In the annals of Canadian copyright royalty fights, few can match Tariff 22 for pure stamina and longevity. First introduced in 1995 by SOCAN, thirteen years later the proposal is still the source of much disagreement. Indeed, years after the Supreme Court of Canada dismissed an attempt to implement a tariff on Internet service providers for the music transmitted over their networks, the Copyright Board of Canada issued a new decision on Friday that addressed the prospect of establishing a royalty on hundreds of thousands of websites ranging from social network giants such as Facebook to thousands of Canadian podcasters.
While Friday's decision is not limited to social networks and podcasters – the decision established royalty rates for, among others, Internet-based radio stations that are deemed to be high users of music (5.3 percent of revenues), electronic games sites (0.8 percent of revenues), and non-commercial radio station webcasts (1.9 percent) – it is the "other sites" category that encompasses everyone from MySpace to a solitary website featuring a small amount of music that will rightly attract the most attention.
SOCAN argued that a tariff was needed for the broad range of websites that make use of music but for whom music is not their main activity. This includes commercial sites that may have background music, podcasters, online video sites, as well as social networks.
A split board rejected the SOCAN proposal for seven percent of gross revenues or expenses of these sites for several reasons. First – and likely most importantly – a majority of the Board was clearly concerned with the impact of such an unexpected tariff. It noted that the tariff would conceivably apply to hundreds of thousands of users, many of whom make very little use of music on their sites. Moreover, the tariff would be retroactive to 1996, requiring site owners to pay for ten years worth of limited music use.
Second, the Board cited the lack of evidence on the use of music on many of these sites, shuddering at the potential effect of a decision where "thousands of individuals who are active on the social networking or video sharing sites were deemed individually responsible for minimal payments."
While the podcasting and social networks royalty has been defeated for the moment, there is little doubt that it will return. The Board was split, with a dissenting panelist arguing that a tariff should at least have been established for larger sites that could generate significant royalties such as MySpace, Facebook, Google, and Yahoo.
Moreover, the majority of the Board noted that SOCAN has submitted a new Tariff 22 proposal for 2007 that will provide the collective with an opportunity to present evidence on the use of music on these other sites. That proposal could lead to a tariff sometime in the near future.
In fact, the Copyright Board also hinted that it is willing to consider a shift from user-based tariffs to use-based ones. In this case, one letter makes a world of difference. User-based tariffs establish royalties by categories of users, such as broadcasters, webcasters, or podcasters. The decision to stick with a user-based tariff made it difficult for the Board to establish a tariff for podcasters, yet a shift to a use-based tariff that would apply to each use of song would resolve those concerns.
For the moment, the Board was uncomfortable with a tariff for thousands of websites, concluding that "the Internet is such a fluid, yet omnipresent phenomenon that it would be foolhardy to attempt to set a tariff when we fear that the consequences might be overwhelming and, we repeat, socially unfair." Given the never-ending saga of Tariff 22, however, no one should expect this to be the last word on the issue.
Michael Geist holds the Canada Research Chair in Internet and E-commerce Law at the University of Ottawa, Faculty of Law. He can reached at email@example.com or online at www.michaelgeist.ca.