ARIEL KATZ ASSOCIATE PROFESSOR INNOVATION CHAIR, ELECTRONIC COMMERCE

June 27, 2011

- BY EMAIL -

Mr. Gilles McDougall Secretary General The Copyright Board of Canada 56 Sparks Street, Suite 800 Ottawa, Ontario K1A 0C9

Dear Mr. McDougall, Re: Response to the AUCCs Application regarding Transactional Licenses

Pursuant to the Boards notice from June 16, 2011, I wish to respond to the AUCCs application from June 8, 2011. The AUCCs application, including the supporting documents as well as those submitted by the ACCC, suggest that many of the concerns that I raised in my objections to the Interim Tariff have indeed materialized despite the Boards efforts to mitigate them. Naturally, I take these issues very seriously. Nevertheless, I am not persuaded that amending the Interim Tariff to require Access Copyright to grant transactional licenses on a per copy basisas the AUCC requestsis the optimal remedy for these issues. In fact, I am concerned that ordering Access Copyright to grant transactional licenses might actuallyunder some circumstancesaggravate the problem. While I am confident that this was not the AUCCs intention, I believe that the remedy that it proposes could inadvertently backfire and serve the interests of Access Copyright to the detriment of Canadian academic institutions. In this submission, I wish to address three main issues: (a) what a non-mandatory tariff entails; (b) the abusive and anti-competitive nature of Access Copyrights (and some of its members) alleged conduct; and (c) the appropriate remedy.
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2 I reserve the right to make further and more specific submissions, including proposing a more specific remedy in reply to Access Copyrights submission and in accordance with the Boards notice. I. What does a Non-Mandatory Tariff Entail 1. The concern that if approved, the Interim Tariff would be mandatory has been fundamental to most objectors opposition to its approval, including mine. I wish to reiterate my position that the Copyright Board does not have the power to approve a mandatory interim tariff and should not approve a mandatory interim tariff even if it had the power to do so. As I wrote in my objection to the Interim Tariff, an approved tariff is law. Not only de jure,1 but also de facto,2 because upon its approval, the collecting society is entitled, according to s. 68.2(1) and s. 70.15(2) of the Act, to collect the royalties specified in the tariff and, in default of their payment, to recover them in a court of competent jurisdiction. When a tariff is approved, it becomes mandatory upon any person to which the tariff pertains. It is binding even on parties that took no part in the proceeding for its approval. 2. The Board responded to this concern by noting that the interim tariff we adopt in this matter is not mandatory. An Institution can avoid its application by purchasing the work, negotiating a licence to copy the work with Access or its affiliates, not using any work in the repertoire of Access or engaging only in conduct exempt from liability.3 3. Moreover, the Board clearly indicated, in paragraph 45, that its ruling on this issue may not necessarily be final, and that should the need arise, the issue would be further considered.

1 2

A tariff is a regulation under the Interpretation Act, R.S.C. 1985, c. I-21, s.2. I am setting aside for the moment the likelihood that a tariff that specifically targets educational institutions is a

law in relation to education, and therefore falls under the exclusive jurisdiction of the provinces, according to s. 93 of the Constitution Act, 1867 (U.K.), 30 & 31 Victoria, c. 3, s. 93, as well as the possibility that a mandatory tariff is in effect a tax, whose constitutional validity depends on compliance with sections 53 and 54 of the same act. I will return to this issue in due course.
3

Boards Reasons, March 16, 2011, paragraph 50.

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3 The current Application indicates that such further consideration is apt, and I would respectfully submit that further considerations should be given not only to the terms of the Interim Tariff but also some aspects of the Boards reasons. 4. In my opinion, to be non-mandatory the Interim Tariff must not interfere with Institutions ability to secure licenses on competitive terms if they wish so. Since there is no guarantee that this is the case, measures necessary to secure this option should be put in place. 5. With respect, only the first part of the Boards above-mentioned reasoning satisfies conditions under which the Interim Tariff could be considered to be non-mandatory. Moreover, to be truly non-mandatory these conditions must imply that an Institution has a genuine option fully to obtain licenses covering all its needs on competitive terms. I would submit that the options of not using any work in the repertoire of Access or engaging only in conduct exempt from liability do not render the Interim Tariff non-mandatory, because according to s. 68.2(1) of the Copyright Act, an Institution making even a single unauthorized and non-exempt copy of a Repertoire Work becomes liable for paying the entire fee specified in the Tariff and complying with all its terms (in addition to any other remedies available to Access Copyright or the copyright owner). The fact that an Institution can avoid being subject to the tariff by refraining from using any Repertoire Work or engaging only in exempt conduct does not change the mandatory nature of a tariff, in the same way that the options of not working or not earning any taxable income do not change the mandatory nature of ones obligation to pay income tax on her taxable earnings, or in the same way that the options of walking, cycling or using public transit do not change the mandatory nature of obtaining a drivers license for driving. 6. Liability to the collective society for paying the entire fee for the entire repertoire and the ability of the collective society to collect this payment in summary proceedings (and not by bringing an action for copyright infringement) distinguishes the case from ordinary liability for copyright infringement, whereby the unauthorized user is liable only to the copyright owner, the remedy is subject to wide discretion of the court, and in any event will be commensurate with the actual use, the actual damage done, profit earned, etc. 7. These points need not be pursued further because the Board clearly intended that the Interim Tariff would not be mandatory, in the sense of securing the Institutions ability to obtain
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4 licenses from alternative sources on competitive terms. It is clear that while the Board did not explicitly incorporate terms requiring this option, it chose not to do that only because it assumed that the option has always existed and will continue to exist. However, the AUCCs Application and the documents it and the ACCC submitted to the Board demonstrate that there is no guarantee that this has been the case or that it will continue to be. 8. Therefore, to remain legally valid, the Interim Tariff must not be mandatory in the sense that it must not interfere with Institutions ability to secure licenses on competitive terms if they wish so. Since there is no guarantee that this is the case and there is, indeed, ample evidence that the contrary is the case, measures necessary to secure this option should be put in place. II. The Abusive and Anti-Competitive Nature of Access Copyrights (and some of its Members) Alleged Conduct 9. I have not requested any transactional license from Access Copyright or any of its members and therefore I do not have any personal knowledge regarding the alleged change in the licensing practices of Access Copyright and member publishers. Assuming the AUCCs factual allegations, endorsed by the ACCC, are correct, I fully support its position that eliminating the ability of Institutions to obtain transactional licenses, and offering them the choice between availing themselves to the Interim Tariff or foregoing use of any work under Access Copyrights repertoire constitutes an anti-competitive behavior, and abuse of monopoly power. I also agree that these practices contradict the clear representations that Access Copyright made before the Board in the course of its application for an Interim Tariff. As such, this behaviour also constitutes abuse of process and inequitable conduct, and certainly does not exhibit the type of good faith conduct that the Board explicitly demanded. I wish, however, to highlight, a few additional points emphasizing these conclusions. 10. While the point that making a take it or leave it offer could leave Institutions with no option but to take it seems obvious enough, and the fact that eliminating the option of obtaining transactional licenses stands in stark contradiction to the conditions underlying the Interim Tariff needs no further elaboration, it is worth noting that the magnitude of this adverse effect on Institutions depends on the scope of Access Copyrights repertoire. The

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5 larger the repertoire is, the more dependent an Institution on it will be, and the more severe will be the fact that copying works within it is available only on a blanket basis. 11. Technically, a collective society can set up a licensing scheme subject to Part VII of the Copyright Act with a repertoire consisting of as little as the works of only two authors, which could be the most obscure two authors. Obviously, if such a collective society refused to issue transactional licenses and offered only a blanket license, this would not cause much of a concern, because if the price of such blanket license was deemed excessive by an Institution (assuming that some readers from the Institution would actually be interested in reading these obscure works), the Institution would still be able to operate reasonably well without it. This of course, will discipline the ability of that collective to request excessive prices in the first place. In contrast, if the collective societys repertoire consists of every published work and no transactional licenses are available, no Institution would be able realistically to function without it, and the Institution will be forced to sign onto such license. 12. Even though the scope of Access Copyrights repertoire falls short of including all published works (and probably by large measure) Access Copyright has so far systematically avoided providing any meaningful information about its scope, and it keeps making false and misleading representations that its repertoire is indeed vast and comprehensive and includes every Published Work that is not mentioned in the Exclusions List. By misrepresenting the true scope of its repertoire and offering a take it or leave it deal, Access Copyright ostensibly causes Institutions to believe that they cannot really leave it and therefore must take it. Under these conditions, being offered only with the option of obtaining a blanket license under the Interim Tariff, a rational Institution would opt into signing onto the Tariff. Therefore, obfuscating the true scope of its repertoire, and misrepresenting it to be larger than it truly is, adds another layer of misconduct and abuse. 13. The elimination of transactional licenses might lead to yet another related, but more pernicious, effect in the case of digital copies. There is no doubt that however wide or narrow Access Copyrights repertoire is in the case of reproduction rights in print, photocopying and other non-digital formats, its digital rights repertoire is significantly smaller. Indeed, it is known that Access Copyright lacks any chain of title or agency authority in respect of digital rights in most, if not all, of the limited number of works that are

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6 actually in its repertoire. I have raised this issue before in my objection to the Interim Tariff, and Access Copyright did not even bother to deny it, because this conclusion was based on Access Copyrights own admission, behaviour, and simple logic.4 Nevertheless, I suspect that Access Copyright has calculated that by directing Institutions to avail themselves to the Interim Tariff, it could license works and uses that it has never been duly authorized to license, and in effect misappropriate others copyrights to set up a monopolistic stronghold on the emerging market for digital licensing. This point requires elaboration. 14. Although the definitions of the Interim Tariff recognize a difference between the terms Published Works and Repertoire Works, the operational provisions of the Interim Tariff were not limited to Repertoire Works and indeed cover all Published Works. Arguably, then, it would be lawful for an Institution who chooses to sign onto the Interim Tariff and complies with its terms to make copies of every Published Work whether or not it is a Repertoire Work, because, the Interim Tariff, which is law, has authorized that. Even if the Interim Tariff could not provide such immunity to the Institution, the Interim Tariff triggers section 38.2 of the Copyright Act and the cap on damages that it provides. Because for the time being the Board set the royalty payable to Access Copyright for many digital uses at a rate of zero, the Interim Tariff provides a de facto immunity. In the same vein, the Interim Tariff has arguably made it lawful for Access Copyright to authorize the reproduction of works that are not part of its repertoire, and shields it from what otherwise would be a gross act of copyright infringement. As a result, even if Access Copyrights digital repertoire is miniscule, it can practically license every Published Work, whether or not it has been duly authorized to do so by its owners. 15. While I continue to believe that such a scheme cannot be valid and cannot be relied on as a matter of law, it is possible that Access Copyright believes that, practically, it suffices. Nevertheless, I do not believe that the Board had this outcome in mind when it granted the Interim Tariff. After all, the Interim Tariff is subject to the general regime, which does not contemplate an Extended Collective Licensing regime, and therefore it must be the case that

Ariel Katz, Submission re Access Copyrights Application for an Interim Tariff, Dec. 10, 2010, p. 14.

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7 extending the scope of the Interim Tariff to cover all Published Works rather than Repertoire Works is a result of an inadvertent error. If so, then the Board should not aid Access Copyright to take advantage of this drafting error, to misappropriate others copyrights and establish itself as the de facto monopoly for licensing digital rights to academic institutions, rights that it clearly does not have. To prevent this aspect of Access excesses, the Board should amend the Interim Tariff and clarify that it covers only Repertoire Works, and not Published Works. 16. Furthermore, Access Copyright's conduct amounts not only to bad faith, misconduct and gross abuse of the collective administration of copyrights as AUCC counsel writes, and constitutes not only an improper use of collective monopoly power in some general sense. Indeed, the conduct complained of may as well constitute an abuse of dominant position, tied selling, as well as other types of deceptive or restrictive trade practices within the meaning of the Competition Act. Moreover, to the extent that Access Copyright and its member/affiliate copyright owners or some of them have agreed or otherwise arranged that they would refrain from licensing their works independently, such conduct may amount to an offence under section 45 of the Competition Act, to which the immunity under section 70.5(3) of the Copyright Act will not apply. Alternatively, such conduct could at least be subject to an order under section 90.1 of the Competition Act. 17. I am confident that the Board can address some of the abovementioned concerns by amending the Interim Tariff without delving into a thorough analysis of the Competition Act and I do not propose that the Board conduct such an analysis at this stage. However, the Competition Act can and should guide the Board in its resolution of these matters because it reflects what Parliament deems to be an acceptable business behavior in Canada and provides an analytical framework for determining its legal contours. Therefore, while the Board does not need to decide whether Access Copyright has violated the Competition Act, it must not unless absolutely necessary for fulfilling its own statutory mandateissue rulings that mandate or endorse practices that contradict or disrupt the objectives and application of the Competition Act, lest that might be interpreted to give rise to immunity from the reach of the Competition Act that would not otherwise exist.

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8 18. Moreover, the values and principles enshrined in the Competition Act can inform the determination of the proper remedies in this case, the subject to which I now turn. III. Remedies 19. While I support the AUCCs diagnosis of the problem, I disagree with the remedies it asks the Board to prescribe. I believe that ordering Access Copyright to grant transactional licenses on a per-copy basis will not be the optimal solution to the problems or the needs and the interests of Institutions so aptly described by AUCC counsel, and might, over the longer run, aggravate the problem. While I am confident that this was not the AUCCs intention, I believe that the remedy that it proposes could inadvertently backfire and serve the interests of Access Copyright to the detriment of Canadian academic institutions. 20. A subtle but critical distinction should be made between transactional licenses granted by Access Copyright and transactional licenses granted by its members, either on their own or on their behalf by other market intermediaries. 21. AUCC talks at length about how technology enables its members to negotiate directly with publishers (e.g., at page 3 of its Application), it emphasizes Institutions desire to be able to obtain licenses from sources other than Access Copyright (at p. 4), and explicitly notes Institutions expectation that they would be able to negotiate licenses directly with publishers when the terms of the Interim Tariff are deemed unacceptable (page 6-7). In sum, the AUCCs submission makes it clear that what Institutions need are competitive alternatives to Access Copyright, not only alternatives to Access Copyrights blanket license. This can only happen when Access Copyrights members offer transactional licenses in competition with Access Copyright, not when Access Copyright itself grants them, because Access Copyright cannot be trusted effectively to compete with itself. 22. True, the option of obtaining a transactional license from Access Copyright is an improvement over a situation whereby it offers only a blanket license, but as should already be clear, Access Copyright does not face strong incentives to offer them or to offer them on competitive terms. In fact, as the current record indicates, Access Copyright has demonstrated that it has strong strategic reasons not to offer transactional licenses, or to offer them only when it finds it to be strategically beneficial. Of course, the Board could compel it
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9 to do so, but this would require overseeing the fees that it would charge (as indeed the AUCC proposes), and even then, Access Copyright could use all the tricks of the trade to effectively deny or discourage such option. To prevent it, the Board would need to maintain constant oversight, which may not be totally effective, and in any event would be costly and time consuming for all parties concerned. 23. Only if it turns out that Institutions and publishers are not capable of transacting directly (or with the aid of other market intermediaries) should Access Copyright be compelled to grant transactional licenses as an alternative to the blanket license. But there is no evidence that this is the case. In fact, the documents submitted by the AUCC and the ACCC indicate that Institutions and publishers are fully capable of entering into such transactions, and that, but for what seems to be a recent concerted collective refusal to deal, they would be perfectly able to continue doing so, as they have done for many years. 24. Another problem with the AUCCs proposed remedy is that rather than fostering a competitive licensing market, competitive licensing practices and competitive prices, it will enshrine Access Copyright as the source for all licenses, the terms of which will be determined by regulation instead of through competitive processes. 25. The AUCCs Application aptly describes the benefits that a competitive marketplace in licensing has bestowed on Institutions and publishers. Its words are worth repeating: [T]echnology has revolutionized society, including those who rely on reprographic reproduction. Post-secondary educational institutions want digital access and associated rights to ensure that Canadians are able to take advantage of the reality of today. Virtual libraries and global electronic instruction and research are the reality today. Many affiliates of Access Copyright understand this reality. They provide the access to their publications electronically and enable activities for which Access Copyright seeks a double payment under its proposed tariff. They do not do this out of an altruistic attitude. These publishers enter into agreements with post-secondary institutions, to their financial benefit, but not to that of Access Copyright, to facilitate what publishers and postsecondary educational institutions need today.5

AUCC Application, June 8, 2011, p. 3.

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10 26. As a direct beneficiary of these developments I could not agree more. I would add, however, that while the terms of such negotiated licenses vary, many of them, if not most of them, are much more favourable than those of the Interim Tariff. For example, they do not have the same restriction on allowable uses, they do not impose arbitrary restrictions on the amount of permissible copying and the number of copies made, they do not require burdensome reporting and record-keeping requirements, they do not impose intrusive monitoring, they do not contain book burning clauses, and they often cost significantly less than $0.10 per page. 27. As the AUCC points out, the publishers granting such licenses do not do this out of an altruistic attitude. They do this because competition forces them to be much more userfriendly than they otherwise would be. If they are given the chance to eliminate competition between them, there is no guarantee that they will maintain this friendliness. In fact, there are ample grounds to predict that they wont. The interest of Institutions is to maintain this competition and its benefits. For this purpose, Access Copyright should be granted fewer roles in the realm of licensing, not more. 28. Indeed, an important reason why digital licensing has emerged to bestow the benefits that the AUCC extols is that so far Access Copyright has not played any meaningful role in this emerging digital realm. Unfortunately, rather than keeping Access Copyright out, the remedy that the AUCC seeks invites it to make a grand entry. The results can be tragic. It can be highly predictable that if the Interim Tariff is amended as the AUCC requests, some publishers will decide not to renew the existing licenses under similarly friendly terms, and instead direct Institutions to obtain licenses from Access Copyright. We have already seen that some publishers have changed their licensing practices to the detriment of their academic licensees, and there are no reasons to assume that others will not follow suit. Compelling Access Copyright to grant transactional licenses for the works of such publishers will not guarantee that the terms will be competitive.6

In fact, the terms that the AUCC proposes fall short in significant respects from the terms that exist when

transactional licenses are negotiated in the market place. But the point is not only or mainly that the proposed terms

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11 29. To make this concern more concrete, consider the recent voluntary licensing agreement between the Canadian Research Knowledge Network (CRKN), on behalf of its 73 member academic institutions and Elsevier, one of the worlds largest academic publishers. The agreement provides university researchers and students across Canada with the broadest access to a vast collection of high-impact electronic journals in multiple disciplines.7 The agreement maintains generous access, usage and content repurposing provisions for bona fide academic uses (e.g. printing, sharing electronically, use in coursepacks, course management systems, and electronic reserves, etc.) provisions that are important to students and researchers, and do not subject Canadas universities to additional copyright tariffs.8 Suppose that when this agreement will be up for renewal, Elsevier informs Canadian universities that from now on, Elsevier will only license access to its electronic journals, whereas all other uses, to the extent they involve copying, will be licensed by Access Copyright on transactional basis, under the terms proposed by the AUCC. Being one of the largest publishers, Elsevier would still be able to charge a hefty price for the mere right to access its repertoire, because no serious university can afford omitting this repertoire from its holding for long. As a result, Elsevier might find it much more profitable to grant universities only the access rights, and then charge $0.10 per page for every copy made if the Interim Tariff is amended as the AUCC proposes. This can be immensely profitable because, according to the definitions of Schedule G, this regulated price can easily lead to astronomical charges. 30. Consider, hypothetically, a 50 pages article that is being downloaded, stored on a hard disk, printed once and displayed once on a monitor. Since each of these activities constitutes a

set a price too high or conditions too onerous. The crucial point is that the current state of technology is sufficient to allow the competitive market to set sufficiently efficient license prices and terms without the Boards intervention.
7

See CRKN News Release, CRKN National Agreement for Elsevier SciVerse ScienceDirect Assures Broadest

Access to Critical Research Content, March 4, 2011, at http://www.crkn.ca/communications/crkn-nationalagreement-for-elsevier-sciverse-sciencedirect-assures-broadest-access-t.

8

Ibid.

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12 copy under Schedule G, and since the fee for each copy would be $5 (50 x $0.10) the AUCCs proposal means that an Institution would have to pay $20. Add to this a realistic possibility that the article will be opened (hence displayed) more than once, emailed to a colleague, stored on a central server for backup, etc. and the bill can easily reach heights that will make Elseviers shareholders extremely happy. 31. To find the proper remedy for the problem that the AUCC describes, it is important to recognize that the situation that prompted the current Application is not solely a result of Access Copyrights decision not to grant transactional licenses. It is predominantly a result of the publishers choice to cooperate with that decision and to stop granting transactional licenses on their own. Absent the publishers apparent collusive refusal to license independently, Access own refusal to grant transactional licenses would be less significant. 32. Setting aside the question of whether Access Copyright should play any role in the future and what this role should be, the optimal solution at this interim stage would be to let Access Copyright continue doing what it does best, namely administering a collective blanket license for the works under its repertoire, while ensuring that Institutions who do not wish to operate under the Interim Tariff have a genuine option to secure transactional or other licenses directly from publishers or other market intermediaries. 33. To achieve this goal, the Interim Tariff should be amended to explicitly enjoin Access Copyright from acting as an exclusive agent of its members, whether de jure or de facto. In addition, to ensure that the alternative of securing licenses through the market remains as competitive as possible, the Interim Tariff should enjoin Access Copyright from granting any transactional license, and require that Access Copyright members and affiliates would license their own works on reasonable terms.9

Of course, normally, an owner of an intellectual property right does not have any duty to license her works. But

normally, owners of intellectual property rights are expected to compete with each other and are not allowed to license their respective rights collectively. Therefore, when copyright owners are allowed to administer their rights collectively, a duty to license their works independently is a reasonable quid quo pro.

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13 34. If, despite the above, there are concerns that, absent Access Copyrights intermediation, Institutions will not be able to transact with publisher or through other market intermediaries, Access Copyrights role should be limited to that of a broker or mere agent, facilitating transactions between users and owners, but under terms and conditions that are set independently by the copyright owner and not by Access Copyright, not even on a default basis.10 This requirement is necessary in order to ensure that the alternative of securing licenses through the market remains as competitive as possible, and that Access Copyright does not become a tool for facilitating collusion or coordination among those copyright owners who choose to use it as their licensing agent. 35. There still remain, however, potential problems in securing compliance with such conditions. First, orders of the Board may only bind Access Copyright but not its members who are not named parties in these proceedings. Second, unlike other regulatory frameworks, such as the one established by the Competition Act, contravening an order of the Board does not constitute an offence, nor does the Board possess investigative powers like those which are granted to the Commissioner of Competition. At the same time, when the Board regulates a conduct before it, the regulated entities might argue that the regulated conduct defence shields them from the liability under other laws. Therefore, because the conduct that the current Application seeks to regulate may also be subject to concurrent jurisdiction of the Competition Act, it is important that any ruling by the Board concerning this Application should not preclude any remedy pursuant to the Competition Act. 36. To prevent this from happening, the Board should explicitly state that its order is not intended to replace or preclude any remedy available under the Competition Act or otherwise and should not be taken as the basis for any regulated conduct defence by Access Copyright or any of its members in any concurrent or subsequent proceeding in the Competition Tribunal or the courts on whatever basis and however arising.

10

This means that Access Copyright should not be permitted to set default terms that apply unless the copyright

owner specifies other terms.

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14 IV. Conclusion The AUCCs Application draws a dim picture of monopolistic excess, abuse, and inequitable conduct. It confirms that many of the concerns raised in the course of Access Copyrights Application to grant the Interim Tariff have materialized. The Board should intervene to rectify this problem. Unfortunately, while the AUCC correctly diagnosed some of the problems, it asks to Board to prescribe the wrong remedy. Canadas academic institutions need competitive alternatives to Access Copyright, not to enlarge its mandate. They deserve to have the benefits of a competitive licensing marketplace, with competitive licensing practices, and competitive prices. This marketplace is emerging and the Board should make sure that it continues to evolve despite occasional difficulties. Extending the mandate of Access Copyright and installing it as the place to go for all licensing needs will not guarantee successful evolution of this emerging marketplace; it will ensure its stagnation. Academic institutions need competitive alternatives to Access Copyright, not alternative offers from Access Copyright and ongoing expensive proceedings at the Copyright Board.

Yours respectfully,

Ariel Katz

Faculty of Law, 78 Queens Park, Toronto, ON, Canada M5S 2C5 Tel: 416-978-8892 Fax: 416-978-2648 ariel.katz@utoronto.ca www.law.utoronto.ca/faculty/katz