Analyzing when copyright levies are a good idea, and when they are a very bad idea.

Many people in the IT sector have a strong opinion about the levy on blank media such as CDs that go to the various parts of the music industry. With a number of proposals to remove existing levies, or add new ones, it is helpful to have a bit of background on what these levies are about and a possible test for deciding when they are appropriate or inappropriate.

While these levies are sometimes called a “tax”, this is an incorrect term. The more correct term is to call them a compulsory or statutory license. This is an exception to Copyright where an activity that normally requires permission instead only requires payment at a rate negotiated with a Copyright Collective Society. If negotiations fail, then a rate can be set by the Copyright Board of Canada.

Compulsory licensing regimes for Copyright have a long history. They have often been used in situations where the specific use was not being authorized by copyright holders, so the government stepped in and imposed a licensing regime in order to create a marketplace.

An example from about a century ago was in the music industry. At the time the music industry was composed of — well — composers who created music. Performers we treated as no more artistically valuable than trained monkeys, and the technology of recording (player pianos and “talking machines”) were considered “piracy” devices.

American composer John Philip Sousa was so opposed to the emerging recording industry that he had this to say in a submission to a US congressional hearing in 1906.

“These talking machines are going to ruin the artistic development of music in this country. When I was a boy…in front of every house in the summer evenings, you would find young people together singing the songs of the day or old songs. Today you hear these infernal machines going night and day. We will not have a vocal cord left. The vocal cord will be eliminated by a process of evolution, as was the tail of man when he came from the ape.”

In order to allow the new recording industry to exist, a compulsory license was brought in where a song could be performed and recorded without the permission of the composer, as long as the composer was paid a government set royalty rate. By creating a compulsory license for activities that were otherwise considered “piracy” at the time, the recording industry was born.

The same technique was used to legalize cable television (compulsory licensing for retransmission) and commercial radio.

Bill C-60 (the one that passed into law in June 1988 and not the recent one) repealed what was said to be a controversial compulsory licensing regime for sound recordings, and created a new one for unlocateable copyright owners. This has been true over history where specific market conditions suggest that the extreme situation of compulsory licensing is needed in order to make licensing possible, and eventually these exceptions are removed as the market matures. This is the case with many different compulsory regimes over time: Canada historically had a compulsory regime for serials (books authored and distributed one section at a time) where the foreign copyright holder would not license in Canada, something that is no longer necessary and thus is no longer part of our Copyright act.

Copyright is normally a requirement to get permission to do specific things with copyrighted works. With this required permission the author and the person who wishes to do those activities can negotiate a specific arrangement that works between them. The license can be quite complex, as we see with software End User License Agreements (EULAs), and can grant certain permissions and not grant others to specific audiences. Within these license agreements a wide variety of methods of production, distribution and funding can be supported, as can be seen by comparing a Microsoft EULA, the GNU GPL, and the BSD license as far as what the rights and obligations of a licensee are with respect to the copyright holder.

Compulsory licensing removes the ability to negotiate these deals, and replaces it with a royalty fee. For some copyright holders this is all they want, but for others the ability to set specific licensing terms is more important than the collection of royalties. For some methods of production, distribution and funding, such as those enabled by Free/Libre and Open Source Software or Creative Commons licensing, royalties are not requested and the non-monetary obligations of the license are the reward for the creator.

What do we know? We know that compulsory licensing can make sense at one time, and need to repealed at a later date. We know that while a compulsory licensing system can enable licensing in situations where licenses are not being granted (for a variety of reasons — not just established copyright holders objecting to an emerging market), they can also greatly harm existing or potential future licensing models that rely more on the conditions of permission than on the collection of royalties.

The test

There is a tool that we can use to help determine when a compulsory licensing regime is appropriate or not. The Berne three-step test is a test that has been included in many multilateral treaties on Copyright and related rights. While it originated as part of the Berne convention, it is also articulated in Article 13 of TRIPs as:
“Members shall confine limitations and exceptions to exclusive rights to certain special cases which do not conflict with a normal exploitation of the work and do not unreasonably prejudice the legitimate interests of the rights holder.”

Enumerated, that is:

1) special cases
2) do not conflict with a normal exploitation of the work
3) do not unreasonably prejudice the legitimate interests of the rights holder

Lets take two actual proposals from groups representing copyright holders and put it through these tests.

Songwriters Association of Canada (SAC)

The SAC have made a proposal to monetize P2P filesharing of music. This would legalize P2P filesharing of any music, as long as the person doing the sharing paid a levy to a collective society. This regime would apply not only to the work of composers, but also the neighbouring rights holders of performers and the maker of the sound recording.

1) It is a special case. It only applies to the 3 copyright holder groups involved in the creation of sound recordings, and only for a specific special case of non-commercial online sharing of music.

2) Composers already make most of their money through collective licensing, administered through SOCAN and SODRAC (Quebec) for radio and other public performances (music in bars, etc), and quite a bit of the mechanical CDs are also licensed through collectives such as CMRRA. Having yet another common use of music compositions be licensed this way would seem quite natural.

The neighbouring rights holders already do not have a traditional copyright, with only specific activities being covered. The most comparable activity to non-commercial online sharing of recorded music would be commercial radio, which is already under a compulsory license in Canada.

3) One complaint might come from musicians who were trying to leverage Creative Commons or similar licenses to authorize (with no compensation) this non-commercial sharing of music. We would want to verify if the business model was effectively a competitive one, trying to offer something that other composers, performers and makers were not, or whether this is something different envisioned. If it was only competitive, then the compulsory license wouldn’t be any different than if a much larger group of music copyright holders had adopted similar Creative Commons licensing, something that was quite possible given the increasing number of musicians adopting Creative Commons non-commercial/no-derivatives licenses.

The difference is that with this compulsory license, people get paid for this non-commercial use of music. Music copyright holders would still be free to differentiate themselves by offering differentiated licensing for other activities or other types of works, such as music videos, song lyrics, allowing derivatives/mashups/etc, participation in social networking, and so-on.

Some audiences may object to paying for this use of music, but this is not part of the test, nor should it be. Some audiences suggest that non-commercial sharing of music is beneficial to composers and performers as it is good advertising, but this is a question that the music industry should be deciding about, not imposed on them by music fans. If the music industry can be convinced this is true, they would then be willing and interested in setting the royalty rate very low, zero, or have special arrangements with known amateur online promoters.

The way in which the levy is collected should be made as inoffensive as possible, and closely tied to those who are actually sharing music online. The most common objection to the existing private copying regime for music is that it applies to multi-purpose media which is being used by many people for things other than music. Someone who never stores music on a blank CD has a legitimate complaint that should probably be addressed, and not repeated in any potential implementation of SACs proposal.

Creators’ Copyright Coalition

The CCC has released their platform statement. Among the proposals is the following:

“The CCC recommends the expansion of the private copying regime to include all categories of work covered by the Copyright Act.”

One of the many complaints of the existing private copying regime is that it includes activities which are truly private (making a backup of a music CD, device-shifting from CD to an MP3 player, etc) and activities which are actually public (borrowing a CD from the public library or a friend and making a copy, downloading music from the Internet, etc). The source of the material should matter, not just whether the destination copy is kept privately and never shared. The truly private activities should not require either permission or payment, while the public activities should clearly be covered.

The CCC proposal is an extension of all the existing controversies with the private copying regime.

Going through the test:

1) While it may only apply to so-called “private” activities, it is clearly not a special case as it applies to all types of creativity from computer software to photography to motion pictures. Each of these types of creativity have an entirely different analysis for both economic and other interests, and thus such a proposal should be rejected simply because it is not narrow enough to be reasonably analysed.

2) While there are some narrow business models which only concern themselves with the collection of royalties, the vast majority affected by this proposal are far more nuanced.

What differentiates all the different business models in the software sector are the nuanced differences between the license agreements, specifically in relation to what an end user may privately do. Nobody would ever suggest much similarity between a typical Microsoft End User License Agreement (and there are differences between versions of the same application, and for different destination markets) and the GNU General Public License. One requests a material reward in the form of royalty payments, and the other requests material reward in the form of derivative software. But the differences do not end there.

Software is not the only marketplace where the license agreement is far more important than simply receiving payments, but it is a market that those in the IT sector will know very well. The same discussion can be extended to many other types of creativity.

3) I can tell you that as a FLOSS software author, user and promoter I would not just be mildly upset that my business model would be decimated by this proposal. For me it is not just about the money that makes me interested in FLOSS, but a strong belief in accountability and transparency in software. I believe that the rights offered by FLOSS licenses need to be protected in an ever increasing amount of software. With all the money from this regime being sent to the statistically popular vendors, the benefits of FLOSS would diminish as most of the commercial work (which is the largest amount of work in FLOSS) would be gone. Far more than livelihoods would be lost.

I mention software because it is what I know well, but similar analysis of how such a proposal would unreasonably prejudice the legitimate interests of other rights holders.

The CCC makes 23 proposals, and for many (but not all) I have similar objections, with some similarly not passing my analysis using the 3-step test. It is frustrating in the Copyright debate that you can’t rely on a group calling themselves the “Creators Copyright Coalition” to respect and promote the rights of a broad range of copyright holding creators.

Note: I would like to thank Harry Hillman Chartrand of Compiler Press for donating electronic versions of “The Compleat Canadian Copyright Act 1921-2006: Present, Past & Proposed Provisions” and “The Compleat Multilateral Copyright & Related Agreements, Conventions, Covenants & Treaties 1886-2007″ for my personal use. It is very helpful to be able to see how different sections of the Canadian act have changed over time, as well as having all the relevant treaties in the same place. Please also read REVOLT OF THE COPYRIGHTS where Harry makes his commentary on the current debate, and his personal thanks to Michael Geist for helping to get other citizens involved in this important debate.

P.S. Please do not feel shy to hit ‘comment’ and discuss your views on this article, or other articles in the BLOG. BLOGS are not intended to be one-way publications, but sparks for interesting conversations.

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