Re:Sound is exercising its rights in the form of a new tariff on recorded music used to "accompany physical activities" in Canada.

(Wikimedia)

Re:Sound is exercising its rights in the form of a new tariff on recorded music used to "accompany physical activities" in Canada.There is now a tariff for the use of recorded music in thousands of gyms and other venues in Canada. No doubt, there will be attacks on this “tax” – as it will inevitably be called.

Five years and three months after this proposed Re:Sound “fitness” tariff was filed, and two years and two months after the hearing was finished, the Copyright Board has determined in its July 6, 2012 decision that none of the evidence submitted by a parade of expensive experts was sufficiently reliable to form the basis of a calculation for a tariff for fitness clubs, gyms, dance studios, etc. Still, the Board certified a tariff based upon a simple calculation flowing from some SOCAN agreements with various fitness centres and dance class providers, filed at the Board’s request. SOCAN represents composers, authors and publishers. Re:Sound (formerly NRCC) represents performers and record producers.

According to a just released decision by the Copyright Board: 

•  A fitness club that plays sound recordings in Re:Sound’s repertoire during fitness classes will pay a fee of $105.74 per year.
•  A fitness club that plays sound recordings in workout areas will pay according to the existing Re:Sound background music tariff, which is based on either attendance, capacity or floor area. Assuming attendance can be measured, it will pay 0.08¢ per attendee.
• A skating venue will pay 0.44 per cent of its revenues from admission, with a minimum fee of $38.18 per year. Venues with no admission revenues will pay the minimum fee
•    A venue that offers dance instruction or any other physical activity will pay a fee of $23.42 per year.

 Somebody will have to pay for these tariffs. It remains to be seen whether the thousands of establishments that are now liable for it pass the costs onto customers or absorb the costs remains to be seen. How much will these venues pay? According to the Board:

•  A small fitness centre with about 200 members and no fitness classes should pay about $16 per year if background music is played in its workout area.
•    A large fitness centre with 2,000 members that plays sound recordings both in its classes and as background music in its workout areas should pay about $280 per year
•   A dance instruction venue and any other physical activity venue will pay $23.42 per year
•  Skating venues with admission revenues will pay on average royalties of $60 per year. Venues with no admission revenues will pay the minimum fee of $38.18 per year.

How many fitness clubs are there in Canada and what are the revenues of the fitness club industry? Here’s what the Board says: 

•  According to the evidence filed, there are  5,047 fitness clubs in Canada. The total revenues of the fitness club industry were estimated at about $2 billion in 2008.

There’s a lot of money at stake here. In fact, the Board says that Re:Sound was seeking “roughly $86 million per year.”

Is this a “tax”? Here’s what the Board says – in a quite unusual anticipatory defence in a “Fact Sheet” of the inevitable comparison to the dance and wedding “tax”, the now defeated and defunct “iPod tax”,  as Ministers Moore and Clement called it:

Is this tariff a tax?

No. Taxes are introduced by government, collected by government and spent for government purposes. This tariff is a royalty, paid for the use of someone else’s intellectual property, to be collected by a not-for-profit collective and distributed to individual rights holders. The purpose of such royalties, established under the Copyright Act, is to provide fair compensation to performers and record labels for the use of their sound recordings.

However, it’s not quite that simple. For a tax to be a tax it does not necessarily have to be collected by government. Apparently, the “tax” issue was not raised by objectors.

However, Courts are increasingly looking at just what is and what is not a “tax” – and the consequences can be quite interesting. Who would have thought that Obamacare could be saved by a finding of the US Supreme Court that it is actually a “tax”?

In 2004, the Federal Court of Appeal came very close indeed  to agreeing with me (arguing on behalf of the Retail Council of Canada) that the CD levy was a “tax” under Canadian law, which would have rendered it illegal because, if it were a  “tax”, it had not been properly dealt with by Parliament.

This Government clearly thought that the proposed iPod “tax” was a “tax” and refused to allow it into the Copyright Act.

Another interesting aspect of this new tariff is that it is significantly retroactive – in fact, back to 2008. There is no reference to any jurisdictional objection to such retroactivity, although there are some potentially very interesting arguments that might have been made.

One of these days, there may be a serious challenge to the Board’s practice of imposing tariffs with a long retroactive reach. The reason that Board tariffs are retroactive is ultimately quite simple. It usually takes the Board a very long time to get to a hearing and then often at least another 18 months – in this case two years and two months – to render a decision. These are much longer timelines than we normally see in Courts. The Board’s Chairman, Justice Vancise, a very experienced appellate judge from Saskatchewan, has indicated that he is trying to do something about these long timelines.

In the end, and after all of the expert evidence that the Board found to be wanting, the Board  simply looked at some SOCAN agreements and discounted the average amounts it to account for Re:Sound’s limited eligible repertoire. It expressed a considerable lack of satisfaction with the result:

[172] We note that our decision comes after a

lengthy and difficult process made no easier by the

lack of reliable and relevant evidence. Our

preference is to set tariffs based on strong

economic evidence presented by the parties. In this

case we were not able to do so. As stated above, in

our opinion the 2008-2012 tariff for fitness

classes is transitional. The next time we examine

Re:Sound Tariff 6.B, it would be preferable to

also have SOCAN 19 before us. We would then

be able to consider all of the relevant economic

evidence and set both of these tariffs

simultaneously.

In fact, the Board considered setting “no tariff” on the basis that the expert evidence of both sides was rejected by it as “unreliable”. However, the Board did accept the factual evidence of the parties.  Accordingly, it believed that it must set a tariff, unlike in a recent SOCAN case where is declined to do so on the basis of lack of evidence. I and others argued that case in the Court of Appeal in support of the Board’s conclusion that it was not required to certify a tariff – even a “nominal” tariff - in the “absence of proper and reliable evidence”.

It will be interesting to see how long it takes for the mainstream medium to start calling this a “fitness tax” or an “exercise tax”.  

t will be also interesting to see whether there is judicial review (i.e. an “appeal”) of this “fitness” decision. There are 30 days from July 6, to serve and file a notice appeal here.

HPK