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The “iPod tax”: putting a price on piracy

The increasing number of digital music stores where consumers are able to purchase legal copies of digital media for their personal use means that users may be paying twice for content through the imposition of such a levy.

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On 14 December 2010, the Federal Government of Canada announced that it would not be introducing an amendment to the Copyright Act creating a so-called “iPod Tax”. This was in light of a private member’s bill introduced into Parliament by Charlie Angus on 2 June 2010. The bill suggested legally expanding the current copyright levy to include digital recording devices, essentially putting a price on piracy.

A decision in favour of the iPod tax would have imposed a levy on MP3 players and smartphones in addition to the pre-existing levies which were introduced in 1997 on blank audio recording media (CDs, MiniDiscs, etc). The proceeds of the levy are collected by the Canadian Private Copying Collective (CPCC) and then distributed to members (societies representing rights-holders) in the proportion determined by the Copyright Board of Canada (the Board). The Board is the authority responsible for setting the levy. The purpose of the levy is to allow eligible authors, performers and makers to receive remuneration from manufacturers and importers of blank audio recording media in respect of the reproduction for private use of their work. In return, section 80 of the Copyright Act states that the act of reproducing musical work onto an audio recording medium for private use does not constitute an infringement of copyright.

A Statement by the Minister of industry, Tony Clement, and the Minster of Canadian Heritage and Official Languages, James Moore, on behalf of the Harper Government noted:

We simply cannot support the opposition’s massive new iPod Tax on Canadian music lovers. The iPod Tax would add up to [CAD]75 to the price of every mp3 player and smart phone on the market. It would hurt the economy, punish consumers and families, and send the wrong message during this fragile economic recovery... It would just make it more expensive for Canadians to listen to Canadian music and hurt our music industry.

The CPCC has been petitioning to have the levy extended to MP3 players since 2003. Two attempts by the Board to do so failed when its decisions were overturned by the Federal Court of Appeal in 2004 and 2008. In the 2004 judicial review of the Board’s decision the Court considered whether MP3 players could qualify under the “audio recording medium” definition in the Copyright Act so that the levy could apply to digital audio recorders. The court held that although the permanent memory embedded in an MP3 device could be defined as an audio recording medium, the MP3 device itself can not, and it is the device which is the defining element of the levy.

In 2008, the CPCC once again sought the right to collect tariffs on digital audio recorders. The decision by the Board to certify these tariffs focused on the memory permanently embedded in the digital audio recorders in light of the earlier judicial review decision. The Federal Court of Appeal referred to the 2004 decision as authority, stating that the Board had no legal powers to certify a tariff on digital audio recorders nor on the memory embedded in them. The decision of the Board to certify tariffs on digital audio recorders was quashed and the appeal by CPCC dismissed.

Currently, there is a CAD0.29 levy on each CD-R, CD-RW, CD-R Audio, CD-RW Audio or MiniDisc. The proposed levy would have applied the following charges to digital audio recorders:

  • no more than 1 GB storage capacity – CAD5
  • more than 1GB and no more than 10GB – CAD25
  • more than 10GB and no more than 30GB – CAD50
  • more than 30GB – CAD75.

As the ability of the Board to levy digital audio recorders was held to be ultra vires (beyond the scope of the Board’s powers), and the attempt in Parliament to introduce law to permit it overruled by the current Harper Government, the question arises whether such a change is necessary in a world of ever-changing technology. The relevance of the current levy in Canada is questionable as the use of CDs and MiniDiscs becomes scarce and digital media devices proliferate. If the purpose of the levy is to compensate artists then does it matter which medium or device is used? Will it make things simpler and more efficient by compensating music artists while getting rid of various policing and monitoring requirements associated with content copying for private use? On the other hand, if a levy on digital audio recorders or digital storage devices (including computers and external hard disks) is not appropriate, then is a levy appropriate at all given the current technological climate? While the levy on MP3 devices and smartphones failed to make law in Canada, some countries, for example Belgium, do impose a levy on digital media devices.

A decision of the United States Court of Appeals ruled that consumers are free to space-shift and MP3 devices do not infringe on copyright laws when MP3 files acquired legitimately are shifted onto them. What lead will other jurisdictions follow? The increasing number of digital music stores where consumers are able to purchase legal copies of digital media for their personal use means that users may be paying twice for content through the imposition of such a levy. Similarly, if a consumer purchases a music CD and transfers the contents of the CD onto their MP3 device for their own personal use is it fair to impose such a levy on them? Would doing so seem like pulling the breaks on advancing technology?

December 2010


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