Milestones in Canada’s Music Levy - The Journey to Extinction

September 30, 2013 was the deadline for the Canadian Private Copyright Collective (“CPCC”) to file a Notice of Application for judicial review (in layperson’s terms, an “appeal”) of the Copyright Board’s decision of August 30, 2013 not to proceed with a hearing process that could have resulted in a retroactive levy for the first 10 months or so of 2012 on microSDs. That deadline came and went, with nothing from the CPCC.

This effectively means that that, absent some extremely unlikely legislation, the CPCC’s only source of revenues henceforth will be from the sale of blank CDs, which are falling off very quickly. Indeed, the last publicly reported revenue figures for CPCC are for 2012, and were less than $10 million, presumably virtually all of which was from the sale of blank CDs, and falling fast. Blank CDs are a legacy medium that will soon be an obsolete and virtually unavailable medium. One of the ironies of the private copying scheme is that these CD products now often cost much more than blank DVDs, which hold about 7 times more data – but which are not encumbered with a $0.29 a piece levy. And hardly anyone uses blank CDs anymore because they only make any sense if one has a very old computer that doesn’t even have a DVD burner.  Moreover, storage in the cloud, on internal or external hard drives, thumb drives, SD or microSD cards, or on smart phones is either free or incredibly cheap and vastly more convenient for almost all purposes than the awkward and clunky CD format.

This Government has made is abundantly clear that it will not impose any new “tax” on storage devices. As Minister Moore said on September 22, 2010 when he was Heritage Minister:

This idea of imposing a new tax on iPods and MP3 players is not a new idea because there are very few new ideas, unfortunately, that come from the opposition on the issues of copyright and taxes. However, this idea is really toxic and, frankly, really dumb. This would punish consumers if we were to put in place a tax of up to $75 on iPods, Blackberries, cell phones, laptops, computers, memory sticks and automobiles, anything that is capable of playing digital music. (Emphasis added)

Here's a link to the whole exchange with BQ member Carolyn Lavallée.

Also and by interesting coincidence, David Basskin retired as President and CEO of the Canadian Musical Reproduction Rights Agency Ltd. (CMRRA) on the same date, September 30, 2013.  Mr. Basskin had been a key driving force and spokesperson for the levy scheme from its very beginning.

It will be interesting to see what happens now to the CPCC, as its revenues rapidly evaporate with no new source in sight. The private copying levy scheme was established by its own special sui generis scheme set out in a completely self-standing and easily severable part of the Copyright Act. But technology and economics have made that scheme obsolete and rendered it all but extinct. Moreover, the scheme became highly problematic and divisive even within the music industry when it was realized – and confirmed by the Copyright Board and the Courts – that it rendered private copying based upon downloading, even from “illegal” sources on the internet, perfectly legal as long as it was done onto an “audio recording medium” and regardless of whether a levy had been sought for such medium. Both the Court and the Government have made it clear that the scheme cannot be extended by the Board to cover unintended products, such as iPods, smartphones, etc. that don’t qualify as an “audio recording medium”.

Other collectives also now face an uncertain future as users begin to realize that, in light of recent technological change, legislation and Supreme Court of Canada jurisprudence, it is no longer necessary to obtain licenses that are based on non-existent rights or rights that are greatly over-priced and which can be cleared more efficiently in other ways than through a blanket license – whether or not that license is in the form of a certified tariff. We will no doubt hear much more on this subject in the weeks and months to come.

I should disclose that I have been involved as counsel acting for various opponents of the CPCC since approximately 1999.

HPK

The $45,000,000 Chet Baker Estate Copyright Class Action Settlement - The February 9, 2011 Deadline

The class action on behalf of Chet Baker against the major record labels in Canada has been settled, according to a press release The labels will reportedly pay out about $45 million. That sounds like a lot - and indeed it is by any measure in Canadian copyright litigation. However, this figure can better be seen in perspective when one reads the Fresh as Amended Statement of Claim  (“the Claim”), which alleges that there were 300,000 (not a misprint) works on the “pending lists”  “for which no license has been obtained and no compensation has been paid to the class owners.”  The Claim states that “According to the Record Companies, the lists reflect liability for unpaid royalties in excess of $50,000,000." 

Initial reports had the law suit valued at $6 billion based upon statutory damages of $20,000 a piece for 300,000 works.

After an unspecified number of millions more in legal fees, disbursements and commissions are paid out from the settlement funds, something likely well under an average of $135 will be paid to copyright owners for each work allegedly infringed. This may not sound like very much. Indeed, if the figures in the Claim are accurate, it’s less than the face amount of what is owed.  However, it is a significant chunk of what was allegedly owed and is far better than nothing. Whether it is enough is for class action members and their advisors  to decide, assuming that they are aware of the deadline of February 9, 2011 to voice their objections prior to the scheduled approval hearing date which is set for February 15, 2011.

In any event, the record companies and CSI (CMRRA + SODRAC) appear to be very happy with this result, which is hardly surprising considering that they are apparently, according the Claim, paying less than the face value of the amount owing after several years and after legal costs. Arguably, they are about to get, effectively, a judicially sanctioned retroactive compulsory license on a massive scale.
   
Although announced on January 10, 2011, this has received remarkably little attention, especially considering that it is probably the largest ever class action copyright settlement in Canada, and is worth more than four times the $11 million settlement in the Robertson case that went to he Supreme Court of Canada. However, despite the large sounding figure - is not notably generous to the class members, who will receive at the end of the day, which could be a very long time from now if at all (assuming that they can be found), something likely well under an average of $135 per title infringed. This is far less than the $20,000 first forecast per infringement and less than a third of the normal minimum statutory damages amount of $500 per work - BEFORE further legal and other costs (which could be very substantial) are taken into account.   

And the obvious fact is that this involved alleged infringement by the worlds biggest record companies, which are commercial businesses.

All of this arises from allegations “that the Record Companies are liable for copyright infringement by reproducing certain musical works in sound recordings released in physical formats in Canada, without securing licenses from the owners of copyright in those musical works and/or without payment of the necessary royalties”.

Once upon a time (prior to 1988) we had a compulsory mechanical license system in Canada. A record company could use this license to make a sound recording by paying the required fee.  The USA still has this system. Now, we have a system where licenses (i.e. permission) is supposed to be obtained in advance for each recording, and the agreed amount must be paid. Enter CMRRA (English Canada) and  SODRAC (French Canada), which can provide many but not all necessary licenses on behalf of many but not all music publishers and copyright owners These organizations had a very small footprint prior to 1988.  CMRRA/SODRAC represents music publishers. However, a good chunk of the music publishing business is owned by the record companies. Interestingly, CMRRA was largely responsible for the abolition of the mechanical license in 1988 - based upon the memorable slogan of “Two cents too long.”

According to the Court approved Notice:

    The “Pending Lists”

    The class action pertains to a process whereby the Record Companies maintain lists, usually referred to as “Pending Lists”, pursuant to mechanical licensing agreements with CMRRA. Those lists itemize musical works that have been reproduced by the Record Companies in sound recordings (and in some cases, video products) released in physical formats in Canada, for which the Record Companies have not, for various reasons and despite ongoing efforts, secured licences from and/or paid royalties to the owners of copyright in those musical works. 

Also, according to this Notice:

    CMRRA and SODRAC agreed to and have provided the plaintiffs with evidence, cooperation and assistance to the plaintiffs in exchange for a release of the claims made against them.  

This is somewhat odd since CMRRA and SODRAC would have had to provide evidence in any event, if pressed,  through the discovery process. After all, they were named as Defendants. Needless to say, CMRRA and SODRAC are in an interesting position here, given their relationship with the big record companies on the one hand and composers and publishers on the other hand, particularly considering that the record companies have very major publishing interests.

In the end, not only are CMRRA and SODRAC let off the hook in the settlement - they indeed will actually benefit from it with the 10% “commission” they will receive - see below. This is presumably in addition to the amounts they would normally earn from their licensing activities.

It is possible that the normal minimum statutory damages award amount of $500 was negotiated down for a number of reasons, which could include the provisions of the statute itself allowing this where there are a large number of works and the ostensible three year limitation period in the statute. The limitation period issue might have been very interesting, it’s far from clear how that  limitations period might have applied  in a situation such as this, where much of the alleged infringement may not have been reasonably discoverable by many of the plaintiffs.

For reasons which are explained further below, it is not clear from the available documents how the settlement will resolve the issues that led to this litigation on a going forward basis.

Some limited documentation is available on the Plaintiff’s lead counsels' website. These documents indicate that:

•    The four labels will pay collectively a minimum of $750,000 for “partial indemnity costs”.
•    Additional payments for legal fees and disbursements will come out of the Settlement Trust as approved by the Court. The available documentation does not indicate what this amount will be. It is likely that the amount sought will be substantial. However, it is not apparent how far along this case got in the litigation process beyond the statement of claim and the certification stage.
•     CIPPIC, the legal clinic at the University of Ottawa Faculty of Law, which has a mandate to “provide legal assistance to under-represented organizations and individuals on matters involving the intersection of law and technology”,  is listed on the Statement of Claim with its current director (David Fewer)  and former director (Phillippa Lawson) as co-counsel for the class plaintiffs along with counsel in two private law firms. Their role in this case and financial involvement in this settlement and the expected multimillion dollar legal fees are not apparent in the currently publicly available settlement documentation. 
•    CMRRA/SODRAC will receive 10% of all payments made out of the Settlement Trust as “commission” for acting as “settlement administrator”. Presumably, this will be in addition to the regular remuneration that CMRRA/SODRAC receives from copyright owners. They will not have to pay anything to the copyright owners.
•    Notice costs to a maximum of $150,000 will be paid out of the Settlement Trust. These notices, usually in the form of newspaper ads, are often the only vehicle by which class members become aware of their entitlement, the deadlines and procedures for making a claim and, of course, the deadliness and procedures to opt out of the settlement and to seek their own redress if they are not satisfied with the award.
•    For reasons which are not apparent the “opt-out” threshold will be provided to the Court for approval on a confidential basis.       
•    A number of documents referred to in the available settlement documents, such as the potentially very important CSI (CMRRA + SODRAC) “term sheet” are not available.

Thus, the net average payment per work alleged to have been infringed will be something probably well below an average of $135 after CMRRA and SODRAC and the plaintiff’s class action counsel get paid.
   
For better or worse, settlements have no binding precedential value as such in the Courts for future court cases. It would have been very interesting and informative had this matter gone to trial, but we will presumably never know why it did not. Nonetheless, there are some interesting and ironical lessons that some might argue are can be gleaned from this settlement, if it is approved.

For example, the American international parents of the same record companies that are getting off the hook for less than $150 per alleged infringement in Canada are asking for and pushing with all their considerable might for  $62,500 for each of the 24 songs that Jamie Thomas-Rasset, a single native American mother,  downloaded and "shared" in litigation brought by in the USA.

This is even more ironic because the head of the Canadian Recoding Industry Association, Graham Henderson, is on record as complaining that Bill C-32 gives those engaged in non-commercial activity a “license to steal”, even though they could be found liable for far more than $150 per work to a maximum of $5,000. A $5,000 damages award to an individual is far more severe than a $50,000,000 hit that retroactively and with an apparently very substantial discount wipes the commercial mechanical license infringement slate clean for an industry that still takes in about a $1,000,000,0000 a year in Canada from various revenue sources. One might even say that the operative rule that eventually led to this litigation could have been to the effect of "exploit now, pay later if at all."

One positive potential lesson here, but which will likely be lost upon many who could learn from it, its that overly risk-averse management and counsel of Canadian educational institutions who are constantly alarmed by Access Copyright’s veiled threats of statutory damages could take some considerable comfort here.  If this case is any guideline, even mass systematic commercial infringement will settle at a discount. Needless to say, universities are not engaged in such activity. And Access Copyright would likely never have as good as case as the plaintiffs had in this instance.

Thus, it seems that in a very big copyright action involving an extremely large number of titles and owners, a settlement at significant discount may be the logical and even inevitable result if the case is well fought.  In any copyright action involving even one title, there can be fatal difficulties in proving chain of title - especially where there is no timely registration and the actual creator and/or copyright owner are not eager to get involved - and especially so when they are not in Canada.  In mass infringement, there can presumably be mass difficulties.

Facts about the Settlement:
   
The documentation available on the lead law firm’s website is not detailed.  For example, there is no indication of the contents of the CSI “term sheet” that is mentioned many times, nor how CMRRA/SODCRAC will deal with the issues that have arisen in the future. While the Google Book Settlement documentation was enormously voluminous and complex, this documentation is on the other extreme. We do not know, for example, how much the lawyers for the class plaintiffs will receive at the end of the day from the settlement proceeds, or even what they are asking for.  We do not know what the “opt out” threshold will be and why this is confidential. We do not know what is in the CSI “Term Sheet”.

In fact, some key information found in the Wire Report story of January 11, 2011 is more revealing than the settlement documentation. It indicated that CMRRA will, interestingly enough, rely on s. 77 of the Copyright Act to deal with unlocatable owners:

    Basskin [of CMRRA] said the new platform will prevent labels' pending lists from building up anew.

    “We will be assisting the record companies in obtaining licences from the Copyright Board of Canada pursuant to section 77 of the Copyright Act,” he said.

   

    “Under the Copyright Act, if a person who wants to use a copyright has made reasonable attempts to find the owner, but has been unable to do so, he can apply to the Copyright Board for a licence to close that gap. The Copyright Board then takes care of the process of issuing the licence, collecting the royalties and basically advising the public at large, 'if this is yours, come forward and get your money.'”

   

    The CMRRA and SODRAC will also create a website where the public can verify if any of their works are on a pending list.

This is really interesting because s. 77 of the Copyright Act was arguably never intended to set up mass clearances by the Board of thousands of works, especially where the circumstances will be different and difficult by definition in each case. Handing this issue over to the Board and expecting the Board to bless massive numbers of mechanical licenses in bulk for supposedly “unlocatable” copyright owners and deal with the proceeds and claims looks a lot like a compulsory license regime, with the potentially considerable administration costs borne at least in large part by taxpayers. The Board is rarely reticent about asking for more resources, even though it is already apparently by far the largest Board of its type anywhere in the world.

As noted above. that CMRRA expects a 10% commission on the proceeds it distributes for the Settlement Fund, in other words to the locatable owners. This presumably will be in addition to whatever else it gets paid for its agency services.

In any case, the Board has had apparent difficulty handling the relatively small number of requests it has hitherto received in a timely manner. About half of the applications take more than eight weeks to process. It is unclear whether any of the Board actually have any hands on involvement with this process. (The Board has held only one actual “hearing” on an unlocatable issue and the result was a very  troublesome 3-2 split decision). The Board currently estimates that a reasonable normal time delay would be about 45 days, which is likely unsuitable for the music industry.  Currently, the Board receives only a few dozen applications a year for “unlocatable” licenses. In 2008-2009, it received only 28 applications and issued only 14 licenses.  Even with all of its resources, which were recently augmented, the Board still requires as much as 18 months or more from the conclusion of a hearing to issue decisions from the few hearings it holds each year.  (This year, there are none scheduled). What the Board will do with an ongoing  list of conceivably thousands or more of unlocatable copyright owners remains to be seen.

While it is understood that informal talks may have taken place with the Board, it is also understood that there is no formal or official arrangement in place. Nor is there any reference in the available settlement documents to this information disclosed to the media by CMRRA.
   
Approval Hearing of February 15, 2011 and Deadline of February 9, 2011:

Those who may wish to object to the terms of the settlement for any reason should note the following, from the notice approved by the Court and very short deadline from now for making submissions (February 9, 2011) in advance of the approval hearing itself (February 15, 2011). It is unclear to what extent notice of this key step in the proceeding has been given to class members. There are lots of interesting questions in this instance, which may or may not be answered if and when we see more documents.

Note the following from the "Notice of Approval and Settlement Certification Hearing" document:

A hearing to approve the settlements entered into between the Plaintiffs and the Defendants will be held by the Ontario Superior Court of Justice in Toronto on Tuesday, February 15, 2011 at 10:00 am.


Class Members are permitted to appear and make submissions at the hearing with respect to the settlements or to make submissions in writing. If you wish to comment on or make an objection to the settlements, a written submission must be delivered to Class Counsel by fax or regular mail at the contact particulars listed below by Wednesday, February 09, 2011. Class Counsel undertake to forward all such submissions to the Court and to counsel for the Defendants for consideration. If the settlements receive court approval, further notices will be published to advise of such court approval.


Class Members who do not oppose the proposed settlements need not appear at the hearing or take any other action at this time to indicate their desire to participate in the settlements. The process for Class Members to make a claim for settlement benefits will be explained in the future within a subsequent notice.

The Fax number for Jonathan Foreman at Harrison Pensa, the lead counsel, is:
Fax: (519) 667-3362

Anyone wishing to object to this settlement should fax Harrison Pensa IMMEDIATELY - and in no case later than February 9, 2011.
   
CONCLUSION

Like many class actions that are settled, this one raises as many questions or more than it answers. However, settlements that are in the interests of all parties are clearly preferable to protracted litigation. 

This settlement appears to result in the paying of a significant portion of money that has been owing for a long time. The settlement apparently works very well for the record companies, CMRRA/SODRAC and the many lawyers involved for all parties.

While the record companies are no doubt pleased that they have been able to “exploit now and pay later”, at an apparent discount, the ironies of this position are open for discussion in future policy and even legal confrontations. If these commercial enterprises can do this, can they in turn, wearing their copyright owner hats, henceforth continue to express outrage about non-commercial private use and to seek the right to collect disproportionate statutory damages from non-commercial users such as students and single mothers? Will the potential ironies of this approach affect the ability of other would be copyright claimants - such as Access Copyright - to credibly threaten large statutory damage awards in non-commercial contexts, such as educational institutions and governments, where non-clearance is bound to be inadvertent and anything but systematic?

Invariably last, but not least, are the artists and creators. Whether the terms are adequate for them - assuming that they know about it - will be decided very soon on February 15, 2011 in a Court in a Toronto court room. Any objections by them must be filed with class counsel by February 9, 2011.

HK

Querulous Quote of the Day re Bill C-32 re "capacity of the Conservative party to hate people who make art"

The querulous quote of the day re Bill C-32 goes to David Basskin, a Director of the CPCC and CEO of CMRRA. Here it is from itbusiness.ca:

"The way the bill is written, we could never again be compensated for these copies, we don't think that's fair," says David Basskin, a director with the CPCC. "We're really at a loss to understand the capacity of the Conservative party to hate people who make art."

(emphasis added)

Recall, as I pointed out on March 16, 2010, based upon CPCC's own figures, with respect to this "nonsensical" "tax", as the Government calls it:

By the way, the CPCC’s average payout to the ultimate beneficiaries has been at most about $160 per year for those who actually receive cheques and likely much less in the case of actual individual artists. The cost of running the collective, most of which goes to lawyers, consultants and employees of this comparatively small organization, has been about $25,000,000 to date.

So who exactly is denying artists their due? The point is that there is resistance to inefficient collectives that do little or nothing for "people who make art", yet do a lot to the extent of millions a year to to benefit a small number of managers, consultants and lawyers who are associated with the collective. In this instance, the Government is speaking for a very large number of people - including the countless artists who have received very little if anything from a costly and very inefficient levy regime that made little sense in the age of the analogue cassette and makes no sense in the digital iTunes age. Not to mention millions of individual, corporate and institutional consumers who have never copied music but have paid hundreds of millions of dollars in the form of "levies' which are regarded by this Government and most Canadians as "taxes".

A $75 "tax" on iPods, smart phones, etc. - which is the latest amount officially sought by the CPCC - would simply perpetuate a bad business model that will cause massive problems in the Canadian electronics, retail and wireless sectors (for starters), and do less than nothing for most working artists. True, it would work out very well for a small group of managers, consultants, lawyers and lobbyists who strive to keep the levy alive.

True, some publishers and record companies do get more than beer money out of this regime. However, member collectives of CPCC, such as SOCAN and CMRRA, also deduct their own administrative costs or overhead charges on whatever eventually flows from CPCC through them to the "people who make art." We don't know how much gets through to individual "people who make art" because there is very little transparency concerning this system. The Copyright Board leaves such issues to the internal workings of the collectives, which is to say, once again, that there is very little transparency as to how the distribution mechanism works overall - and virtually none at the level of individual "people who make art."

The Copyright Board also seems to think that a levy on iPods, etc. would be a good idea - and has twice tried and failed to impose such a levy. I have been involved in both successful attempts to quash such a levy. The Chairman of the Copyright Board has recently stated with respect to the first decision of the Federal Court of Appeal ruling that the Board lacked jurisdiction to impose such a levy:

Did it impede the orderly development of the private copy regime? Yes. That judgment had far reaching effects on the marketplace. It created market uncertainty, made the daily innocent activities of ordinary consumers illegal and helped to ensure that the regime would become irrelevant as new technology changes the way consumers copy music. An additional and predictable result is that in excess of $50 million in royalties have not flowed to authors, composers and performers.

In my view, an iPod levy will be a great disservice to most "people who make art". Among other reasons, it would be a policy substitute and a poor one at that for the grants, subsidies, cultural funds from collectives and other sources of funding that such people - especially emerging Canadian artists - need and deserve. Copyright collectives hate such talk because such payments are not subject to national treatment, do not benefit the foreign interests that ultimately control the major Canadian collectives, and are not subject to collectives administration overhead or administrative costs - which range from about 10% to 25%. Successive Canadian governments of all stripes fought hard and successfully to preserve Canada's cultural sovereignty with respect to grants and subsidies. It's time we asserted it

HK

No CDN lawsuits aginst individuals for file sharing?

There’s a Slyck interview from August 17, 2007 with David Basskin, spokesperson these days for the CPCC - the collector of private copying levies in Canada.

Leaving aside lots of other issues that merit comment, one answer was quite strange.

Slyck.com: Many people have argued for some time that sending lawsuits to people on P2P networks is a bad idea. Some are arguing that, instead of sending lawsuits, it's better to put a levy on ISPs to counteract what the industry considers losses over the internet. Is this something that the CPCC has considered? What are your thoughts on this idea?

David: No lawsuits have been brought in Canada against individuals with respect to unauthorized file "sharing".
...

Excuse me, but what about BMG v. Doe, in which the big record companies sued 29 John and Jane Doe Canadian defendants for file sharing? The result, as we all know, is that BMG et al failed to get disclosure of the names of the actual 29 individuals who were alleged to be illegally sharing files.

If the law suits didn’t actually proceed any further, it wasn’t for lack of effort. The record companies - backed by CRIA - lost in both the Federal Court and the Federal Court of Appeal. CRIA went through three prominent law firms to get this result. There was no lack of effort to sue individuals here.

See my comment on these cases here.

These major record companies - who tried to sue 29 individuals in Canada - happen to be major stakeholders in the private copying levy scheme, through one of the collectives that comprise the CPCC. CRIA was probably the prime mover for the levy scheme in the first place.

I should remind readers that I acted against the record companies in the BMG case and I have long acted against CPCC concerning the private copying levies.

HK