Copyright Board Approves SOCAN Tariffs For Performance Of Musical Works Contained In Audiovisual And User-Generated Media Transmitted Over The Internet

The Society of Composers, Authors and Music Publishers of Canada (SOCAN) proposed two tariffs (Tariff 22.D.1 and 22.D.2) for the collection of royalties for musical works performed as part of audiovisual works transmitted over the internet. Several stakeholders including Facebook, Netflix and Bell objected and made submissions in opposition to the proposed Tariffs. On July 18, 2014, the Board rendered its Decision allowing the SOCAN Tariffs. 

Image by Renjith Krishnan

The royalty rates set in these Tariffs are based on an agreement reached during settlement negotiations between SOCAN and some of the original objectors. The Board addressed the setting of general tariffs based on agreements reached by copyright collectives and users in its decision in Re:Sound Tariff 5. That Tariff deals with the public performance of sound recordings. Before allowing an agreement to form the basis for a tariff, the Board said that it is “generally advisable” to consider: 

(a) The extent to which the parties to the agreements can represent the interests of all prospective users; and 

(b) Whether relevant comments or arguments made by former parties and non-parties have been addressed.

Since the Settlement Agreements here involved some of the biggest players, including Apple, Bell, Rogers and Cineplex, the Board found that the parties to the Agreement were sufficiently representative of the interests of other users. It also found that those objectors who were not party to the Agreement had ample opportunity to make their submissions. The Board also noted that the rates fixed in the Agreement were the fruit of extensive negotiations between skilled and savvy counsel.

Several grounds were raised by the objectors. Among them, Facebook and Netflix’s arguments bear some discussion. 

Facebook argued that it has a strict copyright enforcement policy and has implemented software to make sure that any protected uses of copyrighted works are prevented from being uploaded to its network. Facebook noted that any use of copyright protected works not caught by its software would qualify under the new UGC exception found at s.29.21 of the Copyright Act. 

Facebook also argued that an “audiovisual page impression” (defined in the Tariffs as “a page impression that allows a person to hear an audiovisual work”) should only give rise to a royalty when the work in question is actually viewed or heard. The wording of the Tariffs make it so that once a web page that contains the audiovisual work is loaded, a royalty is payable regardless of whether the work is ultimately accessed or not. 

The Board rejected the first argument out of hand. Whether Facebook’s activities would fall under the Tariffs is irrelevant. The Copyright Board sets tariffs of general application. If Facebook does not feel its activities fall under these Tariffs, it does not have to pay royalties until a court of competent jurisdiction says otherwise. To say that the Tariffs should not be allowed because it does not apply to Facebook is a non-sequitur.

The Board also rejected the argument on page impressions. It simply said that SOCAN’s proposed method of calculation was acceptable and consistent with other Tariff 22 classes. 

Netflix argued that its one-month free trials should not be captured by the Tariffs. It based this position on two arguments:

1) The free trial is fair dealing for the purpose of research along the lines of the Supreme Court of Canada’s decision in SOCAN v. Bell (discussed here). In that case, the issue before the Court was whether the sampling of 30-90 second excerpts of musical works constituted fair dealing for the purpose of consumer research.

2) Paying SOCAN for free trials of the service would cause double compensation contrary to the principle of technological neutrality as set out by the Supreme Court in ESA v. SOCAN (discussed here).

On the fair dealing argument, the Board found the analogy between Netflix’s free trial period and the song previews in SOCAN v. Bell to be tenuous. There is a big difference between a low quality sample of a portion of a song and a high-quality, full version of a television show or movie. The Board also declined to look any further into fair dealing as no one (including Netflix) led sufficient evidence to make such a determination. 

The Board was equally unconvinced by Netflix’s technological neutrality argument. It reasoned that there is no technological alternative to Netflix’s free trial period that is or has been used in the offline world: “There is no alternative-technology equivalent to a Netflix free trial. Video stores never offered a free month’s membership with the right to rent as many videos as the customer wanted for no additional charge. Thus, there is no issue with technological neutrality.”

Thoughts

Overall the Board’s decision appears to be reasonable. Its rejection of Facebook’s argument regarding page impressions strikes me as a little dubious. Is there some technological reason why royalties should be calculated this way? Surely it would be more accurate to track the number of clicks received by the media player on the page than the raw number of times that the page is loaded. Some dynamic webpages have auto-refresh features that refresh parts of the page while leaving other parts untouched. This may skew results in favour of more compensation. Still, this outcome seems far from unreasonable. 

Netflix’s argument based on technological neutrality was puzzling. It asserted that allowing SOCAN to collect royalties for free trials would lead to “double dipping” (presumably because Netflix would have to pay a different royalty rate if the free user eventually subscribed). This seems a little simplistic. Surely Netflix is capable of –and certainly is- monitoring which free users eventually subscribe to its service. What is so difficult about subtracting the free trial royalty rate from the higher subscriber royalty rate and paying SOCAN that amount? 

To take a basic example, assume that the free trial royalty rate is $12/year (or $1 for a one-month free trial period) and that the regular royalty rate is 5% of the subscription fee which is $25/month. This would produce an annual royalty of $15 per subscriber.  For a subscriber who takes advantage of the free trial month and then signs up and pays the subscription fee for the rest of the year, all you have to do is subtract the free trial month amount ($1) from the annual royalty ($15) in order to assure that SOCAN is not paid twice for the same period of time (once at the free trial rate and once at the full rate).

While Netflix’s argument was ill-founded, I think the Board may have made a mistake in its reasons. Instead of rejecting Netflix’s argument for the reason set out above, the Board justified its decision by noting that in reality, video rental stores never offered free trials. It reasoned that given the lack of an analogue to Netflix’s free trials in the offline world, the latter’s argument based on the Supreme Court’s establishment of the principle of technological neutrality in ESA was moot. 

The principle of technological neutrality stands for the proposition that copyright protected works should be given the same treatment regardless of the technological medium by which they are conveyed. The Board uses the following example to illustrate: “…since only the reproduction right is triggered when a CD is sold in a store, only the reproduction right should be triggered when a digital album is sold online. The CD is an alternative technology to the digital download.”

The Board is essentially saying that technological neutrality only applies when there is an alternative technology that has been marketed to the public to compare the technology in question to. That need not necessarily be the case. There is nothing in the Supreme Court’s decision in ESA that limits the principle of technological neutrality to comparing extant (or previously extant) business models. This view cheapens the value of this interpretive principle. 

Take the facts from SOCAN v. Bell as an example. In that case, users could access previews of songs by clicking an icon on a service provider’s website. That decision has nothing to do with technological neutrality. However, for illustrative purposes, assume one of the parties wanted to make an argument for more or less compensation based on the principle of technological neutrality. They would have to come up with some analogous technology to the service provider’s website. One potential analogue to the website could be a business method by which music stores send individuals door to door with samples of music they have for sale. The sales representative would play the samples on CD’s or some other physical media; kind of like the Avon lady, but for music. 

To the best of my knowledge, this “Avon lady” sales model was never employed by record stores. This should not matter.  This method of distribution is conceivable and therefore ripe for comparison for copyright purposes. 

This hypothetical technological analogue theory has not been addressed in the case law. In ESA, the Court was comparing two modes of distribution (online digital delivery and shelf display in stores) that do in fact exist side by side. The Court in ESA did not expressly state whether the technological alternatives being compared must be ones that not only exist, but have been implemented in commerce. Given the Act’s statement of the s.3 right as the right to produce or reproduce a work “in any material form whatever”, the lack of limiting language in the Court’s decision should not rule out hypothetical technological alternatives concocted for the purpose of comparison. In that regard, the Board gave the principle of technological neutrality a more narrow interpretation than the one expressly prescribed by the Supreme Court. 

Finally, whether this decision is appealed to the Federal Court of Appeal is an interesting and open question. While it appears that the Board’s decision is reasonable, in light of the Majority of the Supreme Court’s ruling in ESA, the decision may be reviewed, at least in part, on a correctness standard.

SCC Copyright Pentalogy 2 of 5: Rogers v. SOCAN

In December 2011, The Supreme Court of Canada heard five major copyright cases. All five cases are appeals from decisions of the Canadian Copyright Board. The Court released its decisions in these five cases on July 12^th, 2012. This series will analyse each of the five decisions in turn. 

                In Rogers Communications Inc. v. Society of Composers, Authors and Music Publishers of Canada, the Supreme Court of Canada dealt with the question of whether or not services that allow live streaming of music on their websites are “communicating a work to the public by telecommunication” as per Section 3(1)(f) of the Copyright Act (the Act). Where this decision deals with the question of streaming over the Internet, the companion decision, ESA v. SOCAN (discussed here) deals with the very same provision of the Act with regards to downloading.

Image by Renjith Krishnan

            The appeal is based on a decision of the Copyright Board to authorize a tariff (Tariff 22) requested by SOCAN- the copyright collective responsible for administering performance rights in musical works- slated to cover remuneration for musical works transmitted over the Internet.  

            Writing for the Court, Justice Rothstein (Justice Abella concurring on the issue of standard of review) allowed the appeal in part. Since the Court’s decision in ESA v. SOCAN determined that downloads over the internet are not communications to the public by telecommunication, the reasons in this decision dealt strictly with the matter of streaming. On that issue, the Court disallowed the appeal. 

            The decision turned on the meaning to be given to the words “to the public” in Section 3(1)(f) of the Act. The Appellants (Rogers, Shaw, Bell and Telus) made a number of arguments though two of them were given greater attention by the Court:

The Appellants argued that a communication “to the public” requires that a single transmission reach several people. In other words, they contended that a one-to-one transmission could not be considered a communication to the public. The appellants based this contention on the determination in CCH Canadian Ltd. v. Law Society of Upper Canada that transmissions of individual copyrighted works to lawyers by the Great Library were deemed private communications. 

            The Appellants also argues that when a one-to-one transmission of a single copy of a musical work is initiated by the client (a “pull” model), no communication to the public has taken place. This argument flows from the fact that traditionally, the telecommunication right was associated with broadcasting (the “push” model). In traditional broadcasting, a signal from a single point is transmitted to the public at large, or in the case of subscription services like cable and satellite television, whoever has access to the signal. The argument is also bolstered by the Appellants’ contention that the intention of the communication should be examined.

            The Appellant's first argument deals with the nature of the transmission itself where the second deals with who is initiating (or who is intending) the transmission. Through their entire argument, the Appellant stressed that the Court must examine the transmissions on an individual basis. In fact, for both of the above arguments to stand, it would be imperative for the SCC to examine the matter from the perspective that each discreet transmission constitutes an isolated event. The Court rejected these arguments. 

            Dealing first with the contention that a one-to-one transmission by its very nature cannot be a communication to the public, Rothstein rejected the Appellant’s application of CCH to the case at bar. In CCH the Great Library at Osgoode Hall offered a service whereby members of the Law Society of Upper Canada could request copies of documents- or excerpts thereof- contained in the libraries vast collection. If approved, the requested material would be sent to the requester by fax. Agreeing with the Federal Court of Appeal, the Supreme Court in CCH determined that a communication to the public must be “targeted at an aggregate of individuals”. However, Chief Justice MacLachlin, writing for the Court in CCH expressly limited the ruling to the facts of that case. She reasoned that had several repeated transmissions of the same work been sent by fax to a number of different recipients, such a behavior might constitute a communication to the public. However, no evidence was adduced in that case to show such activity. 

            The Appellants second argument- the fact that because the communication is initiated by the recipient and not the sender, it is not a communication to the public- was also rejected by the Court. The Appellants attempted to argue that we must look at “the intention of the sender in accomplishing a given transmission”. The argument goes that when a sender transmits a “blast communication” (an e-mail sent to thousands of recipients for example), the sender has “taken it upon himself to send [the work] out”. On the other hand, when the client initiates the transfer on an individual basis, the intention to conduct the transfer is not on the part of the sender but the recipient. Justice Rothstein wrote that to abstract the consideration of which party had the intention to initiate the communication is to disregard the essential character of the communication. Citing the Copyright Board’s reasons, Rothstein points out that the downloads are made available to the public. Anyone with the appropriate device (a computer with an internet connection) can theoretically access the work upon paying the fee. It would be difficult to argue here that the intention was not to have the same work transmitted multiple times. On the contrary, the goal is to sell as many streams or downloads as possible. By examining the activity in context, the true intention- that the same copyrighted work be purchased as many times as possible- is revealed and the superficially valid argument that we should view the activity from the perspective of the initiator falls by the wayside. 

            Rothstein goes on to say that to look at the activity of the Appellants on a transmission by transmission basis is to ignore the principle based approach to copyright. On the Appellants’ view, on-demand services such as pay-per-view or Netflix would not be compensable under section 3(1)(f) of the Act. This conclusion is unacceptable because it bases the copyright holder's right to remuneration on the content distributor's choice of business model. Put differently, why should content distributers not have to pay a royalty for 100 individual transmissions initiated by the receiver when they do have to pay for the transmission of the very same content over the very same network when it is initiated by the distributers themselves?

Conclusion

            All in all the Supreme Court issued a tight and well reasoned ruling. While the Appellants’ argument’s weren’t entirely unconvincing and were often intuitively appealing, Justice Rothstein was right in pointing out their inconsistency with the principle of copyright law that the overall context of the communication should be considered. If the work is protected by copyright, and the activity in question is one that the copyright holder has the exclusive right to do, then whether the communications occur one at a time or whether they are initiated by the recipient are irrelevant as to whether the communication is “to the public”.  

            Upon some reflection, it seems a tad insincere to contend that because the communications happen on a one-to-one basis, they are therefore necessarily private and thus not “to the public”. As the Court makes amply clear, the point of offering musical works for stream or download is to make money. Money is made by maximizing the number of times these works are accessed by clients. “The public”, as it were, has full access to the entire catalogue of works and the fact that they initiate a pull-based transaction as opposed to the content distributer initiating a push-based one is not decisive in determining whether the communication is to the public or not. 

            So, it would seem from the determinations in ESA v. SOCAN and Rogers v. SOCAN that whether the transmission of a copyrightable work over the Internet is a communication to the public by telecommunication depends on whether the content is being streamed or downloaded.