Proceedings of the Standing Senate Committee on
Transport and
Communications
Issue 17 - Evidence - Morning Session
OTTAWA, Monday, April 21, 1997
The Standing Senate Committee on Transport and Communications, to which was referred Bill C-32, to amend the Copyright Act, met this day at 9:09 a.m. to give consideration to the bill.
Senator Lise Bacon (Chair) in the Chair.
[English]
The Chair: Honourable senators, as we agreed one week ago, this is the last day of hearings on Bill C-32. So far, we have spent over 15 hours hearing expert panels of users and creators, and we have another seven hours of work ahead of us today. In all, we will have heard from 13 panels and the Copyright Board. The minister and her officials will have appeared before us twice.
[Translation]
I want to take this opportunity to thank all the members of the committee for their assiduous work and the spirit of cooperation they showed throughout these hearings.
[English]
I would like to draw to members' attention some of the e-mail messages that we have received. I will ask the Clerk to circulate the collected messages to all committee members. For the record, I thank everyone who took the time and trouble to make their views known to committee members, whether through letters, faxes, briefs, personal phone calls, or e-mail.
[Translation]
I want to thank all of those who took the trouble to get in touch with us to express opinions about the bill.
We have with us this morning representatives from the Association québécoise de l'industrie du disque, du spectacle et de la vidéo, the Canadian Independent Record Production Association and the Canadian Recording Industry Association.
I think that several of you must be familiar with this type of hearing. You have probably arranged time allocation amongst yourselves. You have an hour and a half to make your presentations and reply to the senators' questions afterwards.
[English]
Mr. Brian Robertson, President, Canadian Recording Industry Association: With me today are my colleagues Robert Pilon and Solange Drouin of ADISQ; and Brian Chater, of the Canadian Independent Record Production Association.
We recognize that time is valuable, and no more so than in this specific week. We are aware of the significance of every minute ticking away as this week progresses. I preface my remarks with this acknowledgement because I have been actively involved, for over twenty years, endeavouring to update Canada's Copyright Act. It is an entirely personal experience to have made that journey and to join you now at the dawning of what may ultimately be an historic week for copyright reform in this country. I thank you for contributing your knowledge and experience to this crucial process.
If Bill C-32 is passed into law, it will not bring Canada's Copyright Act into the 21st century -- the Phase III process will have to achieve that -- but it will certainly pull it into the 1990s. The nine years that have been invested in the Phase II process, and ultimately Bill C-32, have endeavoured to move our Copyright Act out of the 1920s. An illustration of the need for updating is the referral of sound recordings to perforated rolls in the existing act.
The process of copyright reform has been an arduous journey. Some of you may recall a copyright document called "From Gutenberg to Telidon" that was presented as long ago as 1984. Later, in 1988, Phase I was passed into law. Phase II was supposed to follow within one year. That was nine years ago. Canada is now 10 years behind most civilized countries in the area of copyright reform and has fallen behind many Third World countries in updating its act. The only reason that we have been able to reach the existing level of the revision process is compromise.
Delays have resulted in the act becoming increasingly out of date. The only recourse has been to initiate a catch-up process which has resulted in almost all parties, rights, owners and users alike, having to accept concessions. However, I do not believe that any party has been short changed by the progress of revision.
The consulting process has been exhaustive. In addition to the years of commission studies and consulting by the Department of Canadian Heritage and the Department of Industry, the Standing Committee on Canadian Heritage reviewed over 170 briefs.
The recording industry can attest to the concessions and compromises made. As you will hear from Mr. Pilon, Canadian artists and producers will lose up to two-thirds of rights revenues through concessions. As an example, we have always been prepared to exempt small market radio stations from the tariff. Yet, through our discussions with the Canadian Organization of Broadcasters, we have witnessed their market of small radio stations go from a level of $500,000 to $750,000 to $1 million, to the current level in the bill of $1.25 million.
Despite the awareness that our artists have lost tens of millions of dollars in legitimate rights revenue through the Phase II delays and the recent concessions, we ask you, honourable senators, to recognize the journey and the sacrifices, and ensure the passage of the bill.
There is much work ahead for all of us who have been involved in this process, users and rights owners alike, and we recognize that it must be achieved in Phase II. Perhaps you will consider encouraging the government to move up the mandatory parliamentary review of Bill C-32 to the two-year mark instead of the five-year mark provided for in the legislation.
I thank you for your attention. I turn the floor over to Mr. Chater, my colleague from CIRPA.
Mr. Brian Chater, President, Canadian Independent Record Production Association: As Mr. Robertson has related, the basic concept of copyright is simple. It is the legal framework that enables creators and their agents to control the fruits of their labours. It is a contract between users and creators that establishes an agreed upon payment for the use of creators' property. The modern web of cultural and information industries which has its basis in creative works depends on this right to conduct its business.
While the issue of home taping or private copying has not had as high a public profile as some other parts of the bill, its importance to the music creators and the music industry as a whole should not be underestimated. A home taping levy was first produced in the "From Gutenberg to Telidon" document put out by the then minister Francis Fox in the early 1980s. I recall testifying at length on this issue at a House of Commons committee in 1985. The issue is not new, nor is it a solely Canadian initiative. The right presently exists in over 40 countries and there is considerable worldwide experience in the day-to-day operation of the right.
Home taping was the first instance where it was impossible for the rights holder to contract directly with the user. There is no effective way of ascertaining the use of copyright material by any individual and, even though home taping is illegal, there is no effective way of policing users and thus obtaining a just payment for creators. The current law has become ineffective and, therefore, falls into disrepute. The only practical solution to this problem is to impose a levy at the manufacturer/importer level on blank tapes.
We wish to make our concern clear: Not only has almost 20 years of un-rewarded home-recorded taping cost the industry millions of dollars but it has created disrespect for the principle of copyright and creators' rights among consumers to the extent that it is now a major concern amongst some protagonists in the revision process. The concern seems to be a political one, that consumers will be inconvenienced and upset, rather than concern that creators receive just payment for their work.
We are greatly concerned with the issue of home taping. not only for its current impact but also for its implications in the future. It is the first major breach of the principal contract between user and creator, and it will certainly not be the last.
Technological development and untrammelled access, if unchecked, will soon threaten the well-being both of creators and an industry that is based on the principle of copyright. If technology remains unchecked and allows widespread, unrecompensed use, without strong intellectual property laws in place to protect creators' rights, it will make it difficult, if not impossible, for creators to earn a living from their work.
The same holds true for the home taping rights as for taping rights. The reality is that, in the bill before you, substantial concessions have been made by creators. For example, at the start of the process, there was to be a levy on both hardware, the actual equipment; and software. This is the situation that exists in major European markets, such as Germany, Italy and Spain. There is no such right in this bill. This represents a considerable concession from our original stance.
Also totally absent from the current bill is any levy on videotapes, something that is present in the laws of several major markets, such as France, Germany and Spain. As creators and copyright owners, this is something we wished to see in the bill. The fact that it is not included is a significant concession which was made in an effort to ensure passage of Bill C-32.
We want to address some of the points raised on this issue by groups who appeared here earlier. First, a statement was made to you by the CRMA that home taping is "currently not an illegal act". The fact is, under current law, that is exactly what it is, an illegal act. However, under current law, as we explained earlier, there is no feasible way for any payment to be collected. The new law will both change the legal position and give the opportunity for negotiations and the collection of a payment for use.
We should also point out that actual marketplace experience in many countries where the right is in place is that price increases have been minimal, or even non-existent. Any negotiated levy is absorbed by the tape manufacturer and/or the retailer.
While it is perfectly true that a small percentage of tapes sold are used for other purposes, the sales pitch used is that they are great to tape CDs. As creators, we recognize that there are legitimate uses by disadvantaged groups, such as the blind, and we wish to make you aware of our complete agreement with the special provisions in the bill for the perceptually disabled.
Again, for those not recording music, experience in other markets shows that exceptions and exemptions can be negotiated and regimes put in place to address these concerns, with little disruption of the marketplace. To our knowledge, this has not been an issue of great consequence in countries where the home taping regime is already in place.
We also wish to make the point very clearly that this new right is a levy to be paid for using our property. It is not a tax. We find it regrettable that such a pejorative appellation is being used by others in this regard. It is a major concern to us that the reality of the situation be totally clear. This is a payment for use of someone else's work. Indeed, without the music that is recorded on these tapes, very few blank tapes would be sold.
Finally, I stress the pivotal role that the Copyright Board will play in the whole process if this bill is passed. Should creators and users not agree on the rate of compensation, the board is charged to act as an arbiter, to hear the arguments from both sides of the issue and to render a decision on the matter. It should also be mentioned that the board is charged with protecting the public interest in all of its deliberations and in any decisions that it renders.
In our experience, the Copyright Board has rendered fair and equitable judgments over the years on issues that have come before it. There is no doubt about its expertise and knowledge on matters of copyright.
We are confident that if the board is charged with hearing and reaching a decision on the question of the home taping levy, it will reach a decision on the rate which is both fair and in the public interest. We want to be clear to the committee that we are more than happy to present and argue our case before the board, should the need arise, and to accept its decision in this regard.
Madam Chair, honourable senators, I thank you for your time and attention.
[Translation]
M. Robert Pilon, Vice-President, Association québécoise de l'industrie du disque, du spectacle et de la vidéo: We represent, my colleague Solange Drouin and myself, Quebec independent record producers who have formed an association known as ADISQ. ADISQ feels that the Senate committee hearings are extremely important. My colleague and myself were present last week at all of your hearings. What happens here will be decisive.
Basically, we support the adoption of the bill without amendments. Of course, in other circumstances, in a perfect world, we would have liked to see a number of amendments. This morning, our presentation will focus on what we feel to be the weaknesses of the bill. We also feel the bill has strengths. The bill, in our opinion, creates two new rights, a regime governing personal copies which my colleague Brian Chater has just discussed, and a regime governing neighbouring rights which I will be discussing in a few minutes. This is a first in North America, in both cases, and that is fundamental.
However, in spite of everything, the bill contains a certain number of exceptions, in particular regarding the use of music in schools. My colleague will be discussing those exceptions and a few others in a few minutes, and also the number of exceptions to the neighbouring rights regime, which is considerable. My colleague Brian Robertson mentioned that 66 per cent of radio stations will be exempt. I will now give the floor to Ms Solange Drouin who will discuss those exceptions with you.
Ms Solange Drouin, Director General and Legal Counsel, Association québécoise de l'industrie du disque, du spectacle et de la vidéo: Madam Chair, I will now attempt to have you appreciate the full scope of the enormous concessions imposed -- two contradictory terms I have chosen purposefully -- by Parliament in bill C-32 through these exceptions.
In order to understand the full scope of these concessions which were imposed on us by Bill C-32 through these exceptions, it seems important to us first of all to remind you of the bases of copyright and neighbouring rights. My colleague Brian Chater touched on this briefly. I want to insist a bit more at length on the bases of those concepts.
This seemed all the more important to us because during the hearings we were present at in the course of the past few weeks, as Mr. Robert Pilon was saying, you have, as we did, heard statements that were sometimes shocking, often doubtful and sometimes even misleading. Statements such as those made by people who said I purchased a record, a book and now I can do whatever I like with it. We heard that here. We consider that there is some confusion in some people's minds around the concept of copyright and neighbouring rights. These are difficult concepts to understand because they are intangible. In the most simple terms, we can say that copyright and neighbouring rights are basically property rights that are exercised over a work, a performance or a sound recording, as the case may be. The author of a work, or the artist who gives a performance, or the producer of a sound recording, enjoy full property rights, entirely comparable to those each one of you have over your house or car. Just as you can chose when, to whom and under what conditions you can lend your house or your car, the author of a work, the artist who gives a performance, the producer who makes a sound recording, can also chose when, to whom and under what conditions they will loan or grant the use of that work to someone.
The fact that an author may have decided at some time to authorize the transfer of a musical work from a sound recording to some other type of medium, or of a literary work in a book or to a sound recording, or of a visual work to some other form does not mean that he loses his right to exercise his property right.
The fact that a person purchases that support does not make him or her the new holder of the copyright. These copyrights and neighbouring rights remain the property at all times of the author, the artist or the producer of the sound recording, unless of course that person has ceded or granted a licence to another person who can exercise them in his or her name.
Moving now to the exceptions, I would like to remind you of their definition in a few words. An exception is a mechanism provided for in the Act that allows certain users to make use of a work, a performance or a sound recording without having to obtain the authorization of the parties concerned. What is the effect of those exceptions in the Act on the property right that authors, artists and producers hold?
The exceptions deprive the holders of the exercise of their property right and in some cases of the compensation they might otherwise have received. The exceptions are in fact an expropriation of property right. You will understand the frustration that some people have experienced when they were expropriated from their homes because an airport was being built. This happened in Quebec, in Mirabel.
For each exception the legislator includes in the Act, authors, artists and producers experience exactly the same feeling of dispossession. There are already certain exceptions in the existing Act, although fewer in number for schools and libraries.
I would like to insist particularly on an exception that is in effect currently which has not been much talked about and which affects the world of Canadian music especially. This exception allows libraries that rent sound recordings without the intention of making a profit to do so without having to obtain the authorization of the producer. That rental right was introduced into the Canadian Copyright Act in 1994 following the conclusion of the NAFTA. Since January 1994, commercial undertakings must ask for the producer's authorization to rent a sound recording. In light of the undeniable negative impact that rental has on the sale of records, an international survey was carried out which proved that 94 per cent of rented discs are also copied. Because of this negative impact on sales, producers decided to forbid rental and to deprive businesses of the authorization to rent records. The law finally granted them the power to control that use. Unfortunately, the Canadian law does not grant them that full power. Through an exception in the Act, certain establishments can still continue to rent sound recordings without obtaining the authorization of producers.
As we said in 1994, repeated before the parliamentary committee, and are reiterating again today, that exception seems completely deplorable to us. We sincerely believe that whether a consumer rents a sound recording from a business or a non-profit library, the effect for the Canadian record industry is the same. The record the person rents will be copied. We feel that this exception should not be in the bill, of course. Unfortunately, that exception is maintained in Bill C-32.
Bill C-32 also creates numerous other exceptions for schools and libraries as well as museums, archives and broadcasters. I won't go through the very long list of exceptions included in Bill C-32. You have them in a document we have given you, in any case. It is not an exhaustive list but it does give you some idea of the scope or number of these exceptions.
I would insist on the fact that the exceptions in Bill C-32 will have an impact on the property rights exercised by songwriters, performers and producers in the music field. You have heard witnesses who talked at length about literary works. The exception which allows schools to reproduce a book for exams or tests will also allow that school to reproduce a sound recording for tests. An archive or museum that reproduces a book for the management of its permanent collections may also reproduce a sound recording for the same purpose.
Finally, the last exception I will mention, but not the least, is one you have heard about before, of course: broadcasters may make ephemeral recordings of works, interpretations and sound recordings for subsequent broadcasts. The list is quite long. Surprisingly, users are not always satisfied and want amendments to Bill C-32 to increase the number and even broaden the scope of some exceptions.
ADISQ does not deny that there are certain good causes such as education, museology, the conservation of works, which are all quite worthwhile. We don't understand why those who hold rights should subsidize those causes or establishments on an individual basis. For instance, if schools want electricity, we don't ask electrical companies to subsidize them. The same logic should apply to intellectual property. If Parliament decides that access to education is a worthwhile cause, why should those who hold rights foot the bill for that decision?
That is why the basic position of the ADISQ has always been to ask for the withdrawal of all exceptions in Bill C-32 in order to allow collective societies who are fully enabled to do so to negotiate agreements with certain users.
Consequently, ADISQ is not happy with a number of exceptions the parliamentary committee has maintained in Bill C-32. We must emphasize the remarkable work done by the parliamentary committee between April 25 and December 13 nonetheless, in rebalancing the scope of those exceptions in order to strike a more adequate balance between the users and the copyright holders. The fact remains that each one of those exceptions is a very important concession imposed on the copyright holders. We are counting on the review process provided for in the bill, which my colleague Brian Robertson referred to, to reassess that whole situation.
Mr. Pilon: My intervention will focus on neighbouring rights and the exceptions included in Bill C-32 in regard to the neighbouring rights regime. What are neighbouring rights? They have not been much discussed in the hearings until now. There has been a great deal of talk about educational institutions;, but neighbouring rights have not been very much discussed as such. They are quite basic rights. Literally, neighbouring rights are to be understood as being close to copyright. Composers have rights. When a record is played on the radio, for instance, the composer receives compensation through SOQUAN. For most radio stations, that compensation is equivalent to 3.2 per cent of the radio station's sales. That is given to SOQUAN and redistributed to composers or songwriters.
At this time, the two other broad categories of artisans who are necessary to produce a sound recording, aside from the composer, that is the performers, singers, musicians and producers, receive no remuneration for the public broadcasting of a disc on radio, in a discotheque, or in some other venue.
It must be recognized that this is quite an exceptional situation because at the current time there are 52 other countries in the world who adhere to the 1961 Rome Convention, which was not signed yesterday, a convention which provides protection not only for copyright but also for neighbouring rights.
The adoption of Bill C-32 is an important precedent and this must be realized in spite of the criticism we will be making in a minute. It is a first in Canada and North America since it will allow Canada to join this group of 52 countries. The last country to adopt a neighbouring rights regime and adhere to the Rome Convention last year was Moldavia. It is a bit embarrassing to consider that Moldavia has a neighbouring rights regime and Canada still does not have one. This regime is quite important.
We have heard all kinds of things in the past few years about neighbouring rights. We have been told that radio stations will not have the means to pay for them and so on and so forth. It must be understood that they exist and that Canada will not be reinventing the wheel; they exist in 52 other countries throughout the world and they are a property right. When radio stations broadcast a record they are using someone's property. They have for decades paid a modest compensation to authors, and they will now be providing performers, musicians and producers with an even smaller compensation.
In English people say "It's a normal cost of doing business". It is indeed very normal, and exists elsewhere. It is a relatively modest expense, as one might expect.
I am going to continue my presentation with the help of tables. Since it is a bit complicated for the interpretation when tables are being used, with your permission I will proceed in English. The last document you have in the kit we distributed is entitled: "Extremely Generous Neighbouring Rights Exemptions for Radio Stations", and this is accompanied by tables. Unfortunately, we could not translate the documents but we did translate the tables. By following the tables you will easily be able to follow my presentation.
Bill C-32 contains two distinct types of exemptions for all radio stations. First of all, one exception will apply to all radio stations whatever their sales figures, on the first $1.25 million of publicity income. Radio stations will not pay neighbouring rights, or, rather, they will be paying $100 a year, a token sum. This is a basic total exemption that applies to all stations.
Second, there is an exemption for revenues over $1.25 million which is a partial exemption for an introductory period of three years. To understand this more easily, let's take the example of a radio station that has income of $3 million a year. I will use a five-year period for my example. Since the bill is supposed to be reviewed in five years, the bill provides for an introductory implementation period of five years. What will happen to a radio station over that five-year period? You will note that the exemption for a radio station with revenues of $3 million -- that would be a fairly large radio station -- is quite generous. First of all, during each one of those years, the first, the second, the third, fourth and fifth, and on the average over that five-year period, that station will benefit from the exemption on $1.25 million, which means that 42 per cent of its income will not be subject to neighbouring rights at all.
[English]
For the first $1.25 million of advertising revenue, the $3-million-per-year radio station will have a totally free ride, and 42 per cent of its revenue will be free of any neighbouring right payments. On the revenue over $1.25 million, $1.75 million, the difference between 3 million and 1.25 million, two-thirds will also be exempt in the first year. Therefore, in the first year, $2.4 million out of $3 million will be exempt from any payment on neighbouring right, except the $100; in other words, 81 per cent of its revenue will be exempt.
The second year, that station will still have the base exemption of $1.25 million. One third of the difference of 1.7 will be exempt, which means 42 per cent base exemption, 19 per cent phase-in exemption, for a total exemption the second year on 61 per cent of its revenue. The third year, there is no longer a phase-in exemption, but the base exemption remains.
On average, during the first five years, this station will have 42 per cent of the base exemption. As well, spreading out the phase-in exemption over five years means an average annual 12 per cent of revenue will be exempt. Therefore, during those first five years, this station will have more than half of its revenue totally exempt.
Going from one station to the full industry, there are 495 private radio stations in Canada. The latest financial figures we have are a bit dated; they are for 1995. The new figures will be out in a month or two. In 1995, those 495 stations earned a total advertising revenue of $754 million.
Let us look at what is happening. This is illustrated in Table II in your brief. The entire radio industry will be exempt the first year, and 84 per cent of the revenue will be free of any neighbouring right payment. The second year, it will be 69 per cent. For the next three years, and perhaps forever, at the end of the review process, if we do not succeed in eliminating that base exemption, the entire radio industry will still have an exemption on 53 per cent of their revenue. On average, for the first five years, $471 million, or 62 per cent of $754 million, will be exempt from payment. That is a huge exemption which translates into an important loss for the artists and producers.
Let us look at the whole picture now. This table represents every one of the 495 radio stations in Canada. We asked Statistics Canada to produce a special run and divide all the radio stations into groups. We start with the small stations here, which is Group 1. These groups includes the ones which have less than $500,000 in advertising revenues, then those that are between $500,000 and $1 million, and so on.
In this section, 327 stations are under the $1.25 million benchmark, which means that two-thirds of the stations are under $1.25 million, and those 327 stations will be exempt, except for the $100. That is a huge exemption.
We acknowledge that the financial situation of many of those stations is not good. We have agreed all along that some stations should get a break, but we think this legislation goes too far. We proposed earlier that only stations under $750,000 should be exempt.
Finally, the government chose to extend this exemption up to $1.25 million, and we agreed with it. We want you to realize the enormity of this exemption. Sixty-six per cent of the stations, which is all of that part of the review, accounts for 25 per cent of the total revenue of the radio business exempted.
The next section shows the larger stations, stations with annual revenues ranging from $1.25 million to $15 million. This is the most outrageous aspect of this legislation. Most of the big stations, if not all, are quite profitable. They will also get a base exemption, which means the first $1.25 million of their revenue will be exempt.
Let us take as an example our $3 million per year radio station, which falls into this group. The first year, as we see on the other table, that station will get the base exemption and then will get the phase-in exemption. This station will be exempt on all of that part of the revenue in the first year.
If we look at it globally, no neighbouring rights will be paid the first year. All of this will be exempt. That is 84 per cent. Only this part of the revenue will have neighbouring rights applied to the first year, and the second year, only this. I emphasize the enormity of this exemption
We must realize who benefits the most from the exemption: the big stations. As you have seen, the value of the exemption given to the small stations represents 25 per cent of the revenue. However, the value of the exemption given to the big stations accounts for 28 per cent, plus 9 per cent for the phase-in, a total of 37 per cent. Globally, if you take the total value of the exemption, 60 per cent of the total value of the exemption will benefit the big stations, and only 40 will benefit.
We could have agreed to give a larger break to the small station in exchange for a lesser break to the large station but we did not do so, as we do not know the tariff upon which the copyright board will decide. The copyright board is a tribunal and will decide on the basis of an economic presentation, which we will attend. The right holder can say what their right should be valued at ,and the broadcaster can respond. The board will be required to consider the economic capacity of the broadcaster to pay. Finally, the board will render a decision.
To give you an example of how this would work in a positive way, let us suppose that only half of the repertoire used by radio stations is covered by Bill C-32 because the U.S. repertoire is not covered. Many people think that we cannot expect more than half of the existing tariff, 1.5 per cent a year. If there was not an exemption, and if the board applies a tariff of 1.5 per cent of the advertising revenue of the radio station for neighbouring rights, then we should end up with 1.5 per cent of $754 million, or $11.3 million a year. This is all on the assumption of constant revenue. In fact, I surmise that the revenue will grow by 1 or 2, perhaps 3, per cent a year. However, for the sake of simplicity, we have chosen to use constant revenue in our example.
Without any exemption, we would have received $11.3 million per year. After five years, that would mean $56.5 million total. However, in the first year, an 84 per cent exemption means that rights will be paid on only 16 per cent of the revenue. We will get 16 per cent of the potential $11.3 million.
In the first year, the best we may get is $1.8 million from all radio stations in Canada. In the second year, it may be $2.5 million. In the third, fourth and fifth years, it may be $5.3 million. That works out to an average of $4.2 million per year, which is very low. For the five years, we will get a total of $21.2 million.
This $21.2 million is from a potential of $55 million, which means that we will lose $35 million. The huge level of exemption given to broadcasters is a handout of $35 million, and they are still asking for more.
On the last table we can see the reasonableness of the bill. It is too reasonable, in our view. Let us look at this last table. If we get $1.8 million per year out of $754 million of revenue, that represents 0.2 per cent. That is one-fifth of 1 per cent of the total revenue in the first year. In the second year, it is 0.5 per cent and, in the third year, 0.7 per cent. On average, we will get about one-half of a percentage point of the total advertising revenue of the private radio stations in Canada. Quite frankly, it is not this small amount of money which will bring the big stations into difficulty. This is not serious.
This ends my presentation. I would be pleased to answer any questions..
[Translation]
The Chair: Thank you very much. I would have a first question for you. You talked about the concessions you made. What was the concession that was the most difficult? What have you obtained through all of this negotiation process at the House of Commons?
Mr. Pilon: The most important and unacceptable concession was the following: The same basic exemption was granted to the larger stations whose financial situation is good as to the small stations.
I do not know if any of you have had a chance to have a look at a very long brief we tabled with the parliamentary committee last fall, wherein we proposed several solutions, some of which already exist with regard to other fees. They are progressive solutions; we would give a break to small stations, a bit less to medium-sized stations and no exemption at all to large stations, except perhaps for a gradual introductory exemption, which would be normal, but no permanent exemption.
[English]
I do not know if my friends agree with me but to give a permanent exemption to large, profitable stations is completely outrageous.
The Chair: Did you win anything?
Mr. Pilon: We won the rights.
Mr. Robertson: We won the rights, essentially. Originally, that was both our short- and long-term goal. The rights have been eroded, as you have seen. We know how far behind the rest of the civilized world we are when Moldavia recently has put such rights in place. We are grateful, at this point, to have the potential to have the rights in place.
Mr. Chater: Madam Chair, the issue for us is to establish that the right is in place. From there, we can move forward. In our view, we benefit from the legislation. As you have heard from my colleague Mr. Pilon, our view is that the bill, like life, is not perfect.
The Chair: You suggested a two-year mark review. What about the neighbouring rights? We are told they are supposed to be in place after two years. I hope I am accurately recounting what we were told.
What do you think of a three-year review?
Mr. Robertson: There is a recommended three-year phase-in for neighbouring rights. I was referring, in my opening address, to the five-year parliamentary review recommended in the bill.
The Chair: What about three years?
Mr. Robertson: Three years certainly would be a compromise. It would allow us to move forward to this Phase III process which, as I said earlier, should have been started quite some time ago. There are many levels of new communication and new technology which are not included in this act and which should be addressed.
The Chair: The more we read about it, the greater is our awareness that this dossier is really late for Phase III.
Mr. Robertson: Communication on the Internet is totally uncontrolled, with resultant exploitation of our products. This should be quickly addressed.
[Translation]
Ms Drouin: As for the review process provided for in clause 92, it does say "within five years". We think there's nothing in the bill that would prevent starting that review earlier. There's no need to wait five years, since it says "within five years".
Senator Grimard: Thank you, Madam Chair. I want to apologize for my colleagues' absence. I wonder if there was a mistake. Friday afternoon I received a notice from the committee toward the end of the afternoon stating that the meeting was to be held today, but at two o'clock. That is the notice I received. I personally contacted the clerk who told me that it was a mistake and that the meeting was to be held at nine. I don't know if that explains the absence of my colleagues. Rest assured, on the other hand, that if you don't have quantity on this side of the table, you certainly have quality.
I want to thank those who have presented briefs; they were very interesting. I would have a few questions to put to the presenters, in order.
[English]
Mr. Robertson, your brief was very interesting. I have one question for you. Everyone seems to be under the impression that Bill C-32 is not perfect, but it is definitely a step in the right direction. Are you in favour of this committee accepting the bill without amendments, even if the bill is not perfect?
Mr. Robertson: The direct answer, senator, is yes. We recognize the inadequacies of the bill and the compromises and concessions which have been made, but our recommendation is to pass the bill without amendments.
Mr. Chater: I would like to reiterate that. Our members would like to recommend the bill be passed as is.
[Translation]
Mr. Pilon: Senator Grimard, I...
Senator Grimard: I know your answer. You may express it anyway, but for the others.
Mr. Pilon: There's no point hiding the fact that before Christmas the board of directors of ADISQ held quite a stormy meeting. There was a debate, a lengthy debate. Were we to continue supporting the bill in light of what it contained, and especially since a basic exemption was being maintained for large radio stations?
We came to the conclusion that in spite of all that, an important right was being created and that Canada was finally going to modernize its policy. We felt that after the bill was passed we could participate in the review process to attempt to have unacceptable provisions removed. It appears important to us that the bill be passed without amendments.
[English]
Senator Grimard: Mr. Chater, on page 2 of your brief, you mention a statement that was made to you by the CRMA, and then you add the statement that the new law will both change the legal position and give the opportunity for negotiations and the collection of a payment for use. I would like you to expand on that comment.
Mr. Chater: Senator, as I remarked, under the present law, the act of home taping or private copying is technically illegal. I have also told you it is not really enforceable in any way. The new law -- and I am not a lawyer, so Madam Drouin may correct me on this -- will give you a right to utilize the product but with a payment to the creator for such use. It, in fact, allows a commercial transaction to take place which was theoretically possible before but not practical. Now it becomes a practicality that one can achieve this end and receive recompense for the use by a wide variety of consumers.
[Translation]
Ms Drouin: It is not up to me to change my colleague Mr. Chater's response. Under the bill, the collective society or the collection organization that will collect the levies or copyright fees under the individual copy regime will be able to attempt to negotiate with users and those who must pay the fees, manufacturers and importers of blank tapes. If we cannot agree, the Board will be asked to set the rate.
[English]
Senator Grimard: Mr. Chater, on the last page of your brief, you seem to be very confident about the Copyright Board. You say that in your experience the Copyright Board has rendered fair and equitable judgments.
In this same committee room, a few days ago we heard from someone who was fully against the power of the Copyright Board because he thought that the Governor in Council, according to proposed section 66.91, will have too many powers. This clause says that the Governor in Council may make regulations issuing policy direction to the board. You do not appear to be afraid of the powers proposed section 66.91 will grant. Can you explain why you have such an opinion?
Mr. Chater: Again, senator, as I remarked, if it were a perfect bill, I would have preferred that proposed section 66.91 were not there. It is there, and it gives us some concern but also, on the other side, in our view, provides some opportunities. This is not a totally one-sided position for the government to take.
Are our members totally pleased with this? No, we are not. We would prefer an unbiased or unregulated Copyright Board, before which both sides could argue their positions.
If we had three more months, we would probably agree that this should not be in the bill. However, it is there, and while there may or may not be problems, we do not feel that we can impede the passage of the bill at this point. As we said, please pass this as is.
[Translation]
Senator Grimard: You wanted to ask something?
Ms Drouin: The wording of clause 66.91 and of several others could have been redrafted. Clause 66.91 is not perfect. It refers to the Governor-in-Council's power to provide instructions to the Board. The ADISQ would not agree if that power were not so well defined and allowed the government to act instead of the Board. We don't believe that is the case.
If you reread it, it says plainly in clause 66.91:
The Governor in Council may make regulations issuing policy directions to the Board and establishing general criteria...
This is still very general.
In the current Act, there is already a provision which states that the Governor in Council may through regulation establish criteria for the rebroadcasting regime. No specific details are provided on these criteria of a general nature. The Governor in Council could have not decided anything, which is even more dangerous. That did not happen. That power was used once by the Governor in Council in 1991. I have a copy of the regulation. The criteria were of general application and in the summary of the impact of the regulation it says clearly that the criteria do not oblige the Board to draw any particular conclusion.
The Board has full discretion to attribute proper weight to each criterion, to the criteria as a whole, to the evidence and to the arguments made by the parties.
Although it was not forced to do so by the wording of the article, the government was careful to issue general criteria. Now that this has been committed to writing in 66.91, we believe it will continue in that vein.
Senator Grimard: Your points are well taken. I want to address these next questions to you. The topic of your presentation was mostly the exemptions.
At the last hearing of the committee in the other place, there were 67 amendments. Are many of the exceptions you have discussed among those 67 amendments.
Ms Drouin: I was in the Other Place on December 12. The government tabled its bill April 25 and the work of the committee took place during the fall and ended on December 12. The committee published its report on the 13. Certain changes were made to some of the exceptions contained in the original bill, as tabled April 25; there are differences between the final version produced by the committee and the initial version.
Those amendments were proposed to the committee by several groups during these six weeks of hearings. They are amendments that one group or another asked for. The ADISQ asked for certain amendments. Our basic principle was that the exceptions should be withdrawn. If all of the exceptions were not withdrawn, we also had a shopping list. Several of these exceptions were asked for during the work of the committee. It received 170 briefs and heard 68 witnesses. At the end of these hearings, amendments were made. Things were a bit rushed on the last day. Everything had been said and decisions had to be made. That was what happened.
Senator Grimard: I am glad to hear what you have to say because other witnesses told us that the vast majority of those amendments were introduced at the last minute and took them by surprise, whereas from what you say, the amendments had a history.
Ms Drouin: No, and to give you an example, one exception stated that schools could reproduce discs, books or any object protected by copyright, for a school assignment, a test or an exam. We had asked in our brief that those words "school assignment" be withdrawn. We did not mention it again before the committee. Those words were too broad and could include anything a school might do; there are school assignments everyday. We had asked that those words be withdrawn.
Our request did not fall on deaf ears, and to balance the interests of both parties regarding that exception, the committee decided to delete those words. That was something we had asked for. The amendment came out on December 12, but the request had been made long before that.
Senator Grimard: One of the objections we heard repeatedly from broadcasters was that the new bill would force them to erase their recording within 30 days. That objection was repeated several times. I would like to hear your comments on that.
Ms Drouin: The exception in the bill allows them to keep the recording for a period of 30 days. In support of the exception for ephemeral recordings, broadcasters stated that this was allowed in the Berne and Rome International Conventions. That is quite true. Those international conventions do refer to ephemeral recordings. No exceptions are allowed, however, for permanent recordings. I think the Berne Convention -- I always get them confused -- states that if broadcasters can prove that keeping a particular recording presents some exceptional interest, they will be allowed to keep it in official archives.
That is the only reason that can be used to justify a permanent recording. The bill provides for that. There is a 30-day period; in most countries, this conservation period varies between 30 and 90 days. But whatever the period, it would not have satisfied broadcasters. Even if it had been set at 90 days, they would have told you that that was not sufficient because they want an exception for permanent recordings, which is something very different.
[English]
Mr. Chater: With regard to the 30 days, I commented on this at the House of Commons committee. The phrase in the law is "unless the copyright owner authorizes the reproduction to be retained". As far as our members go, to date, we have not used this provision, nor will we in the future. We will probably be prepared to license it for a token payment.
In fact, in reality, this will continue to be available to broadcasters. They have business obligations, which we understand. This is not a major issue from our point of view. It is merely a matter of accommodation in an effort to work things out.
From the point of view of the broadcasters, they wish to be assured that their business will not be unduly interrupted. We see no reason why they cannot be easily accommodated, and we are happy to do so.
Mr. Robertson: We have had the rights for decades. We have never exercised this right, nor do we contemplate doing so. It appears to be a process of delay rather than a practical argument.
[Translation]
Senator Grimard: Thank you. Before putting a few questions to Mr. Pilon, I would like to say to Ms Drouin that I liked your comparison when you talked about expropriating property. I think, and it is true that people are not fully aware of this, that when we look at the requests made by museums, universities or others, we fail to realize that if we don't pay rights, we are expropriating the authors. I appreciated your comparison a great deal.
Now, I would like to address my comments to Mr. Pilon. You spoke at some length about neighbouring rights. I don't think anyone can object to neighbouring rights being granted. We know that music composers and songwriters benefit from those rights. Now we will be adding performers, musicians and producers. Overall, that is a very good thing. I would like to ask you a few questions on neighbouring rights.
We know that those rights do not exist in the United States and that they are more of a European concept. Am I mistaken in saying this? If you have any explanations to provide on this, I am giving you the opportunity to do so.
Mr. Pilon: Sometimes our broadcasting friends have tried somewhat maliciously to say: This is a French notion, it comes from France. But these rights exist in 52 countries, not just in France; there is also Great Britain, Australia, Japan, Germany, and all of the Nordic countries. They do not only exist in France or other Latin countries, make no mistake. It is true that the Americans do not have a neighbouring rights regime that covers all the radio stations. They have a false neighbouring rights regime since it excludes all conventional radio stations. Their rights only really cover "subscription pay audio", specialty audio services sold through cable subscriptions.
Of all the OECD countries, only two countries have no neighbouring rights, Turkey and the United States. I am presuming of course that Canada will pass the bill.
Senator Grimard: What will be the impact of the neighbouring rights regime in Canada in light of the fact that it is quite possible that broadcasters or others who use music will prefer to play American music, because they do not pay neighbouring rights for it? I read in their brief that if they could not come to an agreement, they intended to play American music. I would like to hear your comments on that topic.
Mr. Pilon: The Broadcasting Act in its 1991 version provides in Section 3(1)e), I believe, that any licensed broadcasting undertaking, any television or radio station, is obliged to make maximum use of Canadian content. Contrary to this section of the Broadcasting Act, in the CRTC television and radio regulations, this has been translated into articles that set quotas.
Television has to abide by a quota of 60-per-cent Canadian content, and 50 per cent during peak hours. Since 1971, all radio stations in Canada have to respect a minimal 30-per-cent Canadian content quota. We have no choice. It is an obligation. We don't think that this quota will disappear overnight. For that to happen, the Broadcasting Act would have to be amended. This is quite a strong obligation. It is not a sometime CRTC policy, but a CRTC regulation.
As for French-language stations, they also must abide by the 65 per cent French content quota. The 30-per-cent Canadian content quota applicable to all radio stations means that, realistically, at this time, with very few exceptions, in English Canada, in any case, there is not a single radio station that plays more than its obligatory 30-per-cent Canadian content. If some were playing 50 per cent and said they would in future reduce it to 30 per cent, one might say that there would be a negative impact along the lines you have suggested.
However, since they are all keeping to the strict 30-per-cent minimum, that is where they will stay because regulations oblige them to do so. I don't think there will be an impact, for those reasons.
[English]
Mr. Robertson: Senator, English language radio stations already play up to 50 per cent U.S. recordings anyway. I do not think that will change because radio stations, by their commercial nature, will play whatever music will sell advertising and create audiences. I think they will be drawn to the popular music no matter where it comes from. I do not believe that dynamic will change at all.
Mr. Chater: Obviously, from our members' point of view, and as Canadian companies, we are concerned. This is not a huge concern because, as Messrs Robertson and Pilon said, there are certain obligations under the Broadcasting Act, as well as under the CRTC's Canadian content regulations that it has to be, in the wording of the act, a majority of Canadians and to the benefit of Canadians.
In the real world, as has been said, 30 per cent in English language stations is Canadian content. The 50-per-cent American content leaves 20 per cent remaining, obviously. That 20 per cent could be British, Australian, German, or whatever. Radio stations play music to attract advertisers. In our view, they will not pass up a major British, Australian, German or French artist singing in English which would allow them to reach a bigger audience.
It does not make sense that for a small amount of money you would potentially damage a much larger revenue base in advertising.
[Translation]
Senator Grimard: Mr. Pilon, I would like to get back to what you were saying. I would have one more question after this one. If I own a bar or discotheque, my operation would not fall under the Broadcasting Act. I would like you to answer my question about discotheque or bar owners; will they not chose to play American music? I would like to know what you have to say.
Mr. Pilon: Generally in bars and discotheques in Quebec there is not much Quebec music. It is unfortunate, but that is the way it is. I do not think that will change much. What applies in bars and discotheques is the general principle my colleague Mr. Robertson has just referred to: They will play what people want to hear, dance music and very popular music. Often, that is American music. It may be British, Australian, Canadian, English Canadian, and sometimes Québécois. I don't think things will change there. The quantity of Canadian music, in particular Quebec music, that is used is so small that they can hardly reduce it more.
One must also realize -- and you will be hearing our friends the restaurant owners later -- that if those people decide to play hard ball at some time and launch campaigns to systematically boycott Canadian artists and musicians, well, Canadian artists and musicians also go to restaurants and bars and have a lot of friends who frequent these places. Two can play at that game. The dust will eventually settle around all of this. Things will fall into place.
Senator Grimard: Some say that the introduction of neighbouring rights creates a regime that is custom-made for Quebec artists. I would like to hear you on that.
Mr. Pilon: I must admit, Senator Grimard, that I never understood that claim.
Senator Grimard: I did not make it.
Mr. Pilon: I know, and I have heard it for the past 10 years. There have always been people here in Canada, and this is unfortunate, who have wanted to pit Quebec against English Canada and English Canada against Quebec. This is part of some cheap game. There is no reason or justification for it. English Canadian artists will benefit as much if not more, because there are more of them, from the regime as Quebec artists. There is no difference.
Ms Drouin: I would like to add something in response to your question about restaurant owners, discotheques, et cetera. You will be hearing their representatives later. I invite you to ask them what this provision means to them in terms of levies. The rate already paid to SOCAN for authors, the rate set by the Board is a minimum of $90 a year for the entire SOCAN repertory, which means the world repertory, since SOCAN represents everyone. Square footage is used to calculate it. It is 11 cents per square foot. A restaurant the size of this room, which is about 150 square feet, would pay $150. Using the same hypothesis for neighbouring rights, it would amount to half, according to some. The owners would pay $100 more for the complete repertory of artists and producers of the Rome Convention member countries. I think that these rates are very minimal.
Senator Grimard: I don't know, Ms Drouin, if I am going to put questions to the restaurateurs. I am a gourmet. I like to eat and drink well. I want to keep them on my side.
Senator Poulin: I would like to thank the representatives of the three groups for their excellent presentation. It was extremely instructive. I noted Mr. Pilon and Ms Drouin's presence at the hearings from the beginning. We recognize your interest and serious consideration of the review we are carrying out. We thank you. You have made recommendations while recognizing that in a perfect world there are some concessions you would like to have reviewed. Since you have been present for our study of Bill C-32 from the beginning, you have had the opportunity of hearing all of the testimony.
If you were in Senator Bacon's shoes and had to respond to all of the concerns we have heard in a short time, what would you say to recognize the importance of the claims of writers and authors, and also of students? What would your answer be?
Mr. Pilon: You mean in terms of possible amendments or corrections? There were indeed many groups who came here to testify on that. We also attended the parliamentary committee's hearings regularly. As my colleague was saying earlier, there were 190 briefs tabled and 68 witnesses were heard. As mentioned again a few days ago in the Financial Post, over the weekend my friend Mr. McCabe suggested one or two small amendments that might be made quickly.
First of all, to the CAB, these one or two small amendments are not that small. But why not also consider the universities, bookstore owners, restaurant owners, as well as ourselves who have given up 62 per cent of our potential earnings from rights? If we start that, the discussions can go on for another five years. There is a process that has been set up for that. Let's use that process. At this time, we will just make suggestions. We would like to see the exemption for the large stations disappear, and perhaps others. Others will want to suggest other things. We will make our suggestions in the context of the process provided, and not in haste.
[English]
Mr. Chater: May I just respond, senator? I apologize for not being here last week. I was at the CRTC. Unfortunately, I cannot be in two places at one time.
We had excellent representation from Madam Drouin and Mr. Pilon. They gave us the full details every night. In fact, my presence would have been superfluous, I am sure.
I agree with Mr. Pilon that one could say "amendment, amendment, amendment". We would all like amendments, but let me be blunt about this. If we grant one, there will be others, and the process could go on interminably. Our point is that the bill be passed as is.
We work very closely with l'ADISQ. We say sometimes facetiously that we have one language -- it is green.
[Translation]
Senator Pépin: I want to make sure that we should not be too concerned about the "boycott" of Canadian sound recordings you referred to earlier.
Mr. Pilon: I don't believe in the possibility of a boycott by restaurants. Those people are in business, they are serious people. Some of their representatives are here. Our members know restaurant owners and when we talk to them, what do we talk about? For most restaurants, we are talking about $15, $20 or $25 more per year for neighbouring rights. Do you think that these people will say that because of an additional $25 a year they will launch a campaign whereby Céline Dion will never be played again in their bar or their restaurant? Will they run the risk of upsetting all of Céline Dion's fans for $25 a year? For a hotel such as the Château Laurier, who pays $180 to SOCAN, and who will pay $60 more in neighbouring rights, will they run the risk of never having Céline Dion and all of her friends stay in the Château Laurier again? I think they will not run that risk. I think a modus vivendi will be found with them very quickly.
Senator Pépin: That is fine. Thank you.
The Chair: Thank you very much, Mr. Robertson, Mr. Chater, Ms Drouin, and Mr. Pilon for your presentation and for your presence at our committee. We shall now be hearing from the Canadian Restaurant and Foodservices Association, and from the Canadian Motion Picture Distributors.
[English]
Next, from the Canadian Motion Picture Distributors Association, we have Mr. David Frith and Mrs. Susan Peacock. We have Mr. David Harris appearing on behalf of the Canadian Restaurant and Food Service Association.
Mr. David Frith, President, Canadian Motion Picture Distributors Association: With me today is Susan Peacock, Vice-president of our legal department. We represent, essentially, seven Hollywood studios: Columbia Pictures Industries Inc., Buena Vista International Inc., Metro-Goldwyn-Mayer Inc., Paramount Pictures Corporation, Twentieth Century Fox International Corporation, Universal International Films Inc., and Warner Bros. International. All seven studios are vertically integrated.
We appeared before the House of Commons committee and generally indicated areas where we had some concerns. I recognize the difficulty that the Senate has with this very complex bill. Although there were a number of areas where we had concerns, we are limiting ourselves this morning to proposed section 58.1.
You have recently heard from several groups with a stake in copyright legislation. They have also addressed this clause. Included in these groups are the Canadian Bar Association, the joint committee on the copyright legislation, and the Institute for Patent and Trademarks. They, too, had a number of concerns. Those two other organizations indicated their major concern was with the proposed section 58.1.
I know this is difficult for senators now as you go through the bill clause-by-clause.
I invite Susan Peacock to take you through some of the effects the proposed section would have, not only with respect to our industry, but also with respect to other industries.
Ms Susan Peacock, Vice-President, Legal, Canadian Motion Picture Distributors Association: In case you have not memorized the entire bill, I will repeat briefly what clause 58.1 says. It affects assignments or licences of copyright, or rights of remuneration conferred for the first time by this act.
I might refer to "new rights" in my remarks, and that is what clause 58.1 concerns. Clause 58.1 would make such assignments or licences invalid if they were entered into before April 25, 1996, and if the new rights were transferred with general rather than specific language. For example, someone might enter into a contract where section 5 of the contract said, "I hereby assign to you all of my rights in this sound recording, now known or hereafter to become known." General language did not specifically enumerate the new rights that are contained in the bill. If that agreement was signed before April 1996, 5, 10 or 25 years ago, the rights under that agreement, insofar as the new right is affected, would be invalid.
The intention is to ensure that owners of the new rights, especially performers, would benefit from them, even if they had inadvertently granted rights to someone else. This is a laudable goal, but clause 58.1 is likely to cause more unfairness than it remedies.
First, there are areas where it is intended to apply, but the unforeseen results may be unfair. The concern that the Canadian Bar Association and the Patent Trademark Institute expressed was that the effect of this section is not limited to contracts governed by Canadian law. Contracts governed by foreign law may be construed differently by a foreign court, and this provision disregarded, whereas a Canadian court may apply it, irrespective of whether the agreement relating to the copyright itself is governed by Canadian law. Conflicting interpretations of the same agreement may lead to unreliable results.
As the bar association's submission states, the provision ignores reality and creates unjustified interference with contracts. The effect of clause 58.1 will be to interfere retroactively with business arrangements in which an assignee or grantee has acquired all the rights of the assignor or grantor, irrespective of future developments. It is a common kind of language in these agreements.
Bear in mind that an assignment or a licence will often be part of a contract. Where it relates to new rights for performers, for example, or where it is the very first contract that governs the creation and exploitation of a work, that agreement is the first in a long chain of other agreements. That initial agreement may be invalidated by clause 58.1
When you were questioning the bar association/PTIC group, you asked them to give you an example. They came up with one which is close to our hearts, namely, films distributed on video cassette. Video cassette distribution is the largest source of revenue for our members. It is a larger pool of revenue for us than theatre or television.
The CBA/PTIC committee suggested that clause 15.(1)(b)(ii), which creates a new right, combined with clause 58.1, could result in certain licences for the use of sound recordings in feature films being invalid with respect to the distribution of the film embodying that sound recording on video cassettes. If the performer of the sound recording entered into the initial agreement before home video distribution was known, clause 15, in combination with clause 58, could interfere with the video cassette distribution of that film. The film may be new but if the sound agreement was entered into before 1980, when video cassette distribution became known, the distribution of that movie on video cassette could be impeded.
Film producers pay for the licence to include sound recordings in the sound track of their film. The amount paid for such a licence would often be in the range of $10,000 to $20,000. It can vary, but that would be a typical amount. It is a relatively small share of the total cost of producing and releasing the film. Our members distribute films where production and theatrical release costs are, on average, $50,000 to $100,000 for each film.
Many sound recording licences also provide for the licenser of the sound recording to receive a royalty based on the number of video cassettes that are sold. The distributor pays the producer of the film. The producer pays the licensor of the sound recording, which includes, in many cases, a royalty for the video cassette distribution.
1964, 1965 and 1967 were big years for music recordings. Those sound recordings are very popular and are placed in many films. Let us take as an example an agreement made with a performer in 1964. If that agreement did not specifically provide for video cassette distribution of a film embodying the sound recording -- and it is highly unlikely it did -- the whole chain of royalties is disrupted. The chance of recouping the $55 to $60 million out of the biggest source of revenue is put into jeopardy.
A second area of concern is that clause 58.1 is so broadly stated that it may have an impact on unintended areas. It does not say that it relates only to new rights for performers; it says all new copyrights and all new rights of remuneration. We doubt that it was intended that copyright owners would be deprived of new rights to remuneration, especially when the remuneration is intended to compensate the owners for a new exception to an old right. However, that may be the result.
My example is the right to record a film or a television program off-air onto a cassette. The right to do that is covered by the existing copyright law and has been there for many years. In Bill C-32, a new exception to that right enables educational institutions to record a single copy. It is not an infringement if they do that, but they are required to pay royalties under a new royalty regime which will be administered by the copyright board.
In a decision relating to retransmission royalties, the copyright board has indicated that, in its opinion, the right to royalties under a statutory royalty regime, as opposed to under a contract, is different from the right which is the subject of the exception giving rise to the statutory regime in the first place.
If the right to receive these off-air taping royalties is a separate right from the right to authorize the taping, it is arguably also a new right, a right to remuneration. Therefore, the owner of a copyright in a film or program taped by an educational institution may not be entitled to the royalties if that copyright owner is an assignee. They are a copyright owner because they have an assignment referred to in 58.1, and that assignment did not specifically give them the right to receive royalties from educational institutions as a consequence of an exception to copyright.
I can almost guarantee that no contract, no assignment of copyright, specifies that narrow right. If the copyright board is correct in their previous decision and if this is a new and separate right, a right to remuneration, the copyright owner will not be entitled to it. The author will be entitled to it, but authors are substantially more difficult to identify and locate than owners or licensees. Considering the amount of time and trouble it can take to identify and locate authors, the result will be that much, if not all, of those royalties will be eaten up in hearings before the board and administration by the collectives, and no one will profit from it.
Assignments and exclusive licences of performers' performances and other works which are the subject of new rights and rights of remuneration are all commercial contracts on which companies have relied in good faith, perhaps over a period of decades. Any one of these assignments may have formed the basis for dozens of transactions involving millions of dollars.
To retroactively invalidate a significant portion of commercial contracts in a certain area is an extraordinary thing for any piece of legislation to do. Legislative precedents in this area are few and far between, and for good reason. In this case, the results will be far-reaching, unfair, and unintended.
Mr. Frith: I close by saying that clause 58.1 came out of the blue. It appeared in the last day or day and a half before the House of Commons committee. None of us who had appeared before the committee were aware that this amendment would be put forward.
I recognize the difficulty in which the Senate finds itself. This copyright legislation has been in the works for many years, and you will hear from people who are for and against it. Let me make the assumption that, some time today or in the next two days, this bill will pass through the Senate without amendments. Therefore, it does not go back to the house and perhaps become caught up in some legislative problem if a writ issued. However, you can make recommendations on some clauses of this act. It can be proclaimed or not proclaimed, or some parts can be put into limbo, until such time as the language is further and better defined. I am sure that if you ask those who drafted the legislation before you, they, too, recognize that they have opened up doors, with unexpected results.
I have only seen retroactivity once before, in my lifetime, in the house, and that was the retroactivity on the National Energy Program, the back-end provision. You might recommend that the government carefully reconsider some sections and not proclaim them until such time as there can be consensus on the wording or the drafting of the legislation. This process is within your power and does not require an amendment; it is simply an advisement to the government that they may want to review some sections and not proclaim them immediately.
I appreciate that we were allowed the opportunity to appear before you to address the considerable concern this section causes our members.
Mr. David Harris, Senior Vice-President, Canadian Restaurant and Foodservices Association: Madam Chair, on behalf of our 13,000 members, I appreciate the opportunity to apprise the committee of the effect of Bill C-32 on our industry and its impact on Canadian culture. I shall focus on the consequences of applying an additional royalty to recorded music performed or produced by a Canadian artist.
I shall place my remarks in the context of the industry's performance and the mentality of small business before I tackle Bill C-32. This background information should help you fully appreciate our position.
In terms of industry performance, the last five years have not been kind. Bankruptcies are at record levels, and sales are anaemic. In exact terms, real sales advanced a puny 1.7 per cent in 1995 and grew a discouraging 0.3 per cent last year.
Looking at same store sales in the restaurant industry is even more disheartening. There has been an average decline year over year since 1990. Today's restaurateurs are facing fierce competition. The ability to control their costs is the only thing standing between them and bankruptcy. In this environment, every restaurateur in the country is keeping a hawk-like eye on expenses. Controlling and maintaining costs is the difference between a successful establishment and bankruptcy. Smart operators look for savings every day and take pride in identifying hidden obstacles to profitability.
Let us introduce into this scenario Bill C-32 and the concept of neighbouring rights which will increase costs to all operators, with no corresponding benefits. Make no mistake, the bill will increase expenses for the industry. How big an increase there will be, no one knows. It is up to the Copyright Board of Canada to set the fee schedule, and that will not be done until it is proclaimed into law.
Bill C-32 has a proposal which will inject a neighbouring right component into music royalties. Currently, the industry pays a royalty for the use of background music. This bill will create a second royalty if the music is performed or produced by a Canadian. The average establishment is paying approximately $200 annually for the use of recorded music. Our best guess is that Bill C-32 will increase this annual fee by about $50 for the use of Canadian material. Once this fee is established, it will be cast in stone. It will not go away, and it will only increase.
To put this fee in perspective, you should understand the full extent of royalty payments in the restaurant business. An operator using CDs will pay three royalties for the same piece of music: one royalty when the CD is purchased, a second royalty when it is used in a commercial application such as a restaurant, and under Bill C-32, a third royalty if the CD is performed or produced by a Canadian.
I should like to focus for a moment on the cost increase for the use of Canadian music under Bill C-32. As noted, it could be another $50. This may not sound a like a huge amount to the general public, but no restaurant is in business to increase its costs.
If a restaurateur was purchasing napkins and could save $50 on products of equal quality, would he not take that savings? If he was buying ice cream and could save $50 on a product of equal quality, would it not make sense for him to take the savings? If this person was buying CDs and could save $50, would it not make sense to take the savings?
This cost is magnified in large restaurant chains. One such company, with over 100 units, is looking at a cost increase of $5,000. That is a considerable sum. This will not escape the notice of the chief financial officers in any of these companies and, to maintain their financial integrity, they will have to give serious thought to the alternatives which I will discuss in a moment.
This industry is not asking for a free ride in terms of musical royalty payments. It already contributes $8 million, or 11 per cent of all royalties collected, with only radio stations and TV stations paying more. We are already paying for live music, recorded music during receptions, background music, recorded music for dancing, and karaoke music. Of these, Bill C-32 will affect background music and recorded music for dancing where costs could increase another 25 per cent. Increases of this magnitude are not ignored in our present economic climate.
There is an anomaly within this bill of which you should be aware. It occurs because there is no neighbouring rights legislation in the United States. Therefore, if we play music performed or produced by an American, we only pay one royalty. However, recorded music by Canadian performers would attract two royalties. This means that the industry would have to pay extra for the privilege of playing Canadian music.
Take an example where an operator has two choices of recorded music, Céline Dion or Madonna. Playing a song performed by Madonna would attract one royalty but playing a Céline Dion song attracts two royalty payments. Put another way, there is a financial penalty for playing Canadian music. Since the goal of the legislation is to provide greater support for Canadian material, would it not be wiser to make American music more expensive to play?
One of the primary laws of the marketplace today is that, as prices go up, sales go down. Bill C-32 increases the cost of Canadian music. Sales in this scenario can only go in one direction.
Remember the chain of 100 restaurants facing a cost increase of $5,000? The alternatives for this operation are to pay higher fees or play American music. Remember the independent restaurateur who is looking for savings on napkins and ice cream? Music is no different. If there are savings to be had by playing American music, there is no doubt it will be noticed by many in this position.
I am not telling you the entire industry will boycott Canadian music due to this price increase. Here is my prediction: Some operators will unknowingly play Canadian music and get caught in the royalty net. Some operators will have no choice but to play Canadian music to satisfy their customers. Thousands of operators, however, will choose to play American music exclusively, thereby reducing their cost and the sale of Canadian music. Is that good for Canadian culture?
The objective of this legislation is to put more money into the hands of Canadian performers and producers, but there are only two industries shouldering the burden, broadcasters and restaurateurs, who both take a financial hit under Bill C-32. Would it not make sense to spread the load more evenly? A minuscule amount of royalty could be imposed on all over-the-counter sales. Consumers who want the music would then have to pay their fair share.
The food service industry does not have any obligations to play Canadian music. There is no promise of performance such as that imposed by the CRTC. Industry operators play only music that is appropriate for their establishment and music which is cost-effective. In this scenario, any person in the food industry today would have to think twice before playing Canadian music.
Honourable senators, I am appearing before you this morning because the 13,000 members of the Canadian Restaurant and Food Services Association believe that this bill is bad public policy. It represents a cost increase with no corresponding benefit. It places additional costs on the backs of a few unfortunate industries, rather than spreading the load. It increases the cost of Canadian music compared to U.S. material, which will reduce sales, the exact opposite to the objective of this bill.
This is a flawed bill which was eight years in the making. It was not ready when it saw the light of day. It was rushed through the Standing Committee on Canadian Heritage in the House of Commons where it was subject to no less than 120 amendments. Now, on the eve of an election, it is moving through the Senate at lightening speed. After eight years of waiting, does Canada not deserve copyright amendments that make sense?
You have the power to see that Bill C-32 is remedied. The food service industry hopes that you exercise your power to the fullest extent. Thank you.
The Chair: Mr. Harris, we were sitting all last week and the whole day today. I think we have taken enough time to hear everyone. Those who have not been heard were able to send their written presentations, and we have been reading those presentations. We are more knowledgeable today than we were last Monday.
Mr. Harris: I am sure you are.
Senator Grimard: Mr. Harris, how many members does your association represent?
Mr. Harris: We represent 13,000 members, sir.
Senator Grimard: What service are you giving to your members?
Mr. Harris: We provide educational services, trade show services, representation services and money-saving services.
Senator Grimard: Is there anything good for your association in Bill C-32?
Mr. Harris: No, there is not.
Senator Grimard: Nothing?
Mr. Harris: No.
Senator Grimard: What is the percentage of the Canadian music now being played in your members' restaurants?
Mr. Harris: I cannot tell you, but I imagine that there is a representative sample played today.
Senator Grimard: If you do not know the percentage of Canadian music played in your establishment today, how can you say that you will play less Canadian music?
Mr. Harris: We have done a survey of our members. We had over 1,000 respondents, which is extraordinarily high for any survey that we conduct. The response was overwhelmingly negative.
Senator Grimard: May I tell you, sir, that the restaurant owner will play the music that his or her customers like? I do not think the restaurant owner will decide what music will be played because he wants to save money. The owner of a restaurant is a person who likes to please his customer. He will play the music which pleases his clients. Do you have something to say about this statement?
Mr. Harris: I respond to that statement by recounting a conversation I had with a restaurant operator last week. I asked him what he would do in this scenario. He said that no one comes into his restaurant for the music. They come in for the service; they come in for the ambience; they come in for the food. He said he spells culture with a "K". To him, it makes no difference whether he plays Anne Murray or an American artist, but if he purchases music, in the back of his mind, he is thinking about cost savings.
Senator Grimard: I am not very satisfied with this answer. This is one owner of a restaurant who told you this.
Mr. Harris: There were 1,000 respondents who were overwhelmingly negative about Canadian music.
Senator Grimard: You mention in your statement that the new law, if Bill C-32 is adopted, will create an average increase of $50.
Mr. Harris: That is a best guess.
Senator Grimard: That $50, divided by 365 days, represents approximately 13 cents per day. Do you think that is a sufficient amount to make a big fuss about Bill C-32?
Mr. Harris: As I said, there is no business today which is looking to increase its expenses. If it can save money and maintain profitability, it will continue to do so.
Senator Grimard: Is clause 58.1 the only area in the bill which is unfair to the Canadian Motion Picture Distributors Association?
Ms Peacock: There are other sections with which we had difficulty. We made our submissions. As the minister said when she was before you, many people have had water in their wine over this bill, and our association is among them.
We have restricted ourselves to clause 58.1 because of the limited time this committee has to consider Bill C-32, and because we believe there are business solutions for other problematic areas. If we were granted one wish, it would be to change section 58.1.
Mr. Frith: Senator, to put it in perspective, take the new world of digitalization. I will not name the film, as it would get me into some difficulty with the studios. However, let us assume that there was a song recorded live by the Rolling Stones at the Montreal Forum or Maple Leaf Gardens in 1968. With digitalization, you can now place that performance into a video. Under this bill, the release of the video could be halted until such time as the owner or author of that song was located.If we then assume it was a love-in song, with 28 artists, each of the 28 artists could cause a problem for the release of the video.
There are people in this room who contributed to that amendment who admit now, if they had to do it again, they might want to change the wording of the amendment. That is why I suggested that clause 58.1 is a problem above all the other amendments. The Canadian Bar Association and the Patent and Trademark Institute of Canada have both flagged this as an area causing concern.
When you examine the passage of this bill, I hope that you will make recommendations to the government that there are areas which concern you. In fact, one group has suggested that there is not a need to proclaim the entire bill, but time should be taken to rewrite certain clauses. There are other legislative means one could wait for. There is another phase to copyright. Something as simple as an intellectual property bill could come through the pipeline in the house, where further definitions are outlined so that there is consensus on the language of the law. This is the area which causes the most concern.
Senator Grimard: You said in your statement that clause 58.1 was not in the original draft and that it was added on the last day of the meeting of the committee.
My question is this: Was clause 58.1 discussed or suggested by officials of the government or other people before being added to the present Bill C-32?
Mr. Frith: Not to my knowledge, but I will ask Ms Peacock to respond. We were reviewing it as part of our job. We read the testimony every day to ascertain what other groups had said.
To be fair, Ms Peacock and I both appeared before the House of Commons committee. We agreed it is time copyright came into the 21st century. These were areas with which we felt concern. Clause 58.1 was an unknown area.
Ms Peacock: It came as a surprise. It had not been discussed with us in any consultative meetings nor, to the best of my knowledge, had it come up in the public discussions in front of the house committee.
Senator Grimard: Besides clause 58.1, do you think the Senate should approve the bill so that you may start to discuss Phase III as soon as possible?
Ms Peacock: We are absolutely in favour of addressing Phase III as soon as possible. I gather you are questioning the cost of doing that. There have been comments made by other groups, particularly the Canadian Association of Broadcasters and the PTIC group, about the definition of plates and other subjects.
With respect to the policy questions upon which we have already made submissions to the house, we are satisfied that we have been heard. We tried to be persuasive but we failed in that respect. That is fair.
I will divide clause 58.1 into three parts. First, where we have already made our submissions on policy issues and have failed to be persuasive, so be it. On other technical issues, most of which were raised by the Canadian Bar Association, if the bill went through without those changes but there was an opportunity to amend them after the fact in the upcoming bill relating to intellectual property improvement, that would be satisfactory. With respect to clause 58.1, where it is not only a technical issue, it is a question of policy in the sense of how it is stated, that is the one clause that we would ask be withheld from proclamation. Our hope is that there could be an amending bill that would be proclaimed simultaneously, thereby remedying the bill before it goes into effect and not after it had been in effect for, say, a few months.
Senator Pépin: Working with numbers is perhaps not my strong suit, so I will ask you to help me. You mentioned that a certain group of restaurants will have to pay $5,000 more a year, but that group includes 100 restaurateurs. Therefore, do they pay $5,000 as a group?
Mr. Harris: No. That would be an extra fee that would be charged to one company.
Senator Pépin: Who represents the group?
Mr. Harris: I do. It applies to the whole group of 100 restaurants. It is an annual fee.
Senator Pépin: $5,000.
Mr. Harris: Yes.
Senator Pépin: If I divide that by 100, it is $50 for each restaurant.
Mr. Harris: That is right. My approach is on a cost basis, and what it means in today's environment. With competition being extremely fierce, if one has the opportunity to save $50 and keep employees on the job, chances are that opportunity will be taken.
The Chair: Thank you very much. Honourable senators, we have before us representatives of the Association of Canadian Publishers, the Canadian Publishers' Council and the Committee of Major Legal Publishers.
Perhaps you could introduce yourselves to the members of the committee.
Mr. Glen Bloom, Committee of Major Legal Publishers; Osler Hoskin, Barristers & Solicitors: Madam Chair, I am here representing the Committee of Major Legal Publishers. I am accompanied by Geralyn Christmas, who is with Canada Law Book, one of the members of the committee. The groups before you have decided that the committee will make its presentation first, followed by the other two groups.
The Committee of Major Legal Publishers has furnished a written brief to the committee which, to a large extent, is highly technical. I will merely summarize our concerns for you. I will be relatively brief in order that you may have time to ask questions which are of concern to you.
The committee is comprised of four legal publishers in Canada. They are Butterworths Canada Ltd., Canada Law Book Inc., Carswell Thomson Professional Publishing and CCH Canadian Limited. The activities of the publishers are detailed in our written brief. I do not propose to review those at this stage.
We are here to discuss with you certain provisions of the bill which create a loophole for lawyers. We should like to address that loophole.
You may not be aware of the extent to which lawyers make photocopies. Lawyers copy periodical articles, extracts from legal treatises and edited reported judicial decisions. These are copied for various purposes: for considering the law, to enclose with correspondence forwarded to clients, or to compile into books of authorities for court. The legal publishers permit the latter without asking a fee.
The concern of the legal publishers is the extent to which lawyers make photocopies during the course of their practices and, in particular, make copies of their published legal materials for clients. Of course, throughout these activities, lawyers are engaged for commercial profit.
Unless Bill C-32 is amended, as recommended in our brief, the financial viability of an independent Canadian legal publishing industry will be eroded. The following will happen: First, lawyers will establish non-profit libraries controlled collectively by lawyers. This is essentially the case currently with certain libraries, such as the law library at Osgoode Hall and the law library currently operated by the Calgary Bar Association.
Second, these libraries will purchase one copy of various legal periodical journals, treatises of the law and edited law reports.
Third, these libraries will copy extracts from these legal materials and forward the copies by mail or by electronic means to lawyers who require the copies in the course of their practices.
Fourth, the libraries will charge for the photocopies at a rate that will recover a substantial portion, if not all, of the costs of operating the library, including the costs of purchasing the legal materials.
Fifth, lawyers in practice will find these services to be financially beneficial. They will no longer require their own library but will use the resources of the resource-sharing library. This will be done for cost-saving reasons. The charges for the materials copied will appear as client disbursements on lawyers' bills. Lawyers will no longer have the overhead costs of operating their own law library. This will all be done without the authorization of the publishers of the legal materials and without payment to the copyright owners unless Bill C-32 is amended.
What will happen to the legal publishers? These activities will seriously erode the market for legal publications. Currently, Canada relies on the private sector to publish and distribute treatises on the law and legal periodicals. In particular, Canada relies on the private sector to edit, compile and publish law reports. The financial viability of these practices will be put at serious risk, with the erosion of the marketplace and the number of subscriptions that can be sold.
In the House of Commons, Bill C-32 was amended to take into account certain concerns expressed by various parties, including the Committee of Major Legal Publishers. However, the amendments addressed only in part the legitimate concerns of the committee. The house did not amend the definition of library, archive or museum which appears in clause 2 to exclude a library controlled and operated by more than one lawyer, a library such as the law library at Osgoode Hall or the law library operated by the Calgary Bar Association.
Further, the House of Commons amended Bill C-32 in certain ways which exacerbate the concerns of the Committee of Major Legal Publishers and which increased the size of the loophole for lawyers. In clause 29.3, the House of Commons has made it clear that a law library may operate under Bill C-32 exceptions if the library covers no more than costs, including overhead costs, associated with operating the library. This leaves a great deal of room for charging amounts to cover costs of operating the library beyond those that are directly associated with making the photocopy.
The House of Commons amended clause 30.2(5) with the intention of facilitating digital copying for interlibrary loan. What this amendment has done is to create a limitation, however, on digital copying for interlibrary loan. Unfortunately, and presumably without intending the result, the House of Commons has now made it clear that digital copying is permissible under other exceptions. There are no qualifications or controls on digital copying in these other exceptions.
To illustrate the concerns that the committee has, we would like to direct your attention to a recent circular of the Calgary Bar Association which describes its current activities. You will find that in Schedule B to our brief.
On page 2 of this circular there is a rough description of the courthouse library operated by the Calgary Bar Association. What is important is found at page 5, from which I will quote statements made by the Calgary Bar Association through its president:
Membership fees this year are again only $25, plus GST, despite the increased costs of staging our events and supporting our programs. We are able to maintain our level of service to our members at this membership fee largely due to our Xeroxing revenue from the Calgary courthouse. With this low membership fee, we hope to encourage all lawyers and students in the city to join the Calgary Bar Association. It is truly a great deal for your dollar.
We are here to ask you to amend Bill C-32 to close the loophole for lawyers. We would be pleased to answer any questions that you have.
Ms Christmas is here to provide you with any further information you may require. She can describe for you certain projects that are underway in Canada to facilitate document delivery under the guise of interlibrary loan.
The Chair: We will allow you to make presentations and then senators will be able to question everyone.
Mr. Paul Davidson, Executive Director, Association of Canadian Publishers: Madam Chair, I am here this morning with Jackie Hushion, my counterpart at the Canadian Publishers' Council; Diane Wood, who is President of the Canadian Publishers' Council and President of John Wiley and Sons Canada Ltd.; and Jack Stoddart, who is President of the Association of Canadian Publishers and Chairman of Stoddart Publishing. Both Jack Stoddart and Diane Wood have recently been named by the Canadian Booksellers Association "Publisher of the Year".
We are here this morning on Bill C-32 and have provided to the committee copies of our presentation in both official languages.
Mr. Jack Stoddart, President, Association of Canadian Publishers, Chairman, Stoddart Publishing: Madam Chair, for some of us, this process has been ongoing for approximately 15 years. I believe the last draft died in 1988. Many of us had spent considerable time and thousands of dollars working on the process, only to lose it. We expected it would be back a couple of years later. It is back in 1997. It is significant that we are here today. We thank you for the opportunity to address you on the issues.
In many ways, the drafting of this bill and the subject of copyright may be more complex than creating a constitution for a country. There are many conflicting interests which we will never be able to resolve. How we control intellectual property is an extremely important issue. It necessitates our appearance today to put forward our recommendations and observations.
We are meeting today to recommend from the publishers' point of view that Bill C-32 should be passed as is. The Association of Canadian Publishers and the Canadian Publishers' Council represent together 150 publishers which are in every province and territory in this country. Our members publish books for all interests and all ages. Literally, there is no category that we do not publish. Together our members employ over 7,500 people and publish more than 95 per cent of the total Canadian, English language-authored books published. We also work with ANEL, the Quebec and French language publishing association, which has no substantial disagreement on the points we make today.
There is a crucial need for Canada to undertake copyright reform as it relates to electronic rights and the information highway. This can only occur after the passage of Bill C-32. Effective, modern copyright law is essential if Canada is to benefit and participate in the new information economy.
Mr. Davidson: There has been a lot of talk about process and the length of time it has taken to get the bill to this stage, but it is important to impress upon you that the benefits of Bill C-32 are real.
Publishers are most concerned with two aspects of the bill. The first deals with reprographic rights, where the bill ensures a measure of compensation for the creator and copyright holder for copies that are made. This will provide a direct economic benefit to writers and publishers. There will always be differences of opinion between users and creators over the measure of compensation provided, but, in our view, this bill is a significant improvement over the status quo.
The parallel importation provisions in the bill also address the long-standing problem known as "buying around". "Buying around" occurs when libraries, bookstores and others circumvent publishers' exclusive distribution contracts and buy from foreign sources, thereby undermining publishers' revenues and ability to publish in Canada. By addressing parallel importation, this bill will strengthen Canadian writing and publishing significantly.
Mr. Stoddart: Contrary to many presentations to you, we believe there has been a thorough review and consultation process. As one who has lived through this particular process for several years on committees, I know the writing, publishing and retailing side of it. There has been no end of consultation, both as an industry together and as formal presentations to different committees. There has been almost 10 years of discussion, debate and presentation. If other areas have not been covered properly, I cannot account for it. Certainly, our area has been completely scrutinized.
In drafting a bill of this nature, it must be recognized as well that there are many competing interests, and complete agreement on the bill is just not a possibility. Fairness is part of the question we must address at the end of the day. There may be questions later, but it is not a situation where everyone got what they wanted, or no one did. There has been a process of reduction and trying to reach a consensus as much as possible. From that point on, the drafters of the bill stepped in and tried to include a fairness and equity situation in the bill. We think that has been accomplished for the most part, although we would like to see some changes made.
All of us, as stakeholders in the industry, writers, booksellers, publishers, wholesalers, have made compromises. Many of us left unresolved matters on the table, and some of us have had to make concessions on critical issues. An example would be the exemption of the federal and provincial governments from the Copyright Act with respect to the importation of books. As publishers, we see no logic and we disagree with it. However, at the end of the day, that was seen as a trade-off. It was necessary to move things forward.
The bill is also different from the 1980s bill, which was more inclined to the producers' needs. The new bill is far more consumer- oriented than the previous bill. There has been an important shift from the 1980s to the 1990s, with the consumer playing a much more meaningful role in this bill.
Canadian publishers have agreed to participate in the development of pricing standards and service standards as a cost of implementing this bill. There is no other country in the world where publishers who have contracted for publishing rights and distribution rights, one and the same in most cases, have to prove that their prices are competitive, in this case, with the United States or Britain, and that the service is better than almost anywhere else in the world. However, publishers feel that the distribution right in the Copyright Act is so important that we have agreed to terms.
Others have said there was no consultation. However, over the last three years, the booksellers, the librarians, the wholesalers and the publishers sat down and together agreed in principle on the standards our industry will work under if this bill is passed. I think there has been immense give and take on the part of all players, and the bill is ready to move forward.
Mr. Davidson: Mr. Stoddart mentioned some of the compromises already made by publishers. It is important to note one of the good parts of the bill is publishers and writers benefit from the revenues earned through CANCOPY, the collective administration of copyright. However, in our presentation before the house committee, we noted that the exceptions provided to users were overly generous and too extensive. There has been some improvement, through the public hearing process in the house, with regards to exceptions, but writers and publishers have made significant compromises. Many publishers remain unhappy with the concessions made regarding single copy exceptions, whether reprography or importation clauses, interlibrary loan provisions and copying for classroom use. Despite this, publishers recognize that this bill must move forward.
Mr. Stoddart: As well, this bill contains provisions for mandatory five-year review. We, as publishers, support that. It is a helpful mechanism to ensure that the necessary changes can be made within a reasonable period if parts of the bill are seen as unfair to all parties involved.
We share the concerns of writers and creators that the exceptions are too broad and that derogation of copyright is a significant issue. However, we believe that to delay this bill now will seriously undermine the progress made and further postpone crucial discussions dealing with electronic rights. By international standards, Canada is very late in addressing these matters.
Two specific concerns have been raised during these hearings that need to be addressed: measures dealing with used textbooks, and the ability of bookstores to "special order" on a customer's behalf.
Ms Wood: Campus booksellers and students have taken issue with the amendment to clause 45(1)(e) regarding the treatment of used textbooks. Canada's publishers have discussed this matter with booksellers' representatives over the last five years. Canada's publishers support access to used textbooks and the development of a used textbook market in Canada. Publishers do not oppose U.S. textbook dealers doing business in Canada. The Canadian supply of used textbooks, however, should be from within Canada. Publishers do object to U.S. text dealers shipping used texts into Canada that were sourced from American students on U.S. campuses.
Clause 45(1)(e) is a safeguard mechanism designed for use should there be a sudden or dramatic change in the nature of the used textbook business in Canada. At a meeting on March 24, 1997, Department of Canadian Heritage officials assured students, booksellers, and publishers that, prior to any regulations being developed, an independent study will be conducted to determine the precise nature of the used textbook market in Canada and that all stakeholders will have input to the study's terms of reference.
It is important to underline that, contrary to the booksellers' assertion, used textbooks will not be banned under this bill.
There is no reason for the supply of used textbooks to dry up. The price of books will not be affected by clause 45.(1)(e). This measure does ensure that publishers' distribution and publishing agreements are not undermined, and that their significant investment in developing Canadian textbooks, employing Canadians, and serving all aspects of the market, are not overwhelmed by the flooding of the Canadian market with used, American-sourced textbooks.
Mr. Stoddart: On the issue of special orders, booksellers have suggested that the bill will prevent them from filling special orders, and that they may no longer obtain copies in other countries on behalf of their customers. This is simply not true. The bill provides for the development of regulations to guide special order practices to ensure that the needs of booksellers and consumers are met and that the rights of publishers and writers are not eroded.
We know that you have heard from several other groups on these two issues. We hope that we have clarified the issues in our brief.
Jack McClelland, the dean of modern publishing in Canada, once said that copyright is the dullest subject known to man. Copyright issues may be dry but intellectual property rights are fundamental to our business, to the information economy, and to the development of Canadian culture. At the heart of what we are talking about is the culture of this country. We seem to be dealing in these hearings, to a great extent, with the development of Canadian culture with respect to technical details.
Copyright issues surrounding electronic rights, the Internet, and the information highway, need to be dealt with. This bill must be completed before that work can commence. This is a good, comprehensive, balanced bill. It is time to pass Bill C-32. Publishers ask that the bill be reported unamended.
Senator Grimard: Mr. Bloom, I do not know if I am very sympathetic to your case. I practised law in northwestern Quebec for 44 years. I was the head of a very prominent law firm. I paid hundreds of thousands of dollars to Butterworths, Carswell and CCH. In spite of the fact I remember the money your clients cost me, I will try to be kind to you.
I understand that the bill is not perfect. Acknowledging that it is very important for everyone involved in the study of Bill C-32 to start taking Phase III into consideration, do you think that this bill, although imperfect, should be adopted?
Mr. Bloom: Although there is little in Bill C-32 that is of benefit to the Committee of Major Legal Publisher members, the committee strongly endorses copyright revision, believing that this bill should be passed. The committee would prefer an amendment to Bill C-32, if amendment is possible. If, for political reasons, this is not possible, then the committee endorses passing the bill.
If Bill C-32 is passed, it is very important that the concerns addressed by the Committee of Major Legal Publishers are brought forward at an early stage in the next mandate, in order to close the loophole which can be exploited by lawyers.
Senator Grimard: You mentioned in your submission what is happening at Osgoode Hall. Do you think the same thing could happen in the province of Quebec and in other provinces?
Mr. Bloom: Ms Christmas will respond to that question. I believe there is some information about what is happening in Quebec.
Ms Geralyn Christmas, Committee of Major Legal Publishers, Canada Law Book: I do not have any precise information on what is happening in the province of Quebec. However, I do have some examples of the type of document delivery services we fear might increase if this bill goes forward unamended.
For example, the British Columbia Courthouse law library, which is run by the Law Society of British Columbia, declares itself to be earning something in excess of $600,000 in revenue from photocopying in recent years. To cite another instance, in 1994, the Law Society of Upper Canada stated that it sold 105,500 pages of material to lawyers. This was without royalty payment to copyright holders and without permission. In fact, the library's mission statement in 1994 made reference to document delivery service being part of its mission.
York University law library sets a differential tariff when selling photocopies to lawyers, in contrast to its tariff for delivering interlibrary loan to non-profit libraries.
The only other instance I would draw to your attention is a project called the Canadian Inventory of Resource Sharing. These are various cooperatives of libraries which are trying to get together to share individual subscription items and the like. The University of Calgary law library, the University of Alberta law library and the Law Society of Alberta are trying to facilitate interlibrary loans amongst those three member libraries.
Mr. Bloom: If I may make specific reference to Quebec for a moment, Yvon Blais from Éditions Yvon Blais Inc. of Montreal appeared before the standing committee of the House of Commons. Either during the course of the house or in discussion with Mr. Blais, he referred to a photocopy service operating out of the courthouse in Montreal. This service causes the same problems as those previously identified by Ms Christmas.
Senator Grimard: I address my next question to the Canadian Publishers' Council. What percentage of your business is with used textbooks?
Ms Jacqueline Hushion, Executive Director, Canadian Publishers' Council: Publishers in Canada do not deal in used textbooks.
The public policy intent behind the amendment to clause 45.(1)(e) was to ensure that the market was not upended in favour of imported used textbooks, and to ensure that the investment in Canadian publishing continues. We have a problem with used textbooks because they undermine Canadian publishing. We have no opposition to used textbooks, as was made clear in the opening statement. What is key here is the percentage of the market that everyone, students, booksellers. dealers, is quoting, 8 to 10 per cent. We keep hearing those numbers, an average not exceeding 8 to 10 per cent of the market. In a particular discipline, in a specific course or field of study, used textbooks could occupy 70 or 75 per cent of the course enrolment.
Ms Wood will explain the implications of 75 per cent of course enrolment being supplied with used texts.
Ms Wood: I will give a concrete example of how used textbooks affect our firm directly. We deal in introductory physics. We happen to sell a market-leading textbook in introductory physics. This means that we ship into campus stores, in the first year of a new edition, probably 7,500 units of this textbook. Over the course of the year, approximately 25 per cent of these books will be sent back to us by the booksellers at no charge, that is, without penalty. There are approximately 5,200 copies of this book available in circulation for recycling through the used book market in Canada. If we use the numbers that were quoted here last week of 25 to 30 per cent of those books purchased by used book wholesalers, or by students, we net about 1,400 copies that are resold in Canada by booksellers to students in Canada.
The same practice occurs in the U.S. where, for the sake of argument, we will say the market is about 10 times the size. Those 7,000 copies in Canada have become 70,000 copies in the U.S., and 10 times the 1300 copies or so that are recycled here in Canada are available in the U.S. Any percentage of those could be brought into Canada at present without the amendment in 45(1)(e).
At the same time, we are investing anywhere from perhaps $250,000 to nearly $500,000 to publish an accounting textbook for Canadian students. This Canadian-authored textbook has an exclusive market in Canada because it is about Canadian accounting practices. The students who take accounting must have Canadian content. The loss of revenue by my company from the importation of those books that were not sold in Canada in the first place makes it problematic to continue investing in my Canadian publishing program. This is certainly true of all of the publishers operating in the post-secondary market.
Ms Hushion: In effect, while it may be 8 to 10 per cent of the market for a particular course for which you might have a competing book, it could be 75 per cent of the enrolment supply of used textbooks.
Ms Wood: Absolutely. That is not uncommon.
Senator Grimard: I appreciate your well-prepared presentation.
I would like you to comment on two concerns expressed by other publishers who have appeared before us. One concern is that one copy could be ordered by the customer directly from the publisher in the U.S. I am sure you understand the problem illustrated here.
The second concern related to Book Depot, which sells American books after the first 60 or 90 days have expired. Will Bill C-32 prevent Book Depot from importing books from the U.S? Is there justification for the bill preventing this practice?
Mr. Stoddart: The bill as it is structured today amends everything as it sits on the table.
It does not stop a single-copy order under the distribution right, except in a limited situation. The vast majority of single-copy importations by booksellers will continue because the bill only applies to books which are published, are officially distributed in Canada, and are readily available under the service and pricing guidelines we have set. There is no restriction whatsoever for probably 90 per cent of all of the special orders mentioned. We, therefore, have asserted strongly that statements made in the previous presentation were untrue.
Regarding 10 per cent of the titles which are already published in this country or are available in this country, if the publishers are pricing within the guidelines agreed upon by the industry and are giving service as agreed to by the industry, then it is correct that booksellers cannot import those books. The books are readily available in a properly priced manner. If they are not available, the bookseller has every right, under the current legislation, to import those books directly from the United States, Britain, France, or anywhere else in the world. It is only for perhaps 10 per cent of all the special orders, if the books are not readily available and priced properly for the market. That brings the percentage down to probably 2 or 3 per cent of all books that would be typical of a special order request in a bookstore. This is not a major problem, and I believe we have addressed it within the industry in an appropriate way.
Ms Hushion: The bill does say that the Governor in Council will provide for the importation of various types of books by regulation, and special orders are one of the five which are itemized.
At a meeting with the booksellers on February 3, it was said that we, too, are consumers. We understand the situation of a consumer wanting a book in a hurry. If you can document that Mr. Stoddart's company cannot respond quickly, with one or two days turn around time, then feel free to go outside. The booksellers said they thought that was appropriate, and they thanked us for being understanding.
To address your second question regarding remainders, that same provision which addresses special orders applies to remainders. In fact, by regulation, the Governor in Council will provide for the importation of remainders. Book Depot will not have greater difficulty than any other remainder book dealer. We have decided that if a book that Mr. Stoddart carries in Canada has been remaindered in the United Kingdom or the United States, a remainder dealer must wait 60 days to bring that book in. That is the window that the Canadian exclusive agent is hoping for, the 60-day window, because the book may still be actively selling as new in this market. The publisher has 60 days to do his best with it. No remainder dealer may import the foreign edition of a Canadian book, whether it was remaindered yesterday or six months ago, because that breaches other sections of the act.
I know there was some concern at Book Depot. As a task force, we have talked within the industry with booksellers, wholesalers, libraries, publishers, and so on, or we thought we had. I apologize to Book Depot. We will work with all of the major remainder dealers to determine how remainders will, in fact, be treated under the new act. They will be fine.
The Chair: Mr. Bloom, we received a written presentation from the Federation of Law Societies. According to them, the U.S. can copy the licensing agency to establish a licensing regime imposing royalties of $30 for lawyers. Is this sufficient to remedy your concerns?
Mr. Bloom: The ability to provide a means for payment is one that is certainly endorsed by the Committee of Major Legal Publishers. The problem is that, if there is an exception, there is no obligation to obtain permission or make any payment whatsoever. The existence of CANCOPY is helpful, but only if the copying is within the right of copyright. We expressed concern this morning with the exceptions which will enable copying to be made without payment.
Mr. Stoddart: Further to the used book question, during the process over the last five years, as committees, we have met with the booksellers, the university booksellers, the libraries, and so on. The question of used textbooks, though not a major issue, was touched upon. It is certainly not unimportant, but it was not perceived, until recently, as a major issue.
The company that made the presentation is the Follet Book Company of Chicago. The students did not think this was a serious issue until Follet hired lawyers and lobbyists. Interestingly, the booksellers did not think this was a serious issue. These segments were all in the process earlier, but some very inaccurate statements were made, and then this became an issue.
It is very important that we understand that Follet is trying to break the McGill University bookstore position as it is structured today. It has made an attempt to lease that store, which is not in conformity with Canadian law as we understand it. I believe it has been asserting that the whole used-textbook question has to do with the protection of large, well-financed companies that are in publishing and which want to protect their market.
Those companies referred to produce the textbooks. They may be well-financed in some ways, but it is a very tough business to be in today. If we want only American or French textbooks in our schools and universities, this is a quick way of accomplishing that. I would suggest that the whole issue has been raised as protectionism for Follett, the one company which dominates the used textbook business, and not as a method to protect the students.
There will be no used textbook business in Canada as long as Follett dominates this market. It is important to leave the law as it is and let the business develop in this country. To do otherwise opens the door to them, making it easier for them to take advantage of this market.
Some of their comments made previously were inappropriate. We should address the issue directly.
Senator Grimard: In fact, the issue of used textbooks is not settled. As you know, the department has decided not to apply clause 45.1. I understand there was a certain consensus reached around the middle of March of this year among the students, Follett, and other people involved, to the effect that if the American publishers continue conducting business the same way, clause 45.1 will not be applied. I believe that was the consensus. I would like to hear from you if you were part of that agreement.
Ms Wood: We were indeed part of that. It is important to recognize that this is a safeguard provision. Nothing will change until a study is completed by the government to size up and understand the used book market. The results of that study will eventually define regulations and ongoing activity in the used book market.
We were part of that meeting, along with the booksellers, the used-book wholesale dealers, and the students. It was made very clear that this is a safeguard provision to address what may eventually turn into an up-ending of the market. The dual activity of those used-book wholesalers who are increasingly taking over campus stores across the country prompted a shared concern. This issue will be explored through the research program of study.
Mr. Stoddart: Nobody else will be able to lease university bookstores if there is a monopoly of used textbooks. We do not believe it is a legal question. McGill University has already researched this. It was put on hold as being an inappropriate time to accept the leasing arrangement with an American company. That does not mean it is a dead issue.
However, if Follett, which runs the university bookstores, also controls our university bookstores, there will not be much chance for Canadian textbooks and Canadian writers in those locations.
Ms Hushion: I would like to add a quick point to that. On a somewhat personal note, my son is 26 years old and has finished university in a very specialized area at the University of Waterloo. He is going on to graduate studies. Contrary to popular opinion, I was not able to obtain all his textbooks for free. He utilized many used textbooks. As a parent, I would absolutely oppose a ban on used textbooks, or anything which precipitated the market drying up.
In recent discussions with student representatives, the question was raised about a book for which there are no used copies. What if there are 1,300 Canadian students in a course and there are no used copies available in Canada? All of those students cannot afford to buy new books, not that all students always buy books, new or used. What will we do then?
After talking to our colleagues in the industry, we agreed that we would certainly encourage the publishers to have a discussion about that with the booksellers. Perhaps a bookseller could call a publisher and tell them that there is not a single used copy of this book in the country, and that this is no good. If, on average, it is 8 to 10 per cent, then could we bring in 10 per cent of the 1,300 books needed?
It is unlikely that the publisher would say no. We do not foresee an instance where there will be no used copies of any title currently supporting the curriculum in Canadian post-secondary institutions. If this happens, we are prepared to help address it.
As you said, clause 45(1)(e) will not go into place until the research is complete. If the research shows that, in fact, the industry and the marketplace are not currently in jeopardy, it will remain as a safeguard.
The Chair: Thank you very much for your presentation and your presence here.
The committee adjourned.