Copyright Board decision on NRCC Background Music Tariff

The long awaited Copyright Board decision on NRCC’s proposed background music tariff was released on October 20, 2006. Although the Board admired the “eloquent” closing argument of NRCC’s counsel, it basically rejected most of NRCC’s arguments and evidence. At the end of the day, NRCC will get 43.06% of what SOCAN gets for the equivalent activity - covered in SOCAN’s Tariff 16. The 43.06% reflects the fact that NRCC does not have all the repertoire used and not all of the repertoire used is “eligible” for remuneration in Canada. The figure could have been even lower - as low as 36.12% according one of the lead objectors. The fact that is as high as 43.06% is about the one immediate victory that NRCC can claim in this instance.

There are some aspects of the decision that could raise concern for objectors for the long term. But overall, for the moment, it is a victory for the objectors at the Board. The now defunct CCTA (Canadian Cable Television Association), appears to have devoted considerable resources to fighting this tariff and seems to have led the charge, along with several other objectors.

By way of background. On May 11, 2002 the Neighbouring Rights Collective of Canada (which represents performers and record companies) filed its background music tariff - which covers the delivery of background music to commercial establishments, such as restaurants and hotels. The hearing was held in April, 2005. The decision was rendered on October 20, 2006, about 1 ½ years later. That’s about 4 ½ years in total.

This is one of the Board’s more detailed decisions, as if anticipating the Federal Court of Appeal’s ruling of last week that will now force the Board to provide more detailed reasons. This decision will not be an easy one to reverse on judicial review - because by Board standards, the reasoning leading to the rate calculation is more detailed than usual and there doesn’t appear to be any obvious legal error.

The Board rejected NRCC’s main arguments that:
• background music is analogous to pay-per-view for “proxy” purposes and that the Board should not rely on the long established SOCAN Tariff 16, which has worked well for many years for businesses that use third party commercial background music suppliers
• “neighbouring rights” are just as valuable as traditional composers’s and author’s copyrights and that record producers and performers are EACH entitled to the same share as SOCAN.

The latter argument is particularly bizarre, but NRCC persists. To suggest that a record producer who may front an advance, pushes buttons in a recording studio and distributes CDs is entitled to the same level of remuneration for a public performance as an Irving Berlin or Lennon/McCartney or Leonard Cohen who wrote the song is tantamount to an attack on the real creators of music. Very occasionally, a performer can “make a song” that would otherwise go nowhere. In these instances, the performers usually do very well indeed through other mechanisms (concerts, record contracts, endorsements, etc.) as do the record companies. But without composers and authors, there would be nothing to record or perform. The Board held the line by valuing neighbouring rights in total equally overall to traditional copyright - which some would argue is still an overvaluation. But it’s a predictable Canadian compromise.

In Europe, neighbouring rights are still regarded as something removed from pure copyright. In the USA, most of what Canada considers to be neighbouring rights are not even recognized as such under copyright law.

What should the objectors be concerned about in this decision? Although the Board rejected a number of NRCC’s arguments, it did so mainly because it felt that the evidence wasn’t there - this time. For example, the Board left it open to NRCC to charge separately for separate rights (performance + communication) involving the same single transaction - by coming back with better evidence. More layering in store....Some of the arguments could have been rejected out of hand. This invites a substantial change and more trouble in the future, if NRCC is able or willing to marshal better evidence. Also, the Board has explicitly disagreed with some important aspects of its own 1996 SOCAN Tariff 16 decision, which no doubt will make SOCAN happy - because that Tariff is up for a new round of hearings - but will cause uncertainty. While administrative tribunals are not bound by stare decisis, there is a certain virtue in predictability and certainty - unless the earlier decision was clearly wrong.

So, this is a temporary victory for users of background music and maybe even for users generally in terms of recent trends at the Copyright Board. But it may only be temporary. Time will tell.

This tariff lasts until 2009. By the time this comes around again, the Board will hopefully have updated and rationalized the other background music tariffs, namely SOCAN Tariffs 15A and 16.

One overall concern about the decision is that it will be largely inscrutable to those without considerable familiarity with the Board’s past tariffs and the roles of SOCAN and NRCC. For all of its relative length, it does not really put this tariff into a full and transparent context.

For example, the decision fails to adequately explain that ANY business can provide its own background music for free by operating a “radio receiving set”, as enshrined in s. 69(2) of the Copyright Act.

This historical exemption is something that small businesses or even big businesses with small premises who can use a “radio receiving set” need to be more aware of. This is a very useful exemption. Many businesses are probably needlessly paying money to SOCAN and NRCC - when they could use a “radio receiving set” - the only cost required being the cost of buying it and the electricity to use it. This is one exemption that SOCAN and NRCC would really like to repeal - and SOCAN certainty has tried and very nearly succeeded. But hopefully the Government will remember the considerable history and importance of it and leave it intact. Any attempt to get rid of it would and should cause enormous controversy. To its credit, the Board put a reference to s. 69(2) in the tariff itself, but this will likely be lost upon members of the public who don’t know what it is all about and how helpful it can be to small business establishments.

HK