Pento-Cost: Supreme Court of Canada Delivers Five Copyright Decisions From On High Expanding Users Rights and Defining Royalty Entitlements in the Digital Age.
On Thursday July 12, 2012, the Supreme Court of Canada announced its decisions in the “Copyright Pentology,” sending waves of excitement through the Canadian academic, artistic, and legal communities. The five cases, on appeal from the Canadian Copyright Board and argued before the Supreme Court in December 2011, involved two important areas of Canadian copyright law: (1) fair dealing; and (2) tariff or royalty entitlements. The five decisions greatly expand user’s rights north of the border and ingrain principles of technology-neutrality into the Canadian Copyright Act. Canadian copyright expert Michael Geist predicts “The reverberations from [the] Supreme Court of Canada copyright decisions will be felt for years.”
The five decisions are summarized below.
The Fair Dealing Cases
Before jumping into these decisions, a brief primer on Fair Dealing. Copyright provides owners of original works the exclusive right to exploit their works in certain ways, including through reproducing, performing, or communicating that work. When a user exercises one of these exclusive rights without the copyright owner’s permission, the user is deemed to infringe the owner’s copyright and can be sued for damages. Fair Dealing, like its U.S. sibling, Fair Use, is a “user’s right” that deems normally infringing acts to be non-infringing under certain conditions. Despite this similarity, however, Canadian users’ rights under Fair Dealing are quite different from American users’ rights under Fair Use. Under Fair Use, the court must apply a balancing test to determine whether given the factors outlined in 15 USC § 107, a use is fair. The court must look at (1) the purpose and character of the use, including whether it is of a commercial nature; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) the effect of the use upon the potential market for or value of the copyrighted work. Because Fair Use depends on this balancing test, there are no formal categories of types of uses that are considered “fair” (although the preamble to the factors does indicate a few types of uses that should be “fair”). Alternatively, Canadian “Fair Dealing” is a closed list of categories. Canadian courts evaluating whether a dealing is “fair” under the test from CCH Canadian Ltd. v. Law Society of Upper Canada,  1 S.C.R. 339 (CCH), must first determine whether that dealing falls within an “allowable purpose” or exception enumerated in the Act. The court broadly defines these closed categories, giving them a large and liberal interpretation to ensure user’s rights are not unduly constrained. After determining whether a dealing fits within an allowable purpose, the court applies a six factor test to evaluate whether the dealing is “fair.” The court looks at (1–3) the purpose, character, and amount of the dealing; (4) the existence of any alternatives to the dealing; (5) the nature of the work; (6) the effect of the dealing on the work.
Copying Textbook Excerpts for Classroom Use is a Fair Dealing
In Alberta (Education) v. Canadian Copyright Licensing Agency (Access Copyright), the Court was asked whether the “research or private study” exception in s.29 of the Act included the activities of elementary and high school teachers who photocopied excerpts from textbooks held in their school’s library for use in classroom instruction.
Justice Abella, writing for the majority, concluded that the teacher’s copying activities did fall within the scope of the research and private study exception, and was a fair dealing. On the first part of the inquiry—whether the activity falls under an enumerated exception—the Court found that even though the copies would be made for the students as a “group,” the purpose of the copying was nevertheless for “private study” because “Studying and learning are essentially personal endeavors, whether they are engaged in with others or in solitude.” [at para. 27]. Furthermore, “The teacher/copier . . . shares a symbiotic purpose with the student/user who is engaging in research or private study. Instruction and research/private study are, in the school context, tautological,” [at para. 23]; thus, the teacher’s action must be included within the exception even though he or she is not the individual directly engaged in research or private study.
On the second part of the inquiry—whether the dealing is “fair”—the Court concluded that because these types of copies are made to facilitate and guide students’ research and private study, because only small, supplemental excepts are copied, and because buying books for each student is not a realistic alternative to copying short excerpts to supplement student textbooks, the use is fair. The Court was not concerned with the impact of teacher copying on the textbook market, specifically because Access Copyright, a collective society that represents textbook publishers and collects royalties and negotiates licenses on their behalf, tendered no evidence showing a decline in textbook sales as a result of these copying practices.
While the decision does confirm that fair dealing is a user’s right that must be largely and liberally interpreted, the majority importantly distinguished this type of non-commercial copying and dissemination of academic materials from those academic excerpt copying activities that are not considered “fair dealing,” such as copying materials to include in a commercial course pack.
Song Previews on a Commercial Music Retailer Site is a Fair Dealing
In Society of Composers, Authors and Music Publishers of Canada v. Bell Canada, the society of Composers, Authors, and Music Publishers of Canada (SOCAN)—a group similar to the U.S. based ASCAP that represents composers, authors, and music publishers and administers their performing and communication rights, including the collection of royalties for performances—sought to impose tariffs on 30- to 90-second audio previews found on online music stores, such as iTunes. These previews allow users to identify a song by listening to an excerpt of the work, and are normally streamed, meaning the user’s computer does not store a permanent copy of the file. The court unanimously held that these types of music previews fell under the fair dealing exception for “research” and that the dealing was fair.
In discussing the scope of the “research” exception, the Court clarified that because the fair dealing exceptions are “users’ rights,” any fair dealing exception activity must be evaluated from the perspective of the user, not the service provider. Therefore, “research” includes “systematic investigation” and “new conclusions” about a work as made by a user. In this case, a user listening to a music preview is “researching” since listening to a music preview allows a user to investigate pieces of music and conclude whether he or she likes or wishes to purchase the work. Furthermore, the Court found the dealing was “fair” because the preview is used for research, because the copy is erased after the users hears the preview, because the amount of the work used is only 30 to 90 seconds of a longer work and thus is a modest dealing, because alternatives—such as allowing returns of wrongly bought music—are more burdensome than permitting the use, and because allowing the use does not adversely affect any market for the entire work.
The Tariff/Royalty Entitlement Cases
The Canadian Copyright Act provides that performers and makers of sound recordings are entitled to remuneration for the performance in public or the communication to the public by telecommunication of their published sound recordings. Specifically, section 3(1)(f) of the Act provides that the communication of a work to the public by telecommunication is an exclusive right of a copyright owner; thus, the performer or maker of a sound recording should be entitled to payment when their work is communicated by telecommunication.
In the following two cases, SOCAN argued that internet downloads and internet streaming constituted a “communication of a work to the public by telecommunication” and sought to collect royalties on that basis. In the last case, the collective society sought tariffs for performances of motion pictures containing its clients’ sound recordings.
Downloads are not “Communications to the Public by Telecommunication”
In Entertainment Software Assn. v. Society of Composers, Authors and Music Publishers of Canada SOCAN sought royalties for “communications to the public” of musical works contained in video games when those games were downloaded off the internet from an authorized retailer. These royalties would be above and beyond what the society already collected from general sales of the games through reproduction royalties.
The Court concluded that downloads of musical works cannot be considered a “communication.” First, legislative history showed that the section 3(1)(f) right cannot include transmissions where the transmitter delivers a permanent copy of the work, since the right to “communicate” is connected to the right to perform a work, not the right to reproduce permanent copies of the work. Furthermore, the Court found that “telecommunication” signifies the means of communicating the work in question; thus, to collect royalties for a public “communication” that work still must be publicly performed.
The majority of the Court thus concluded that because “downloading” requires the user to obtain a personal and permanent file containing data, downloading is a method of copying rather than a method of communication. This distinction between reproduction and performance showed that SOCAN should only be entitled to collect royalties for the reproduction of the work, and not for the communication of the work.
Streaming is “Communication to the Public by Telecommunication”
The court concluded oppositely regarding royalties for streaming activities. In Rogers Communications Inc. v. Society of Composers, Authors and Music Publishers of Canada SOCAN argued it should collect performance royalties from music services like iTunes whenever a user downloaded or streamed a song from its catalogue. The Court unanimously ruled that SOCAN could collect performance royalties for streaming activities, but not for downloads. (The Court dismissed the “download” argument as moot because of the decision in Entertainment Software Assn. v. SOCAN [explained above] where the Court held the transmission of a “permanent” single copy of a work to a single individual is not a “communication to the public” and thus SOCAN was precluded from collecting royalties for “public performance” when an individual purchased and downloaded a song).
The question in this case rested on whether the online music services engaged the copyright owner’s exclusive right to “communicate [their work] to the public by telecommunications” when streaming songs to an individual user at that user’s request. The online music services argued that such communications were “private” because they involved a single point-to-point transmission effected at the request of a single recipient to a single individual.
The Court examined the meaning of “to the Public” in its precedent as well as in international law. Precedent revealed that the Court should differentiate between telecommunications like subscription or pay-per-view television services—which are communications to the public—and fax transmissions that emanate from a single point and are intended to be received at a single point—which are not. Looking to Canada’s international obligations, the court examined article 1721(2) of the North American Free Trade Agreement (NAFTA) that defines “to the public” as a communication that is targeted at an aggregation of individuals (i.e. more than a single individual, but not necessarily the whole public at large). The Court concluded that to determine whether a communication is “to the public” one must examine the aggregate effects of multiple individual transmissions, rather than each individual transmission.
Applying these findings to the streaming issue, the Court found that the streamed communication is offered to anyone with the appropriate means to stream the work and is intended to be repeatedly transmitted; thus, just like on-demand television, which is a communication to the public, the stream is targeted at an aggregation of individuals to be accessed multiple times. Thus, the Court concluded that the meaning of “to the public” in section 3(1)(f) of the Copyright Act is technology neutral and includes communications by both “push” technologies—like traditional broadcast, where a user merely had to “tune-in” to receive a transmission—and “pull” technologies—like streaming, where a user decides when and where to receive a communication containing particular content.
Importantly, the Court distinguished this interpretation of the “to the public” in the Canadian Copyright Act from the recent interpretation of the U.S. Copyright Act’s provision on “transmissions” to the public in CSC Holdings v. Cartoon Network, 536 F.3d 121 (2d Cir. 2008) because of the difference in statutory wording between the Canadian and American laws. Unlike the Canadian Supreme Court, the Second Circuit held the U.S. provision should be interpreted from perspective of who is capable of receiving the transmission rather than the potential audience of a particular work; thus, a point-to-point transmission at a user’s behest is not a “transmission to the public” under U.S. law, even if the content of the transmission would be available to a wide audience.
The difference in language and legislative history between the U.S. law and the Canadian law lead the Canadian Supreme Court Justices to come to a different conclusion. In Canada, they held, although a streaming transmission occurs between the online music provider and the individual consumer, because the content of the transmission is intended to be generally available and is capable of being received in a serial fashion by a wide audience—as opposed to a narrow group—such transmissions are communications to the public by telecommunication. As such, the Court allowed SOCAN to impose a tariff on internet streams communicating its clients’ sound recordings.
The Copyright Act Clearly Prohibits Monetization of Sound Recording Right when the Recording is Played in Conjunction with a Motion Picture.
The last of the five cases, Re:Sound v. Motion Picture Theatre Associations of Canada, was decided on a very particular provision in the Canadian Copyright Act relating to the treatment of sound recordings included in motion pictures. In that case, SOCAN sought performance royalties for works in its catalogue when those works were embodied in a movie shown in theatres and on television by over-the-air broadcasts, or on specialty, pay, or other television services.
Section 19 of the Canadian Copyright Act specifically provides that a pre-existing sound recording that is part of a soundtrack on a motion picture cannot be subject to a tariff when it accompanies a cinematographic work.
Because the tariffs proposed by SOCAN was for sound recordings accompanying a cinematographic work when that cinematographic work was communicated to the public, the proposed tariff fell within the exception in s.19, and was thus rejected by the Court.
Note: Readers should remember that these decisions involve a distinctly Canadian law; therefore, while interesting and perhaps persuasive, the legal outcomes of the cases bear no direct precedental impact on American copyright law.