Canada: YouTube, Facebook, Netflix Liable To Pay For Music In Canada Rules Copyright Board

On Friday, the Copyright Board released a decision and certified two SOCAN tariffs, Tariffs 22.D.1 (Internet – Online Audiovisual Services) and 22.D.2 (Internet – User-Generated Content). The years covered by the tariffs are 2007-2013.

The tariffs were certified based on agreements reached between SOCAN and objectors. Between the objectors and other entities which filed submissions, the heavyweights affected by the tariffs participated including Apple, Yahoo!, YouTube,  Netflix, Facebook, Cineplex, the members of the Canadian Association of Broadcasters (CAB), and the Canadian ISPS Rogers, Bell, and Shaw.

The decision of the Board is important. Its significance extends to both the issues its reasons expressly addressed as well as to those issues which its reasons are implicitly based on. Some of the important findings are summarized below.

Principle of technological neutrality

Netflix argued that it was not liable to pay royalties on free trials of its popular video service. It contended, firstly, that the principle of technological neutrality should be applied to the construction of the communication to the public right to make it inapplicable to such uses. It relied on the decision of the Supreme Court in the ESA case. That reliance was held by the Board to be inapposite.

In Canadian Broadcasting Corporation v. Sodrac 2003 Inc., 2014 FCA 84 the Federal Court of Appeal suggested that Supreme Court's majority reasons in ESA incorporate at least three views of technological neutrality:

a) Technological neutrality is media neutrality. Media neutrality is a statutory prescription arising from the opening words of section 3 of the Act, which protects the production or reproduction of works "in any material form whatever". Media neutrality was recognized by the Supreme Court in Robertson v. Thomson Corp., 2006 SCC 43 (CanLII), 2006 SCC 43, [2006] 2 S.C.R. 363 (Robertson), a case involving copyright in content originally published in a newspaper and then republished online.

b) Technological neutrality is a principle of statutory interpretation according to which, absent evidence of a contrary Parliamentary intention, the Act is to be interpreted so as to avoid imposing royalties according to the method of delivery of a protected work.

c) Technological neutrality is determined by functional equivalence so that if two technologically distinct operations produce the same result (delivering a copy of a work to the consumer), the incidence of royalties should be the same in both cases.

On the facts before the Board, neither possible interpretation was applicable. According to the Board:

The principle of technological neutrality is that, 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. 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.

Fair dealing

Netflix also wanted the Board to find that it's free trials are fair dealing in the same way that the Board and the Supreme Court in SOCAN v Bell Canada, [2012] 2 SCR 326 found that free previews of musical works offered by a music download service like iTunes can be a fair dealing. The Board rejected the contention distinguishing between free previews of musical works and free trials of an audiovisual service. It also rejected the argument for other reasons related to the certification process and the evidence before it.

First, the analogy between free previews and free trials is weak. In a free preview, the customer can hear a portion of a musical work in a degraded format. In a free trial, the customer can hear complete musical works, to the extent that such works are fixed in the audiovisual work being watched.

Second, it is not altogether clear that Netflix is the only provider that offers free trials. When the Board was examining the free previews offered by iTunes, it was possible to argue that iTunes was the dominant provider of permanent downloads. Thus, in examining the practices of iTunes, the Board was essentially examining the practices of the permanent-download industry. However, in the case of Netflix, it is not clear that they dominate the market for videos. Without the argument of market dominance, an analysis of Netflix's policy of free trials would necessarily be incomplete with respect to the overall video industry.

Third, and equally importantly, we do not have the evidentiary base with which to make that decision. While we could delay this decision for several more months during which time we would be collecting evidence from the parties on this issue, the fact that Netflix declined to participate in the process for many months is sufficient reason for us to decline to do so. If Netflix now wants to argue that it does not owe anything for its free trials, the appropriate forum in which to do so is not the Board.

Liability of service providers for communicating works

The Board only has authority to certify a tariff if there is a legal basis to do so. By certifying the tariffs the Board must have been of the opinion that service providers such as YouTube and Facebook which each provide online audiovisual and user generate content services communicate musical works to the public in the course of providing such services. In a prior decision in which the Board declined to certify tariffs for these services because of lack of evidence, it found that tariffs for them were justified and suggested that liability was joint and several between the service providers and users of the services. Since the terms covered by the tariffs include periods after the Copyright Modernization Act was proclaimed into force in November 2012, it must also be assumed that the Board was of the opinion that none of the amendments to the Copyright Act diminished the liability of service providers to SOCAN for communicating musical works to the public.

Liability of service providers for music downloads

In the ESA case, the Supreme Court ruled that the communication to the public right, as it then was, did not include the transmission of copies of music downloads to users as part of a music download service. This prompted the Board in its recent decision to observe that this "meant that SOCAN no longer had the right to collect royalties for permanent downloads and limited downloads". When the Copyright Act was amended by the Copyright Modernization Act, the communication to the public right for works was deemed to include the new right of making works available to the public. This raised the question, now before the Board in a separate proceeding, as to whether after November 2012 the communication to the public right includes the transmission or other making available of downloads of musical works to the public.

Despite all of this, the Board certified the online audiovisual service tariff defining the term "online audiovisual service" "as a service that delivers streams or downloads of audiovisual works to end users, other than a service that offers only streams in which the file is selected by the service and can only be listened to at a time chosen by the service and for which no advance play list is published". Since the Board's tariffs affect all users who engage in the activities covered by the tariff, it may affect service providers that exclusively offer only downloads of music audiovisual files.

The Board did not explain the legal basis for certifying a tariff that included royalties for a download audiovisual service prior to the Copyright Modernization Act coming into force. Was there something about these services that distinguish them from the download services considered by the Supreme Court in the ESA case? The Board doesn't say. The Board had a further legal basis for certifying such a tariff after the communication right was amended to include the right of making available (November 2012 and 2013). It rests on the legal premise that the amendments to the Act had the effect of overruling the decision of the Supreme Court in the ESA case.

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