More Hot Air from the Cold North

The blogger who we know affectionately as “Canada’s Million Dollar Man” holds forth on the subject of copyright in Canada in an FAQ that one must reasonably believe he thought important on the subject of “Copyright Reform”. Given the recent activity in Europe, it is well to focus for a moment on who means what when they say “Copyright Reform”, for it is a normative phrase and what you mean depends a lot on where you sit. Literally in this case.

As Chairman Howard Berman noted at a recent hearing of the Foreign Affairs Committee of the U.S. House of Representatives, when the world is faced with economic collapse, there will be little tolerance for intolerance of economic rights, particularly among our otherwise trusted trading partners including Canada.

Canada has been on the U.S. Trade Representative’s Special 301 Watch List every year since 1995. One of the main reasons that Canada remains on the Watch List is that Canada has yet to adopt and implement the 1996 WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty, the minimum ante for participation in the global creative community (treaties that were signed by China in 2007). Now that Canada has been elevated today to the Priority Watch List—along with China—it is important for all members of the global music economy to keep a close eye on what our Northern neighbor is doing with both our—and their—intellectual property rights.

So when we speak of “Copyright Reform” in Canada, it’s really more like bringing Canada in line with the rest of the world. Reform out of the legal chaos that Geist seems comfortable with.

With the status quo firmly in mind, let’s take a look at Geist’s latest comments on the state of the law in the digital society in the form of his comments on a recent FAQ circulated to folks who make their livelihood in the Canadian recording industry. As a matter of form, I first restate the FAQ, then Geist’s comment, then a further comment.

Q 1: What is Copyright?
A: Copyright is the right held by the creator of a literary work, musical work, artistic work or software to decide how that work should be reproduced and made available to the public. It is the foundation upon which the copyright industries – and the jobs they support – is built.

[Geist says: according to the Supreme Court of Canada, it is also a law that seeks to strike a balance between creators’ rights and users’ rights. The effects of copyright extend well beyond just the “copyright industries.”]

Comment: Well, no kidding, that’s sort of stating the obvious. But there is no doubt that the Canadian record business is exponentially smaller than it was when I worked as a musician there in the 1970s, and it is exponentially harder for an artist or musician to make a living now than then. What ever could that decline be attributed to? “Users rights”? I think not. I doubt that the Supreme Court of Canada believes that “users rights” (a term you won’t find in the Canadian Copyright Act) include a “right” of “false innovation” — or even if there were “users rights” as a matter of law, that those rights would include a safe harbor for the cruel theft of labor value. No court in the world intends to protect companies like Isohunt or the Pirate Bay who wrap themselves in the flag of innovation yet do all they can to undermine the economic rights of members of our digital society and enable and encourage users in the expropriation of those rights.]

Q 2: Why is copyright important?
A: Copyright is important because it provides the creator of a work with the same basic rights as an owner of physical property, including the right to determine the selling price and the right to protection from theft. By protecting a creator’s rights, copyright also promotes innovation and progress in science and the arts.

[Geist: the balance is also important to ensure appropriate access, new creativity, and enough flexibility within the law to ensure new innovative business models.]

Comment: Before you can even talk about “balance” there has to be a robust legal system that protects the economic rights of all citizens of the digital society. Hernando de Soto could have been describing the state of IP laws online when he wrote in his prophetic book, The Economic Answer to Terrorism: “Imagine a country where the law that governs property rights is so deficient that nobody can easily identify who owns what, addresses cannot be systematically verified, and people cannot be made to pay their debts.” Sound familiar?

Canada exists in a first world economy offline and a fourth world economy online, and will continue to do so until that wrong is righted by supporting a legal system that can nourish economic success. I don’t know exactly what Geist’s list of glittering generalities mean, but I suspect they mean what they typically mean: “appropriate access” means unlimited bandwidth to download illegally without restriction, “new creativity” means regurgitive “creativity” that copies the work of others without permission, and “flexibility to ensure new innovative business models” will never come in the absence of a legal system that promotes sustainable innovation and not false innovation.

Q 3: What is piracy?
A: Piracy is the unauthorized distribution or acquisition of a copyrighted work, such as commonly takes place through online peer-to-peer (P2P) file sharing and CD counterfeiting. Piracy is akin to shoplifting – both involve taking property without authorization.

[Geist: There is considerable literature highlighting the differences between copyright infringement and physical theft. Further, Canadian law includes a private copying levy that raises doubts about whether there is any infringement taking place for personal, non-commercial downloading.]

Comment: There isn’t “considerable literature” on this illusory distinction between digital and physical copies—this is all about Geist’s pal, Professor Lessig, and their fellow travelers. These arguments are strangely reminiscent of the brilliant articulation of the losing argument by their fellow traveler the Electronic Frontier Foundation in the Grokster case at the 9th Circuit. Answer this question: If millions of people were walking into the few record stores left and making digital copies of used CDs (or any CDs for that matter), would there be any doubt of what should be done? The answer is found in Justice Breyer’s articulation of the winning argument in the Grokster case at the US Supreme Court: “[D]eliberate unlawful copying is no less an unlawful taking of property than garden-variety theft.”

As Geist may know, the Canadian courts have repeatedly held that Canada’s private copying exception DOES NOT APPLY to copies made on your iPod or on a hard drive – like in your pc or laptop. It applies to sales of blank CDs, minidiscs and cassette tape copies, and that’s it. It has been expressly rejected in this context by Canadian courts as well as courts in other jurisdictions (such as the Napster court where the U.S. Copyright Office briefed the issue). And even if it did apply, how can it be good policy to allow users to download an illegal copy into a legal blank medium and somehow transmogrify that illegal copy into a legal one by nature of the vessel that holds the illegal copy? Even if you could rob a bank and have the ill gotten gains magically transformed into legal gains by deposit into your otherwise legal bank account, would that make the crime of robbing the bank any less criminal? This kind of fairy dust sprinkled over a bad act is routinely rejected by everyone but criminal defense lawyers and even has a name: “the fruit of the poisoned tree”.

Q 4: Who does piracy affect?
A: Piracy affects everyone including YOU – regardless of whether you work in a copyright-related industry. Piracy undercuts sales, profits and tax revenues. Investment in new creations is deterred, undermining innovation and artistic development. All too often, businesses are forced to close and jobs are lost.

[Geist: There has been little evidence in Canada about reduced investment due to the current copyright law. Indeed, it is arguably the lack of flexibility within the Copyright Act that has deterred new investment in new businesses, who have been unable to rely on a robust fair dealing provision. Moreover, with the industry abandoning DRM, the claim that anti-circumvention legislation is crucial to new investment is just not credible.]

Comment: That Geist is a bit trixie, eh? The statement he attacks is about investment in new creations and artistic development. But he switches from that investment, which is something his tech supporters NEVER invest in, to “investment in new businesses” that “rely on a robust fair dealing provision”. And gee whiz, whom might that be? Google, perhaps? Isohunt? By definition, if anyone is relying on a “fair dealing provision” you are already talking about copying an existing work, not creating a new one. Again, nonsensical and disingenuous. And circular this time. “The industry” is not abandoning DRM. Some copyright owners of musical works are starting to sell their content in the unprotected MP3 format. The motion picture industry clearly is not doing the same thing. Geist once again lays down a fallacious riff, this one the fallacy of composition.

Q 5: Does copyright piracy put your job at risk?
A: Yes. Canadians who work in the copyright-related industries have seen numerous job losses – from the artists who create music to truck drivers who deliver CDs and DVDs to retailers. Since the advent of widespread P2P file sharing 10 years ago, retail sales of music have declined by more than half; this has forced ongoing job reductions and slashed funds available for Canadian artist development.

It is not only the music industry that is affected. For example, a Business Software Alliance study found that a reduction of software piracy in Canada by 10% over the next four years could generate more than 5,200 high-skilled jobs and inject $2.7 billion into the economy.

[Geist: Loss of jobs for truck drivers who deliver CDs and DVDs is about a move to digital distribution, not infringement. Further, there is plenty of debate over the sources of declining CD sales, including an Industry Canada funded study that found a positive correlation between file sharing and music purchasing.]

Comment: I would challenge Geist to go to any truck stop on the Trans-Canada and sneer at the first truck driver he sees. We have heard these arguments for years now that black is white, the sun rises in the West and file barterers buy music. This might have been a bright and shiny object that distracted the truth in 1999, but nobody believes it anymore because there is no other explanation for the overall precipitous decline in music sales, not just CD sales. There is also focus group data from MusicAlly that shows many users go to legitimate services to find out about new music and then go to Limewire, Isohunt, the Pirate Bay to steal it. And as for that Industry Canada study – it’s the most widely discredited work of fiction since Martians invaded Grover’s Mill, New Jersey.

Q 6: Aside from jobs, how does piracy affect music in Canada?
A: With much less money available today to invest in and support new artists, Canada’s leading place in the music world is slipping. As John Kennedy, the Chairman and CEO of the International Federation of the Phonographic Industry (IFPI) pointed out recently, “Canada is now punching below its weight” on the world music stage. As reported in Billboard, Kennedy “noted that according to Nielsen SoundScan, only two of the Top 20 selling albums in Canada – Nickelback and Quebec’s Lost Fingers – were created by domestic acts.”

In addition, Canada has seen no significant new digital services introduced over the past year, in contrast with the flurry of innovations seen in other countries. This undercuts the development of digital music here – badly needed at a time of declining CD sales.
Without a modern, robust copyright regime, companies are unwilling to invest in innovative new digital services in this country.

[Geist: Digital music sales have grown faster in Canada than in the United States for each of the past three years. Some services like the now-defunct SpiralFrog used Canada as the host for their pilot before launching in the U.S. There is simply no evidence that the absence of anti-circumvention legislation is viewed as a major deterrent to launching new Canadian services. With regard to investment in new artists, programs such as FACTOR play a key role in funding artists, not U.S. backed labels.]

Comment: I’ll take a back seat to no one in respect for FACTOR, and have sat on a board of a private foundation that did something similar. So I know that there is a subjective creative choice that has to be made whenever you’re making grants whether they are public or private. FACTOR has done a great job at what it is able to do and maintains a high degree of objectivity, plus there is a certain amount of market force at work with their choices and the very positive effects that those FACTOR grants have had on the Canadian creative class.

But to say the choices are “US-backed labels” or FACTOR misses the very, very important indie label community in Canada which is enjoying increasing success on the world stage. THIS is the group that Canadian music fans, FACTOR and the major labels want, do and need to encourage. It’s the indie community that produces growth and it’s the indie community that develops artists. Great artists are not brought by the stork.

And by the way—what is a “US-backed” record company anyway? Maplecore? Universal are owned by the French, Warner are more or less owned by a Canadian, Sony are owned by the Japanese and EMI are owned by the Brits. And if he means the US government, the US government doesn’t back anything in the music business including enforcing the basic copyright law, economic rights of creators or labor value of the workers. We’ve been abandoned to protect ourselves. So….what’s he mean by that? Three guesses—Geist is playing on prejudices–again.

Of COURSE Canada’s digital market is growing faster. It’s a lot easier to double down at the $5 ante table than at the $500 table. But the problem is that Canada remains stuck at the $5 table. And the longer it sits there, the more it becomes obvious that it’s not joining the serious digital players anytime in the foreseeable future.

It is already slowing markedly. Digital track sales increased by 58 percent in 2008, according to Nielsen SoundScan Canada. This compares with 73 percent and 122 percent growth in the two prior years, respectively. While this trend is expected for a maturing market, what sets Canada apart from many other markets including the US is that digital music sales here appear to be settling out at a lower level.

On a per capita basis, Canada is “punching well below its weight”. According to Nielsen, who refute Geist’s use of its statistics on his own blog, digital unit sales in Canada last year were about 40 million – compared to over a billion in the US. Do the math: on a per capita basis, US sales more than double those in Canada.

Even by $5 table standards, Canada’s digital marketplace remains puny. Canada’s digital marketplace is only 17 percent of its overall marketplace — less than half the relative size of the US digital marketplace, which is now a whopping 36 percent of overall US music sales.

So Canada’s digital market lags behind that of the US: in absolute terms; on a per capita basis; as a percentage of overall sales – how else can we measure it? Oh, Geist is right – the percentage growth is higher – because it’s growing from virtually nothing.

Canada’s underperformance is surprising given the strength of this country’s digital foundation, with one of the highest broadband penetration rates in the world and one of the most digital-savvy populations anywhere. But it makes perfect sense if you consider the OECD statistic that Canada has the highest international rate of file sharing.

As for SpiralFrog – Geist’s point is that the rare music service that launches in Canada fails? Even Spiral Frog appeared to show more activity south of the border until its demise. The fact remains: as numerous exciting new digital service models like Spotify, Comes with Music, MySpace Music, the music store, etc. etc. launch throughout the developed world, Canadians have few real alternative beyond iTunes and Puretracks. Investment goes to where it can earn returns, and that will almost always be in places that provide clear legal rules to create a legitimate marketplace and enforceable economic rights.

Q 7: Does piracy affect Canada more than other countries?
A: Yes. A 2005 study by the Organization for Economic Co-operation and Development (OECD) found that Canada’s per capita rate of peer-to-peer downloading was the highest among OECD countries. This directly reflects Canada’s failure to modernize its copyright rules for the Internet age, unlike other developed nations. Many countries in Europe, Asia and elsewhere implemented this basic step several years ago.

[Geist: While the OECD study showed Canada as slightly higher per capita use than the U.S., it made no conclusions about infringing activity, particularly given the legitimate uses of P2P and the existence of the private copying levy in Canada. Moreover, the copyright reform advocated by CRIA focuses on protecting digital locks, not addressing P2P activity.]

Comment: These arguments are soooo 1999 I can’t believe that we are still hearing the same old whine 10 years after Napster. Yes, there are legitimate uses of p2p—but do you know anyone who is making any kind of significant legal use of p2p that would be sufficient to skew a national survey, much less an international survey? And if these legitimate p2p users are out there, why don’t we hear from them? Ever. We heard a lot in the Grokster case about how users of Morpheus could—could—use the software to download the works of William Shakespeare, the Bible and the music of the Grateful Dead. But no evidence that the millions of users of the software were highly religious, Shakespeare loving, Grateful Dead fans. None, zero, zip. That’s why it’s called the “losing argument”. In the absence of actual proof, it’s hardly the most likely argument to be true. It’s also not very likely that any industry trade group is going to IGNORE illegal p2p activity when they are banging the table about illegal p2p activity. Again, nonsensical.

Now jump up and down and say “digital lock” three times, then throw salt over your right shoulder.

Q 8: What was Bill C-61?
A: Bill C-61 was copyright reform legislation introduced in Parliament last year. It set out to modernize Canada’s Copyright Act to accommodate today’s digital technologies, and to address the widespread piracy of copyrighted works. The bill, which died on the Order Paper when an election was called, would have brought Canada’s copyright rules closer in line with those of other developed nations. Its passage would have signaled to Canadians that Internet piracy is unacceptable under law.

[Geist: Bill C-61 also would have created enormous problems for consumers, educators, librarians, researchers, artists, and millions of Canadians who would suffer a loss of rights over their personal property and restrictions on their ability to create and interact with digital media.]

Comment: I thought that the bill was designed to implement the WIPO treaties—those would be the same WIPO treaties that Canada helped to draft and that the EU member states, Japan, Australia, New Zealand and the United States have implemented. If there have been any “enormous problems” with the WIPO treaties, it’s the enormous problem of people like Google treating the DMCA notice and takedown as though it were intended to be an alternative licensing regime and making it more like “notice and shakedown”.

Libraries, researchers and artists thrive outside of Canada, under the same laws the Canadian government wanted to emulate. This is an extraordinarily one-dimensional use of presumptions that are not borne out by facts.

Q 9: Is copyright reform costly to implement?
A: No. In fact, copyright reform can be implemented at no cost to taxpayers – in sharp contrast with recent government measures to stimulate the economy.

[Geist: While there may be limited cost to government, the cost to consumers and innovative businesses facing new restrictions would have been very significant.]

Comment: The cost of a DMCA-type regime to “innovative businesses” such as YouTube is not because they use the safe harbor properly, it’s because they didn’t get licenses. There are many, many examples of sustainable innovation such as iTunes, Hulu, Rhapsody, Myspace Music, and so on, that operate within the legal framework that everyone else has to deal with. And then there’s Google, a/k/a “defendant” who tries to outlitigate artists who can’t afford to compete with them in court–and are being investigated by the antitrust division of the US Department of Justice again. We call those “bullies” in polite society. Sustainable innovators don’t mind paying for content, they do mind paying for content when their competitors can bully their way past licensing and skip most or all of that cost. So once again, Geist doesn’t seem to have much grounding in the realities of online entrepreneurs in the content space. As Vice President Biden noted recently, illegal activity that steals culture cannot be tolerated.

The better question that Geist should be asking is why entrepreneurs would want to invest in digital music services in Canada absent a developed rights hierarchy.

Q 10: What about the concerns raised by bloggers?
A: Some bloggers and academics argue against copyright reforms, citing such concerns as lawsuits and privacy considerations. But these arguments are without merit. For example, on lawsuits, the major labels in Canada have stated clearly that there is no intention to sue fans. It is simply not an issue. On privacy, Canadian law already offers strong protections, and there is nothing in copyright reform that would affect that.

[Geist: “Bloggers and academics” do not argue against copyright reforms, but rather against DMCA-style, unbalanced reforms. There is support for a fair, balanced approach that does not eliminate fair dealing in the digital environment and that addresses ongoing consumer concerns with the current law. Fears about lawsuits and privacy are only a small part of the concerns, which extend to education, consumer rights, research, free speech, and creativity. Moreover, concerns over privacy are not limited to bloggers and academics, but also include privacy commissioners.]

Comment: If the DMCA has inhibited free speech or privacy, I don’t think anyone in the population in other WIPO treaty countries have noticed—other than those who are trying to undermine economic rights and labor value.

Q 11: Do artists support copyright reforms?
A: Yes. ACTRA and AFM Canada, leading organizations that represent tens of thousands of Canadian artists, fully support copyright reform. Their support is based on the best interests of their members. To see what some artists have to say, click here.

[Geist: But many artists do not. The Canadian Music Creators Coalition, which includes some of Canada’s best known musicians, argue against these reforms. Moreover, the Songwriters Association of Canada has argued for a different approach on P2P and acknowledged that reforms based on protecting DRM are bound to fail.]

Comment: I personally don’t have a lot of time for people who have never humped a trap case trying to tell any artist what’s good for them, whether it’s Geist or some label geek. It’s also very typical of the anti-creator crowd to be dismissive to organized labor. (Here’s a hot tip for Geist: Collective bargaining isn’t a bunch of VCs setting a valuation.) I think Randy Bachman is listed as a CMCC member and he’s been very clear about supporting Canada signing up to the WIPO Internet Treaties (which probably would get them off of the USTR Priority Watch List). I seem to recall that a lot of the CMCC folk signed off on an amicus brief that supported the winning position in the Grokster case. So I’m not quite sure what the point is that Geist is making here.

Q 12: Why has the Canadian government been so slow to reform copyright rules?
A: Given the explosion of piracy in Canada, the lost jobs, the success of copyright reforms passed by many other countries years ago, and our government’s longstanding but unfulfilled international treaty commitments, the delays defy explanation or excuse. As IFPI’s John Kennedy recently said at Canadian Music Week (as reported by Billboard):
“The lack of interest in intellectual property by the Canadian government is truly astonishing.”

What is clear is that the Canadian government needs to hear from voters like you that further delays are unacceptable. Your local MP needs to know that your patience is running out, and that legal reforms are needed now to stem job losses and provide new opportunities for Canada’s music industry.

[Geist: The long Canadian process reflects many things, some political (string of minority governments) and some substantive. It is the substantive doubts about DMCA style reforms that are most relevant, since they reflect the view – shared by the creator of the DMCA – that the policies have been a failure. What is unacceptable are not the delays, but rather caving to pressure to enact reforms that would cause harm to millions of Canadians while doing virtually nothing to support Canadian artists.]

Comment: I’m not quite sure why Geist keeps referring to the “DMCA”. The WIPO treaties lay down the framework, each signatory implements their own legislation. The DMCA is the statute that the U.S. adopted that implements the same WIPO treaties that Canada helped to negotiate. Does DMCA track exactly word for word what the WIPO treaty says? No. None of the implementing legislation in any country does that. Neither will it in Canada. Canada isn’t adopting the DMCA, it’s implementing the WIPO treaties and Canada can find its own solution. It only makes sense that in a global economy, any solution that a member of that economy finds for something as important as intellectual property has to be consistent with what others are doing—which is why Canada is on the USTR Priority Watch List because it’s not. Sure, Canada’s copyright authorities and legislators can follow Geist, but no one else has to like it or put up with it. Somehow all these other countries, including 27 member states of the European Union, have managed to do it. And the U.S., which by the way, passed its implementing legislation in a weaker form than its counterparts. So if he’s trying to find a bogeyman, he might look elsewhere than the U.S. legislation—unless Geist is trying to play on jingoism. We’ve had our share of jingoism in the U.S., and one of the many reasons I like Canadians is that they don’t dish that stuff out as a general rule. Something about having the Queen on the money, I think.

It’s really simple. Every other major trading partner of Canada has implemented these treaties. In a world that is increasingly interdependent, it’s not realistic for Canada to continue to be a holdout. If Geist wants to blame America, he can’t just single us out. We’re just one of many holding his wedge.