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CEO of SOCAN, Eric Baptiste, said he was disappointed in Thursday's Supreme Court of Canada ruling, which did away with some copyright fees on downloads, July 12, 2012.

Galit Rodan/The Globe and Mail

The Supreme Court of Canada on Thursday rejected the collection of some copyright fees for music downloaded over the Internet.

It was one of five rulings handed down relating to copyright, several of which added new distinctions to the way the music industry monetizes content online.

A group of the country's largest Internet service providers had – among them Rogers, Bell and Telus – appealed to the Supreme Court over performance tariffs  applied to proprietary music download services they offered to wireless customers.

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Before the ruling, both downloaded and streamed music were considered a "public" communication, and any services that provided music was required to pay a fee to license the "performance" of the song.

But the high court rejected the idea downloads constitute a public communication, calling a download a private transmission and relieving the ISP services and others such as Apple's iTunes Store from having to pay the performance levy.

However, the court ruled services that stream music online in Canada – such as through CBC's web site, digital commercial stations and customizable websites like Rdio and Slacker – must continue to pay the performance fees as such behaviour is "not a private transaction outside the scope of the right to communicate to the public."

The difference between download and stream is significant because the latter is an increasingly popular way for consumers to listen to music, accessing tens of millions of songs in this manner.

The Society of Composers, Authors and Music Publishers of Canada (SOCAN) said it was too early to say how this will affect their members, many of whom make much of their living from performance rights.

"It reflects a more complex environment" for consumers to find and listen to music, SOCAN CEO Eric Baptiste said. He said that access to fees from new music streaming services make him optimistic, because "every penny counts" for members.

Mr. Baptiste said his legal team's first impression was that SOCAN will take the issue back to courts for clarification.

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The ruling on streaming music sets in stone a crucial royalty for songwriters and performers, said Rob Bowman, a professor of popular music at Toronto's York University. Download sales may be up, but not nearly as high as overall sales were at the music industry's peak 10 years ago.

"Revenue from performance royalties is now more important than ever," Prof. Bowman said.

When someone creates a recorded piece of music, they're eligible for a handful of rights, some of which they can license and monetize. The distinction within the ruling clarifies the difference between reproduction and performance rights in the context of the Internet.

Reproduction rights guarantee a few cents (usually 8.3 cents) to a songwriter and publisher for each copy of a song – be it on CD or individual download. Performance rights come into play when someone "communicates" a song, like when it's played in a cafe or on the radio.

Before the ruling, one interpretation of the Copyright Act was that all music consumed online was considered "public performance," allowing SOCAN to collect its fees.

Jay Kerr-Wilson, part of the legal team representing the ISPs, said the ruling was beneficial as it relates to Internet neutrality. "Just because the Internet is capable of both downloading and streaming doesn't mean we need to apply both (tariffs) to all activities."

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Well-known copyright lawyer Michael Geist called the net neutrality element one of the "biggest implications" of the ruling.

In another ruling, the court rejected SOCAN's appeal that online music stores should pay royalties on so-called "song previews."

Digital stores often allow shoppers to play a short clip of music, usually about 30 seconds. In 2007, the Copyright Board ruled these previews "research," which did not infringe copyright. Thursday's ruling affirmed that position.

The Supreme Court also ruled that performance royalties do not need to be collected for music used in downloaded video games. This decision actually formed much of the basis for the larger download-royalties ruling; the video game industry challenged the court to set the same standards for downloaded games as purchased physical copies, which do not require the royalty.

The court also determined that record labels and recording artists should not be eligible for royalties from movie and TV soundtracks, as they are considered categorically different than traditional sound recordings.

The fifth ruling removed a distinction between student and teacher permissions to photocopy parts of copyrighted works for classroom use in public schools. Previously, only student copying was considered "fair dealing," though the matter will return to the Copyright Board for reconsideration.

All five cases were initially heard by the Supreme Court in December, 2011.

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