Socan Ruling and E-Commerce

A recent decision of the Supreme Court of Canada will likely be music to the ears of Canadian Internet Service Providers. Society of Composers, Authors and Music Publishers of Canada v. Canadian Association of Internet Providers, 2004 SCC 45, was an appeal initiated by CAIP from a Federal Court of Appeal decision concerning a 1995 application by SOCAN to the Copyright Board for approval of Tariff 22. Tariff 22 proposed a royalty, to be paid by Canadian ISPs, as compensation for one aspect (communication to the public) of the unauthorized sharing of music on the Internet.

SOCAN is a collective society which administers in Canada the copyright in music of Canadian members and foreign members of counterpart societies. The appellants provide retail access to the Internet and include Bell’s Sympatico service and Rogers “High-Speed Internet” service. Rather than go through the more time consuming and expensive route of suing individual users or foreign websites hosting infringing copies of musical works, SOCAN sought a simpler route – the application of a royalty at the ISP level for the ISPs role in supporting the infringing activities of its users.

The FCA had upheld the Copyright Board’s determination that ISPs’ activities were excluded from liability, where they performed a pure intermediary function, under s.2.4(1)(b) of the Copyright Act which provides that persons who only supply “the means of telecommunications necessary for another person to so communicate” are not themselves to be considered parties to an infringing communication.” However, in a 2-1 majority decision, the FCA held that where an ISP in Canada creates a “cache” of Internet material, even for purely technical reasons, they no longer act as a mere intermediary and thus become a participant in the copyright infringement and are liable to that extent under Tariff 22.

When an end-user visits a Web site, the pages and other content initially come from the Internet server which hosts the site. As they pass through an ISP, a temporary copy may be made and stored on its server. If another subscriber of that ISP tries to visit the same page or download the same content shortly thereafter, the information can be fetched from this temporary cache copy rather than having to request it again from the original site for efficiency purposes and to reduce the delay. Cache copies are not retained for long periods of time since if the original files change, users will get out-of-date information. The ISP controls the existence and duration of caches on its own system, although in some cases the website or the end user’s browser may insist on content being delivered from the original Web site.

According to the SCC, the creation of a “cache” is a serendipitous consequence of improvements in Internet technology, is content neutral and, in light of section 2.4(1)(b) of the Act ought not to have any legal bearing on the communication between the content provider and the end user. “Caching” is dictated by the need to deliver faster and more economical service, and should not, when undertaken only for such technical reasons, attract copyright liability.

The SCC held that Section 2.4(1)(b) of the Copyright Act is not a loophole but is an important element of the balance struck by the statutory copyright scheme. As such, it need not be narrowly construed as an exception to copyright liability. The “means” include all software connection equipment, connectivity services, hosting and other facilities and services without which such communication would not occur. So long as an ISP does not itself engage in acts that relate to the “content” of the communications, but confines itself to provide a “conduit” for information communicated by others, then it will fall within s. 2.4(a)(b).

Mere knowledge by an ISP that someone might be using content-neutral technology to violate copyright is not necessarily sufficient to constitute authorization (and thereby incur copyright liability), which requires a demonstration that the defendant did give approval to, sanction, permit, favour, or encourage the infringing content. However, notice of infringing content, and a failure to respond by “taking down” may in some circumstances lead to a finding of “authorization.”

The SCC’s holding regarding caching is consistent with the situation in the US under the Digital Millennium Copyright Act and in the EU under their E-Commerce Directive which mandates member States to exempt ISPs from copyright liability for caching. The decision will also likely be interpreted to protect ISPs from liability for operation of UseNet servers and certain other facilities.

The majority of the SCC also held that to occur in Canada, a communication need not originate from a server located in Canada. The applicability of the Copyright Act to communications that have international participants will depend on whether there is a sufficient connection between Canada and the communications in question for Canada to apply its laws consistently with the principles of order and fairness. A real and substantial connection to Canada is sufficient to support the application of Canada’s Copyright Act to international Internet transmissions in a way that will accord with international comity. Connecting factors would include the situs of the content provider, the host server, the intermediaries and the end user. Canada’s exercise of jurisdiction on transmission originating abroad but received in Canada is consistent with Canada’s general law and also with both national and international copyright practice.

This aspect of the decision will likely provide useful guidance regarding the applicability of many other domestic laws (including consumer protection and privacy legislation) to e-commerce and other Internet-related activities between Canadian residents and foreign websites.

Note: The above appeared as a Bits & Bytes article published by Law Times on August 9, 2004.