OPINION: Copyright and ‘the cloud’: What goes up must come down

On Oct. 14, 2011, I had the pleasure of being a commentator along with Grace Westcott on a panel about competition and intellectual property implications of “the cloud.” The panelists were Prof. Salil Mehra, Prof. Pamela Samuelson, Dr. Craig McTaggart, and Prof. Oliver Goodenough. This was the wrap-up panel to a day-long conference organized by Prof. Ariel Katz who is the director of the Centre for Innovation Law and Policy at the University of Toronto Faculty of Law. (A webcast is archived here). My remarks here are an elaboration of points I raised in my own brief comments that followed excellent presentations. The cloud generally refers to some or all of remote storage, access and processing of data by third party service providers. These services are generally accessible from anywhere on a variety of devices. The cloud does not merely refer to mysterious cyber-lockers where millions of illicit files are stored. We are all using the cloud, whether we realize it or not. Common examples would include such diverse services as Gmail, Google Docs, Scribd, Dropbox, and Facebook. Proposed new services include Apple's iCloud, which would feature a very sophisticated music storage and delivery service that would include all of a user's previously acquired tracks, with presumably no questions about where they came from. It would substitute better quality authorized versions where possible, all of this for about $25 a year. But, for reasons that follow, Canadians should not hold their breath waiting for this potentially very positive development that could benefit both musicians and consumers. Copyright issues are going to arise about material going up and coming down from the cloud. In Canada, this potentially involves several rights found in the Copyright Act. These include performance, reproduction, communication to the public by telecommunication and even levies on certain media that may be used in these processes. In principle, several of these rights may be implicated at the same time for the same activity. Moreover, in Canada we potentially double the costs and complexity by including neighbouring rights, i.e., rights for performers and record producers. The U.S. has neither neighbouring rights nor levies. When Canada gets around to ratifying the 1996 WIPO treaties, the cost of the private copying tariff—if it still exists—will also double, with all the additional revenues leaving Canada, if the present legislative scheme and the Copyright Board’s existing template remain in place. The Canadian Private Copying Collective is currently seeking a controversial levy on microSD cards that are used in BlackBerrys. This has been called a “memory tax,” and it too would get doubled with WIPO ratification, if the current levy scheme remains as it is. In the U.S., important questions concerning the law and licensing rates sought by major collectives are normally determined by a specialized rate court, presided over pursuant to an antitrust consent decree by a sitting federally appointed District Court judge who may retain jurisdiction over a long term. Often, major issues in American copyright law are also determined in normal private litigation in the American courts. The most famous recent example is probably the Sony Betamax case in 1984. It remains to be seen whether any of the Google Books litigation will result in important legal precedents. In any event, most important copyright adjudications in the United States take place in actual courts of law. In Canada, issues involving the cloud are more likely than not to be dealt with by the Copyright Board, which is an administrative tribunal and not an actual court. The board deals only with certain types of copyright proceedings. Its main responsibility concerns disputed tariffs and other tariffs which must, in any event, be determined by the board, i.e. performance and communication rights. The board's decisions are frequently taken to the Federal Court of Appeal for judicial review (i.e. an appeal in layperson terms). Some, in turn, end up in the Supreme Court of Canada. Indeed, in an extraordinary and unique event, a cluster of five such cases will be heard in two days on Dec. 6 and 7, 2011, by the Supreme Court of Canada. Three of these cases are part of the seemingly eternal evolution of SOCAN's Tariff 22 for music on the Internet, a tariff that already reaches into the cloud in some still unsettled respects. That tariff reaches back to 1995, when the Internet was still brand new for most people and the cloud was an unknown term, although the concept of the celestial jukebox was known or ought to have been by those involved at that time. Tariff 22 has already been to the Supreme Court of Canada once, which ruled on it in 2004. However, it seems that the only things that these five cases have in common are that they emanate from the Copyright Board and apparently involve inconsistent rulings on standard of review by the Federal Court of Appeal. It is important to note that Canada already has at least 36 copyright collectives—about six times more than the United States. Copyright reform Bill C-11 may result in even more. For example, at an IP Osgoode Ottawa conference on Oct. 21, 2011, we heard that consideration is being given to a “making available” collective in Spain, and Mihály Ficsor, president of the Hungarian Copyright Council and former assistant director general of the World Intellectual Property Organization, pointed out that Bill C-11 seems to require that this proposed right can only be exercised collectively. Canada’s collectives currently range from small virtual organizations run by one person or so to SOCAN, the granddaddy of Canadian collectives, which has a large staff, large building and revenues of more than $275 million in 2010. This Canadian approach of many tariffs for many collectives paid for by many consumers appears to be unique in its scope and complexity. Canada's Copyright Board is also far larger than any counterpart organization. It has up to five full time members and currently has a staff of about 16 employees. Many of these collectives, and not just the music or audio-visual collectives, are going to want a piece of the cloud. Access Copyright, which is trying to survive by getting beyond its origins as a reprography collective before reprography becomes obsolete, is currently seeking a 1,300 per cent increase over the current base rate paid by universities per full-time student. The proposed new rate is predicated in part on supposed liability for links and hyperlinks to material that is required or recommended reading for students. Much of that material already resides somewhere in the cloud and more is likely to end up there. Indeed, Access Copyright is seeking the right to audit the secure networks of universities and colleges and professors' emails in order to check on links and hyperlinks. Needless to say, this does not sit well with post-secondary institutions. Following the Supreme Court of Canada's ruling in Crookes v. Newton—that hyperlinking by itself is never publication for defamation purposes—it is hard to see how hyperlinking by itself can be publication or reproduction or anything else covered by the Copyright Act. The Copyright Board has been clear and consistent that Canada's legislation requires it to value each right separately and that if this leads to multiple layers of costly rights for the same transaction involving basically the same parties, then so be it. While the board has begun to consolidate certain tariff hearings, such consolidation does not necessarily reduce costs for objectors because the resulting hearings can become even more complex and lengthy, and some objectors may be interested in only a limited aspect. So, we are likely to see situations wherein cloud activities attract significant additional and economically redundant tariff costs that don't exist in other important countries, most notably the U.S., from which many cloud services will emanate. And where will almost all that money go? Naturally, to the United States, whose diplomats and corporate lobbyists have sought to convince successive governments that this asymmetry is good for Canada. Not only will the tariff costs be significant. The legal and transactional costs will be enormous. Full participation in a Copyright Board hearing normally involves costs of six and even seven figures. The collectives have virtually no incentive to economize because they can almost always easily pay whatever these hearings cost out of current or expected revenues. Indeed, these high costs effectively prevent the involvement of many potential objectors. All of this often seems very strange to our American neighbours. Our collectives seem to be doing so well that they sometimes don't seem to need the licensing revenues being offered by certain highly regarded foreign services. And if a deal cannot be struck and recourse is needed to the Copyright Board, which exists for this purpose, the costs and the extremely intrusive and usually unproductive interrogatory process can be enough to deter new entrants. Some parties—particularly American parties and their Canadian subsidiaries—are understandably loathe to provide highly confidential and often apparently irrelevant financial, technical and corporate information to a Canadian collective and its retinue of lawyers and experts, even under the umbrella of a confidentiality order. Moreover, the board has imposed retroactive tariffs that reach far back in some cases and has shown that it will impose an interim tariff even where none existed before. Any of these foregoing aspects may be sufficient to deter new players in the cloud who may have to comply with Canadian law from getting involved with Canada. Why pay potentially millions in legal fees, devote a lot of corporate time, and disclose all kinds of irrelevant confidential corporate information to enter a market that will be subject to tariffs that don't even exist in the U.S., when the Canadian market is far smaller than that of California, where there are no additional transactional costs or other barriers to entry. Perhaps this is why Pandora, Hulu, Spotify, TiVo and other attractive and innovative services and products are not available in Canada. Indeed, appellate courts in the United States are going in the opposite direction and are eliminating redundant collective licensing demands and enabling cloud technology. They have recently confirmed that: Remote network personal video recorders (NPVRs) are legal; and, A download of a song does not constitute a public performance that would entitle the American copyright collective ASCAP to additional payments. A U.S. District Court judge has also recently given a partial victory to the indomitable Michael Robertson, a cloud pioneer, by indicating how his music locker venture MP3Tunes.com can qualify for safe harbour protection under the Digital Millennium Copyright Act. Bill C-11 may clarify the legality of network PVR technology in Canada, although some amendment appears necessary, for example, to avoid potential liability for communication to the public by telecommunication when a program is retrieved by an individual. Moreover, it is possible that Canada's Supreme Court will have something to say about how many layers of liability there can be at the same time, since this question lurks behind three of the five cases from the Copyright Board that the court will hear in December. Two of these cases involve the issue of whether the delivery of a music file over the Internet to customers one at a time should give rise to a right to be paid for communication to the public by telecommunication, in addition to other payments. The third involves the question of whether there is a need for payment for the performance in a movie theatre of a sound recording that is part of a movie, and the use of sound recordings in programs broadcast by television services, even though the statute seems to say quite clearly that this is not the case. Composers and authors do get paid for such performances in Canada, though, once again, they do not in the U.S. Despite Bill C-11 being called the Copyright Modernization Act, it still will not catch up to the U.S. in terms of consumers' format and time shifting rights as confirmed by the 1984 Betamax decision of the U.S. Supreme Court and the 1999 Diamond Rio 9th Circuit Court of Appeals case about format shifting. For example, Bill C-11 would require a record collector to keep many boxes full of old 78s, LPs, and CDs if she should decide to format shift her decades' worth of expensive and fragile sound recordings to the cloud. Suppose there are some valuable treasures in that vinyl. The law would prevent her from giving these recordings to a museum, archive or a grandchild while she is alive unless she deletes them from the cloud. She may want to keep the digital copies in the cloud to comfort and entertain her in later years when she lives in some small room where she will have no possibility of storing the boxes. But, in doing so, she would become a copyright infringer, according to Bill C-11, if she gives the original recordings away. This does not encourage innovation. It does, however, encourage hoarding. Sadly, it would seem that the promise of empowerment and innovation that the cloud presents will be much more like a thick and sticky fog in Canada. The current Canadian system of multiple layers of rights for two sets of rights administered by dozens of collectives and imposed by a Copyright Board where intrusive and expensive hearings can easily run into six or seven figures is hardly an encouragement for new technology and creativity in the cloud or even on the ground. Howard Knopf, LLM, is counsel with Macera & Jarzyna, LLP in Ottawa. His views are his own and not necessarily those of his firm or any of its clients.

OPINION: Copyright and ‘the cloud’: What goes up must come down

Broadcast | October 25, 2011

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