Internet service providers are off the hook when it comes to paying royalties on music downloaded by individual users, the Supreme Court of Canada said Wednesday.
In a 9-0 ruling that sounded a sour note for music composers and publishers, the court said it is both impractical and unfair to expect service providers to monitor and pay tariffs on the vast flow of material that individual users can access.
"This sounds like a big victory for ISPs, who had been arguing loudly not to be held responsible for delivering content that is not their own," said Ottawa University legal professor Michael Geist, one of the country's top authorities on digital copyright issues.
Forcing ISPs to pay tariffs would have "put Canada at odds with most of the rest of the world in terms of liability for caching and created a significant impediment for ISPs and users across the country," Mr. Geist told globeandmail.com.
The Society of Composers, Authors and Music Publishers of Canada, or SOCAN, took a broader approach than that taken in the United States, where file-sharing services and the individuals who use them are hunted and litigated by the recording industry on a case by case basis.
SOCAN decided the ISPs would be more efficient parties to target for royalties.
But Wednesday's ruling will force composers and publishers to sue individual users if they want to collect royalties for copyright infringement. And even this will not be easy.
A Federal Court of Canada decision earlier this year erected serious obstacles to this sort of litigation in another ruling that went against artists and the music industry.
The court stressed that Parliament has purposely spared service providers from paying royalties for copyright infringement in order to spur the development and efficiency of the Internet.
"Parliament made a policy distinction between those who use the Internet to supply or obtain content such as 'cheap music' and those who are part of the infrastructure of the Internet itself," Mr. Justice Ian Binnie wrote.
In a broader sense, Wednesday's ruling extolled the virtues of a technological marvel whose development ought not be impeded unnecessarily.
"The capacity of the Internet to disseminate works of the arts and intellect is one of the great innovations of the information age," Judge Binnie said. "Its use should be facilitated rather than discouraged, but this should not be done unfairly at the expense of the creator of the works. The Internet, presents a particular challenge to national copyright laws, which are typically territorial in nature."
Andrew Bernstein, a lawyer at Tory's LLP, said the ruling carefully skirts the issue of whether service providers can be found liable for the transmission of defamatory text or material that infringes Criminal Code provisions.
"This is clearly a pro-Internet, pro-service provider decision, but the court has left open how it will deal with other areas as they arise," Mr. Bernstein said.
The central question that the court faced was: Who will compensate Canadian musical composers and artists for copyrighted music that is downloaded in Canada from a foreign country via the Internet?
The losing party — SOCAN — is a Canadian organization that administers the copyright in music for its Canadian members and foreign members of counterpart societies.
In 1995, SOCAN asked the Copyright Board to approve a tariff it proposed setting up a royalty structure for Internet service providers.
Their opponents — a coalition of Canadian service providers — argued that they exist as a mere conduit for content and do not "communicate" or "authorize" anyone to exchange musical works.
The service providers cited 1988 modifications to the Copyright Act that state that suppliers who simply provide "the means of telecommunication necessary for another person to so communicate" do not infringe copyright by doing so.
The Copyright Board agreed, saying that they do not have to pay even if they create a "cache" of music in order to save money and be more efficient.
The Federal Court of Appeal substantially upheld that decision, but it disagreed on the cache issue. It said that by creating a cache of music, a Canadian service provider ceases being merely an intermediary and is liable to pay royalties.
The Supreme Court disagreed, saying Wednesday that caching is acceptable.
"The court is saying that it would be unfair to impose this type of liability on ISPs in the name of efficiency," Mr. Bernstein said. "You would be making all Internet users pay for the copyright violations of a few."
However, the Supreme Court did disagree with the Copyright Board in one respect. It said that a communication need not originate in Canada, from a Canadian server, to infringe copyright.
"To hold otherwise would not only fly in the face of the ordinary use of language but would have serious consequences in other areas of law relevant to the Internet," Judge Binnie said.
He said the Copyright Act comes into play if "there is a sufficient connection between this country and the communication in question for Canada to apply its laws consistently with the principles of order and fairness."
Paul Spurgeon, vice-president of legal services at SOCAN lauded the clarification that a communication takes place both in the country of the signal's origin and in the country that receives the signal. This "unequivocal statement" will enable SOCAN to license performances that originate elsewhere but are received inside Canada," he told globeandmail.com
Mr. Justice Louis LeBel agreed on a great deal of the majority analysis Wednesday, but he dissented on the issue of whether the Copyright Act is infringed by Internet communications that originate from a host server located outside Canada. He said, in essence, that Canadian law cannot apply outside the country.
Judge LeBel also urged courts to respect the privacy interests of users and "eschew an interpretation that would encourage the monitoring or collection of personal data gleaned from Internet-related activity within the home."
"All things considered, it has not been a good year for the music industry so far," said Toronto lawyer Casey Chisick, an expert in the field. "That said, the decision definitely does not stand for the proposition that on-line music is free.
"On the contrary, copyright holders are entirely free to pursue individual remedies against anyone who actually transmits music on-line -- website operators and even peer-to-peer uploaders," Mr. Chisick said.
"In fact, today's decision may actually make it easier to sue individual uploaders, in that the judgment implies that people who know that their actions are likely to result in copyright infringement by a third party could be liable for authorizing infringement."
Mr. Chisick said that while on-line users have won the initial skirmishes with record companies, they have not won the war. The Internet is rapidly overtaking the CD as the dominant form of music delivery, he said, and record sales have plummeted. "The music industry can't be expected to stand idly by and watch as entire generations of consumers treat music as a free commodity. "The bottom line here is that somebody has to pay for the on-line use of music. Something has got to give, and it will."
