2012 has already been an extremely significant year for Canadian copyright law. First, on June 29, after seven years of tabled bills, public consultations (and controversy), academic and professional commentary, and amendments and modifications, the Copyright Modernization Act (Bill C-11), received Royal Assent. The “new” Copyright Act is not yet in force; the government is now focusing its efforts on drafting regulations for the new Act.

Then, just two weeks after the new Act received Royal Assent, the Supreme Court of Canada released a “pentalogy” of copyright rulings, demonstrating its continued relevance in the copyright debate. In these decisions, rendered under the mantra of “balance … between promoting the public interest in the encouragement and dissemination of works and obtaining a just reward for the creator“, the Court strongly endorsed user rights (fair dealing), limited the rights of collective societies to royalties on music included in movie soundtracks or transmitted over the internet, and analyzed the applicability of the copyright law to 21st century technologies. Each ruling is discussed below.

No Double Dipping #1 – Game Downloads are not “Communication…to the Public”

Section 3(1) of the Act (old and new), generally defines copyright as the three types of exclusive rights:

(a) reproduction rights – “the sole right to produce or reproduce the work or any substantial part thereof in any material form whatever“;

(b) performance rights – “the sole right…to perform the work or any substantial part thereof in public“; and

(c) publication rights – “the sole right…if the work is unpublished, to publish the work or any substantial part thereof“.

In the video game industry, royalties for musical works used in games are negotiated with the owners thereof before the games are publicly sold. These royalties arise from the owners’ reproduction rights, i.e. compensation to the owner for reproduction of a musical work in each game sold. That said, once a royalty agreement has been negotiated, an owner has no further reproduction rights when the game is sold by any means – whether through a store, mail order, or internet download.

However, section 3(1) also lists a number of specific rights that are included in copyright, including in section 3(1)(f):

(f) in the case of any literary, dramatic, musical or artistic work, to communicate the work to the public by telecommunication…

For musical works, the Society of Composers, Authors and Music Publishers of Canada (“SOCAN”) administers the right to “communicate” musical works on behalf of copyright owners. SOCAN collects royalties set by the Copyright Board on communications that fall within the ambit of s. 3(1)(f) and distributes these royalties to its members – the owners of the musical works being communicated.

SOCAN took the position that downloading a video game – as opposed to purchasing it in a store or by mail – constitutes communication to the public of musical works incorporated into the game, and thus entitles SOCAN to a royalty. The Copyright Board agreed, finding that, notwithstanding that royalties for these musical works have already been negotiated with the copyright owner, the games were subject to an additional royalty when downloaded over the internet. In essence, the Board “concluded that delivering a copy through the Internet was subject to two fees – one for reproduction and one for communication – while delivering a copy through stores or mail was subject only to reproduction fees“. The Board, and subsequently the Federal Court of Appeal, rejected the game publishers’ argument that downloading a video game was not “communicating” it to the public under s. 3(1)(f), but was merely a subset of the owners reproduction rights, which had already been negotiated.

In the first case of the pentalogy, Entertainment Software Association v. SOCAN, a 5:4 divided Supreme Court agreed with the game publishers and found that, in light of “the principle of technological neutrality, which requires that the Act apply equally notwithstanding the technological diversity of different forms of media“, it made “little sense to distinguish between” physical sales and internet downloads of video games and apply an additional copyright royalty to the latter. The majority found that “The Internet is simply a technological taxi that delivers a durable copy of the same work to the end user“.

The crux of the majority’s analysis was that the rights enumerated in sub-paragraphs of s. 3(1) “are simply illustrative” and the s. 3(1)(f) right to “communicate” a work to the public by telecommunication is not an independent right, but a specific example of performance rights, and must be considered in that context. Distinguishing performance by communication from reproduction, the majority found that “a performance is impermanent in nature, and does not leave the viewer or listener with a durable copy of the work“.

The majority also rejected the proposition that “a single activity (i.e., a download) can violate two separate rights at the same time“. For downloading a video game, only reproduction rights, rather than performance rights, for the incorporated musical works were at issue. These rights, however, were already paid for by royalties.

Streaming Is as Streaming Does – Individual Streaming is a Communication to the Public

Separate from royalties on musical works included in video games downloaded from the internet, SOCAN asked the Copyright Board for royalties on all music offered for sale (e.g. iTunes) and for streaming (e.g. on-demand internet radio) over the internet. Again, the Board and the Federal Court agreed with SOCAN, finding that both activities were communications to the public under s. 3(1)(f), and therefore were subject to royalties.

In the second case of the pentalogy, Rogers Communications Inc. v. SOCAN, the Court dealt with these royalties, rejecting a royalty on music downloads (following the decision in Entertainment Software Association, downloads of video games containing musical works were not “communications” under s. 3(1)(f)), but confirming royalty on music streaming.

The decision dealt predominantly with whether on-demand streaming of music – “a point-to-point transmission effected at the request of the recipient” – was a communication “to the public” under s. 3(1)(f). The crux of the argument raised by Rogers was that streaming was not communication “to the public”. The Court had previously held that “transmission of a single copy to a single individual is not a communication to the public” because, to be “to the public”, “a communication must be targeted at an aggregation of individuals, which is more than a single person but not necessarily the whole public at large“. Rogers argued that each streaming transmission “must be analyzed on its own, as a separate transaction, regardless of whether another communication of the same work to a different customer may occur at a later point in time.”

The Court concluded:

Focusing on each individual transmission [as suggested by the appellants] loses sight of the true character of the communication activity in question and makes copyright protection dependant on technicalities of the alleged infringer’s chosen method of operation. Such an approach does not allow for principled copyright protection. Instead, it is necessary to consider the broader context to determine whether a given point-to-point transmission engages the exclusive right to communicate to the public. This is the only way to ensure that form does not prevail over substance.

The Court found that “communication to the public” is “technology neutral” and includes both traditional broadcasting (push), and newer interactive (pull) technologies, where streaming of content is initiated by the consumer. It confirmed that “where possible, the Act should be interpreted to extend to technologies that were not or could not have been contemplated at the time of its drafting“.

On the facts of the case, the Court easily found that the streaming service offered by the appellants was a “communication to the public”, given that their business model was “premised on the expectation of multiple sales of any given musical work” and the “number of actual transmissions depends only on the commercial success of a given work“.

No Double Dipping #2 – Music Previews are Fair Dealing “for the Purpose of Research”

As discussed above, copyright law is a balance between creators’ and users’ rights. An essential part of users’ rights is the concept of “fair dealing”, which provides that certain otherwise-infringing activities (e.g. copying or performing), when done for specifically defined purposes and in a “fair” manner, are non-infringing. Thus, under the old Act, the following activities can be “fair dealing”:

(a) research and private study (s. 29);

(b) criticism (s. 29.1); and

(c) news reporting (s. 29.2).

Fair dealing rights are expanded under the new Act, and the amended s. 29 adds fair dealing for the purpose of “education, parody or satire”, while ss. 29.1 and 29.2 remain as is.

When musical works are sold on the Internet, most “stores” allow consumers to “preview” these works before making a purchase by making available an excerpt from the work. Usually, the excerpt is short and of poor quality, and is streamed to the consumer in a manner that ensures it cannot easily be saved on the user’s hard drive. Notwithstanding that the music actually sold to consumers is already subject to copyright royalties, SOCAN asked the Copyright Board to impose an additional royalty on the previews themselves. The Board, and subsequently the Federal Court of Appeal, rejected SOCAN’s request, finding that the previews were fair dealing for the purpose of research under the Act, and therefore were not an infringement of SOCAN members’ copyright.

In the third decision in the pentalogy, SOCAN v. Bell Canada, the Court unanimously rejected SOCAN’s position.

Referencing its earlier decisions, the Court urged an approach that requires “a balance between promoting the public interest in the encouragement and dissemination of works of the arts and intellect and obtaining a just reward for the creator“. The Court confirmed that users’ rights, including fair dealing, “are an essential part of furthering the public interest objectives of the Copyright Act”.

The Court rejected SOCAN’s position that previews were not “research” under the Act: research is to be interpreted generously, encompassing research for creative as well as other purposes, including “no purpose except personal interest“; it does not require “the establishment of new facts or conclusions“, but “can be piecemeal, informal, exploratory, or confirmatory“.

The Court also rejected SOCAN’s argument that previews were not research because the provider of the previews (the music store) was not doing any research, but only selling music. The Court found that the ultimate user – to whom the fair dealing right belonged – was the consumer who listened to the previews to decide what to purchase, and he or she was engaged in research.

In this light the Court applied the “fairness” factors and found that the particular use of the previews was fair in the circumstances:

• the “real purpose or motive” for providing the previews, from the consumers’ perspective, was to “help them research and identify musical works for online purchase“. The fact that research was done for “commercial” purposes, i.e. with a view to purchase music, was not determinative because there were “reasonable safeguards” in place to ensure that the previews were actually being used for research;
• the “character of the dealing” was fair, given that the previews were streamed and were automatically deleted from the consumers’ computers, thus preventing duplication or dissemination;
• the “amount of dealing”, in terms of length of each preview to the length of the complete musical work being previewed, rather than in terms of total number of previews, was fair;
• there were no reasonable “alternatives to the dealing” because “allowing returns is an expensive, technologically complicated, and market-inhibiting alternative for helping consumers identify the right music. And none of the other suggested alternatives can demonstrate to a consumer what previews can, namely, what a musical work sounds like“;
• the “nature of the work” – musical works – was one that indicated that they should be widely disseminated, and previews facilitated this dissemination; and
• finally, there was no negative effect from this dealing on copyright owners since the effect of the previews was to increase sales.

Private Study Fair Dealing – Teachers Can Copy Excerpts for Students

While SOCAN represents creators and owners of musical works, Access Copyright represents authors and publishers of printed and artistic works. When it is unable to negotiate a license with users who photocopy the works in its repertoire, it asks the Copyright Board to impose a royalty in the form of a tariff.

At elementary and secondary schools across Canada, teachers often photocopy portions of textbooks in Access Copyright’s repertoire for use by students. When a royalty agreement with respect to such copying expired and parties were not able reach a new agreement, Access Copyright asked the Copyright Board to impose a tariff. At issue between the parties, however, was whether certain types of copying would be excluded from the tariff because they were ‘fair dealing’. The parties agreed that three types of copying – made by teachers for themselves or at students’ requests – were fair dealing. However, Access Copyright successfully argued before the Board that copies made at the teachers’ initiative and given to students to read, were not fair dealing, because the dealing was not “fair”.

In the fourth decision in the pentalogy, Alberta (Education) v. Canadian Copyright Licensing Agency (Access Copyright), a 5:4 majority rejected Access Copyright’s position and found that the copying at issue was fair dealing. To reach this decision, the majority applied five of the six “fairness” factors noted above to the impugned copying and disagreed with the Board at every stage.

In particular, with respect to the “real purpose or motive” of the dealing, the majority rejected the Board’s conclusion that because copies were made at the teachers’ initiative they were no longer truly for the purpose of “research or private study”. The Court advised that the activity had to be considered from the users’ perspective – i.e. the students who were using the copies, rather than the teachers who were making them. The Court explained that the copiers’ perspective was only relevant if they had their own, “demonstrably ulterior – i.e. commercial – motives” and only invoked fair dealing “in order to appropriate their customers’ or students’ purposes as their own and escape liability for copyright infringement.”

On the facts, teachers had no ulterior motives, nor a separate purpose for making copies. Rather, the teachers “share[d] a symbiotic purpose with the student/user who is engaging in research or private study“, in which “photocopies made by a teacher and provided to primary and secondary school students are an essential element“.

Furthermore, with respect to purpose, the majority rejected the position that use of the copies in a classroom setting, rather than in “splendid isolation” meant that the use was no longer for “private study”.

With respect to “character” and “amount” of the dealing, the majority found that the Board conflated and incorrectly applied these factors. “Character of the dealing” referred to the total number of pages copied, and given that the copying at issue amounted to only about 7% of the total copies made, it was fair. “Amount” referred to the proportion between excerpts copied and the entire work and, given the Board’s findings that “teachers generally limit themselves to reproducing relatively short excerpts of each textbook“, this was also fair.

The majority also rejected the Board’s conclusion that reasonable “alternatives to the dealing” were available, namely, buying original textbooks to distribute to each student or to place in the library for consultation.

Finally, the majority found absolutely no evidence of a negative “effect of the dealing on the work”. In particular, there was no evidence that the purported 30% decline of textbook sales over 20 years was caused by the copying at issue.

Movie Soundtracks – Not “Sound Recordings” Subject to Royalties

Under section 19(1) of the old Act, performers and makers of “sound recordings” are entitled to equitable compensation for communication of those sound recordings to the public:

19. (1) Where a sound recording has been published, the performer and maker are entitled, subject to section 20, to be paid equitable remuneration for its performance in public or its communication to the public by telecommunication, except for any retransmission.

Under the new Act, s. 19(1) has stayed substantially the same, albeit clarifying exceptions. However, in both Acts, “sound recording” is defined as specifically excluding undefined “soundtracks”:

“sound recording” means a recording, fixed in any material form, consisting of sounds, whether or not of a performance of a work, but excludes any soundtrack of a cinematographic work where it accompanies the cinematographic work;

Similar to SOCAN, Re:Sound is a collective society that collects equitable remuneration under s. 19(1) for the performance or communication to the public of published sound recordings. In 2008, Re:Sound applied to the Copyright Board for royalties on the use of sound recordings in movies and TV programs. Despite the language of the definition of “sound recording”, Re:Sound argued that it does not “exclude a pre-existing sound recording that is incorporated into a soundtrack“, but is only meant to protect a combined audiovisual production. The Board and the Federal Court of Appeal disagreed with Re:Sound and refused to order these royalties.

In the final installment of the pentalogy, Re:Sound v. Motion Picture Theatre Associations of Canada, the Court affirmed the decision of the Board and found that soundtracks, when they accompany movies or TV programs, whether in total or their individual components, are sound recordings and therefore are not subject to royalties under s. 19. The Court also confirmed that, when the sound recordings are extracted from the soundtrack, or are not accompanying the cinematographic work, e.g. when they are sold as a separate CD, then they are once again protected as stand-alone sound recordings.

Conclusion

These decisions represent a strong statement regarding the importance of users’ rights—including the broad and liberal interpretation to which they are entitled. That said, the voting splits in a couple of the above decisions suggest that divisions respecting the breadth of those rights remain, and as such, it is unclear if the decisions will do much to temper the power or zeal of the copyright collectives.

In the short term, the decisions will likely lead to savings for educational institutions and students, who will benefit from the clarifications to the fair dealing provisions. Longer term, while the decisions were crafted under the old Act, there is little in the new Act that would make the decisions inapplicable as a guide to the new Act’s application and interpretation as well.

As such, the importance of these five cases, and the Court’s emphasis on users’ rights and interpretive balance, cannot be overstated.