In a recent decision, SOCAN v. Bell Canada et al., the Federal Court of Appeal affirmed the decision of the Copyright Board of Canada in which it was held that 30-second previews offered by online music services like iTunes and Puretracks do not require the payment of royalties for the use of copyright in the underlying musical works. Instead, the previews are exempted from liability under the “fair dealing” exception in the Copyright Act – in this case, fair dealing for the purpose of “research.”
Fair Dealing under the Copyright Act
Under the Copyright Act, an act that would otherwise infringe copyright if done without the consent of the copyright owner is not an infringement if it is a “fair dealing” done for one of a limited list of allowable purposes: research, private study, criticism, review or news reporting. In order to qualify for the exception, the dealing must both fall into one of those defined categories and be qualitatively “fair.”
Since “fair” is not defined in the Act, that determination must be made in light of the case law, which was rather sparse until the seminal case of CCH Canadian v. Law Society of Upper Canada, a 2004 decision in which the Supreme Court of Canada considered the nature and scope of the fair dealing exception for the first time. In CCH, the Court identified six specific factors – the purpose of the dealing, the character of the dealing, the amount of the work used, alternatives to the dealing, the nature of the original work and the effect of the dealing on the market for that work – that courts may consider when determining whether or not a particular dealing is “fair.”
Fair Dealing and SOCAN Tariff 22.A
The SOCAN v. Bell decision had its origin in SOCAN Tariff 22.A, a long-fought tariff proceeding in which SOCAN, which owns the right to communicate musical works to the public by telecommunication in Canada and, in turn, pays royalties to rightsholders, asked the Copyright Board to determine the royalties payable for various types of Internet transmissions of music. In the case of online music services that offer permanent downloads, SOCAN proposed two different tariff rates: a lower rate for services that do not offer previews and a higher rate for services that do.
Although the objectors to Tariff 22 opposed the request for the higher rate, they did so on the basis that previews have no separate economic value. Nobody raised the fair dealing issue before the Board. Under the circumstances, its decision, rendered in October 2007, came as a surprise. However, the Board indicated that, in light of CCH, it felt compelled to deal with the issue of its own motion. In its view, the direction in CCH Canadian to give a “large and liberal interpretation” to the concept of “research” meant that users who listen to previews, with a view to sampling what is available online and verifying whether or not they want to buy a particular track, were in fact engaged in research within the meaning of the Act.
Judicial Review: SOCAN v. Bell
Particularly in light of the manner in which the fair dealing issue was introduced, it was no surprise that SOCAN sought judicial review of this aspect of the Board’s decision. It challenged the Board’s finding on two grounds: first, that listening to previews is not “research” within any reasonable definition of that word (a conclusion previously reached by a US federal court in a case involving ASCAP, SOCAN’s sister organization in the US) and, second, that the manner in which online services offer previews is not, in any event, “fair.” Among other things, SOCAN alleged that services do not take any of the necessary precautions to ensure that their customers use previews for purposes that are truly research-based and fair, as opposed to simply for entertainment and as an alternative to actually buying the music.
The Federal Court of Appeal dismissed both of SOCAN’s arguments. Whereas SOCAN contended that true “research” includes only activities that involve investigation, systematic research, critical analysis, scientific inquiry or factual discovery, generally carried out in a formal setting, the Court agreed with the Board that such a restrictive interpretation was inconsistent with a “large and liberal interpretation” of the term. Since Parliament chose not to add restrictive qualifiers to the word as it appears in the Act, it was not unreasonable for the Board to determine that the consumer’s efforts to seek and find a particular musical work is also “research” in a broad sense – even though, from the standpoint of the service itself, the primary purpose of offering previews could well be the pursuit of increased sales and profits. (Of course, the Supreme Court in CCH also stated specifically that research carried out for commercial purposes could nonetheless qualify under the exception.)
As for the fairness of the actual dealings, the Court dismissed SOCAN’s application in rather summary terms; in fact, with the exception of one of the six factors, it simply accepted the Board’s analysis without additional comment. The one factor that the Court did consider specifically was the third, the amount of the dealing. SOCAN had urged the Court to consider not just each individual preview but, instead, the aggregate number of users and previews and the resulting hours of uncompensated use of music. The Board preferred not to consider SOCAN’s approach – but not because it was without merit. Rather, the Board cited a lack of evidence to support SOCAN’s argument, which was largely because the issue was not raised or argued before the Board. Consequently, the Court decided that, “without an enlightened debate on those questions, and given the fragmentary nature of the available information, it would be wiser to leave this issue for another day.”
Implications of the Decision
The decision in SOCAN v. Bell shines a spotlight on the Board’s decision to consider the fair dealing issue without the benefit of evidence or argument from the parties. Indeed, the Court expressed its surprise that the Board would have come to a decision on such an important issue without discussion with the parties. The Court agreed that, “in light of the socio-economic interests at stake,” the parties should have been heard on the issue. However, the Court elected to determine the issue, as the parties had requested, rather than remitting it to the Board for further consideration. As a result, the Board has indicated that, when considering the future recertification of Tariff 22.A, it will expect the parties to address fair dealing specifically if SOCAN wishes to pursue the previews issue. (Meanwhile, SOCAN has sought leave to appeal the Federal Court of Appeal’s decision to the Supreme Court of Canada.)
Perhaps more importantly, SOCAN v. Bell was decided just a few weeks before the federal government introduced Bill C-32, the Copyright Modernization Act, in which it proposed to expand the fair dealing exception to include three new categories of allowable purpose: parody, satire and education. Now that the “large and liberal interpretation” requirement has been interpreted both by the Copyright Board and by the courts, it is easy to imagine future controversy over the treatment of these new categories – particularly education, which is capable of a number of very broad interpretations and is already the subject of other specific exceptions in the Act. We will be looking at this issue more closely in a future edition of the Cassels Brock Report.