Recently, I urged the recording industry to back a statute that would legalize peer-to-peer music file-sharing and at the same time require Internet service providers (ISPs) and electronics businesses

Recently, I urged the recording industry to back a statute that would legalize peer-to-peer music file-sharing and at the same time require Internet service providers (ISPs) and electronics businesses to pay into a fund to reimburse the labels and artists for lost sales.

Two recent developments indicate that Canada may be poised to implement such a scheme.

CANADIAN COPYRIGHT ACTION

The 1998 amendment to the Canadian Copyright Act made it legal to make copies of recorded music for private home use. But the amendment was unclear whether this applied to music downloading.

Recently, the Canadian Copyright Board determined that downloading music from P2P file-sharing services such as Kazaa is legal as long as the downloaded file is used as a "personal copy."

The board did not declare uploading to be legal, and so stopped just shy of completely legalizing P2P music trading.

Since Canada already imposes a levy on blank CDs and MP3 players for the benefit of artists, songwriters and record companies, however, this decision goes a long way towards implementing a system that legalizes file sharing and at the same time compensates the labels and artists.

In the United States, a federal court ruled last April that the free music file sharing service Grokster did not violate copyright law on the grounds that Grokster was merely making available software that enabled people to trade music files.

But the court stated that downloading from these services was copyright infringement. The recording industry took advantage of this legal opening by authorizing the RIAA in September to attack the only remaining legal target: ordinary people who download music from free services.

The decision by the Canadian Copyright Board, though, would hamper the labels' ability to sue Canadian citizens.

ISP TARIFF

What else can the record labels do to fight against "free music" and continuing loss of revenues?

They could decide to join with the Society of Composers, Authors and Music Publishers of Canada (SOCAM) and the Canadian Musical Reproduction Rights Agency (CMRRA).

Last week those organizations argued in Canada's Supreme Court that the ISPs should pay a blanket royalty fee to cover the downloading of music over the Internet.

The president of CMRRA, David Basskin, was quoted as saying: "I believe that those who benefit from selling access to music should compensate the creators."

If this initiative is implemented, the Canadian system may garner enough money to fairly compensate the labels and artists as well as the songwriters for lost sales.

iTUNES MODEL
The initial success of the model first implemented by Apple iTunes of offering downloads of single songs for 99 cents has inspired many imitators in the span of a few months.

Several other services have sprung up to offer the same deal or better, and companies as diverse as MTV and Hewlett-Packard (HP) are planning to launch their own music download services soon.

Yet the success of iTunes consists of only a few million downloads of single tracks, and the decline of the record business does not show any signs of abating.

The principal financial impact of iTunes is that it has tremendously helped sales of MP3 players, especially Apple iPods.

A major problem for the labels in competing with the unauthorized music services continues to be the contractual restrictions against downloading in guest artist agreements, sample licenses and the contracts of superstars such as the Beatles and Madonna.

Only a statutory license can cut through these legal knots and free up all recorded music to be distributed and traded under the color of a statute that would protect consumers from legal attacks by the record companies and at the same time compensate the copyright owners and the artists for lost sales.