Finding the Silver Lining for SOCAN in SOCAN v Bell
Growing up in a large family required frequent trips to Costco or, as it was at the time, Price Club. My mother would often do the extremely large shopping trips on her way home from work. Sometimes, however, those trips would be on the weekend – and with it came an invitation to join in on the shopping. I’m going to preface this part of the story with a confession that I do not like grocery shopping: it’s a tedious chore that is on the verge of being replaced with a subscription to Grocery Gateway. It will likely surprise you to learn that I loved these trips to Costco. If you have ever been to Costco on a weekend, you probably know why.
If you go at the right time, late morning/early afternoon, at the end of alternating aisles, you can find a person distributing numerous samples of crab dip, juices, cheeses, pretzels, breads, brownies, and the list goes on.
Now imagine this scenario: after devouring these goodies, you are told to pay the distributor for the samples at check. The sampling can be said to be product research: Costco sells its products in large quantities, so it may be imprudent to purchase a 4L bag of basil-infused cashews without having first sampled one or two. Sure, there’s a benefit to the consumer; at its core, however, suppliers are using samples as a marketing tool for their products. Consumers get to choose whether they want to sample the product with little commitment, but may purchase it at the end. They do not need to pay for bite of brownie, individual chip, or creamy dip. That seems like common sense.
It appears that the Supreme Court of Canada (“SCC”) has the same love of samples as the average Costco consumer. Last week, in one of the five copyright decisions, the SCC found that previews are the Costco equivalent of samples – they are research and within the realm of fair dealings. Essentially, you do not need to pay to listen to a preview of a musical track.
There has been a great deal of online chatter of how the pentalogy of the SCC copyright cases work together, with concessions from legal scholars basically throwing their arms up. Given the nature of this blog’s contributions, however, I’m going to provide a narrow focus on the Society of Composers, Authors and Music Publishers of Canada v Bell Canada,  2 SCR 326 [SOCAN v Bell] decision.
The appellants, the Society of Composers, Authors and Music Publishers of Canada (SOCAN), represent composers, authors, and music publishers, who administer performance and communication rights. They joined forces with the Canadian Record Industry Association and CMRRA-Sodrac Inc. The respondents, Bell Canada, Apple Canada Inc., Rogers Communications Inc., Rogers Wireless, Shaw Cablesystems G.P. and TELUS Communications Inc. operate online music services that sell downloads of digital musical files. These providers give consumers the opportunity to listen to free “previews” before purchasing a song.
SOCAN sought compensation for the online song previews. Previews are 30-90 seconds of a musical track that are streamed online to assist the user in deciding whether to purchase a permanent and full download of the song. They are effectively samples – small versions of the product that are risk free to try. Whether or not the consumer purchases the sample is up to the consumer, despite obtaining a small benefit.
The Copyright Board of Canada (61 CPR (4th) 353) found that SOCAN was only entitled to collect royalties for downloading musical works, not for previews, in 2007. Previews do not amount to an infringement of copyright, as they are considered fair dealings, according to the categorization of research in s. 29 of the Copyright Act, RSC, 1985, c C-42 [Act]. With no infringement, SOCAN was not entitled to royalties on previews. The Federal Court of Appeal upheld this decision. Justice Abella, writing for a unanimous bench this month, found the same.
Fair Dealings Test and Application
Section 29 of the Act states: “Fair dealing for the purpose of research or private study does not infringe copyright.”
The SCC in CCH Canadian Ltd v Law Society of Upper Canada,  1 SCR 339 [CCH] outlined the two step test for determining whether an act constitutes fair dealings. If so, it would not entitle a party to compensation. First, the SCC teaches us to determine whether the dealing is fair for under the two allowable purposes enumerated in s. 29 of the Act – “research” or “private study.” Second, determine whether the dealing is fair.
Specifically, in assessing whether something constitutes research, the SCC directs us to take on the perspective of the consumer, as opposed to the online service provider. The Court held that “research” should be given a large and liberal interpretation. It need not only be for creative purposes as it would otherwise run contrary to the Act’s objectives – namely, the dissemination of work – and it would run contrary the meaning of research, which includes a wide variety of activities. It is fairly easy to satisfy this leg of the test; the meat of the debate is at the second stage.
The second stage determines whether the dealing is fair. The court looks to the six factors C.J. McLachlin describes in CCH: (i) purpose; (ii) character; (iii) amount of the dealing; (iv) the existence of any alternatives to the dealing; (v) the nature of the work; and (vi) the effect of the dealing on the works.
Using this schematic, first, the service providers facilitate the research process for consumers. The character of the dealing is merely in the form of streaming. The user does not get to keep the sample or, for that matter, duplicate and further disseminate it. So, the amount of the dealing does not function in an aggregate but in a per use. In this case, it is the proportion of the preview in relation to the entire work that is at issue: approximately 90 seconds of a four-minute length of work. This, the Court finds, is a modest amount in relation to the entire work. There is no reasonable alternative to hearing a sample of a song. For example, looking at the album cover will not shed light as to whether the user will like the song. Without hearing a sample, the user will not know which song or songs to purchase. With respect to the nature, the nature of the work is dissemination. By streaming the preview, the work will not be disseminated. Finally, the effect of the dealings does not drive down musical sales; previews of songs can hardly be competition with the actual song downloads. The Court found that the previews indeed satisfy the requirements of fair dealings, agreeing with the Board’s conclusions.
A Silver Lining for SOCAN
From a business perspective, I do not understand the feasibility of SOCAN’s submissions. In an industry facing depressed sales and rampant piracy, how did they see this working out for them? If SOCAN won, there are two options that would have panned out: either the costs of the previews would be passed along to the end user or the costs of the previews would be passed on to the online music providers. This would likely be decided by online music providers; they would have to do it independently of each other, or else they would face charges of collusion and price fixing. Either option would eventually drive up the cost for the end consumer, and likely minimize the amount of music purchased by each consumer. According to basic economic theory, if costs go up, then we can expect demand to go down. This would likely be exacerbated by the fact that it is utterly illogical to the end consumer that they would be forced to pay for previews. Again, imagine being charged for sampling a pretzel at Costco. Consider movie theatre previews and commercials on TV, too. It is a strange notion to have to pay for a preview, as previews ultimately benefit the industry; they guide which products consumers would ultimately purchase.
I would propose that, despite losig the case, SOCAN has the opportunity to come out on top. Going back to the Costco example I put forward at the beginning of the comment, samples often induce the purchase of products a person doesn’t need, or know they want. Without trying it first, consumers are unwilling to buy. By not charging for previews, the online service providers have an incentive to get consumers to listen to more previews. And with more previews, there is a greater likelihood of more purchases. The online providers win because free previews drive up sales and SOCAN wins because they receive royalties for the purchases. SOCAN would have likely charged more the cost of a full track than the cost of a preview. Charging for previews would drive drown the popularity of listening to previews which would effectively drive down overall puchases of full tracks. In other words, the amount of money they would have earned from previews would be offset by huge losses resulting from fewer song purchases.
In the last 13 years, the music industry has tried to be responsive to technological changes. Yet, their profitability continues to decline year after year. This decision gives the music industry the opportunity to capture additional consumers, much like how Costco captured my mother and I on our weekend shopping trips. Would you purchase an super-sized box of basil-flavoured cashews without sampling one or two first?
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