Supreme Court emphasizes technological neutrality, throws out communication tariff on downloads

The Supreme Court set aside a Copyright Board decision and said music rights holders cannot charge communications royalties from services like Apple Inc.'s iTunes for file downloads containing copyrighted music. In a copyright law decision on Entertainment Software Association v. SOCAN (case No. 33921), the court emphasized the importance of technological neutrality and said “an additional layer of protections and fees” should not be imposed “based solely on the method of delivery of the work to the end user.” Doing otherwise, the court said, “would effectively impose a gratuitous cost for the use of more efficient, Internet-based technologies.” The court ruling, issued Thursday in conjunction with a related decision in Rogers Communications et al. v. SOCAN (33922), looked at whether the purchase and download of a work online, such as a song or a video game embedded with music, constitutes a communication of that work to the public under the Copyright Act. The Copyright Board determined in 2007 that a download is a communication to the public, approving copyright collective the Society of Composers, Authors and Music Publishers of Canada (SOCAN) to collect communication rights tariffs. That decision was upheld by the Federal Court of Appeal and then appealed to the Supreme Court. The communication royalty is a “performance” tariff collected in addition to a reproduction tariff for making copies. “SOCAN has never been able to charge royalties for copies of video games stored on cartridges or discs, and bought in a store or shipped by mail. Yet it argues that identical copies of the games sold and delivered over the Internet are subject to both a fee for reproducing the work and a fee for communicating the work,” the Supreme Court said in a split, five-to-four decision in ESA v. SOCAN, which also settled the matter for Rogers v. SOCAN. The court said the Copyright Board made a “misstep” by ignoring the principle of technological neutrality and concluding that delivering a copy via the Internet was subject to two fees when delivering one by mail or stores was subject to one. “The Board’s conclusion was based in part on its erroneous view that a 'download' is indistinguishable from a 'stream.' Although a download and a stream are both 'transmissions' in technical terms (they both use 'data packet technology'), they are not both 'communications' for purposes of the Copyright Act,” the decision said. “Unlike a download, the experience of a stream is much more akin to a broadcast or performance.” The decision said there is no practical difference between buying a “durable copy” of a copyrighted work in a store, receiving it in the mail, or downloading one online. “The Internet should be seen as a technological taxi that delivers a durable copy of the same work to the end user,” the court said. “The traditional balance in copyright between promoting the public interest in the encouragement and dissemination of works and obtaining a just reward for the creators of those works should be preserved in the digital environment.” The decision added that the term “communicate” under the Copyright Act, according to its legislative history, is tied to the right to perform a work and not the right to reproduce it. Justices Rosalie Abella, Michael Moldaver, Beverley McLachlin, Marie Deschamps, and Andromache Karakatsanis supported the decision, with justices Louis LeBel, Morris Fish, Marshall Rothstein and Albert Cromwell dissenting. The decision said the Copyright Board's original decision should be “set aside.” The court awarded costs to the appellant, the Entertainment Software Association (ESA), meaning that the defendants will be required pay some legal costs. The dissenting justices wrote in their opinion that because an Internet transmission “delivers a copy of a video game, which contains a musical work, does not change the fact that there is an Internet communication requiring authorization of the copyright holder.” The dissenting justices said that to characterize an Internet download merely as a “method of delivery” preempts the communication right. “Inferring limits into the communication right for policy reasons is beyond the function of the courts,” they said. The Supreme Court decision on the communication right effectively ends SOCAN's tariff on downloads, which the board had approved retroactively to 1996. SOCAN told The Wire Report in January that, of the communication rights royalties for song downloads it collected, it did not distribute the funds to rights holders because it was waiting for the Supreme Court's ruling on the matter. The Wire Report estimated the communication right applied to song downloads would amount to $2.1 million or more in annual royalty fees. Copyright bill C-11, passed last month, grants to rights holders a “making available right" for works offered online. It remains unclear whether that right will replace the communication right royalty. Rights holders could apply to the Copyright Board for a new tariff under the making available right, but it's not clear whether that would be approved. Jay Kerr-Wilson, a lawyer with Fasken Martineau in Ottawa who represents Rogers, said in a phone interview that he would expect SOCAN to be considering a new Copyright Board application using the making available right. He said there will now be a process of interpreting Bill C-11's changes to the Copyright Act in light of Supreme Court's ruling on the communications right and the court's concern about the layering of rights. “I think there's going to have to be a process of figuring out how the two pieces fit together,” he said. “There was concern that a favourable result from the Supreme Court today may be complicated by the language in Bill C-11. It's still a concern. We just don't know what the end result is." Kerr-Wilson said the Supreme Court's decisions related to the communications industry showed it seeks a common-sense approach to applying copyright law in an Internet and digital age. “I think these are very consistent with what the court has said in previous decisions,” he said. “They really are striving to have consumer interests reflected in how the Copyright Act is interpreted.” SOCAN did not respond to a request for comment by deadline Thursday. In a release Friday, the collective said it was disappointed with the decision but pleased to see the communication right confirmed for streaming. "The Supreme Court of Canada has reconfirmed the online rights of music creators and publishers, and we believe that the right final decision has been made in the case of Internet streaming," Eric Baptiste, CEO of SOCAN, said in the release. "We are, however, disappointed that the court chose not to uphold the rights of our members in all of its decisions. We will continue to fight for the legal rights of our members to be compensated fairly for their work." The court issued five copyright decisions Thursday, which it heard in December. In another decision, in SOCAN v. Bell Canada et al. (case No. 33800), the court dismissed an appeal by SOCAN to stop music retailers from freely providing 30-second song previews online under the Copyright Act's fair dealing exceptions for research. The unanimous court decision upheld a Copyright Board decision that said the previews constituted fair dealing. “The guiding perspective is that of the ultimate user or consumer. The service providers facilitate the research purposes of the consumers. There are reasonable safeguards in place to ensure that the previews are being used for this purpose,” the decision said. The court said there is no effective alternative for retailers to help consumers research the songs they want to purchase. “Short, low-quality previews do not compete with, or adversely affect, the downloading of the works themselves,” the decision said. “Instead, their effect is to increase the sale and dissemination of copyrighted musical works.” Jacqueline Michelis, a spokeswoman for BCE Inc., said in an emailed statement that the company is pleased the court “found royalties are not payable for soundtracks and previews,” and added that the company is studying the decisions on downloads and streaming. sdoyle@thewirereport.ca CORRECTION: Due to a typo, an earlier version of this story misspelled Kerr-Wilson's name.

Supreme Court emphasizes technological neutrality, throws out communication tariff on downloads

Broadcast | July 12, 2012

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