Background: Application for judicial review by SOCAN to set aside first phase Copyright Board decision (October 27, 1999) excluding most intermediaries from liability to pay royalties for copyrighted music transmitted on the Internet. Copyright Board had held that a royalty can be imposed on those who post music on a server located in Canada, to which users have access, but that the normal activities of Internet intermediaries (those whose only role in the Internet transmissions is to operate a server on which music is stored, or to provide a recipient with Internet access) do not constitute a "communication" for the purpose of the Copyright Act, therefore a royalty should not be imposed upon those intermediaries.
Held: Application dismissed in part. The court upheld the Copyright Board's ruling that Internet access providers were not liable for royalty payments, when acting strictly as conduits. When a content provider has posted music on a host server, the operator of the host server is then providing the "means necessary" to enable the content provider to communicate by telecommunication, for the purposes of section 2.4(1)(b) of the Copyright Act. An Internet intermediary's performance of activities which are ancillary to the provision of disk space, such as housing and maintaining servers, or monitoring hits to webpages, do not involve any act of communication and do not affect the intermediary's ability to receive protection under section 2.4(1)(b). Also, the normal activities of Internet access providers or host server operators do not implicitly "authorize" content providers to communicate material they have posed on the server to end users, and do not thereby infringe copyright in the material posted.
The court reversed the Copyright Board's decision on two points. First, the court held that if, he Internet intermediary performed caching activities, it was not acting merely as a conduit, and those operating a cache should be subject to payment of royalties. Despite the fact that the cache enhances the speed of transmission, and reduces cost to the Internet access provider, the operation of a cache is not a practical necessity for communication, for the purposes receiving protection under section 2.4(1)(b) of the Copyright Act. Furthermore, the operator of a cache infringes the exclusive right of the copyright owner to communicate a musical work to the public, since the cache operator selects which material will be cached, and programmes the computer to transmit it from the cache when it is requested. Therefore the cache operator is not merely a passive transmitter of data.
Second, the court held that the jurisdictional application of the tariff should extend to foreign-based sites with a real and substantial connection to Canada. SOCAN is only entitled to a royalty in respect of copyright infringements that occur in Canada. The Board's ruling, that a communication by telecommunication occurs at the place from which the transmission originates, is reviewable because it determined a general question of law that was not confined to the evidence in this particular case. Here, the location of the communication should not be determined soley by that of the host server, since the Internet communications in question are only ever effected at the request of the end user, who may be located in Canada, and may be less likely to purchase a recorded copy of music received over the Internet. The reason the Copyright Act protects copyright owners from infringements in Canada is to protect the economic value of the author's work in the Canadian market. SOCAN's members would be left with little compensation for such potential loss of music sales in the Canadian market if the communication were held to occur only at the location of the host server. The issue is to determine the test for locating the communications that would be most consistent with the policy of the Copyright Act.
The court held that a royalty may be made payable in Canada in respect of communications by telecommunication that have a real and substantial connection with Canada. The principal infringing activity is communication by the content provider, but copyright material is not communicated until it is received on the end user's computer, therefore the location of the host server cannot alone determine when the communication occurs. The real and substantial connection test also applies to determining the location of the infringing activity of authorizing a communication, that occurs when a content provider posts copyright material on a host server. Some latitude should be given to the Copyright Board to determine, case-by-case, how to apply the real and substantial connection test. The most important connecting factors will likely be the location of the content provider, the end user and the intermediaries, in particular the host server.
With respect to the standard of review, the court held that the Board's interpretation of the provisions of the Copyright Act were reviewable on a standard of correctness, while deference was due to the Board's application of them to the facts.
Jeanette Lee is an associate at Bereskin & Parr, practising in the area of trade marks, copyright and related licensing, with a special focus on new media, Internet law and the entertainment industry.
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