Private copying levy body says frozen rates unjustified as music downloading increases

Music industry representatives have expressed their strong disappointment in the Copyright Board of Canada’s decision not to raise a levy on blank recording media. On December 12, the board issued its long-awaited ruling on the levy to be applied to such media as blank audiocassettes, CD-Rs, and MP3 players for 2003/2004. The decision, which freezes rates where they already exist on CDs and other media but creates fresh rates for a new class of memory used in MP3 players such as Apple Corp.’s iPod, will give lawyers cause to chatter for months, indicating as it seems to that downloading music from peer-to-peer networks is legal, and that the zero-rating scheme previously used by the music industry to exempt businesses and others from paying the fee is illegal. In the end, representatives of the Canadian Private Copying Collective (CPCC) - the body that collects and administers the private copying levy - are left shaking their heads over the board’s decision not to raise rates in the face of evidence of greatly increased copying since the original tariff was set in 2000. Paul Audley, head of Paul Audley & Associates Inc., which handles much of the grunt work for the CPCC, says the board’s decision to discount music industry evidence of greater copying is baffling. "We find it disappointing and perplexing in many ways and we haven’t had a chance to absorb all of the detail yet, but it seems clear to us that there were a lot of reasons for the rates to change," he says. "Much had changed since the rates were set in December of 2000 and it was remarkable to see that they’ve simply been frozen at the same level. The board seemed not to have been very attendant to the evidence that was filed and not to have done what it has usually done, which is to look at the evidence and choose the best evidence. We put a lot of resources into doing the research and hiring the best experts we can and so it’s disappointing." The CPCC relied heavily during hearings into the tariff in the early part of 2003 on a study conducted by Réseau Circum (CNM, Dec. 20/02), which showed that the number of music tracks copied in Canada in 2001-2002 mushroomed to 1.07 billion, approximately 74 million albums’ worth, from 598 million in the previous two years. Further, the CPCC also hoped to see an increase in the rates since so many more CD-Rs are sold to individuals (the board discounts the rate based on how many are sold to exempt businesses and others). Kazaa users beware?Both the National Post and The Globe and Mail have reported that those using peer-to-peer file-sharing networks may soon face lawsuits from the Canadian Recording Industry Association (CRIA). While it seems likely given the Copyright Board of Canada’s recent private copying levy decision that it will prove difficult to pursue downloaders, cases against those who share their files seem more airtight. CRIA officials declined to say what their legal strategy might be, but Canadian NEW MEDIA took a quick look at the Copyright Act in anticipation of suits to come. One likely section of the Act that could be used against file-sharers will be section 27 (1), which states that, "It is an infringement of copyright for any person to do, without the consent of the owner of the copyright, anything that by this Act only the owner of the copyright has the right to do." Section 27 (2) (b) further states that, "It is an infringement of copyright for any person to…distribute to such an extent as to affect prejudicially the owner of the copyright." Civil remedies provide that: "Where copyright has been infringed, the owner of the copyright is, subject to this Act, entitled to all remedies by way of injunction, damages, accounts, delivery up and otherwise that are or may be conferred by law for the infringement of a right." Criminal penalties for violating section 27 (2) (b) include fines up to $25,000, jail for six months or both on summary conviction, while those convicted on indictment face fines up to $1 million and/or a jail term up to five years."The CD-Rs are a big issue," Audley says. "Two of the big discounts we take is the percentage sold to individuals and I think the board decided that the percentage sold to individuals last time was 45%. Our research suggested it was higher…And then there’s a discount for the percentage of copying bits of content other than music. Or, to put it the other way around, we look at what percentage of the copying is being done by individuals on CD-Rs is music. And that had gone up from 56% to 66%. Well, you don’t have to accept our 66%, although they only had a sample of 100 compared to a sample of 12,000 - the other side said that it was 62%. But we got no increase. "his time for some reason just didn’t go through the exercise you would expect them to go through to accept the best evidence they had in making judgements. Instead, they just froze the rates and said they didn’t want to make any decisions today. ‘Another time please!’ They’re hiding under a rock." The CPCC representative also expresses disappointment that the full levy sought by the industry on devices such as iPods was not granted, though a much smaller levy was applied to the non-removable memory inside. Where the industry was hoping for a $21/gigabyte levy, the board granted only a sliding scale of fees ranging from $2 for recorders with a capacity up to 1 Gb, to $25 for devices with more than 10 Gb of memory. In its decision, the board writes: "The board does not wish to impede the development of the emerging market for these new technologies in Canada. The board also is conscious that consumers may be more sensitive to a levy on this kind of medium than on others, since the cost of this medium constitutes a higher proportion of their total income. It does not wish to encourage levy avoidance or evasion." In fact, many of the board’s decisions on other media seem to be hinged on the need to avoid a grey market in blank media. It writes: "In short, an increased rate might further destabilize the blank media market. For the moment, the best the board can do is proceed with caution. Keeping the rates at their current levels should avoid these pitfalls. In the future, the board would expect to obtain a more accurate evaluation of the size of the relevant markets and the impact that the levy has on rights-holders, the industry and consumers." Audley doesn’t buy the argument that the public interest is best served with frozen rates and lower new rates on MP3 players than had been sought, however. "This is about music. People who copy in Canada end up with the equivalent of 70 million albums. That is the product that the songwriters and the recording artists and the producers and the recording deliver to the public. It’d be a much smaller market for iPods if you didn’t use them to copy music. I’m not sure if anyone would be buying them today. There would be a much smaller market for CD-Rs. Two-thirds of what people copy onto them is music. The premise that the people who supply the music should be the only ones who don’t get paid I find highly offensive. I find it infuriating that people write about it as though it’s great for a market price to go to the people selling the CD burner, it’s great for a market price to go to the people selling the iPod, it’s great for it to go to the people selling CD-Rs, but the music industry should donate its product. Nobody asks the people making CD-Rs to donate so that people have cheaper private copying. "Nobody expects Apple to give away the iPod and they’re not about to volunteer so that people can have cheaper private copying, so why should music be the only thing that’s donated? It just defies any notion of fairness….There’s a lot of copying being done, and it’s unauthorized, it’s not being paid for, otherwise you get rid of private copying and you’re right back to people getting not a thing. And, they’re really subsidizing other people’s business. They’re donating their product so that other people can sell more iPods. Crazy." The CPCC does take some comfort in the board’s explicit recognition that the levies collected thus far have been distributed in what it sees as a timely fashion. During hearings in January, CPCC representatives pre-emptively told the board that while the back-end systems had to be put into place to decide which artists were entitled to what money, the distributions are now moving smoothly. Audley says that $18 million has already been paid out and another $7 million is set to go out by the end of the year. Legality of downloading Likely to be much-discussed as well is the board’s decision that the levy covers downloaded songs no matter whether they’re burned from original copies of CDs or downloaded from peer-to-peer file-sharing networks. The decision appears to have created confusion in the mainstream media and public’s mind, and some sources have suggested that the activities of those sharing files on peer-to-peer networks is also now legal. While upcoming legal action may settle the matter permanently, the board does seem to have been explicit on the matter. It writes: "Peer-to-peer distribution on the Internet is not addressed as such in the regime. In this respect, other copyright considerations certainly apply." It further writes: "The exemption in section 80 applies only when a copy is made for the private use of the person making it…This means that making a copy of a CD…to give to one’s friend is still an infringing action, as it is not a copy for personal use. In the same vein, distributing this copy to friends online is prohibited." Audley says the CPCC has until March 31 to file an application for a tariff for 2005/2006, but says it’s too early to tell if the copyright collective will again seek higher rates on MP3 players or higher rates for CD-Rs. "You can always go back and take a second crack, and all the board’s saying is at this point, based on what they heard, they weren’t convinced. How quickly one wants to go back is another matter. It’s an expensive process and when there’s disappointment and the feeling that the evidence put in front of the board didn’t even - and where it was solid - get reflected in an adjustment, it’s harder to feel enthusiastic about going back quickly. It’s premature to say what their decision would be and it would be possible just to extend this tariff for another year or more and go back later. But that’s going to be part of the difficult analysis that has to be done in looking at this and saying, ‘what is it reasonable to think that CPCC could accomplish to go back quickly?’"

Private copying levy body says frozen rates unjustified as music downloading increases

Broadcast | December 19, 2003

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