Thursday, March 02, 2006

“Fallout" at the Copyright Board?

Two significant players in Canada’s copyright scene have just conspicuously withdrawn in protest from two major Copyright Board hearings. They are Archambault (the Quebec music retailer) and Canoe (an internet portal), which are both part of the giant Quebecor empire. The hearings involved music on the internet. One is the decade old and still inchoate SOCAN Tariff 22 tariff. The other is the CMRRA/SODRAC (CSI) proposed webcasting tariff. Archambault had earlier withdrawn from the CSI proposed online music tariff. Efforts on the part of objectors to somehow consolidate or rationalize these three closely interrelated tariffs have proven fruitless.

In an 8 page letter from their counsel, Me Jean-Philippe Mikus, Archambault and Canoe stated that they had to take:

the least harmful path given the untenable constraints now being imposed on objectors wishing to express their point of view before the Board. Archambault and Canoe are compelled to withdraw because their participation in the Board's proceedings would imperil their key financial information invaluable trade secrets critical technological information strategic information concerning development and marketing plans and projects, and a host of other information in respect of which the utmost secrecy is essential for their survival.

They point out that “…the mere participation in the Board’s hearings is in and of itself a very considerable burden on a number of levels. The mass of information that collectives systematically seek to obtain from objectors brings about exorbitant costs both in terms of collecting the information and then processing it.”

They suggest:

When collective societies holding monopolies or quasi-monopolies are involved in infighting and then formulate grossly exaggerated claims and multiply instances before the Board, including unreasonable requests for disclosure of irrelevant or marginally relevant highly confidential information, some measure of control must be exercised. The Board should be the first line of defense to avoid that exclusive copyrights established by Parliament and concentrated in the hands of collective societies be an instrument of oppression (to paraphrase Lord Justice Lindley in Hanfstaengl v. Empire Palace (1894) 3 Ch. I09). The experience of Archambault and Canoe leave the bitter impression that the Board is failing at this task and that this failure is already causing extremely serious harm to businesses that have had the courage to jump into untested waters. Significant reform is both necessary and urgent to end the abuses that threaten the very foundation of Canadian businesses offering legal alternatives for the use of music on the Internet. At this stage, it appears that such reforms can only originate from the government or Parliament; it is unfortunate to say that our clients no longer hold out any hope that the Board is able or wiling to address these concerns.

They conclude by reserving the right to seek judicial review “on the basis inter alia that they have not been given the right, reasonably exercised, to be heard in these proceedings.”

While none of this is particularly new to those experienced with Board practice, the letter is a potentially very important development. It was copied to the very long list of objectors in both files and to both Ministers responsible for the copyright file. The current Ministers may prove to be more sympathetic to the concerns of objectors than their predecessors, given this Government’s potentially different perspective on regulation and the costs thereof imposed upon business.

The fundamental dilemma is that virtually all objectors have many issues to worry about other than fighting copyright tariffs. And almost all of them balk at the incredibly high costs of pursuing objections, which routinely run into the six figures and can go beyond. Resulting direct financial savings are often hard to quantify since most collectives overreach to an often absurd extent in the initial proposed tariff. For these and many other reasons, the economics of objecting are not alluring to many entities, even though they may be directly affected. And trade associations aren’t always the answer. In fact, the sad demise of the CCTA, after so many years of valiant and competent contributions to Copyright Board and appellate jurisprudence, shows the difficulties faced by even the most sophisticated and substantial of objectors.

The collectives, on the other hand, have usually only one purpose on their mind, which is increasing Copyright Board tariffs and lobbying for the statutory rights that make this possible. Their costs are paid for – not surprisingly - from the Copyright Board tariffs that are paid by objectors. The more the collectives spend, the more they make - and vice versa and so on. This is classic asymmetrical warfare, in which a relatively small single purpose and highly strategic entity can win major victories against a much larger opponent.

As the letter points out, it is very difficult for an objector to play a limited role in a hearing. It is basically all or nothing:

The approach adopted by the Board so far is very much akin to an "all or nothing approach. There is simply no way of participating in the Board' s work if a party wishes to both put forward its point of view usefully before the Board and be concerned about the confidentiality of its business information. Parties are expected to be subjected to a full inquiry by collective societies, in the presence of all their competitors. The issuance of confidentiality orders does not justify such inflexibility.

There have been other withdrawals in the past, including MOVISO (for whom I acted), which was perhaps the largest supplier of ringtones in Canada and the world. It withdrew during the interrogatory phase from a major hearing on SOCAN’s proposed ringtone tariff, where staggering amounts of money and important legal issues were at stake. The Board and the Canadian public lost the benefit of their participation. ADISQ recently withdrew from the CSI Online Music Services Tariff proceedings. ADISQ is a professional association which represents hundreds of independent Quebec undertakings working in various aspects of the record, entertainment and video industries, including record producers, distributors, publishing firms, performers’ managers, entertainment producers, booking agencies, playhouses, video clip production firms, etc.

In another recent development, the Canadian Association of Broadcasters has launched a major judicial review effort following a recent Board decision imposing a large increase in commercial radio tariffs. In so doing, it referred to the Board publicly as “renegade”. In
the CAB’s own words, “Because this panel of the Copyright Board acted in such an undisciplined manner, there is now a clear and immediate need for the Government of Canada to rein in this renegade to ensure it complies with its legislated mandate.”

Without commenting on the CAB’s choice of language, it must be noted that the CAB has been dealing with these issues and with the Board and its predecessors from day one in the 1930’s. The CAB is turning 80 this year, and the copyright wars between broadcasters and the predecessor of SOCAN are basically responsible for the formation and much of the evolution of the modern Copyright Board regime in Canada.

The Board has the power to enact (with Governor in Council approval) regulations concerning “the practice and procedure in respect of the Board's hearings”. However, it has never exercised this power. The Board reports to Parliament through the Minister of Industry, who has some apparently broad power to put regulations in place even under the current legislation. Needless to say, the Government can introduce legislative changes to this framework, if required.

It is inevitable that there will be calls to restrain certain practices on the part of certain collectives and their counsel. If the Board currently lacks the legal power or declines to do so, then it is possible that the Government will be called upon by many reputable stakeholders to deal with what has evidently become an unsustainable situation for even very substantial objectors.

There are substantial public interest issues involved here that transcend excessively adversarial trial by attrition. These issues could become an important theme in the forthcoming copyright revision exercise.


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