., such services wouldn't pay anything at all to SOCAN's sister
organizations, ASCAP, BMI or SESAC. That's because retailers of digital
downloads don't perform or communicate songs, according to the U.S. Copyright Act and relevant case law.
Instead, they distribute copies. The Copyright Board has held, however,
that under Canadian law a digital download retailer must pay for both
reproduction and performance/communication rights. (This is a live
issue in case about ringtone transmissions
now under advisement by Canada's Federal Court of Appeal.) And that's
just for the underlying musical work. Paying these fees wouldn't
actually entitle anyone to use a "song" -- that would require clearing
the rights of performers and record producers as well.
The other aspect of the Board's decision to garner praise relates to the finding that providing previews of downloads is fair dealing. Geist, Knopf and Patry all point out that the Board has demonstrated the potential breadth of the Supreme Court of Canada's decision in CCH v. LSUC. The Board seized on the Court's ruling that fair dealing can protect not only end users but also what I'll call "fair-dealing facilitators." So, if it is fair dealing for a prospective purchaser to listen to previews as part of the consumer research process, then it can be fair dealing for an online music service to facilitate that research by providing the previews. The Board must be commended for its progressive yet sound interpretation of Canadian law on this point.
I'd like to think about where the Board's reasoning could lead. The Board ruled that previewing a song into order to plan the purchase of a download or CD is generally a fair dealing. As long as the preview is not used as a substitute for purchasing the song, the Board acknowledged that offering previews encourages sales of downloads, which in turns benefits copyright owners. Could these same principles be used to justify downloading tracks from a p2p network? I'm not suggesting that a p2p network could claim to be a fair-dealing facilitator (that argument failed miserably in cases like
Napster and MP3.com cases, though U.S. law is different in material respects). I'm wondering whether the more modest claim of an individual user could ever succeed.
On the right facts, I think maybe so. In 2005 I wrote in the Canadian Journal of Law and Technology:
An individual's downloading activities for the purpose of consumer research, to evaluate a potential music purchase for example, would seem far less objectionable than [systematic for-profit legal research carried out by tens of thousands of Ontario lawyers]. Given the speculative nature of the fair dealing defence generally, the argument is difficult to apply en masse, but could certainly succeed in a bona fide case with a proper factual and evidentiary basis. This might require, for example, an affidavit as to the consumer's copying habits and intentions, or reference to some of the empirical data suggesting a positive correlation, if any, between downloading and music sales."
Now, an argument along these lines failed under the U.S. fair use doctrine in the case of BMG v. Gonzalez. Judge Easterbrook wrote for the Seventh Circuit Court of Appeals that Gonzalez wasn't a fair user because she kept the 1370 songs she'd downloaded on her computer until she was caught. Evanescence was key to the Courts' ruling, though one wonders why
previews would be deleted if disc space is not an issue. The more
relevant question, to me, would be whether or not the previews were in
fact used as a substitute for purchased music. Interestingly when viewed in light of the Board's decision in Tariff 22, Judge Easterbrook specifically said that Gonzalez could've conducted her consumer research instead by listening to licenced simulcasts of radio signals or licenced previews from the Apple iTunes Music Store.
No doubt the Board's decision will be subject to judicial review, if only because the ringtones case I referenced above won't likely be settled within the limited to file an application regarding this decision. That means the debates about Tariff 22 and the issues it raises aren't over yet.
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