Is the private copying levy a tax?

One of the exchanges that is happening in the context of C-32 is one of the few things from the kitchen sink that was not thrown into the bill, and that is an extension of the existing private copying regime for recorded music that was created in 1997. The Conservatives brought this issue up yet again today in question period (Hansard), and it was brought up multiple times in the C-32 debate yesterday.

While it would be nice if this could be answered simply by saying that it is a royalty and not a tax, what some special interest groups and politicians are asking for sounds far more like an unaccountable version of a tax than a royalty.

In response to Industry Minister Tony Clement, Mrs. Carole Lavallée, the Bloc member from Saint-Bruno—Saint-Hubert, had the following to say:

How can a minister, a sensible and intelligent man, be unable to distinguish between taxes and royalties?

A tax is money that is collected from consumers and given to the government that is running the country. A royalty is money that is collected when a consumer purchases something and forwarded to a collective society, which redistributes this money to the copyright holders.

How can a minister not distinguish between those terms?

This is an over-simplification, suggesting that what makes something a royalty compared to a tax is entirely based on the destination of the money. This suggests the member believes that government programs that fund the arts are not taxes, given they are examples where money flows from "consumers" through some intermediary on its way to copyright holders.

In the past, things were much simpler. A royalty in the context of copyright was money that was owed to a copyright holder requesting royalties as a condition of a consumer doing one of those activities which the Copyright act required permission and/or payment for.

Traditional copyright is based on requiring permission, granted in contracts known as license agreements, such that the copyright holder has a full spectrum of business models available to them.

In some very extreme circumstances where copyright holders refuse to offer permission under reasonable terms, the government would step in and institute a compulsory license. Under a compulsory license, copyright is replaced by a royalty collected by an intermediary known as a collective society, and the rate is set by a government body known as the copyright board. Permission is no longer required, and thus the full spectrum of business models that copyright normally offers no longer exists.

The Private Copying Regime for recorded music is theoretically an example of a compulsory license. However, if you listen to the advocates of the regime it would be hard to tell. Normally a compulsory license is a royalty paid in exchange for an activity no longer being infringing, and yet most of the discussion about this regime surrounds a suggestion that it should help compensate creators for losses due to infringement. This is never what a compulsory license regime should be used for, and demonstrates a dangerous misunderstanding of how copyright, collective licensing, and compulsory licenses work.

Collecting money to help compensate copyright holders for activities that remain an infringement sounds far more like a government program than a royalty system. Given this, it becomes very understandable why some people are calling it a tax.

Taxes, however, should be accountable to the people paying them. "No taxation without representation" is a slogan originating during the 1750s and 1760s that summarized a primary grievance of the British colonists in the Thirteen Colonies, which was one of the major causes of the American Revolution. In the case of the private copying regime, it isn't accountable to the people paying the levy, nor is it really accountable to the intended recipients of the levy.

The right answer for Canada is for parliamentarians to understand this issue and finally make a choice. Either we want a government program to help creators that is paid for out of some accountable form of taxation, or we want a traditional compulsory license with clarity on what activity otherwise regulated by copyright is no longer regulated by copyright.

If we choose a government program, then the Public Lending Right (PLR) is a good example. If we choose a compulsory license, then we must apply the 3-step test like we do for any other exception to copyright.

The current situation, and the misinformation surrounding it, appears to be the worst of all worlds.

Side-note: As a music fan who wants to fairly compensate musicians, I am not a fan of the current private copying regime. I believe it mixes fully private activities which should not be regulated by copyright (time, device and format shifting) with activities which should remain under traditional copyright.

That said, we do have one of those extreme situations that warrant a compulsory license. We have many forms of music distribution (streaming, P2P, etc) where composers and most performers wish to license under reasonable terms, but the major recording labels are refusing reasonable licensing. This suggests a compulsory regime is warranted which removes the ability of the record labels to refuse licensing.

Section 19 is a compulsory license applied to neighbouring rights holders (performers and makers of sound recordings) that applies to communication to the public by telecommunications (radio). I believe this compulsory regime should be expanded to include non-commercial distribution, and not just commercial radio. This regime doesn't apply to composers, who have shown a willingness and eagerness to license their music in appropriate ways. This proposal is compatible in many ways with the proposal from the Songwriters Association of Canada, but far simpler as it is an expansion of an existing compulsory license regime.

Shortform for the legal types: Rather than an extension to section 80 which I believe should be repealed, I recommend an extension of section 19 that would be applied to non-commercial distribution (storage of copies, P2P distribution, streaming, podcasts, etc) on the Internet/etc and by physical means (distribution of mixed CD's to friends, etc).