Ringtones REDUX - US & Canada compared

Here’s an update of my earlier posting and a brief take on yesterday’s American decision.

The US Register of Copyrights has just rendered a very important decision on ringtones, which can be found here. The proceeding was commenced on August 1, 2006. After written submissions received on September 14, 2006 and a brief oral hearing on October 4, 2006, she yesterday issued a detailed 35 page single spaced decision with 137 footnotes, one of which refers to the recent Canadian decision on a small point. Bill Patry has a good analysis of the decision on his blog.

Here’s my quick take on a very complex and very important decision, from Canada’s standpoint:

Canadians should note:

1. Providers of ringtones in the USA may avail themselves of the compulsory license regime found in s.115 of the US Copyright Act. Canada, probably unwisely, abolished the compulsory mechanical licensing regime for musical works in 1988. Not only has the USA retained its compulsory license for mechanical reproductions - but has created a new compulsory license regime in the form of the Digital Performance Right in Sound Recordings Act of 1995, which was held to apply in most cases to the provision of ringtones as songs or portions thereof as a “digital phonorecord delivery” or “DPD”. The argument that the compulsory license applies only to a whole song and not a portion thereof was rejected. Generally speaking, it appears that there will be a one stop shop mechanism for ringtone providers to get a compulsory license for monophonic, polyphonic and mastertone ringtones, except in the presumably rare case that a ringtone comprises sufficient originality to be a “derivative work” under American law, or is an newly created composition and recording never before distributed to the public.

2. Although the actual rates are not yet determined, they will likely be MUCH lower than in Canada - where a initial 6% solution was imposed (essentially half way between SOCAN’s number and the objectors’ number). And Canada has not seen the end of ringtone tariff costs, because the 6% goes to SOCAN and the other “colleges” of rights holders will soon want their piece of the pie in addition.

Some points worthy of note:

• Not everything about US copyright law is bad. Au contraire. This decision illustrates an example of what is good about it - namely it is much more technologically neutral in the result than we see in Canada in this instance. It may turn out as well that that Congress saw more clearly into the digital future in 1995 in some respects than Canada has yet managed to do. Canada is still grappling with some of the less desirable last century aspects of US law, such as the DMCA - while ignoring what is sometimes better and more prescient about US copyright law.

• The Copyright Office has shown its ability to deliver a very learned decision very quickly. The process - which involved referral of a question of law by the Copyright Royalty Board to the Register of Copyrights - started on August 1, 2006 and resulted in the ruling of October 17, 2006 - less than three months. The lengthy delay of 14 months in the rendering of the Canadian ringtones decision - this following a two year lead up of preliminary matters - will have a ripple effect on other Board hearings, especially since the Canadian decision is now the subject of judicial review and could be overturned. To be fair, the Canadian Copyright Board heard a lot of factual evidence that was apparently not dealt with in the American proceeding which was on certain legal issues only, and has determined a rate - which also has not yet happened in the USA.

• But it should be asked whether Canada’s Copyright Board should bifurcate more often. Not every instance will turn out to be as much of a problem as Tariff 22. In fact, an early determination of some of the obvious legal questions in de novo tariffs - based upon a minimum evidentiary record if indeed needed - might save a lot of time and money overall. In some cases, tariffs have been so poorly conceived that the Board ought to find a way at the outset to say “try again next year” - and save everyone a lot of bother.

• The American case illustrates the ongoing complexities and ironies of internecine warfare in the music industry. However, Congress and the Copyright Office appear to have a good understanding of how this works. One can only smile that the RIAA also has been caught, yet again, sucking and blowing. It often deplores the concept of compulsory licenses when it is on the receiving end, but is apparently quite happy to take advantage of them when it suits its needs.

• The American decision is expected to result in falling prices to consumers in the “mobile industry” - whereas Canadian prices are clearly heading upwards due to high and layered tariffs.

• This decision illustrates by contrast that Canada has a much more costly and complex system. That seems to be the Canadian way. This renews the question about whether or not the Canadian Board can or should do something to stop this costly and complex layering of tariffs. Paying much higher tariffs overall to more parties in Canada - when most of the money will go the USA and Europe anyway - is not very obviously in Canada’s national interest, to say the least.

• Do we need another judicial commission to sort out what the bureaucrats, Parliament and the Copyright Board are all unwilling or unable to confront?

Speaking of judicial review of the Canadian ringtones decision, it’s interesting that the remaining objectors have switched counsel and filed a Notice of Application. It will be interesting to see whether they now have a change of heart and attempt to argue that the provision of ringtones is NOT a “communication by telecommunication” - a point that was inexplicably conceded before the Copyright Board. Their Notice of Application for judicial review leaves this possibility open.

This is a very important point and could affect, for example, the forthcoming SOCAN Tariff 22 hearing scheduled for April 17, 2007. It may affect the recently concluded CSI online music tariff hearing, which took place shortly after the Canadian ringtones decision was rendered. I had intended to argue that point myself at the Board, but my client MOVISO - the largest supplier of ringtones - decided to withdraw form the Canadian Copyright Board ringtone hearing, as have many other parties lately in other Board matters. I raised this point about “communication” again in my blog when the decision came out last month.

HK