Renewed Attacks on the “Effect on the Market” Factor

March 9th, 2012 by Dan Glover Leave a reply »

Beware of misinformation masquerading as the correction of misinformation, a concept George Orwell labelled as “doublethink”. Michael Geist and Howard Knopf are engaged in it again in their blog articles “Bill C-11 Extremism Continues: The Attack on Fair Dealing” and “The Effect on the Market Factor in Fair Dealing/Fair Use Law – What IS the law?” In their crusade to open Canadian copyright law so wide that a convoy of army trucks filled with textbooks and DVDs could drive through it, they are suggesting that Parliament not clarify that “the effect of the dealing on the market for the original work” is the pre-eminent factor in the fair dealing test.

Three key points. The first is that I took on Professor Geist’s core arguments on opening up fair dealing in a point-by-point rebuttal in January of last year. I noted that according to Professor Geist’s figures educational institutions and students currently spend more than a billion dollars a year on books and hundreds of millions of dollars on access to educational databases. This is the “market” that is directly at risk if the government does not create a balanced educational fair dealing right. I also explained in detail why the Canadian government risks a trade action against it under the Berne/TRIPs Three-Step Test if it creates too broad an exception in this part of the Copyright Act. Although Mr. Knopf is in the habit of dismissing this point as speculative, it isn’t just a theoretical possibility: the EU won a Three-Step Test trade action against a U.S. copyright exception that allowed a wide variety of restaurants and bars to publicly perform copyrighted musical works for free.

The second key point is that a balanced and functioning copyright market enables access to works. Educational institutions can copy a vast number of works under Access Copyright tariffs, and they will pay a fair and reasonable tariff as valued by the Copyright Board. The amount paid will be a miniscule percentage of these institutions’ overall budgets, which is an excellent deal considering the critical role publishing plays in educating Canadians. If the new copyright legislation sanctions consumptive copying, that is, the mass consumption of works for free, two almost inevitable risks will follow. The first is that publishers may pull works from the marketplace. The second is that publishers will think twice before investing in the creation of new works. (See webcast testimony before Parliamentary Copyright Committee for March 6.) The Canadian market, with all of its diverse linguistic and cultural groups, simply isn’t big enough to be attractive to publishers if copyright law is amended to subsidize the goal of “education” at the expense of the people who create “educational works”.

The third key point is that “education” is a very broad term. In the Vancouver Society case, the Supreme Court gave this term an “expansive” reading to apply to situations where there is no indication that people are receiving “systematic instruction”. Unlike the current education-specific sections of the Copyright Act, the educational fair dealing right is not limited to specific activities carried out in actual educational institutions. Anyone might benefit from it in any context. I could “educate” myself about the works of Judd Apatow by downloading pirated copies of his movies, and then erasing them once I have been “educated” to ensure my actions are “fair”. It sounds outrageous until you look at the language of the Supreme Court’s 2004 decision in CCH, and understand how powerfully its words about fair dealing purposes receiving a “large and liberal interpretation” have been applied on the ground. Fingers are poised above copy buttons as I write.

So the question becomes what to do to avoid an imbalanced educational fair dealing exception. Around the world, courts have preserved the balance by placing primary importance on the question of whether a given use “would materially affect the market or potential market for a work, if it would supplant any part of the market for it, or if the challenged use should become widespread, it would adversely affect the potential market for the work”. If a course of copying would have that effect, it is not excused by the fair dealing or fair use exception.

Canada’s major trading partners have adopted this standard. The U.S. Supreme Court in the Harper & Row case held, in essence, that small and repeated acts of copying could deal publishers a death by a thousand cuts:

“Isolated instances of minor infringements, when multiplied many times, become in the aggregate a major inroad on copyright that must be prevented.”

In that case, the Court made it clear that the effect on the market factor was “undoubtedly the single most important element of fair use”. However much Mr. Knopf likes to quote from ideologically friendly academic texts to misstate the law, appellate courts (see, e.g., the Bouchat case at the Fourth Circuit from 2010) still apply this standard.

English law is no different. In the recent Ashdown case, the Court of Appeal for England and Wales accepted that:

[70] … by far the most important factor is whether the alleged fair dealing is in fact commercially competing with the proprietor’s exploitation of the copyright work, a substitute for the probable purchase of authorised copies, and the like. If it is, the fair dealing defence will almost certainly fail.

These findings have a solid policy basis. As the Harper & Row and Ashdown courts recognized, there is a grave risk of killing copyright incentives if the law regards as “fair” acts of copying that hollow out markets for works. What sane publisher wants to release titles into a market that can copy them with impunity?

While Professor Geist and Mr. Knopf would enshrine the factors set out by the Supreme Court of Canada in the CCH decision, this would not solve one of the main concerns with the exception or provide any kind of a reasonable balance. The key flaw of CCH is that it misquotes English law to conclude that the “effect on the market” is “neither the only factor nor the most important factor that a court must consider in deciding if the dealing is fair” (para. 59).

The sole case the Supreme Court relied upon, the Court of Appeal for England and Wales’s decision in Pro Sieben Media AG v. Carlton UK Television Ltd., stands for a different proposition:

The degree to which the challenged use competes with exploitation of copyright by the copyright owner is a very important consideration, but not the only consideration. ([1999] E.M.L.R. 109 at 120)

As stated above, in the more recent 2001 Ashdown decision, the Court of Appeal for England and Wales – including the very judge cited by the Supreme Court of Canada for its proposition – accepted that the prospect of commercial competition or substitution for the probable purchase of authorised copies is “by far the most important factor” for fair dealing. It may not have been strictly necessary for the Supreme Court to review this statement in the special context of CCH, which involved carefully controlled copying, raised important access to justice concerns and involved a case where no evidence was brought of market impact. It is possible that the Supreme Court will revisit this issue when it releases its decisions on fair dealing in the months to come.

But, if CCH is read without its context in mind, the Supreme Court could certainly be seen to distance itself from clear statements made by high courts around the world. The Government’s stated intention is to enact a fair dealing for education exception that does “not harm the market” for works and that ”takes into consideration the legitimate interests of the copyright owner”. . Parliament has an opportunity to ensure that the new exception will meet these objectives.

To fail to do so could have major repercussions. The vast majority of copyright infringements are never litigated. For many years, Howard Knopf and Michael Geist have counselled for a more aggressive approach to copying in the institutional setting based on CCH, including the suggestion that institutions should be more open to making multiple copies of works. If Parliament is choosing to open up the fair dealing purposes to a broad new purpose, it should ensure that there is a counterbalance to avoid a dealing being considered fair if it would undermine a market. Otherwise, Parliament runs the risk of disrupting market incentives to make and distribute copyright works in Canada. No one wants that to happen.

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