The Supreme Court of Canada dealt a legal blow to the music industry yesterday, ruling that it will have to reach straight for the pockets of individual users if it wants to extract royalty payments for music downloaded from the Internet.
In a 9-0 decision that sounded a sour note for music composers and publishers, the court said Internet service providers are a mere conduit for the transmission of music and are thus off the hook when it comes to copyright infringement.
Besides hampering the free flow of information on a revolutionary mode of communication, the judges said, it is both impractical and unfair to expect service providers to monitor and pay a tariff on the vast amount of material accessible to individual users.
The ruling leaves composers and publishers to sue individual users -- a route that was made more difficult recently by a Federal Court of Canada decision erecting serious barriers to litigation.
"All things considered, it has not been a good year for the music industry so far," said lawyer Casey Chisick, an expert in the field.
"That said, the decision definitely does not stand for the proposition that on-line music is free."
In its broader sense, yesterday's ruling extolled the virtues of a technological marvel whose development ought not to be impeded unnecessarily.
"The capacity of the Internet to disseminate works of the arts and intellect is one of the great innovations of the information age," Mr. Justice Ian Binnie said for the majority.
"Its use should be facilitated rather than discouraged, but this should not be done unfairly at the expense of the creator of the works. The Internet presents a particular challenge to national copyright laws, which are typically territorial in nature."
The judgment may ultimately strengthen the hand of copyright holders, Mr. Chisick said, since "it implies that people who know that their actions are likely to result in copyright infringement by a third party could be liable for authorizing infringement."
"The bottom line here is that somebody has to pay for the on-line use of music," he said.
"The music industry can't be expected to stand idly by and watch as entire generations of consumers treat music as a free commodity. Something has got to give, and it will."
The court stressed that Parliament has intentionally spared service providers from paying royalties for copyright infringement to spur the development and efficiency of the Internet.
Richard Owens, executive director of the Centre for Innovation Law and Policy at the University of Toronto, said the ruling does more than remove a decade-long uncertainty that has hung over the business of providing Internet service.
"The Supreme Court has said that the Internet is important to Canadian society and wherever possible we should encourage its growth and development," he said.
The losing party yesterday, the Society of Composers, Authors and Music Publishers of Canada (SOCAN), asked the Copyright Board in 1995 to approve a tariff setting up a royalty structure for Internet service providers.
Their opponents, a coalition of Canadian service providers, said they exist as a mere conduit for content and do not "communicate" or "authorize" anyone to exchange musical works.
Paul Spurgeon, general counsel for SOCAN, said yesterday that in ruling that communications reaching Canadians from sites abroad can fall under the Copyright Act, the Supreme Court has paved the way for rights-holders to seek compensation from both domestic and international websites.
The ruling also allows for payments from ISPs that act as more than conduits, he said. SOCAN considers large ISPs that run their own portals to fall in this category.
Mr. Spurgeon declined to name specific ISPs, but those that have recently hyped bigger and better portals include Bell Canada's Sympatico, which runs a site jointly with Microsoft Corp.'s MSN.com.
Andrew Bernstein, a lawyer at Torys LLP, said yesterday's ruling carefully skirted the issue of whether ISPs can be found liable for the transmission of defamatory text or material that infringes Criminal Code provisions.
In its original ruling, the Copyright Board said that ISPs do not have to pay the tariff even if they create a "cache" of music to save money and be more efficient.
The Federal Court of Appeal disagreed, saying that by creating a cache of music, a Canadian service provider ceases being merely an intermediary and is liable to pay royalties. Yesterday, the Supreme Court said that caching is acceptable.
"The court is saying that it would be unfair to impose this type of liability on ISPs in the name of efficiency," Mr. Bernstein said. "You would be making all Internet users pay for the copyright violations of a few."