Canada: The IP Year 2008 In Review: Copyrights (Part 3 of 3)

1. The IP Year In Review: Patents - Part 1

2. The IP Year In Review: Trademarks - Part 2

TABLE OF CONTENTS

KEY CANADIAN DEVELOPMENTS IN COPYRIGHTS

Canadian Website Operator Seeks Copyright Ruling. The owner of a popular BitTorrent indexing website has applied to the British Columbia Supreme Court, seeking an Order that his website located at {Isohunt.com} does not infringe Canadian copyright law. The website at issue searches the Internet locating and indexing BitTorrent files, a technology commonly used to quickly transfer large media files that are often protected by copyright. Last May, the website's owner received a letter from the Canadian Recording Industry Association ("CRIA") claiming that posting these links to copyrighted materials was a violation of the Copyright Act. Instead of waiting for CRIA to attempt to enforce that claim, the website owner applied to the Court seeking a declaration that the site does not violate any copyright laws.

The website owner's position is that Isohunt.com is merely an indexer, much like Google or Yahoo, since it only provides links to media files and does not provide the files themselves, or any software for creating or using them. He also claims that Isohunt.com has a policy similar to that of video-sharing website YouTube, of removing links to copyrighted materials upon receiving a complaint from the copyright owner. Conversely, CRIA claims that the website is responsible for "causing, authorizing, and contributing to a staggering amount of illegal music uploading, downloading and file sharing."

The outcome of this case could have serious implications for search engines and other websites that provide links to online digital content. If the outcome is not favourable for Isohunt.com, the Court could be placing a number of the Internet's biggest players on the wrong side of Copyright law.

Socan Tariff 24 – Ringtones. In January, the Federal Court of Appeal upheld a decision of the Copyright Board which ruled that the transmission of musical ringtones by wireless telephone companies to their customers was a "communication to the public by telecommunication", within the meaning of the Copyright Act.¹ In September, an application for leave to appeal was denied by the Supreme Court of Canada. The underlying question in this proceeding was whether the Society of Composers, Authors and Music Publishers of Canada ("SOCAN") is entitled to collect royalties for the transmission of musical ringtones to cell phone users under its proposed SOCAN Tariff 24.

In seeking judicial review of the Copyright Board's tariff decision, representatives of the Canadian cellular phone industry attempted to convince the Court that the transmission of a ringtone to a cell phone was not a "communication". The applicants argued that a "communication" requires a transmission heard or perceived by a recipient simultaneously with the transmission. The Federal Court of Appeal, however, found that this was too narrow an interpretation of the word "communication" and held that the transmission of a musical ringtone to a cell phone was a communication "whether the owner of the cell phone accesses it immediately or at some later time." In the case of downloading ringtones, the communication would occur once the transmission had been received.

In the alternative, the applicants argued that because cell phone customers receive ringtones individually on a one-on-one basis, the transmission of the ringtones constitutes a private communication. In rejecting this argument, the Federal Court of Appeal agreed with the Copyright Board that the repeated transmission of identical ringtones to different users was a "communication to the public". The Court found that it made no difference whether the transmission occurred simultaneously to all customers who had requested it, or if it was done on a one-on-one basis at different times.

The result of this decision is that a series of unique transmissions to individuals who, together comprise a group that could be said to constitute the public, is a "communication to the public" for the purpose of the Copyright Act.

Copyright Board Decision On Tariffs 22.B To 22.G (Music Over The Internet). On October 24, 2008, the Copyright Board of Canada released its decision regarding the royalties to be paid for the use of musical works on the Internet.² The Board certified six tariffs (Tariffs 22.B to 22.G) requiring the payment of royalties to SOCAN, the collective society that administers the right to communicate musical works to the public by telecommunication.

The Copyright Board adopted a "user-based" approach that set rates for six different classes of users transmitting music using the Internet. These include: commercial radio stations; commercial and specialty television broadcasters, pay audio services and satellite radio services; the Canadian Broadcasting Corporation and educational broadcasters; non-commercial and campus radio stations; audio websites; and game sites. The tariffs apply for the period January 1, 1996 to December 31, 2006.

The royalty rates range from a high of 12.35 per cent of Internet revenues for pay audio services, to a low of 0.8 per cent of revenues for game sites. As a result of the Copyright Board's new "user-based" approach, websites that do not fall under one of the six categories are not required to pay any royalties for the use of music for the period January 1, 1996 to December 31, 2006. This includes popular sites such as Facebook^TM and YouTube^TM.

Commercial Radio Redux. Earlier this year the Copyright Board released its re-determination of the amount of royalties that commercial radio stations are required to pay SOCAN and the Neighbouring Rights Collective of Canada ("NRCC").³

In its 2005 decision, the Board had increased the rate payable to SOCAN from 3.2% of total advertising revenues, which had applied since 1978, to 4.4% of all advertising revenues in excess of $1.25 million. The Board decided to raise the existing rate because it found that the rate had historically undervalued the contribution of SOCAN music to the revenues of commercial radio stations and did not reflect the efficiencies gained by stations through their use of music.

On judicial review of the Board's decision, the Canadian Association of Broadcasters ("CAB") argued that the Board's reasons did not provide an adequate explanation for the amount of the royalty increase. In a unanimous decision, the Federal Court of Appeal agreed, finding that the Board's reasons were inadequate.

In the re-hearing the only two issues addressed by the Board were the precise amount by which the royalty rates should be increased to account for the historical undervaluation of music, and the efficiencies achieved by radio stations through the use of music. The Board held the new hearing to consider the economic evidence filed by the parties relating to the value of music to Canadian commercial radio stations. Even though new evidence was presented, the Board came to the same conclusion and repeated its belief that the value of music to radio stations had increased significantly over time.

As a result of these proceedings the Board, in its tariff decisions, must now provide adequate reasons explaining how it arrives at specific royalty rates. In the recent SOCAN Tariffs 22.B to 22G decision, discussed above, the Board invoked this rule to justify why it could not set a tariff for social networking and video sharing websites such as Facebook, MySpace and YouTube.

Proposed Amendments To The Copyright Act. On June 12, 2008, the Conservative Government introduced sweeping new amendments to Canada's Copyright Act, designed to update the law to reflect the development of digital technologies and in particular, the Internet. Bill C-61, An Act to Amend the Copyright Act, died on the Order Paper when Parliament was dissolved and a federal election was called on September 7, 2008.⁴

This is the second time in the last three years that copyright amendments have failed to be passed as the result of an election. The previous Liberal minority government introduced similar legislation in June 2005, but the legislation died when that Government fell later that year.

During its election campaign, the Conservative party promised to reintroduce the copyright amendments if re-elected. While the timing of the new copyright Bill has not yet been announced by the returning Conservative government, it is possible that any reintroduced legislation will be similar to those introduced previously.

The issues the proposed amendments will address, include:

• "digital locks" or technological protection measures that record companies, movie studios, software companies and other content distributors use to protect the creative works;

• New exclusive rights for performers and record companies, including the right to make sound recordings available on the Internet;
• New "personal use" exceptions to allow individuals to record television programs, make digital copies of music, and move content from one format to another without infringing copyright;
• Limits to the amount of damages that can be awarded against an individual who infringes copyright for private use;
• Clarification on the role of Internet Services Providers (ISPs) with respect to copyright infringement by exempting ISPs from copyright liability, but requiring them to forward notices of alleged copyright infringement to subscribers and to retain the records necessary to determine the subscribers' identity;
• New exceptions for the educational use of material accessed from the Internet.

Who Says Canada's Lax On Enforcement! Access Copyright V. U-Compute. The decision in The Canadian Copyright Licensing Agency ("Access Copyright") v. U-Compute and Riaz A. Lari⁵ marks the end of a long legal saga between the copyright protection agency Access Copyright and the individual Riaz A. Lari who, for close to 10 years, was alleged to have operated a business of copying academic textbooks. The ruling in this case is notable because it imposes the most severe and rare sanction for copyright infringement: imprisonment.

Since 1999, Lari had run a business called U-Compute, located next to Concordia University. In addition to supplying computer equipment, the business offered textbook copying services to the students. In order to accelerate the copying process, Lari had created a database of the digitized pages of several of the volumes most in demand which he then printed using commercial photocopiers.

In 1999, Access Copyright initiated legal proceedings against U-Compute to force it to cease its illegal copying activities. On November 5, 1999, Lari agreed to cease the illegal copying, but resumed its activities several months later. Access Copyright then decided to take more serious measures by requesting an injunction from the Federal Court. The Federal Court ruled in favour of the Access Copyright and enjoined U-Compute and Lari to sell, distribute or advertise for sale the unauthorised textbook copies.

Despite the Federal Court ruling, Lari continued to operate his business which led to contempt proceedings and an Order for payment of a $2,500 fine with an additional $10,000 imposed for costs. As this still did not stop Lari, Access Copyright then obtained a subsequent order for payment of a $5,000 fine as well as legal costs. still the activities continued. In 2003, Access Copyright decided to change tactics, and an Anton Piller Order, which was soon expanded to cover additional locations. This Order led to the discovery of even more of Lari's operation.

Despite all of these proceedings, Lari continued to copy and sell pirated textbooks. Access Copyright therefore filed a motion for contempt of Court. In light of Lari's complete failure to comply with various Orders, the Federal Court sentenced him to six months' imprisonment, suspended on condition that he complete 400 hours of community service within a specified time limit. Of the 400 hours necessary to avoid imprisonment, Lari succeeded in completing only 64. This year, as a result of his actions, a warrant was issued to have Lari arrested and incarcerated for six months.

While this may seem extreme, it is a useful illustration of the capabilities of the Canadian judicial system to put a definitive end to copyright infringement and ensuring compliance with the Court orders issued by its judges.

Get To Know Your Neighbours – The Neighbouring Rights Collective Of Canada. Most retailers and businesses that use sound recordings for ambient music are aware of the requirement to pay royalties to SOCAN. However, since 2005, the Neighbouring Rights Collective of Canada ("NRCC") has been getting tariffs granted to it with retroactive effect to January 1, 2003. Due to the fact that NRCC has not been established for as long and has not been as high profile as SOCAN, many businesses remain unaware that they owe significant sums to this collective, in addition to the fees they have already paid to SOCAN.

What is the difference between SOCAN and NRCC? SOCAN and its predecessors have been representing the rights of musical composers and music publishers in Canada as a copyright collective since 1925, ensuring that artists and publishers are paid royalties, by collecting copyright licensing fees from individuals, businesses and organizations that play, broadcast or transmit music to the public, whether in public venues, on television or by telecommunication. On the other hand, NRCC was created in 1997, to represent the interests of musical performers and makers of published sound recordings embodying musical works and performers' performances of such works on behalf of five member collectives. NRCC is primarily engaged in the collection of licensing fees to pay royalties to the member collectives for the benefit of their constituent members.

Some of NRCC's most recent tariffs include Tariff No. 1.A, issued on February 23, 2008.⁶ This tariff grants both NRCC and SOCAN the right to collect royalties for the years 2003-2007, to be paid each month by commercial radio stations for their respective repertoires of music.

Another tariff that many businesses are currently not aware of, but are likely going to be within the next year or so, is Tariff No. 3, issued on October 20, 2006.⁷ This is an NRCC music supply and background music tariff for published sound recordings of musical works for the years 2003 to 2009. NRCC is aggressively seeking to collect the royalties owed under this tariff from all establishments that use background music in Canada. Tariff No. 3 is not only applicable to music played within an establishment, it also applies to music played when a customer is on "hold" on the telephone.

Tariff No. 3 is subject to some rather complex calculations, and a few exceptions. Depending on how the music is supplied, royalties may be based on a percentage of ticket sales, admissions or attendance, if these can be easily ascertained, or the royalty may be a multiplier based on square footage of the area to which the public has access, multiplied by the number of days of operation during which the music was played. These royalties based on square footage can result in a significant figure for big box stores and warehouse operations playing radio broadcasts in their stores, particularly as the levy is retroactive to 2003.⁸

Co-Editors: Mark D. Penner and Leanne Shaughnessy. Any questions or comments regarding this publication as well as requests for reproductions should be directed to the editors.

Footnotes

^{1 2008 FCA 6}

^{2 http://www.cb-cda.gc.ca/decisions/iir200810240062008-b.pdf}

^{3 http://www.cb-cda.gc.ca/tariffs/proposed/m20080531-b.pdf}

^{4 http://www2.parl.gc.ca/HousePublications/Publication.aspx?Docid=3570473&file=4}

^{5 2007 FCA 127}

^{6 http://www.nrdv.ca/english/docs/Tariff1A.pdf}

^{7 http://www.nrdv.ca/english/docs/T3.pdf}

^{8 http://www.socan.ca; http://www.nrdv.ca}

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