Wednesday, September 24, 2014

Another Netflix Canadian Close Encounter of the Regulatory Kind


Netflix, as is well known, is having an interesting time with Canadian federal regulation these days. At the CRTC, it is disputing that tribunal’s jurisdiction to regulate Netflix in any way, including the demanding of information. Netflix is also currently engaged in another less visible proceeding at another federal tribunal, namely the Copyright Board that, although less dramatic, is still very interesting and potentially important. On July 18, 2014, The Board released its decision in STATEMENT OF ROYALTIES TO BE COLLECTED FOR THE PERFORMANCE IN PUBLIC OR THE COMMUNICATION TO THE PUBLIC BY TELECOMMUNICATION, IN CANADA, OF MUSICAL WORKS. 

This Board tariff file goes back to 2006 when Netflix was heavily engaged in DVD rental and smartphones were something new and exciting.  In the meantime we have had several potentially relevant SCC cases on technological neutrality and fair dealing and new legislation from 2012 that arguably should have had a major impact on this case.

The whole technological landscape changed when Netflix launched streaming internet based video into Canada in September, 2010. Netflix was technically only an intervenor in the Board case. It is upset that the Board imposed a tariff on the one-month “free” trial membership that Netflix offers.  

Here is how Netflix is affected by the Board’s tariff:
“For a service that offers subscriptions to end-users: 1.7 per cent for the years 2007-2010 and 1.9 per cent for the years 2011-2013 of the amounts paid by subscribers. In the case of free trials, a minimum monthly fee of 6.8¢ for the years 2007- 2010 and 7.5¢ for the years 2011-2013 per free trial subscriber shall apply;”

Fair dealing for Netflix is clearly an issue. $0.068 per customer per month for free trials adds up over the years with as many millions of customers as Netflix has. Also unresolved and up in the air are issues around “downloads” and “making available right” – on the one hand, the Board says that SOCAN not entitled  but then the tariff refers to liability for downloads.

Netflix started a judicial review (in layperson’s terms, an “appeal”) proceeding on August 14, 2014. This will take about a year or more to resolve in the normal course of events. Here is the Notice of Application.  For reasons that are not immediately apparent, Netflix has named the Attorney General of Canada and the Copyright Board itself as respondents.

Quite apart from the legal issues, which are interesting enough to say the least, the whole process raises questions about timing and the role of the Copyright Board where our copyright oversight regulatory system moves inexplicably slowly but affects – inevitably retroactively – enormous and innovative industries that move at the speed of the internet. We have a tariff application here that started in 2006 at the dawning of the smartphone age and well before the age of tablets that was decided by the Board eight years later and long after internet on-demand movies had become widely available. With the almost inevitable judicial review we now see from Copyright Board decisions, this battle is still far from over.

This is another instance in which regulations concerning the procedures and timelines for Copyright Board hearings might have been helpful.


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