Industry Awaits Digital Guidelines

Canadian Prime Minister Jean Chrètien's call Oct. 22 for a federal election next month has sidelined his government's long-anticipated new digital guidelines.

A "white paper" proposal had been scheduled to be released in October detailing the government's digital agenda. It was to deal with a variety of matters, including commerce issues, Internet service provider (ISP) liability, technological protection, copyright management, and information protection

The paper would have been followed by a period of consultation with stake-holders, resulting in a memorandum of recommendations to the cabinet. However, the impending election has now scuttled this process.

"We're spending billions on E-commerce strategies, and the government hasn't updated the Copyright Act to protect us," says Brian Robertson, president of the Canadian Recording Industry Assn. (CRIA). "Bureaucrats have been dragging their asses on this matter. In the meantime, the barn door is wide open."

"The Canadian government certainly hasn't been on top of copyright issues," agrees Michael McCarty, president of EMI Music Publishing Canada. "Still, it's hard to fault them for falling behind when our own industry doesn't know how to deal with Napster and other services."

Toronto-based consumer technology writer Frank Lenk, author of "Music Online," calls digital strategies in Canada to date "all stopgaps." He says, "It's been, 'Let's deal with the immediate problem, but let's not raise any of the fundamental issues.' However, the big [Internet] issues will be decided first in the U.S."

The Canadian government's delay in enacting the two World Intellectual Property Organization (WIPO) treaties has left the domestic record industry weakened on the digital frontier and without a broad right of reproduction while it tries to come to grips with such key issues as increased online retailing, legal and illegal downloading of music, technological protections, and rights management information.

In December 1997, Minister of Canadian Heritage Sheila Copps and Minister of Industry John Manley announced that the Canadian government was committed to signing and ratifying the two WIPO treaties, which would bring Canada in line with other WIPO trading partners. While the treaties were signed in 1997, they have yet to be ratified.

Two months ago, 26 Canadian cultural organizations formed the Copyright Coalition in order to increase pressure on the Canadian government on this issue. Among the music industry interests, other than the CRIA, represented in the coalition are the Canadian Independent Record Producers Assn., the Canadian Musical Reproduction Rights Agency (CMRRA), the Canadian Country Music Assn., the Recording Artists Assn. of Canada, and SOCAN, the country's only performing right organization.

The two treaties, the Performances and Phonogram Treaty and the Copyright Treaty, deal with copyright protection in the digital age and with intellectual property protection for performers and phonogram producers.

Despite Canada's Copyright Act not being updated, several Canadian industry sources contend that basic copyright principles are nevertheless in effect and that copyright owners can vigorously enforce their rights.

"The Copyright Act does cover digital downloads as a means of distribution," notes entertainment lawyer Susan Abramovitch of Stohn Henderson in Toronto. "It would be hard to make the argument that [a download] is not a reproduction. So we have the tools to go after the Napsters and others who are offering music for free or those [sites] pirating music and offering it for free. It's a question of how many you go after and how expensive is it to go after all of them."

Lenk, however, maintains that such downloading isn't as clear-cut a violation in Canada as it is in the U.S. "One of the key differences [between the U.S. and Canada] is that home taping in Canada is, in fact, legal, whereas in the U.S. [labels] promise not to prosecute," he says.

"So far, there hasn't been much of a presence of downloadable music in Canada except for people using their own property," notes David Basskin, president of the CMRRA. "If they don't have a license, they are infringers."

Robertson agrees, saying, "We're getting a better handle on controlling [illegal downloads]. But also, with all of the major companies now coming online [with downloads], that activity is going to be diluted. People are going to want to be able to access music legally."

While the CMRRA and CRIA have had meetings on extending the existing mechanical-licensing agreement to include digital downloads, there are sizable hurdles to overcome. "We aren't getting very far," concedes Basskin. "We don't think the physical-goods rate of 7.4 cents [per track] Canadian [5 cents] has relevance to the world of downloads. The rate should be much higher."

While labels based in Canada have been supplying tracks for downloading, the downloading infrastructures so far have been located in the U.S. While the CMRRA unquestionably has jurisdiction over licensing of the sale of music if servers are located in Canada, its jurisdiction is unclear if servers are located elsewhere, say industry sources.

"Where the transmission is [is] where the mechanical obligation arises," argues Graham Henderson, senior VP, business affairs, at Universal Music Canada.

Basskin disagrees, saying, "If the music ends up on somebody's computer in Canada, that's an exercise of the reproduction right in this territory."

In 1995, SOCAN filed a tariff for licensing of performing rights on the Internet with the Copyright Board of Canada, a quasi-independent judicial tribunal, in effect addressing the question of liability for music on the Net for the first time.

In its Phase I Tariff 22 decision, handed down in October 1999, the Copyright Board of Canada agreed with SOCAN that Internet transmissions are communications in the same way radio, TV, or cable broadcasting are and that the same standards of copyrights are applicable. However, the decision also noted that having a copyrighted work on a server does not constitute an infringement. Infringement occurs only when someone downloads the music.

SOCAN has since appealed the decision to the Federal Court of Appeal. "An ISP in Canada is an integral part of the communication chain communicating music to the public," says Paul Spurgeon, SOCAN's general counsel. "[ISP servers] are responsible and should pay for their part in their delivery of music."

While the Digital Millennium Copyright Act of 1998 introduced a compulsory performance license (still to be determined) for Webcasting in the U.S., no similar blanket compulsory license is in effect in Canada. Negotiation of music use for Webcasting in Canada remains determined by individual rights owners.

"Until all recordings are encoded and digitized, labels are being quite careful about what they license and whom they license to," says Robertson.

Abramovitch argues that without a compulsory performance, license-rights holders are, in fact, in a stronger position that their U.S. counterparts.

"Anybody who wants to transmit our masters has to deal with us," agrees Henderson. "We're in the driver's seat because we control the rights. Our position is stronger [than the U.S. position]."

Further bad news for Canadian Internet operators is that next year the CMRRA expects to introduce its own Internet tariff since there is no ephemeral exception for Webcasting in Canada. An ephemeral right is a reproduction right that addresses the broadcasting practice of making temporary, or "ephemeral," copies of programs or music for later use.

"Their system of streaming music does not allow [listeners] to make a copy, but there is a copy [of the recording] at the transmitting end," says Basskin. "At the very least, it exists on hard drive. Is there value in that [practice]? Yes. If there's value, there should be a levy."