In a major, but slim, victory for proponents of electronic commerce, a majority of the Supreme Court of Canada has ruled that online sellers of music and video game downloads are not required to pay more copyright royalties than their "bricks and mortar" counterparts, solely because the products from the virtual stores are delivered via the internet.
In addition, although not considered by the Court, these rulings would also suggest that another copyright tariff, for the delivery of ringtones to mobile phones, may be invalid.
In two decisions that form part of the unprecedented "copyright pentalogy" of copyright tariff appeals heard by the top court last year, the Supreme Court considered whether a download of a recording of a musical work, either on its own or when incorporated into a video game, constituted a "communication to the public by telecommunication," such that a download could attract a distinct copyright royalty, in addition to the royalty payable to the copyright holder for the reproduction of the work on the buyer's computer or device.
In overturning decisions of the Federal Court of Appeal, which had upheld decisions of the Copyright Board, a five Justice majority found that using the internet to transmit to a buyer a permanent reproduction of a work did not amount to a "communication" under the statute.
Among other rights, the Copyright Act grants rights holders both the sole right to reproduce and authorize the reproduction of their works, as well as the right to communicate their works to the public by telecommunication and to authorize such communication. Under these provisions, the Copyright Board of Canada had approved tariffs requiring royalty payments to the Society of Authors, Composers and Music Publishers of Canada (SOCAN) for the communication of downloads of recordings of musical works and for the communication of downloads of recordings of musical works incorporated into video games; as well as a separate tariff, payable to different copyright collective societies, for the reproduction of musical works in permanent downloads, limited downloads and on-demand streams of music transmitted over the internet. Royalties for the reproduction of musical works incorporated into games are individually negotiated with rights holders.
In the view of objectors to the SOCAN tariff at issue, the tariff amounted to "double dipping" in that both a communication royalty and a reproduction royalty arose from the same act or transaction (the downloading of a work), whereas only the reproduction royalty was payable with respect to a tangible copy of the work (such a CD or game cartridge) in a retail store.
In Entertainment Software Association v. SOCAN, which considered the application of the "communication by telecommunication" right to downloads of video games incorporating musical works, the majority of the court found that the Act must be interpreted in light of the principle of technological neutrality, avoiding the imposition of additional layers of protections and fees based solely on the method of delivery of the work to the end user. In this regard, the majority found that the internet was simply an alternative form of delivery. The majority also found that the legislative history of the Act demonstrated that the right to "communicate" was connected to the right to perform a work, not to the right to reproduce permanent copies of the work, and that the performance right did not contemplate the delivery of permanent copies of the work.
In Rogers Communications Inc. v. SOCAN, an eight Justice majority applied the finding in the Entertainment Software Association case in ruling that downloads of musical works on their own (i.e. not incorporated into video games) are also not "communications by telecommunication."
It should be noted that these decisions relate only to downloads of permanent copies of games and music recordings, not to live streaming of musical works, which do not result in the placement of a permanent copy of the work on the recipient's hard drive or device. Such streaming services continue to be subject to copyright royalties for "communication by telecommunication." The decision also do not affect the reproduction royalties payable for enabling, through downloads, the creation of permanent copies on user equipment.
Interestingly, the Entertainment Software Association decision also calls into question the validity of another SOCAN tariff for "communication by telecommunication," which was not before the Court for consideration: SOCAN's tariff for the downloading of ring tones to mobile telephones. An earlier challenge to that tariff had been upheld by the Federal Court of Appeal, and the Supreme Court had denied leave to appeal the lower court's decision; however, it is difficult to see how the delivery, by wireless telecommunication, of a permanent copy of a sound recording could constitute a "communication", when the delivery of the same recording via the internet would not.
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