On September 24, 2012, the Copyright Board of Canada (the “Board”) began a two week public hearing for two proposed Re:Sound tariffs: Tariff 8.A (Simulcasting and Webcasting) and Tariff 8.B (Semi-Interactive Webcasting). This hearing has been highly anticipated since Pandora, a popular American webcaster and an objector participating in the hearing, exited the Canadian market in 2007 citing excessive performance royalties as the main reason for its departure.

Adding fuel to the fire, another webcaster, Songza, recently reached a private agreement with Re:Sound, and has since reported over a million Canadian subscribers. However, beyond the important business implications, the Board must revisit the legal question at the heart of the Re:Sound proposals – the extent to which copyright royalty standards of the United States (US) ought to influence Canadian royalty rates.

Tariff 8.A covers both simulcasting and non-interactive webcasting. Simulcasting is the communication of a traditional radio signal over the Internet, and is used by many Canadian broadcasters. Non-interactive webcasting is generally understood as the streaming of original Internet broadcasts, or web-radio. Canadian examples include Astral and CBC Radio 3. Semi-interactive webcasting, covered by Tariff 8.B, involves the streaming of content which is influenced by user-inputted preferences such as genre and artist. This is the service provided by Pandora.

Re:Sound proposed that commercial semi-interactive webcasters pay a royalty rate calculated as the greater of:

a)      25 to 30 per cent of the gross revenues; and

b)      0.0023 to 0.004 per-play, with a minimum fee of $500 per channel up to maximum of $50,000 annually.

The issue of public consciousness is the argument of Pandora against per-play royalty rates, which it recently reaffirmed stating, “[t]here is such a disconnect, as has been demonstrated by the U.S. … between the per-play rate and the fundamental economics of the business.” However, as recognized by Michael Geist, this sort of opposition is business-oriented rather than legal. The parties’ Statements of Case (available to the public by request) present a variety of important, even novel, questions, such as whether Re:Sound has the legal authority to compel webcasters to implement technological protection measures to prevent stream-ripping. However, the most significant legal issue relates to Re:Sound’s foundation for the proposed rates.

Re:Sound justified its proposal by arguing that the online music industry has outpaced the statutory licence regime in Canada, and thus the Board ought to take into account the global licensing market, and in particular that of the US “in order to encourage the entry of international services and foster the development of its online music market.” By the same token, Re:Sound advocated that the Board adopt the statutorily mandated royalty standard of §114 of the US Copyright Act – “rates and terms that would have been negotiated in the marketplace between a willing buyer and a willing seller.” As found by the Copyright Royalty Arbitration Panel (CARP) in Webcasting I, this hypothetical marketplace is proved by furnishing evidence of actual voluntarily negotiated agreements. Hence, Re:Sound confidentially submitted several contracts between Canadian rights-holders and webcasters for communication rights, which presumably include royalty rates roughly similar to those in the US.

Pandora and the Canadian Association of Broadcasters (CAB) both argued against any consideration of US rates for a variety of reasons. Most importantly, that US legislation grants full copyright in sound recordings in certain circumstances, rather than the right to equitable remuneration in s. 19 of the Canadian Copyright Act. The US Library of Congress found this distinction to be sufficient grounds to reject comparisons in its royalty decision. Similarly, for a variety of reasons the Board in Canada has expressed scepticism in the usefulness of American standards, most resolutely in the 2005 Tariff 1.A decision.

The Board, however, has not categorically rejected the application of the willing buyer/seller standard. For example, in the 2002 Pay Audio Services Tariff the Board acknowledged its usefulness as a starting point, but “only when it offers some basis for comparison with the industry under examination.” Furthermore, the Board has long held that executed agreements are “prima facie relevant to the task of setting a performing rights tariff…” As such, even if the Board rejects the US royalty rates on the basis of the inapplicability of US standards to determinations of Canadian royalty rates per se, Re:Sound may successfully advocate for the adoption of US-styled royalty rates as contained within the voluntarily negotiated contracts submitted as evidence.

Pandora and CAB countered Re:Sound by pointing out that the certified SOCAN Tariff 22B-G, which includes webcasters, sets out a markedly different royalty scheme for communications of musical works. The Board precedent that the equitable remuneration to be paid for the use of sound recordings to Re:Sound is to be determined by first identifying the applicable SOCAN tariff over the same use, and then setting a 1:1 ratio, is long-standing.

The core of Re:Sound’s proposal was that the Board ought to adopt the US-approach to royalty determination, by estimating hypothetical market prices. However, as Bouchard recognized, the Board has historically asserted “not only that a market price is only one of several possible rational bases for a tariff, but that in certain circumstances, public policy would lead it to ignore market considerations altogether.” Whether Re:Sound argued with sufficient persuasion that webcasting ought to fall within the cases decided by the market, rather than public policy or other factors, will be the most important determination of the Board.

Ken Anderson is a JD Candidate at Osgoode Hall Law School and is currently enrolled in Osgoode’s Intellectual Property Law and Technology Intensive Program.  As part of the program requirements, students are asked to write a blog on a topic of their choice.

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