Canada: Copyright Law and the Internet - The Tariff 22 Case

The Supreme Court of Canada recently released its decision in Society of Composers, Authors and Music Publishers of Canada v. Canadian Association of Internet Providerswhich has come to be known as the Tariff 22 case. This decision is the Court’s third recent copyright decision in what many refer to as the copyright trilogy (the other two cases were Galerie d’Art du Petit-Champlain v. Theberge("Theberge") and CCH Canadian Ltd.v. Law Society of Upper Canada ("CCH"), discussed in Dealing a New Hand to Copyright Users – The Supreme Court Considers Fair Dealing, Blakes Bulletin on Intellectual Property, May 2004).These three cases provide much needed guidance on a host of copyright matters ranging from the fundamental theories underlying copyright, to the limits of when copyright may be claimed, to the applicability of copyright in cyberspace.

The core issue dates back to 1995 when the Society of Composers, Authors and Music Publishers of Canada ("SOCAN") applied to the Copyright Board of Canada for the approval of a new royalty tariff ("Tariff 22") to cover copyrighted music transmitted over the Internet (e.g., music played on a Web page or music streamed over the Internet, either on demand or via Internet radio stations). SOCAN argued that all parties involved in the transmission of online music, including Internet service providers ("ISPs"), bear responsibility for paying an appropriate royalty. Canadian ISPs countered that they are mere intermediaries and should not be liable for the content transmitted via their servers.

The Board’s decision dissected the problem into a number of component-issues which are fundamental to the operation of the Internet but which remained, and continue to remain, largely undecided at law. These included, among others, (i) the problem of information flow across borders; (ii) the caching (i.e., temporary storage) of materials that flow through intermediaries on the Internet; and (iii) at what point is an ISP, such as a Web hosting provider, authorizing the placement of copyrighted materials on its servers. The Board made it clear that its decision would only apply to the public performance of streamed music (i.e., music that was listened to as it was being accessed from a server) and not to reproductions of music (namely, music which is downloaded as a file to be played at a later point in time). Interestingly, the thorny issues related to such a facile and possibly nonsensical distinction from a technological point of view were not addressed further in any of the appeals. The Board issued its decision in 1999; it was appealed to the Federal Court of Appeal.

The Federal Court of Appeal’s 2002 decision touched on a number of different issues, including the availability of the "intermediary exception" contained in paragraph 2.4(1)(b) of the Copyright Act (the "Act") (which effectively absolves intermediaries from copyright infringement for material merely passing through their systems), authorization of infringement by an ISP and the determination of the appropriate test for applying the Act. The Court held that, although ISPs may rely upon the "intermediary exception" in most situations because they only provide the means of telecommunication, with respect to caching to enhance transmission speed, the exemption was not available, as the ISPs were doing more than is necessary just to communicate. Therefore, ISPs could be required to pay a royalty based on their caching activities.The Court also found that, generally, ISPs cannot be considered as authorizing the communication of infringing material, but that an ISP which knows there is infringing matter on its servers and fails to remove the material, even when it has had a reasonable opportunity to do so, may be seen as giving implicit authorisation. Finally, with respect to issues of jurisdiction and transborder data flow, the Court concluded that the proposed tariff should not be limited to Web servers located in Canada. Instead, the "real and substantial connection" test, a made-in-Canada solution applied to jurisdictional issues in many other situations, should be utilized in determining Internet jurisdictional questions.

The decision, a watershed, touched on a number of issues, including: (i) the relationship between the Internet and copyright law; (ii) the appropriate test for determining the application of the Act to Internet transmissions; (iii) the availability of the "intermediary exception"; (iv) the liability of host providers; (v) caching; and (vi) authorization. Each of these is discussed below.

The Court indicated that the Internet has great capacity as a tool to disseminate works of the arts and intellect.This type of language in describing the Internet is similar to that of the United States Supreme Court in ACLU v. Reno. Accordingly, the use of the Internet should be facilitated rather than discouraged; however, this must not be done unfairly at the expense of creators of works.The Court acknowledged that finding this balance is complicated as it is difficult to apply national copyright laws to a fast-evolving technology that does not respect national boundaries.This type of thinking is consistent with the philosophical underpinnings of Canadian copyright law.

On the issue of the application of the Act to Internet transmissions, and especially those that cross national boundaries, the Supreme Court agreed with the Board’s finding that an Internet telecommunication occurs when the music is transmitted from the host server to the end user. However, the Court disagreed with the Board’s conclusion that the Internet telecommunication must originate from a server located in Canada for it to "occur" in Canada. Instead, the Court indicated that an Internet transmission that crosses national borders occurs in more than one country.

The Court concluded that the "real and substantial connection" test was the correct test to determine jurisdiction in online copyright cases.The application of the Act depends on whether there is a real and substantial connection between the Internet transmission and Canada.This test turns on the facts of each case; relevant connecting factors include the situs (i.e., location) of the content provider, the host server, the intermediaries and the end user. According to the Court, the "real and substantial connection" test accords with international comity and is consistent with the Canadian law, national and international copyright practice and the objectives of order and fairness.

Justice LeBel disagreed with the majority of the Court on this point, stating that the real and substantial connection test was never meant to be applied in Internet situations and that the more appropriate, simpler and practical test is to look to the situs of the server.

The Court indicated that the policy underpinning paragraph 2.4(1)(b) is to protect those that are part of the infrastructure of the Internet itself, and to encourage intermediaries that make telecommunications possible to expand and improve their operations without the threat of copyright infringement.The Court held that ISPs, and other intermediaries, benefit from the exception if they restrict their activities to providing a conduit for information and do not engage in acts that relate to content. According to the Court, the aspects of a "conduit" include lack of actual knowledge of the infringing contents and the impracticality (both technical and economic) of monitoring the vast amount of material moving through the Internet. In addition, to fall within the exception, the ISP must provide means that are "necessary", meaning that they must be reasonably useful and proper to achieve the benefits of enhanced economy and efficiency.The Court adopted the Board’s broad definition of "means", which includes not only routers and other hardware, but also software connection equipment, connectivity services, hosting and other communication facilities and services.This portion of the decision will no doubt be of great interest to ISPs and Web hosting providers which now have a recipe on how to carry on their services without attracting copyright liability. An intermediary that steps outside its role as conduit and acts as a content provider may incur liability in relation to additional functions.

ISPs may play a variety of different roles with respect to Internet transmissions, including acting as a "host server", which may include the storing, making available and transmitting of Web site content by the ISP to end users.The Court concluded that the liability of a host server must be determined in the same manner as the liability for ISPs generally, namely whether the host server steps outside its role as a mere conduit. Where a host server does act outside its conduit role, liability may be imposed regardless of its location. Host servers need not be located in Canada to be found liable, nor does location in Canada result in automatic liability.

The Court found that this activity fell within the scope of the intermediary exemption because caching was employed by ISPs to deliver faster and more economic service and is also contentneutral. As such, protection of this activity promoted the public interest in encouraging the development and expansion of entities that make telecommunications possible.

The Court found, in keeping with the CCHdecision, that the massive amounts of non-copyrighted material on the Internet make it impossible to impute to the ISP actual knowledge of infringement of, or authority to infringe, copyrighted material. Further, knowledge of an ISP that someone mightbe using neutral technology to violate copyright is not necessarily sufficient to constitute authorization in violation of one of the rights of the copyright owner. However, where an ISP receives notice of infringing content on its facilities, a failure to remove that content may lead to a finding that an ISP authorized the communication and, thus, may result in the imposition of liability.This concept of a copyright "notice and take down" rule is gaining currency with both courts and legislators around the world, as it places some of the burden of enforcement on the copyright holder.The Court indicated that Parliament should respond by enacting a statutory "notice and take down" procedure on this issue.

As indicated, Justice LeBel, although agreeing with the majority of the Court in its disposition and on all other issues, disagreed with the majority on the question of determining the location of an Internet communication under the Act. He concluded that an Internet transmission only occurs within Canada when it originates from a server located in Canada.The "host server" test, in Justice LeBel’s view, best accorded with the territoriality principle, upon which copyright law is based. In adopting the host server test, he also indicated that this test, as opposed to the real and substantial connection test, better respects the privacy rights of end users.The discussion of copyright and privacy issues is a hot issue as content holders seek to gain information about those who are infringing their works in the online world. Under the real and substantial connection test, in searching for a connection between the transmission and Canada, it will be necessary to monitor, among other things, the online practices of end users. For instance, copyright owners may attempt to retrieve data about downloading end users from ISPs. Such data will reveal biographical information about that person and, thus, its collection may infringe their privacy rights. On the other hand, according to Justice LeBel, the host server test eliminates the need to monitor the end user and his/her online practices, thus diminishing privacy concerns. Instead, in determining whether an Internet transmission has occurred in Canada, the copyright owner will only need to monitor the publicly-available servers. However, Justice LeBel acknowledged that privacy concerns are not completely eliminated by the host server test, as Internet site operators may collect personal data from end users visiting their Web site, which data will be collected in the course of monitoring the server.

The Court returned the case to the Copyright Board to proceed with Phase II of its hearings, which concern setting the quantum of royalties to be paid in keeping with the Supreme Court’s decision.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.