On August 18, 2006, the Copyright Board of Canada issued an important decision concerning the royalties to be paid to Canada's performing rights society, the Society of Composers, Authors and Music Publishers of Canada (SOCAN), for the Internet communication of musical works in cellular telephone ringtones: SOCAN Tariff 24 (2003-2005) Ringtones.
SOCAN took the position that it was legally entitled to a tariff and proposed a maximum tariff rate of 10 per cent.
Members of the wireless carrier industry and record producers argued that there was no basis in law for SOCAN's claim to royalties because, in their view, ringtone downloads are private communications between wireless carriers and their individual subscribers, rather than communications "to the public" within the meaning of section 3(1)(f) of the Canadian Copyright Act. In the alternative, they argued that the royalty rate should be set at no more than 1.5 per cent of the retail price of the ringtone.
The Copyright Board confirmed SOCAN's right to royalties and approved a six per cent rate, which is the highest communication rate in the world for ringtones. In fact, the rate is approximately double the average foreign ringtone rate of three per cent. In support of its decision, the Board expressed the following views:
- Ringtones make use of a substantial part of a musical work, within the meaning of the Act.
- The download of a ringtone constitutes a communication to the public in the same way as applies to Internet streaming.
- Foreign rates, including rates in the U.S., cannot be relied upon by the Board for Canadian purposes, particularly when no information is provided concerning the manner in which those rates are established in foreign jurisdictions.
- The amounts paid for reproduction rights in connection with the sale of ringtones are a valid starting point in establishing an appropriate fee for communication rights.
- While obtaining the communication right is ancillary and optional by comparison to the reproduction right, it is nonetheless crucial to the operations of the ringtone suppliers and a ratio of 1:2 as between the value of the communication right and that of the reproduction right is appropriate.
- Consumers give as much importance to the underlying musical work in a ringtone as to the performer's performance of it, and authors also contribute to the added value of mastertones. Moreover, the Board should not cut composer revenues just to enable record producers to increase their revenues.
On September 18, 2006, the Canadian Wireless Telecommunications Association, Bell Mobility Inc. and Telus Communications Company filed a Notice of Application in the Federal Court of Appeal seeking judicial review of the Board's Decision. The judicial review hearing has been set for October 22, 2007.