The Society of Authors, Composers and Music Publishers of Canada (SOCAN), the collective society mandated to collect royalties for musical works in Canada, proposed a tariff to the Copyright Board of Canada (the Board) targeting musical works communicated by means of Internet transmission. SOCAN’s proposed tariff rate, retroactively covering the years 1996 to 2006, worked as a percentage of either gross revenues or gross operating revenues. Among the rates proposed were: 10% for music websites that offered downloads with previews, 7% for music sites without previews, 16.7% for sites with on-demand streams, and 4% for game websites (including gambling).
Several parties objected to the proposed tariff, including the Entertainment Software Association (ESA) on behalf of Canadian video game publishers and distributors. The ESA argued that downloading over the Internet was not a “communication to the public” by telecommunication, as required by the Copyright Act, and that no liability existed for point-to-point digital delivery of video games to end users. The ESA also argued that music made up a minute part of the total audiovisual output of a video game, and that video game publishers generally enter into agreements with third-party rights holders to provide music for video games. Therefore, rights holders are fully compensated in advance of the game’s publication.
However, the ESA also submitted that if the Board must certify a tariff, the only acceptable proxy was the existing “low music use” tariff, which is 0.8 per cent of advertising revenues related to music. A further discount of 90 per cent should be applied to reflect that music “is never the main feature of any communication that might occur on a video game publisher’s site.”
The Board held that, per the Supreme Court of Canada’s decision in SOCAN v. Canadian Assn. of Internet Providers (CAIP), a musical work is communicated to the public by telecommunication when a server containing the work responds to a request for a download, and it is the person who makes the work available on the Internet who authorizes its communication. The Board also held that the communication of software in which music is embedded is no different than communication of a television program containing music. The Board did not agree with the ESA’s argument that the proper approach to addressing music within games was contractual rather than regulatory, given the context of SOCAN’s regime.
In the end, the Board certified a tariff, although not the one proposed by either SOCAN or the ESA. The Board decided to only deal at this time with uses targeted in an earlier tariff, commonly referred to by the Board as the “CSI - Online Music” tariff. These uses include permanent downloads, limited downloads and on-demand streams. A tariff for musical works contained in video games was not set. The Board held that dealing with the other uses targeted in Tariff 22 (such as video games) would “raise administrative and wording issues that will require extensive negotiations with the parties.” Nevertheless, in their response to ESA’s arguments the Board indicated that it considered music in video games a communication to the public by telecommunication, and open to regulation by tariff.
On that basis, the Board held that if a communication to the public involved the communication of a work within SOCAN’s repertoire (by one of the targeted uses) then SOCAN was entitled to a tariff. The tariff rates were set at 3.1% for permanent downloads, 5.7% for limited downloads, and 6.8% for on-demand streams (after discounts). Minimum fees were also established, based on the number of “subscribers”.
Subsequently, five of the objectors, including the ESA, applied to the Federal Court of Appeal for judicial review of the Board’s decision.
RE: SOCAN Statement of Royalties, Internet-Online Music Services
October 18, 2007 Copyright Board of Canada
61 CPR (4th) 353
KEYWORDS: tariff - royalties - digital music - Copyright Board
Summarized by Michael Mjanes
