Sandra Richmond is a partner in the Toronto law firm of McMillan Binch LLP and a member of the firm’s KNOWlaw Group. This article was written with the assistance of Holly Agnew.

In the midst of concerns about music piracy, the Copyright Board has handed consumers some good news about copying music legally.

But it may come at the expense of songwriters, musicians and record companies and, possibly, broadcasters.

Blank tape levy

Consumers got a break from the board when it decided not to increase the so-called blank-tape levy – the amount collected from manufacturers and importers (and passed on to consumers) on blank audiocassettes and CDs.

The levy came as part of a 1997 amendment to the Copyright Act that allows private copying of music. Until the amendment, you were infringing copyright simply by making copies of your own tapes, albums or CDs. As a practical matter, though, it was virtually impossible for anyone to recover lost profits from private copying.

The legislation was changed to allow individuals to copy recorded music for private use in return for payment of a levy used to compensate songwriters, recording artists, music publishers and record companies.

It’s no longer illegal, for example, to make your own compilation CD from your favorite pieces of music. But the price of the blank CD you buy to record the music on includes the levy that’s collected from the manufacturer or importer and distributed to eligible parties.

Note, though, that the exemption is very narrow. You’re allowed to copy music only from a sound recording and you may use the copy only for your own personal use. You can’t make copies for sale or even to give to a friend.

Board decision

The Canadian Private Copying Collective, the organization designated by the Copyright Board to collect the levies and distribute the money to the beneficiaries, had asked for an increase in the rates, but the board refused. Rates will remain unchanged at $0.29 for audiocassettes longer than 40 minutes, $0.21 for CD-R and CD-RW, and $0.77 for CD-R audio, CD-RW audio and MiniDiscs.

The board did agree with the CPCC that the levy can now be applied to non-removable memory found in digital audio recorders such as MP3 players (at rates between $2 and $25, depending on memory capacity), but declined to extend it to other media such as recordable DVDs, on the basis that the evidence didn’t show these media were used primarily to copy music.

The board also decided that the royalties would be shared among eligible rights holders as they had been previously – 66% to songwriters and publishers, 18.9% to recording artists and 15.1% to record companies.

According to the CPCC, over $50 million was available from royalties collected between 2000 and 2002.

So what’s the bad news?

Zero-rating program

The law allows one exemption from the levy – blank sound recording media sold to organizations that represent the perceptually disabled. To make it easier to access the exemption, the CPCC created a zero-rating program, under which qualified buyers can purchase those products royalty-free from authorized sellers.

Then, in response to comments that it was unfair to pay the levy if you use the media for purposes other than copying music (for example, copying data), the CPCC extended the zero-rating program to other businesses and organizations.

Under the program, these other purchasers, which include broadcasters, religious institutions, law enforcement agencies, courts and advertising agencies, must be certified by the CPCC and must enter into a written agreement that restricts their use of the blank media and allows the CPCC to audit their activities.

A number of organizations (including the Canadian Association of Broadcasters) that intended to participate in the board hearings withdrew because of CPCC reassurances that the zero-rating program would be extended.

However, in its decision, the Copyright Board said that the CPCC’s program is illegal because the legislation doesn’t expressly allow a zero-rating scheme. It added that, even if it’s an implicit part of the private copying regime, then the board – not the CPCC – should administer it.

It’s unclear whether previously zero-rated businesses and organizations will still be considered exempt. However, the board has noted that even if it sets the levy, it can’t force the CPCC to collect it.

Somewhat surprisingly, the board took the existence of the zero-rating scheme into account when it set the levies. This may mean the rates are higher than they might otherwise be because they’re based on the assumption that some purchasers will be exempted. Or, it may mean the compensation paid to the rights holders will be reduced because the rates are based on the assumption that all purchasers will pay and the CPCC may not collect from all of them.

Private copying vs. piracy

The board also brought into question the relationship between the private copying exemption and some forms of piracy.

In its decision, the board said that there is no requirement under the private copying exemption that the source copy be non-infringing. It added that, for the purposes of its hearing, ‘it is not relevant whether the source of the track is a pre-owned recording, a borrowed CD, or a track downloaded from the internet.’

Some commentators have taken this to mean that making a private copy of pirated music for your own use does not infringe copyright (although the original pirating could constitute an infringement).

The CPCC, on the other hand, argues that the existence of the exemption and a levy for private copying doesn’t mean you can obtain the source material illegally.

In practice, of course, the levy is collected on all applicable media – whether used for legal or illegal copying.

And, as new technology emerges to protect copyright works at the source, the need for this type of levy – and the argument about the extent of the exemption – may become less important.

(This article contains general comments only. It is not intended to be exhaustive and should not be considered as advice in any particular situation.)

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