Canada’s Intellectual Property Firm

Federal Court of Appeal Reduces Levy on MP3 Players By Up to $25 and Calls Into Question Legality of Downloading Music onto Such Devices

Authored byElliott Simcoe

On Dec 14, 2004 the Federal Court of Appeal released a decision that will not only affect the cost of MP3 players, but could also affect the legality of using such devices to store music, whether downloaded from the Internet or otherwise.

The Canadian Private Copying Collective (CPCC) is composed of a group of societies that represent music rights holders, such as artists and producers. The CPCC is responsible for collecting a levy on the sale of blank media, including audio cassettes and blank CDs. The Copyright Board, a quasi-judicial body, sets the rate for the levy.

According to section 82 of the Copyright Act, the levy is payable on all blank audio recording media that are imported into or manufactured in Canada. Section 79 defines "audio recording medium" as:

"...a recording medium, regardless of its material form, onto which a sound recording may be reproduced and that is of a kind ordinarily used by individual consumers for that purpose…"

Since 1999, the Copyright Board has issued three major rulings relating to the levy imposed on audio recording media. It was the third of these rulings that was under judicial review before the Federal Court of Appeal. One of the main issues before the Court was the scope of the application of the levy.

During the hearing, the CPCC conceded that some types of hardware with internal memory, such as PDAs, computers and cell phones, were not ordinarily used for the purpose of recording music, and thus were not properly subject to the levy. For the same reason, the Board refused to establish apply the levy to recordable DVDs, removable memory cards and removable hard drives.

However, the Board agreed that the embedded memory in digital audio recorders (MP3 players and similar devices) was included within the scope of the definition of "audio recording medium". It therefore imposed a levy of $2 for recorders with a capacity of less than 1GB, $15 for recorders with 1-10GB of memory and $25 for recorders with more than 10GB.

The Federal Court of Appeal specifically overturned this aspect of the Board’s decision. The Court did not dispute that MP3 players were ordinarily used by individual consumers for copying music. It noted, however, that any levy on the memory amounts to a levy on the device itself as the memory of an MP3 player is permanently embedded in the device. A levy on devices is beyond the scope of the statutory authority. Therefore, because an MP3 player is not an audio recording medium, it is not subject to the levy.

Two interesting results come from this ruling. First, and most obviously, the price of MP3 players in Canada was effectively reduced by up to $25 overnight provided, of course, that manufacturers and vendors pass along the savings to consumers.

Second, the exception in the Copyright Act relating to private use has been called into question with regard to MP3 players. This exception under section 80(1)(c) of the Copyright Act provides that sound recordings that are made onto an audio recording medium for the private use of the person who makes the copy do not constitute an infringement of copyright in the sound recording. This is why in Canada a person who makes a copy of a song onto a tape or CD for personal use does not infringe copyright in the song.

What has been argued in and among the music industry recently is that the Federal Court of Appeal’s decision could have a serious impact on the private use exception where a song is copied onto an MP3 player since such an activity takes the user outside the ambit of the section 80(1)(c) exception. Such an interpretation would leave Canadians with a private use exception which makes it legal to burn a CD from a computer, but illegal to copy the same song onto an MP3 player. On this issue the Court wrote:

"Although the CPCC maintains the meaning of "audio recording medium" as defined in section 79 has no infringement implications, this is not so. If, indeed, digital audio recorders (or the memories embedded therein) fall outside the scope of the definition, copyright infringement could result from the use of such devices to private copy."

It has been reported that the music industry views the MP3 decision as a victory in the fight against free digital downloading. In an April 2004 court ruling, Internet service providers were not required to identify individuals accused of file sharing because those customers were not violating Canadian copyright law under the section 80(1)(c) exception.

It remains to be seen how other Canadian courts will interpret the Federal Court of Appeal's decision with regard to the issue of the legality of downloading music onto an MP3 player.