Canada Court: Isps Do Not Owe Royalties

Internet service providers may not have to pay royalties to the music industry for files downloaded by their customers, according to a June 30 ruling by the Supreme Court of Canada.

The nine-judge court was unanimous in asserting that companies providing access to the Web are merely "intermediaries" in the downloading process and are therefore not bound by Canadian copyright legislation.

The court decreed that as a general rule the Canadian Copyright Act does not impose legal liabilities on ISPs, as long as they act as bona fide intermediaries and have no input in determining Web content.

The court's decision did not, however, rule against record companies, artists and authors in Canada getting paid for Internet transmissions received in Canada.

The decision indicates that rights holders could sue specific Web sites that distribute their music without authorization. This might apply even to sites in foreign territories if the users are Canadian-based. ISPs could also become liable if they are formally notified that a specific Web site is violating the law and they refuse to block access to it.

Paul Spurgeon, general counsel of the Society of Composers, Authors and Music Publishers of Canada says the decision allows his organization to go to the Canadian Copyright Board for a tariff.

"The Supreme Court has clearly stated that a Web site communicating from another territory into Canada is a communication both in that country and in Canada," Spurgeon says. "This paves the way for us to go to the Copyright Board, albeit only for Web sites and ISPs that are more than mere conduits. ISPs' liability could be triggered if technology or knowledge allows them to know more."

Brian Robertson, president of the Canadian Recording Industry Assn., also argues that the decision confirms that communications that travel across Canada's border, and are received in the country are subject to Canadian copyright law.

"If it is an illegal signal, it is also subject to civil or even criminal law," Robertson says.

The case had been closely watched in other nations because of its possible impact on the recording and computer sectors.

Allen Dixon, general counsel of the London-based International Federation of the Phonographic Industry, welcomes the decision. "The ruling in Canada is an important confirmation that infringing services cannot circumvent national laws by transmitting copyrighted files from outside that country," he says. "This rule, as it is implemented in other countries, will help prevent piracy havens from being established on the Internet."

SOCAN SOUGHT TARIFFS

At issue is an attempt by SOCAN to force ISPs to pay a tariff for downloaded music. The attempt to collect from ISPs is significant because they provide focus for litigation rather than dealing with individual Web sites.

The Supreme Court action was brought by the Canadian Assn. of Internet Providers, including the Canadian subsidiaries of some of the world's high-tech giants like Bell, Sprint, AOL, MCI, IBM and Yahoo. It argued that artists should seek royalties directly from Web sites that offer their works rather than from the companies only providing access to the Web.

The action followed a landmark 2002 ruling by Canada's Federal Court of Appeal that if ISPs in Canada acted as more than "passive providers"—for example, by storing or caching music on their servers—they were responsible for royalties.

That decision had supported the licensing of Internet transmissions of music in each country to which they are transmitted, no matter where the music originates.



For more details, see this week's Entertainment Law Weekly.