Internet service providers may not have to pay royalties to the music industry for files downloaded by their customers, the Supreme Court of Canada ruled June 30.

TORONTO -- Internet service providers may not have to pay royalties to the music industry for files downloaded by their customers, the Supreme Court of Canada ruled June 30.

In a 9-0 decision, the court ruled that companies providing access to the Web are merely "intermediaries" in the downloading process and therefore may not be bound by Canadian copyright law.

The court decreed that as a general rule, the Canadian Copyright Act does not impose legal liabilities on ISPs, as long as they act as bona-fide intermediaries, and have no input in determining Web content.

The decision indicates that rights holders can sue specific Web sites that distribute their music without authorization. This might apply even to sites in foreign territories that cater to Canadian users. ISPs could become liable if they are formally notified that a specific Web site is violating the law, and if they refuse to block access to it.

Paul Spurgeon and Spurgeon, general counsel of the Society of Composers, Authors and Music Publishers of Canada (SOCAN), says, "The Supreme Court has clearly stated that a Web site communicating from another territory into Canada is a communication in both that country and in Canada. This paves the way for us to go to the Copyright Board, albeit only for Web sites and ISPs that are more than mere conduits. ISP liability could be triggered if technology or knowledge allows them to know more."

"It confirms that Internet transmission from outside of the country are covered by Canadian copyright law regardless of the origin of the transmissions," adds Brian Robertson, president of the Canadian Recording Industry Assn. (CRIA). "If it is an illegal signal, it is also subject to civil or even criminal law."

The case had been closely watched internationally because of its possible impact on the recording and computer sectors.

Allen Dixon general counsel of the London-based IFPI, welcomed the decision. "The ruling in Canada is an important confirmation that infringing services cannot circumvent national laws by transmitting copyrighted files from outside that country. This rule, as it is implemented in other countries, will help prevent piracy havens from being established on the Internet," he says.

SOCAN had attempted to force ISPs to pay a tariff for downloaded music -- significant because the services are easier to track down and sue than are individual download sites or consumers.

The Supreme Court action was brought by the Canadian Assn. of Internet Providers, whose members include subsidiaries of Bell, Sprint, AOL, MCI, IBM and Yahoo!. They argued that artists should seek royalties directly from Web sites that offer copyrighted works, rather than from companies that only provide access to the Web.

The action followed a landmark 2002 ruling by Canada's Federal Court of Appeal, stating that if ISPs act as more than "passive providers" -- for example, by storing or "cacheing" music on their servers -- they were responsible for royalties. That decision had supported the licensing of Internet music transmissions in each country to which they are transmitted, regardless of where the music originates.

In 1995, SOCAN filed a tariff for licensing of performing rights on the Internet with the Copyright Board, in effect addressing the question of liability for music on the Internet for the first time in Canada.

In its Phase I Tariff 22 Jurisdicial Issues decision in 1999, the Copyright Board agreed with SOCAN that Internet transmissions are communications in the same way as radio, TV, or cable broadcasting, and that the same standards of copyright are applicable. However, the Copyright Board also ruled that in order to occur in Canada, a communication must originate from a server located in the country.

SOCAN appealed this decision to the Federal Court of Appeal.

Significantly, in the June 30 decision, the Supreme Court of Canad a swiped at the inadequacies of Canadian copyright, suggesting that the federal government update laws to deal with copyright protection in the digital age. Justice Ian Binnie wrote that the United States, Australia and the European Union have updated their copyright rules to deal specifically with Internet issues.

For the past few years, Canada's music industry has been pressuring the government to update its copyright laws and to ratify two World Intellectual Property Organization (WIPO) treaties that were signed in 1997 but have not yet become law: the Performances and Phonogram Treaty and the Copyright Treaty.

The Federal Court ruled March 31 against a motion by the CRIA that would have allowed the industry association to begin suing individuals who make music available on-line. The court ruled that the ISPs Bell/Sympatico, Rogers Communications Inc., Shaw Communications Inc. and Telus Corp. could not be forced to reveal to the CRIA the names and addresses of 29 people who allegedly had shared a "high volume" of songs via the Internet.

In his ruling, Justice Konrad von Finckenstein said the CRIA did not prove there was copyright infringement by the alleged music uploaders. Von Finckenstein further ruled that downloading or uploading unauthorized files does not constitute copyright infringement under current Canadian law.

The CRIA has appealed von Finckenstein's decision. An appeal is expected to be heard in the fall.

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