The defeat of the Liberal government in the 2006 election also saw the death of Bill C-60, a package of amendments to Canada's Copyright Act, intended to crack down on the downloading of copyrighted material over the internet.

The introduction of the bill came after intense lobbying from the music industry. Recent court decisions have upheld Canadians' right to encode music and other information electronically and make it available on file-sharing networks.

The music industry says downloading music through file-sharing systems has been responsible for a downturn in sales.

The proposed changes would have:

• Made it illegal to put copyrighted material into the shared directories of file-sharing systems, such as Kazaa or BitTorrent.
• Made it illegal to bypass copy-protection mechanisms on copyrighted material.
• Exempted internet service providers, such as Rogers, Bell and Telus, from copyright liability.

The music industry, as well as advocates for consumers of copyright material, are awaiting the Conservative government's successor to Bill C-60.

Courts rule against music industry on copyright law

In a unanimous 9-0 decision on June 30, 2004, the Supreme Count of Canada ruled that internet service providers are not responsible for paying royalties on music downloaded by users.

The court said although ISPs provide the hardware and technology, they are only "intermediaries" who are not responsible for what people download and are not bound by federal copyright legislation.

The decision is the latest legal blow to the music recording industry, which is trying to stop the unauthorized downloading of millions of songs over the internet. Musicians, composers and artists are not usually paid royalties when songs are downloaded to a computer over file-sharing networks.

In an earlier decision, in March 2004, a court ruled that internet service providers (ISPs) are not required to link pseudonyms on file-sharing networks to specific IP addresses.

The Federal Court of Canada ruling on downloading music from the internet was seen as a major setback by the music industry and a victory by internet service providers. That ruling was upheld by the Federal Court of Appeal in May 2005.

The Canadian Recording Industry Association wanted a court order to identify 29 uploaders that CRIA claims illegally posted hundreds of songs on the internet. Justice Konrad von Finckenstein refused and without the names, CRIA cannot take legal action for damages.

"No evidence was presented that the alleged infringers either distributed or authorized the reproduction of sound recordings," von Finckenstein wrote in his 28-page ruling. "They merely placed personal copies into their shared directories which were accessible by other computer users via a P2P service."

The ruling stipulates that:

• Downloading a song for personal use is not an infringement.
• Placing a song in an on-line music-sharing directory such as Kazaa is not considered distribution.

In April 2005, the recording industry announced its intention to appeal the ruling.

The music industry claims the rising practice of sharing music on the internet is the reason CD sales are dropping. But a study released in March 2004 by Harvard Business School claims that swapping had no impact on sales.

Other surveys show the opposite result, claiming internet sharing of music does hurt sales. The Harvard study claims that the people surveyed – who were file-swapping users – did not answer truthfully when asked if they buy copies of the music they download. The authors of the Harvard study got permission to track the files being downloaded and then tracked the U.S. sales of the same music and found that an increase in downloading didn't correlate with a decrease in sales.

On June 27, 2005, the U.S. Supreme Court ruled in favour of Metro-Goldwyn-Mayer Studios in its case against file-sharing companies Grokster and StreamCast. MGM, which is now owned by Sony, charged that the companies should be liable for facilitating copyright infringement by their users.

Donald Verrilli Jr., the lawyer representing MGM, successfully argued that file-sharing networks allow people to exchange billions of music and movie files without having paid for them. According to Verrilli, the music industry alone has lost 25 per cent of its revenue since these networks began.

LINKS:

• Harvard Business School study (pdf)
  (Downloading doesn't affect sales)



• Stan Liebowitz, University of Texas at Dallas study (pdf)
  (Downloading does affect sales)

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FAQ

Where does the money go when I buy a CD?

Of course, it all depends on the cost of the CD, but the Canadian Recording Industry Association compiled figures this summer. Out of 100 per cent of the cost:

4% is retailer profit

7% is label profit

9% is manufacturing costs

12% is artist and songwriting payments

12% is record company distribution, sales & overhead costs

13% is promotion and marketing costs

19% is recording, video and production costs

24% is retail store costs

How has file sharing affected the Canadian recording industry?

In Canada, the Canadian Recording Industry Association estimates losses to the Canadian industry at about $250 million in sales over the past three years. That's a 20 per cent drop in annual sales. This is despite the Canadian Private Copying Collective, which was formed in 1999 to offset royalties lost to digital file sharing. The CPCC taxes hardware and software that allows digital recordings, whether or not they are being used for music. It then distributes the money to composers, performers, publishers and record labels. The CPCC collected $28 million in 2000 and 2001. There is no similar program in the U.S.

From December 2003 until December 2004, the tax applied to MP3 players, as well, until the Federal Court of Appeal ruled that the terms in the Copyright Act that allow the levy on blank media do not extend to MP3 players.

What about services for Canadians?

The first Canadian service for legally downloading music files from the internet – called PureTracks – launched on Oct. 14th, 2003. It has deals with the world's big international music companies, as well as leading Canadian recording companies, offering 175,000 tracks. So it will be much easier to find your favourite Canadian recording artists. Since then, other services, such as iTunes and the new Napster, have launched in Canada.

Do people pay to download music?

Initial figures indicate they have, and will. Apple's iTunes service generated 10 million downloads at 99 cents a song in the first four months of operation – and the service was then only available to Mac users in the U.S. Jupiter Research in the U.S. predicts that online music will grow from less than $1 billion in 2003 to $3.3 billion in 2008, when the internet will account for 26 per cent of U.S. music spending.

So, no more free music?

Well, not quite. There are still free services available, but a recent Neilsen/Netratings survey showed traffic on the major site, Kazaa, is down more than 40 per cent since the major record labels decided to sue internet downloaders for copyright infringement. But legal experts have said it may be difficult for those companies to come after Canadian internet users.

How are the big music labels reacting?

Legal downloading is a huge potential market for them. The five biggest (Universal Music, Sony Music, Warner Music, EMI Group Plc and BMG) have made deals with the pay-for-service file-sharing companies, and will be providing access to the work of their musicians. Leading label Universal Music Group slashed CD prices by almost one-third, pressuring its four rivals to follow suit. A recent Newsweek survey found that 48 per cent of consumers would be more likely to buy CDs than download if discs were a third less expensive. Some labels are trying to entice consumers with goodies such as videos or prizes.