On May 2 2002 the Federal Court of Appeal partially upheld a Copyright Board decision regarding copyright liability on the Internet. In a ruling that has implications far beyond the music industry, the court reviewed the board's decision on the proposed Tariff 22, relating to the communication of musical works over the Internet, which was filed by the Society of Composers, Authors and Music Publishers of Canada (SOCAN).
In its ruling the court held that, with the exception of transmissions from a cache, the activities of internet service providers (ISPs) in providing access to the Internet and hosting content on their servers do not make them liable for the communication of works over the Internet. Moreover, the board's jurisdiction to approve royalties is not limited to transmissions that originate from host servers located within Canada. Rather, the board must determine whether there is a real and substantial connection between the relevant communication and Canada on a case-by-case basis.
The decision appears to settle the question of the liability of ISPs for the communication of works over the Internet, subject to SOCAN seeking leave to appeal to the Supreme Court of Canada or ISPs challenging the exception made by the court's majority for 'caching'. The ruling redirects the spotlight on website operators, which are equally the target of SOCAN's proposed tariff. The court's decision also leaves the board with a practical challenge in applying its jurisdiction to host servers located outside Canada.
On October 27 1999 the board issued a decision that concluded the first phase of a two-phase proceeding to consider Tariff 22. Tariff 22 targets the communication of musical works by means of computers or other devices connected to a telecommunications network where transmission can be accessed independently.
Because objections to the proposed tariff raised important legal issues of a preliminary nature, the board opted to conduct the hearing in two separate phases, the first of which was aimed at determining which internet activities (if any) constitute a protected use targeted in the tariff. The second phase of the proceeding will address policy issues including the tariff's structure and the amount of royalties payable.
The board made the following determinations in its first-phase decision:
- The transmission of a musical work over the Internet constitutes a "communication to the public by telecommunication" under the Copyright Act;
- The work is communicated when it is actually transmitted; however, the person who posts a musical work on a site, or otherwise makes it available for transmission to the public, is responsible for the communication;
- Internet intermediaries, including ISPs which merely provide their customers with connectivity to the Internet, do not themselves communicate or authorize others to communicate works over the Internet; and
- To occur in Canada, and hence be subject to the tariff, a communication must originate from a server located in Canada on which content has been posted.
SOCAN applied for judicial review of certain elements of the board's decision, raising two substantive questions. First, when material is transmitted on the Internet, is an intermediary such as an ISP that merely operates the server on which it is stored and supplies the ultimate recipient with access to the Internet liable for the transmission? Second, when material requested by an internet user in Canada is stored on a server outside Canada, does a transmission from that server avoid liability in Canada?
Liability of intermediaries
One of the principal issues to be decided by the court was whether the board was correct in its conclusion that intermediaries such as ISPs are generally not liable for the communication of musical works over the Internet, because their activities provide merely "the means of telecommunication necessary for another person to communicate the work" within the meaning of the Copyright Act. A collateral issue was whether an ISP could otherwise be held liable as 'authorizing' the communication.
The court upheld the board's ruling that the core activities of operators of host servers and internet access providers do not make them liable. In doing so, the court rejected SOCAN's argument that only traditional 'common carriers' are protected from liability for the content of the communications that they transmit. Instead, the court held that legislation should be interpreted, where permitted by its language and underlying rationale, in a way that takes account of technological developments.
In agreeing with the board that the services and facilities provided by intermediaries are necessary for the communication, the court held that it is irrelevant that the content provider might have chosen other (possibly less convenient) means of communicating the music than posting it on a host server, such as making it available on the hard drive of his or her own internet-accessible computer. Accordingly, the court held that the operator of a host server is no less providing the means necessary to enable the content provider to communicate by telecommunication with end users than is the provider of internet access.
In a departure from the board's decision, however, the majority of the court held that an internet intermediary who caches material is not similarly providing the means necessary for the communication. In the court's view, "the fact that the cache enhances the speed of transmission and reduces the cost to the internet access provider does not render the cache a practical necessity for communication." Therefore, the operator of a cache is liable for the communication of the music. The distinction created between caching and other activities of ISPs is not without its difficulties, and appears to be based on the court's characterization of caching as involving the selection of the material to be cached, thereby taking this activity outside the exception from liability created by those exercising a merely passive function.
The court also upheld the board's ruling that operators of host servers and internet access providers do not effectively control the content of what is transmitted:
"While perhaps theoretically possible, it is not practicable for internet access providers to 'read' and, in effect, block requests from end users for copyright material, nor to screen out copyright material from being transmitted over their routers to the end user, without slowing to an unacceptable extent the transmission of data."
Although it did not agree with the board's analysis of this issue, the court did agree with the board's conclusion that internet intermediaries do not authorize the communication of musical works by those posting this material. The court held that those providing access services cannot be said to be authorizing content providers, particularly since the parties often have no contractual relationship. With respect to host server operators, in a finding that may have wider relevance for ISPs' liability, the court allowed that an implicit authorization to communicate infringing material might be inferred from the facts of a particular case (eg, where a host server operator fails to remove material after being advised of its presence and having a reasonable opportunity to take it down). The court ultimately concluded, however, that Tariff 22 does not target behaviour on this limited factual basis.
SOCAN is entitled to a royalty only in respect of copyright infringements that occur in Canada. The board stated that an internet communication occurs in Canada if it originates from a server in Canada.
The court overturned the board's ruling, stating that the location of the communication should not be determined solely by that of the host server, especially since the communication is only ever effected at the end user's request.
The court recognized that the board's decision might have the effect of denying a royalty to owners of other IP rights that are not recognized in certain other jurisdictions (eg, the rights of performers and sound recording makers), and might also create a double royalty risk where a communication originating in Canada might be seen to have occurred in a second jurisdiction. The court acknowledged that the resolution of some of the trans-border problems associated with internet communications will require supranational solutions.
In the meantime, the court attempted to fashion a test for locating the communication and adopted the 'real and substantial connection' test used in other legal contexts. This requires an examination of all connecting factors for the purpose of identifying communications that occur in Canada and can therefore attract liability to pay a royalty to SOCAN. The following factors were assumed to be the most important:
- the location of the content provider;
- the location of the end user; and
- the location of the intermediaries, in particular the host server.
The court cited the location of the end user as being particularly important, given the policy of protecting copyright in the Canadian market.
It is too early to tell whether SOCAN or ISPs will apply for leave to appeal the court's decision to the Supreme Court of Canada. While the chance of a successful appeal may be slim, the relative difficulty of enforcing a tariff against other parties in the internet chain may dictate a further appeal by SOCAN. The difficulties presented by the court's finding for ISPs regarding caching equally may lead to an appeal.
Once the legal issues are finally resolved, Tariff 22 will proceed to a hearing on the second phase before the Copyright Board, to determine who will pay a royalty for the communication of music over the Internet and how that royalty will be calculated.
If the court's ruling remains unchallenged or is upheld, it can be expected that websites, including the country's largest portals, will become a major focus for the determination of an appropriate royalty. The structuring of a tariff will prove particularly complex given the still-developing state of internet business models, and the fact that many of the largest websites are either not or are only minimally involved in the posting of music. Finally, the court has handed the board a monumental challenge in requiring it to consider all relevant connecting factors in order to determine whether a communication from a host server located abroad creates a liability in Canada.
For further information on this topic please contact David Zitzerman or Michael Koch at Goodmans LLP by telephone (+1 416 979 2211) or by fax (+1 416 979 1234) or by email ([email protected] or [email protected]). The Goodmans LLP website can be accessed at www.goodmans.ca.