Early this month, the Canadian Copyright Board came out with a decision on royalties required to be paid by satellite radio services, Sirius Satellite Radio and Canadian Satellite Radio, pegging it at 6.2% of the revenues earned from the use of the repertoire of three copyright collectives namely, Society of Composers, Authors and Music Publishers of Canada (SOCAN), the Neighbouring Rights Collective of Canada (NRCC) and CMRRA/SODRAC Inc. (CSI). The decision was given following the filing of applications for proposed tariffs by the three copyright collectives. Senior officials from the Board pointed out that this was lower than the standard 7.1% usually paid by conventional radio stations.
The tariff for each of the collectives has been fixed as follows- SOCAN gets 4.26% of total revenues in respect of the communication of musical works collected by it while NRCC gets 1.18% for the communication of sound recordings. For reproduction rights in the course of programming, CSI gets 0.09%, 1.18% for reproductions “when a receiver has extended buffer and replay capabilities” and 2.81% when the receiver has MP3-like capabilities. The Board also noted that there are a few receivers with advanced capabilities.
In its 83-page decision, the Board acknowledged that satellite radio companies had a tough time establishing themselves given the fact that the investment in technology was heavy and the returns were yet to pick up. Bearing this in mind, the Board ordered a discount of 25% for the years 2005 to 2007 and 10% for 2008 and 2009. The applicable rate for 2009 was set at 5.6%. This gesture of the Board was received with a lot of enthusiasm by the satellite radios particularly XM Canada, the parent company of Canadian Satellite Radio (CSR) which felt that the decision lent a great sense of certainty to all the parties involved who had to strike a balance between providing subscribers with the very best in programming at an affordable price while fairly compensating artists for their creative work.
This decision has addressed quite a few interesting legal issues (one of which is briefly discussed in the later part of the post), but the India-relevance here is that the Canadian Board arrived at a solution after considering a host of methodologies put forward by all the parties concerned to fix tariffs. The manner in which the Board went about the issues is of particular importance to us in the light of our Hon’ble Supreme Court’s judgment in Entertainment Entertainment Network v. Super Cassettes Ltd., last May recognizing the authority of the Copyright Board to decide on royalty rates for the industry on the issue of automatic compulsory licensing. The Apex Court had further said that in determining the royalty rates, the Board has to consider whether royalties should be paid at a fixed rate or on a revenue basis. In doing so, the Board is required to take into account the interests of copyright owners and the general public (the issue of “public interest” being factored in a dispute concerning compulsory license for music recordings has been discussed at length before on SpicyIP).
As for the legal issues dealt with in the Canadian Copyright Board’s (CCB) decision, I shall deal with only one issue in as lucid a manner as I can because the sheer detail to which the CCB has gone into the matter can prove to be an overwhelming read- not best suited for a blog. Those interested in going through the entire decision can access it using the link provided earlier in the post.
Here’s a bit of the background. The matter involved the three copyright collectives, SOCAN, NRCC and CSI, on one hand and the two satellite radio services, CSR (of XM Canada) and Sirius on the other. The copyright collectives filed a proposed statement of royalties before the CCB pursuant to the provisions of the Canadian Copyright Act. Invoking the right to object to these proposed statements, the satellite radio services collectively filed an objection.
SOCAN initially SOCAN initially proposed a rate of 25 per cent of total gross income. That proposal was however revised downward substantially at close to 15 per cent, and then to about 13 per cent following the parties’ replies. NRCC in the beginning proposed a rate of 17 per cent of gross income, with a minimum fee of $1.50 per subscriber per month. NRCC later revised its rate proposal to 4.4 per cent and then 4 per cent, without specifying any minimum fees.
CSI started off with a rate of 5 per cent of gross income, with a minimum fee of $0.50 per subscriber per month. CSI’s new proposed tariff for 2008 and 2009 included rates of 5 per cent with a minimum fee of $0.50 per subscriber per month for a service that does not authorize subscribers to reproduce musical works, and 10 per cent with a minimum fee of $1 for a service that does. These rates were revised to 2.9 per cent ($0.29) and 5.8 per cent ($0.58).
To this, CSR did not propose any specific rates, although it was of the opinion that the rates should be lower than the rate paid by commercial radio stations. Sirius proposed SOCAN rates of between 2.0 and 2.6 per cent of income, NRCC rates of between 0.5 per cent and 0.7 per cent, and CSI rates of between 0.48 per cent and 1.14 per cent.
Subsequently, the all parties jointly submitted evidence regarding the amount of music aired on Sirius and CSR compared to the total amount of music on all music channels. Thereafter, CSI and NRCC jointly proposed a methodology to analyse the use of their repertoire by Sirius and CSR. In addition to this report, CSI commissioned another report to determine the amount that should be paid by the Satellite Services for the right to reproduce and authorize the reproduction of musical works in CSI’s repertoire. For their part, the radio services CSR and Sirius commissioned a team to critique the report prepared by the collectives and to propose their own tariff methodology.
Coming to the issue which seems to have taken quite a bit of attention of the CCB, all the parties agreed that SOCAN and NRCC were entitled to a royalty with there being a difference of opinion only on the rates. However, as regards CSI, the bone of contention was CSI’s claim to royalties in respect of reproductions made directly on a server located, not in Canada, but in the US. This was the first in a set of related issues. The second was whether internet-based streaming of satellite service signals constituted reproduction of substantial part of the work under section 3(1) of the Canadian Copyright Act? and third, did the extended buffer, radio replay, pause and rewind feature and sampling of programming content for promotional purposes by retail outlets involve such reproductions? I shall restrict myself only to the first one.
Reproductions Made in the US
The question here was whether the reproductions made in the U.S. by American third-parties for both Sirius and CSR as well as those made by CSR itself were subject to Canadian copyright law. Unless and until this question was answered, the issue of applicability of tariff under the Canadian Copyright law for reproduction could have never been raised. To understand the issue better, here are a few more relevant facts.
CSR creates its own programming. A digital communication link from the Canadian offices to the U.S. infrastructure allows the work stations in Canada to send instructions directly to the servers and the scheduling software sitting in U.S. headquarters in Washington. Thus, CSR programming is conceived and controlled in Canada but produced from Washington.
Unlike CSR, Sirius does not produce any programming itself; it acquires all of its Canadian content from Canadian third-party content providers. For instance, Standard Radio Inc. provides Sirius with a Canadian rock music channel called Iceberg 95 created in studios located in Toronto. The content is available in CD and DMDS Musicrypt. The music is scheduled from Toronto, loaded onto the Sirius master server where it is encoded and digitized for delivery to the server’s master control centre in New York City. Then, Sirius’ content providers use a specialized scheduling software that is part of their server complex to determine which songs and other recorded voice elements will be played and when. When it is time for a show to air, the scheduling system automatically plays it off the copies on the Canadian servers. That output is linked by communication lines to the U.S. facility, combined with the other American channels and uplinked to the satellites. The content used on the Canadian originated signals is never actually stored on the Sirius U.S. server.
In the light of these facts, the step-by-step approach used by the CCB makes for very clear reading and gives a lucid picture of the issue involved. Firstly, all parties agreed that the programming copies used by the radio services fell within the definition of “reproduction” under the Copyright Act. Secondly, they agreed that Sirius authorized the reproduction made by Canadian third-parties for the reproduction of its Canadian channels which are delivered directly to its U.S. partner. This means that these copies which were reproduced in Canada fell within the definition of “reproduction” and so were relevant so far as the issue of applicability of tariff was concerned. At this juncture, the focus narrowed only to the question of applicability of tariffs to those copies made by CSR in the US, but who reproduction was authorised by CSR in Canada.
The radio services contended that the Canadian Copyright Act did not have an extra-territorial effect since it was never intended so and supported their stance citing a fundamental principle of copyright law which is respect for territoriality. That is, the act of authorization iss relevant if the authorized act itself is violative of the Canadian Copyright law, but if the authorized act itself is not covered under the Canadian law in the first place, the factum of authorization is irrelevant. Applying this principle to the facts of this case, it becomes clear that the authorization given by CSR to reproduce copies in the US falls under the second category removing it from the applicability of the Canadian law. The CCB endorsed this argument of the satellite radio services without reservation.
Several such choice of law principles have been discussed in this decision which makes it recommended reading to understand their application. One can safely state that this decision will prove to be a source of guidance for other Copyright Boards as well when it comes to fixing the rates of royalty.
