Supreme Court ruling scraps royalty for music downloads

Songwriters and music publishers were dealt a blow by the Supreme Court of Canada today when it ruled in a series of decisions that they are not entitled to royalties for song and video game downloads or for the song samples that online music retailers, including iTunes, offer customers.

And in a case that has implications for how schools and teachers can use photocopied textbook material, the top court  rejected an earlier ruling from the Copyright Board that said a royalty had to be paid because the use of material wasn't covered by the "fair dealing" provision in copyright legislation.

In the music downloading case, the Supreme Court partly overturned a lower court decision that had allowed the Society of Composers, Authors and Music Publishers (SOCAN) to collect tariffs for both downloading and music streaming for its members. Copyright royalties are approved by the Copyright Board of Canada, and if those who have to pay them disagree, they can ask for a judicial review and fight them at the Federal Court of Appeal.

'I think in the medium term we're going to see an expansion of online music services ... because the process for clearing the rights got a lot simpler and less expensive with these judgments.' — Jeremy de Beer, University of Ottawa

The court's decision on downloading, among five copyright-related cases that were settled today, means telecommunications companies that offer music services won't have to pay as much to copyright collection agencies.

They will still have to pay a royalty to copy a song, but will no longer be charged a separate tariff for transmitting it to a customer over the internet.

The court essentially said that it shouldn't matter how a copy of work is delivered — whether it is bought in a store, ordered through the mail or downloaded digitally, the same copyright rules should apply. SOCAN isn't allowed to collect a separate royalty on video games that are bought in a real store so it isn't entitled to one when a game is bought online, according to the court decision.

It doesn't make sense to distinguish between two methods of selling the same work, the court said.

"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."

SOCAN CEO Eric Baptiste said he is disappointed by some of the decisions issued by the court today, but that it's not all bad news for his members.

"This is not the perfect decision that we were hoping for, but there are positives," he said. "The important thing to remember is that our members, the songwriters, the composers, the publishers, depend in large part on the royalties that SOCAN collects and distributes for their livelihoods and their revenues."

Artists and publishers are still paid various royalties under copyright legislation. Today's decision only affects a separate royalty that was being collected by SOCAN for downloading. Until now, downloading fell under the "communication to the public" right.

The Supreme Court disagreed with interpretations by the Copyright Board and Federal Court and ruled that transmitting a single copy of a work to a single individual is not a communication to the public within the Copyright Act.

However, the top court said that streaming music over the internet is not a private transaction and should be subject to the tariff currently in place.

Intervener applauds ruling

Jeremy de Beer, an associate professor at the University of Ottawa who was an intervener in the cases on behalf of the Canadian Internet Policy and Public Interest Clinic, said this is a good day for online music customers. Prices may not necessarily drop, but the marketplace might expand, he said.

"I think in the medium term we're going to see an expansion of online music services — legitimate opportunities to buy and sell digital music on the internet — because the process for clearing the rights got a lot simpler and less expensive with these judgments," he said.

A bigger online music market is also good for the artists and creators, de Beer said.

"I think the key to an online thriving music market is to make it simple and competitive, and the more services we have for consumers to chose from, the better and the less likely it is that they'll use file sharing sites or other alternatives," he said.

The court also overturned another lower court decision that allowed SOCAN to collect a tariff when video games are downloaded over the internet.

In both cases the downloading tariffs approved by the Copyright Board were appealed by video game publishers and distributors — represented by Entertainment Software Association (ESA) — and major Canadian telecommunications companies including Rogers Communications, Bell Canada, Telus Communications and Shaw Cablesystems.

The tariffs were upheld by the Federal Court of Appeal, which is why the cases ended up at the Supreme Court.

ESA had argued that downloading a game is no different than buying it at a store and that SOCAN therefore isn't entitled to a royalty for it. Music in a video game isn't played while the game is being transmitted to someone's computer, and the musical work isn't communicated in any way to the public, the ESA argued.

A majority of the court sided with ESA, but four justices dissented, saying the creators should be entitled to both the communication and reproduction-rights royalties.

SOCAN had also applied to the Supreme Court to allow it to collect a royalty from online music retailers when they offer previews of songs available for download. The court upheld previous decisions from the lower court and Copyright Board that the song samples should not be subject to an added tariff because they amount to "research" and are exempt from the rights that are protected under the law.

Jason Kerr-Wilson, a lawyer who acted on behalf of the telecommunications companies, applauded the court's ruling that a fee should no longer apply for downloading a song.

"I think it's a very good decision because it clarifies how the copyright rules are going to apply to the internet," he said. Kerr-Wilson said the tariff was worth about three per cent of the cost of the song.

He wouldn't speculate on whether online music retailers will pass on the savings to consumers. "That will be a business decision for each of the individual companies to make," he said.

Parliament recently passed a bill to reform the Copyright Act and Kerr-Wilson said the companies are waiting to see how the changes are going to play out, particularly in light of the court's rulings. Many of the reforms in the bill were to do with the copyright challenges posed by the internet.

Photocopying textbooks

Another key case decided today concerns the photocopying of textbooks by schools. It pitted ministers of education and school boards across Canada against a copyright licensing agency known as Access Copyright, which represents authors and publishers of literary works.

If an agreement for the use of material can't be reached, the Copyright Board can be brought in to set royalty fees. Copyright laws do allow for some exceptions — for example, if material is used for research or private study it can be considered "fair dealing" and is not subject to a tariff.

In this case, the Copyright Board concluded that photocopies made by teachers for the purpose of the students reading them did not constitute fair dealing and approved a fee. But the Supreme Court today overturned the decision and sent the case back to the board.

It said Access Copyright didn't demonstrate a link between photocopying short excerpts and the decline in textbook sales, and that the Copyright Board had misapplied the test for fair dealing.

In one of the other cases, Re:Sound, which represents musicians and record companies, asked the court to grant a royalty for sound recordings and soundtracks in movies and on television. It was turned down.

Re:Sound said in a statement that the decision means songwriters get a royalty for music in movies but the singers and musicians don't, and that's not fair.

"I cannot say we are not disappointed by today's ruling. It seems incongruous that songwriters should be compensated when their work is broadcast on TV and in motion pictures, while the actual performers of the recordings are not," Re:Sound's president Ian MacKay said.