RECORDABLE MEDIA LEVY HANDICAPS CANADA'S HIGH TECH SECTOR

Plan to renumerate pirated musicians could send production south

The industry uses millions of CDRs to distribute low volume software,
for operating manuals and for data storage. None of these uses has anything
to do with the private copying of music.

On December 17, the Copyright Board set private copying levies on blank audio recording media for 1999-2000. The rate will be 23.3 cents each on cassette tapes, 60.8 cents on MiniDisc, CD-R Audio and CD-RW Audio, and 5.2 cents on CD-R and CD-RW. The levy will be paid by manufacturers and importers of blank media sold in Canada to the Canadian Private Copying Collective, which will distribute it to Canadian authors, performers and makers. The Board estimates that the levy will raise $9 million in 2000.

Creation of the levy means that everyone in Canada who buys a blank cassette tape or CD-R will be paying extra to support the Canadian music business. The fact that the media will not be used to record music is irrelevant, the levy must be paid anyway.

Prior to 1997 it was illegal, although unenforceable, for anyone to record music without paying royalties to the artists and producers involved. When the Copyright Act was amended in 1997, a new Private Copying section was added, which states that copying a musical work onto a recording medium for private use is not an infringement of copyright. It provides that authors, performers and makers of musical works have a right to remuneration, through a levy on blank recording media. (Some twenty-five countries, including most G-7 and European Union members, have adopted similar regimes.) The CPCC filed a proposed levy per blank CD-R of around $2.50, about twice the price of bulk CDs.

CATAAlliance is an association whose mandate is to further the growth of Canada's high tech industry. The industry uses millions of CD-R's, to distribute low volume software, for operating and service manuals, and for data storage. None of these uses has anything to do with private copying of music. Payment of the levy appears totally unjustified. Last January we issued a CATA Advocacy Alert, advising our 6000 member e-mail list of the impending levy. A record response was received, all opposed to the levy. The Canadian Storage Media Alliance, which represents the Canadian manufacturers and importers of CD-R's, invited CATAAlliance to support their efforts on behalf of industry at the Board hearings.

Polling the high tech industry is a major challenge as executives of small companies are disinclined to fill out questionnaires. Nonetheless, when we polled our members on their CD-R usage we received 175 responses. The respondents reproduced 440,000 CDs in house at a cost of $1.6 million, and contracted out production of another 1.4 million, costing $6.4 million. These numbers do not include mass production of CD's by users like the large software companies, which are not blank media. Ninety-five companies said that they would move CD reproduction out of the country if the levy was applied. Almost all our members are exporters, so it is easy to shift activities to their existing foreign operations.

The results of the survey were presented to the Copyright Board when it conducted its hearings. The CSMA argued, among other things, that CD-R's and CD-RW's are not "ordinarily used" for the private copying of music, they are used by businesses for distribution and storage of data and not subject to the levy. The Board rejected that argument, but it did recognise the principle. The varying rates for the different media reflect in part the Board's estimate of how much of that medium is actually used for copying music. The Board estimates that only twenty percent of CD-R's and CD-RW's are used to record music, hence the 5.2 cent rate.

The Board was unable to exempt the high tech industry from the levy because the Copyright Act grants only one exemption, to associations representing persons with perceptual disabilities. The Board was somehow able to stretch that provision to include religious organizations, broadcasters, law enforcement agencies and courts, among others.

The levy which the Board has established for CDs is well below the $2.50 level which the music business sought. It is nonetheless yet another tax which the high tech industry must pay, another cost which must be borne as it attempts to compete in the global economy. Our neighbour and fiercest competitor faces no such tax, although it has a far larger music business. The levy is another handicap which the industry must surmount as it tries to penetrate the world's biggest market. One of the most effected industries is software, whose piracy problems are arguably worse than the music industry, but whose needs were ignored when the Copyright Act was amended.

The levy applies only in 1999-2000. Recognising the rapidly evolving technology in the computer and music industries, the Board will review it in 2000. The battle will be rejoined. There is little prospect of amending the Copyright Act to eliminate these problems in the near future. Amending the Act is invariably a major battle between producers and users of intellectual property. The whole process is so difficult and distasteful that the players are reluctant to engage, so the Act is always out of date.

All is not lost, however. The Private Copying section of the Act states that "Every person who, for the purpose of trade," manufactures or imports blank audio media, is subject to the levy. This means that you or your company can import blank CD-R's for your own use without paying the 5.2 cents each.

For full details of the levy, visit the Copyright Board Website: http://www.cb-cda.gc.ca/decisions/copying-e.html

This article also appeared in the Globe and Mail Tuesday, January 4, 2000 in the Report on Business section.

David Paterson
Executive Director, CATAAlliance
dpaterson@cata.ca
(613)236-6550