[Recorded by Electronic Apparatus]
Tuesday, November 5, 1996
.1151 
[English]
The Chairman: We'll resume this session on Bill C-32 to hear witnesses. We are pleased to welcome the Canadian Alliance Against Software Theft, or CAAST. Mr. Jeff Dossett is the president, and also general manager of Microsoft Canada Inc. Mr. Michael Eisen is the secretary and general counsel. Mr. Eisen is starting.
Mr. Michael Eisen (Secretary and General Counsel, Canadian Alliance Against Software Theft (CAAST)): Thank you.
Mr. Chairman and members of the committee, the CAAST mandate, as you may know, is to combat software piracy through education activities, a voluntary audit program, and litigation. CAAST members include Apple Canada Inc., Autodesk Canada Inc., Claris Canada, Inc., Delrina (Canada) Corporation, Eicon Technology Corporation, Lotus Development Canada Limited, Microsoft Canada Inc., Novell Canada Ltd., and Symantec Canada Ltd. Collectively, these companies distribute much of the business software that is used in Canada.
The principal statutory protector of authors and developers of software in Canada is the Copyright Act. Therefore strong copyright laws and enforcement measures are critical if the legitimate market for software in Canada is to flourish. Unfortunately, however, at present the civil remedies provisions of the Canadian Copyright Act are inadequate, since they do not include a statutory damages scheme. As a result, copyright owners are not pursuing meritorious claims because of the difficulty and expense often associated with proving their actual damages or the defendant's profits. This in turn means the major objectives of Canada's copyright enforcement policy, namely securing compliance with the law and providing for restitution to injured copyright owners, are not being met.
Proposed section 38.1 of Bill C-32, which CAAST wholeheartedly supports in principle, will add a statutory damages scheme to Canadian copyright law. Statutory damages, expressly stated amounts for which an infringer may be held liable as an alternative to proved damages, have been included in the U.S. copyright statutes since 1790 and have worked well in that country.
The need for statutory damages in Canada is clear. Copyright infringement proceedings are typically very expensive and in many instances the scale of costs available to successful plaintiffs affords only partial compensation for the cost actually incurred. As a result, well-founded claims may not be pursued. In addition, the losses caused by infringing activity or the defendant's unlawful profits are often so conjectural as to be hard, if not impossible, to quantify. For this reason as well, the assertion of legitimate claims is discouraged.
The introduction of statutory damages will address these problems. First, a scheme of statutory damages will guarantee a successful plaintiff at least a minimum recovery. Second, the existence of statutory damages will provide a powerful deterrent to infringers and a powerful incentive for litigation to settle. Third, a scheme of statutory damages can be expected to simplify court proceedings, to the benefit of the parties involved and the court system generally.
For all of these reasons, CAAST applauds the present proposal to amend the Canadian Copyright Act to include statutory damages.
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It is worth noting, however, that software publishers are often victims of the multiple infringement of a relatively high-cost single work, as opposed to other creators who are victimized by the single infringement of multiple and relatively low-cost works. Therefore, if a statutory damages regime is to provide meaningful protection to software publishers, the upper limit of any such regime must be sufficiently high to represent a real deterrent to software pirates.
It is therefore reasonable to ask whether the proposed upper limit of $20,000 in proposed section 38.1 is sufficient, since it applies to all infringements involved in the action with respect to any one work or other subject matter. It was recently estimated that almost 60% of the software used in Canada is pirated, resulting in lost business revenues exceeding $300 million annually. Adding a statutory damages regime to Canada's Copyright Act is directly responsive to this serious problem.
Furthermore, statutory damages have been endorsed in principle by Canadian policy-makers for more than a decade. As long ago as 1985, in the second report of the Sub-Committee on the Revision of Copyright, A Charter of Rights for Creators, it was recommended that a system of statutory damages should be introduced in Canada.
At pages 96 and 97, that report states many submissions to the subcommittee advocated the introduction of a new form of remedy in the revised law, which has been referred to as statutory damages. This suggestion is completely in keeping not only with the subcommittee's intention to devise a charter of rights for creators, but also with its commitment to make the charter enforceable. The subcommittee agrees with many witnesses who viewed the introduction of a statutory damage system as an answer to many of the practical problems involved in the enforcement of the Copyright Act.
More recently, the final report of the copyright subcommittee of the information highway advisory council working group on Canadian content and culture advocated, among other things, the introduction of provisions for statutory damages based on the U.S. model.
Those are my comments. I hope they've been of some assistance. Thank you for inviting CAAST to appear before you today in connection with your consideration of Bill C-32.
The Chairman: Thank you, Mr. Eisen.
I will now open the meeting to questions. Monsieur Leroux.
[Translation]
Mr. Leroux (Richmond - Wolfe): This is a whole other issue. First of all, thank you for tabling this brief which explores an important side of the issue. This is an area with which we are less familiar because we are dealing with a new field. Could you give us some concrete examples of this piracy problem? You quoted a figure of $300 million in lost revenues. Could you tell us a little how piracy operations work? What is the scope of the problem, who is involved and when does it occur?
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What ways do you have to counter the piracy problem? You listed a few of them in your brief. In short, I would like you to tell us a little bit more about this issue and about the extent of the problem.
[English]
Mr. Jeff Dossett (President, Canadian Alliance Against Software Theft (CAAST)): As Michael Eisen indicated, we estimate that approximately 60% of all software in use in Canada has been pirated using one of the multiple forms of replication that is available to a pirate. It can be as simple as taking the software that exists on diskettes and passing them among a group of individuals who have not appropriately purchased that software through legitimate means. However, as you mentioned in your comments, the vehicles now available to pirates to mass produce software are improving dramatically.
In fact, just earlier this week I visited a CD-ROM, manufacturer who indicated it's now capable of replicating a single CD-ROM software disk at the rate of over 5,000 pieces per hour, at a very high quality of replication. The cost of replicating that software product is less than $1 Canadian per unit. This represents a very substantial lost revenue opportunity to the industry. For example, this software might otherwise, through legitimate vehicles, be sold at $200 to $500 per unit.
So it's now very simple for an individual to take our copyrighted work, replicate it in incredible volumes and make that software available to the marketplace.
There are huge implications to the industry from an economic perspective, but I think at the end of the day the real issue is the impact on consumers. We're seeing right now that software publishers in the industry reflect the reality of a 60% rate of piracy in the pricing of their products to consumers. We take that into account as an unfortunate reality in determining our return on investment for our innovation. So consumers are clearly paying a higher price in Canada for software products as a result of piracy.
I think there are a number of other key implications. Consumers lose access to technical support and documentation made available from the original software publisher. Although we'd like to think we're making our products easier to use in the industry, the access to technical support from the manufacturer is quite critical, and that is lost in this situation as well.
Probably the feedback we're receiving as an association, more than any other, concerns the increased risk consumers face in terms of incomplete or virus-infected software. As a manufacturer, and representing both CAAST and a major software publisher, our quality control methods are very stringent. However, in the world of illegally pirated software that's not necessarily true, and consumers across this country are receiving incomplete virus-infected software that they believe to be manufactured by organizations such as Microsoft. I think that's a very significant impact that also needs to be addressed partly through this legislation.
Mr. Eisen: If I could perhaps add briefly to Mr. Dossett's observations, it should be appreciated that there are many flavours of software piracy. There's soft lifting among corporate users, which is the situation that results when an organization obtains one legitimate copy of a software product and places it on 100 to 250 machines. There's software counterfeiting, which has become increasingly popular once again. There's hard disk loading, where unscrupulous computer dealers, in order to give themselves an unfair competitive advantage over the legitimate business down the street, will load the hard drive of the computers they sell with unauthorized copies of software for free. There's the downloading of pirated software via electronic bulletin boards, an increasing phenomenon. There's software rental. There is an extremely wide range of pirate activity resulting in the huge losses that the industry is suffering.
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The second half of your question was how can the industry respond to that situation and, in particular, why are statutory damages going to be such a valuable tool? They are going to be a valuable tool because they are going to act as a deterrent that will minimize the inconvenience and expense suffered by software publishers, creators of works. They will actually limit the time that would otherwise be spent in court and will discourage litigation by ensuring that people who are unquestionably infringing rights realize, perhaps for the first time, that there are effective measures available to creators to deal with them.
The problem until now has not been, in many instances, a recognition on the part of pirates that what they are doing is wrong. They know what they are doing is wrong. The recognition is that there is no effective legal basis to deal with them. Statutory damages will provide such a basis.
[Translation]
Mr. Leroux: The problem is international. You are describing what happens in Canada, but we can assume that the problem is international in scope. Will the legislative measures or mechanisms that you are suggesting prove effective in terms of countering a very widespread piracy problem?
[English]
Mr. Eisen: If I understood your question correctly, it certainly is an international problem. Perhaps what I could do is point you to the piracy rate in the United States, where there is a statutory damages scheme. It's approximately 35%, based on the 1994 year that is relevant to the 60% figure I gave to you.
In my view, and based on discussions I've had with comparable organizations in the United States and law enforcement agencies, the existence of statutory damages in that country has allowed organizations such as CAAST to operate a voluntary audit program. Known infringers were approached, confronted with their wrongdoing, and given the opportunity to voluntarily clean up their situation. More often than not they would do so because of the existence of the statutory damages deterrent or prospect. This meant there was no litigation and the situation was resolved. I think it was in no small measure attributable to the fact that through education and other initiatives, the existence of this scheme was publicized and made known and served an important purpose.
We do not have such a scheme in Canada. In my view that is not at all unrelated to our significantly higher piracy rate compared to the United States.
The Chairman: Mr. O'Brien.
Mr. O'Brien (London - Middlesex): Thank you, Mr. Chairman.
I appreciate the presentation. My colleague just asked one of my questions on comparable experiences.
You say the 60% piracy rate represented some $300 million in 1994. How can you be confident about that number?
Mr. Eisen: First of all, I offer the number recognizing that it's intended to be a benchmark. It does not have the scientific precision that many other numbers have. Let me explain to you how it's arrived at, and you can attach to it the weight you think is appropriate.
The estimates are based on software in hardware shipments in a particular country. The hardware and software shipment data are obtained from numerous commercially available resources. The retail prices of software are used, reflecting the loss to the entire software industry, publishers and the distribution channel.
The equation is as follows. Actual software units divided by actual hardware units, using the data I referred to, equals the actual applications per PC or computer. That's our starting point.
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The estimated number of applications, again based on published estimates per PC, minus the actual applications per PC, equals the illegal applications per PC. The illegal applications per PC divided by the estimated number of applications per PC equals the estimated percentage of illegal applications in use. That amount subtracted from 100% provides the percentage of legal use.
The Chairman: That's quite clear.
Mr. O'Brien: I did not enjoy grade 12 math class, so I'll leave that question there. That's enough for me.
I'd like to pursue it this way, though. I appreciate that, and I understand that other than the $20,000 upset fine limit, it sounds like you're satisfied that C-32 addresses your concerns.
If this bill is successful in lowering the piracy rate, is it your view that we will see a drop in the price of software to the Canadian consumer?
Mr. Eisen: Representing a relatively large participant in the Canadian software industry, I can absolutely support the statement that it would be our intention to expand the market for our products through lowering prices to consumers by not having to reflect the cost of piracy in the pricing we're offering to consumers.
Our industry is all about innovation and building great software products, and to do that requires very significant investments in research and development. We set our pricing based on two main factors. One is the economic return on investment associated with the R and D investment, as well as how large a market we hope to gain for our product. It is clear that today our product pricing is higher than it would be if we were able to lower the software piracy rate in Canada.
Mr. O'Brien: I appreciate that. This may be a tough question, but once C-32 is in effect and you have a lower piracy rate, can you give us a guesstimate, at least, of what percentage of decrease in price we would be able to look forward to for the consumers of Canada? You must have some idea of what it represents to your loss of profits.
Mr. Dossett: Across the industry it represents more than 50% of the market opportunity. In terms of identifying the actual impact in timing, it's difficult to say, but I would suspect it's a double-digit figure in the range of 20% or greater. There are so many factors that are taken into account in setting pricing, and you know our industry as one of the most competitive to the benefit of the consumer. But I do know this is still reflected very clearly in the price.
Mr. O'Brien: We look forward to that win-win of lower piracy and better prices to the consumer concomitant with that. Thank you very much.
Mr. Dossett: As do we. Thank you.
The Chairman: Mr. O'Brien, we'll let you give us a briefing after on the calculations.
Mr. Arseneault.
Mr. Arseneault (Restigouche - Chaleur): Thank you, Mr. Chairman. I have just a few quick questions on the 60%.
You mentioned the different forms of piracy, including soft lifting, counterfeiting, downloading from hard disk onto hard disk, electronic bulletin boards, retailers who try to get an advantage over their competitors down the street. Which one is the worst, in your eyes? Where does the 60% fall, or is it spread evenly throughout? What would be your target as far as this bill goes? What are you trying to eliminate here?
Mr. Eisen: Based on our research, the most pervasive form of software piracy is the soft lifting I described - the use of unauthorized copies by businesses or other organizations in connection with their ongoing activities. It's that particular problem that statutory damages will assist us to most effectively address. It's that particular problem that has been challenged in the United States using the statutory damages scheme that exists there as a support for their voluntary audit programs. So soft lifting is the most pervasive form. It's perhaps the most vulnerable form, or at least would be most effectively dealt with using statutory damages.
.1215
Mr. Arseneault: With regard to the existing law, you mentioned that you'd like to see the maximum a little higher than $20,000 under Bill C-32. You haven't given us a number. It would be appreciated, if you do have a number there, if you would name a figure. What would the present maximum be? If a plaintiff went to court and received damages, is there a maximum at present, and could you...?
Mr. Eisen: It depends, in this sense. First, we should deal separately with civil and criminal provisions. As you probably know, the criminal provisions of the Copyright Act, in the case of proceedings by way of indictment, provide for a maximum fine of $1 million. Certainly, there has not been a case in which there's been a $1 million fine, but that should give you a sense of what the drafters of that provision considered to be appropriate.
On the civil side, the damages will be a function of the loss that can be established after a trial involving documentary production, oral examination for discovery, etc., and will be directly tied to the extent of infringement and the value of the product involved. From my own experience, I can tell you that I've negotiated settlements as high as $40,000 with soft lifters. Now, that's at the upper end of the range of negotiations that I've been involved in, but it should certainly give you a sense of why I consider the $20,000 figure to be inappropriate, and that was for soft lifting on the part of a medium-sized business as opposed to the large-scale soft lifting that would be associated with a business having 100, 200, 300 PCs.
Mr. Arseneault: What is the position of CAAST with regard to private copying and the possibilities - you probably looked at the law in other areas - we have on blank cassette tapes, a tariff that's going to be set? Do you see that as something that could be done in the future with regard to diskettes, especially for the home copying part of the software packages?
Mr. Eisen: It's an interesting possibility, but I don't think it's likely. I don't know that the software industry would advocate it, but I can tell you as a practical matter, CAAST does not target home users. CAAST's track record is such that in each and every instance we have investigated reported piracy and in each and every instance, where that has resulted in civil proceedings or a criminal complaint, it has always, as a matter of CAAST policy, been aimed at commercial activity.
Mr. Arseneault: You do admit that in all reality there is a lot of home copying going on.
Mr. Eisen: I'm sure there is.
Mr. Arseneault: Would it not be of benefit if there were a tariff?
Mr. Eisen: It might be. I would hope that much of that home copying would disappear as people became educated regarding the dos and don'ts of software. This is an activity that many, many people still do not appreciate as illegal. As a result of educational initiatives that CAAST is undertaking, and intends to undertake in the school area, for example, we're optimistic that this aspect of the problem will disappear to a significant extent on its own.
Mr. Arseneault: Thank you.
[Translation]
The Chairman: Mr. Leroux.
Mr. Leroux: Mr. Eisen, I would like to get back to the proposed criminal or civil remedies and statutory damages.
.1220
As you yourself indicated, such recourse can always be exercised, but demanding one's rights comes with a price.
Of all the options proposed, be it criminal or civil remedies or statutory damages, which one is the least costly and the more effective based on your evaluation?
[English]
Mr. Eisen: I think it's important - and you've obviously done that - to maintain clearly in our minds the distinction between civil and criminal remedies and to appreciate that statutory damages is a civil remedy. It has nothing to do with the criminal process.
In terms of what is the most effective civil remedy, in my view the most effective civil remedy from a variety of standpoints will be statutory damages. If it becomes law it will be the most effective remedy, because it is the remedy that is most likely to address the problem with a minimum of inconvenience and expense and court time.
It is based on the experience that I've had and based on research that I know has been done with respect to the situation in the United Sates. The deterrent value of statutory damages and the extent to which it encourages out-of-court settlement will make it the most effective remedy from the standpoint of the software publisher and, in my view, from the standpoint of the Canadian court system.
Mr. Leroux: Merci.
The Chairman: I have just two brief questions before we close.
First, you seemed to indicate that in your view the $20,000 maximum was too low. I understand it is the same figure the U.S. uses as a maximum - $20,000 U.S. Do you know if in the United States there is any move afoot to raise the maximum, and what is the right maximum, in your view?
Mr. Eisen: You're quite right in believing that $20,000 is one of the upper limits in the United States. In the brief I submitted on behalf of CAAST at the end of August, which hopefully you have access to, I included the U.S. provision. When you examine it, you will see that in the United States there is a core range of $500 to $20,000 and there is an upper limit to that core range of $100,000 U.S. in situations of wilful infringement. Similarly, there is a lower figure of $200 in appropriate circumstances where the penalty should be mitigated.
So the U.S. system provides for a core range of $500 to $20,000, similar to what's proposed in the case of Bill C-32. It also, however, includes provision for raising the upper limit to $100,000 in appropriate circumstances and for lowering it to $200 in other circumstances. In CAAST's submission there should be similar provisions, ideally, in any Canadian statutory damages scheme so that you can move outside the core range, where appropriate, to punish or to deal with a particularly egregious offender. You can also take into account mitigating circumstances by going below the core range, where that is appropriate.
The Chairman: Finally, do you foresee the statutory damage provision having the same effect as in the United States and lowering the piracy rate to as low as 35%?
Mr. Eisen: I would certainly hope so.
Mr. Dossett: I'll just say it's one of many components of a broader solution. We spoke earlier of the focus on education, but with respect to wilful commercial illegal behaviour, we would expect it to have the same impact. Just to reiterate points that have been made already, I think it's important to note that it provides us the vehicle to focus on appropriate out-of-court settlements, limiting the focus on undue litigation.
The Chairman: Thank you very much, Mr. Eisen. Thank you, Mr. Dossett, for appearing before us. We really appreciate it.
Mr. Eisen: Thank you.
Mr. Dossett: Thank you.
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[Translation]
The Chairman: We will now hear from the Society of Composers, Authors and Music Publishers of Canada.
[English]
From the Society of Composers, Authors and Music Publishers of Canada, SOCAN, we have Mr. Bill Henderson, the president, a composer;
[Translation]
Mr. François Cousineau, the past President, is also a composer;
[English]
Mr. Holger Peterson, membre du conseil, president of Stony Plain Records, publisher;Ms Alexina Louie, membre du conseil, compositrice, musique sérieuse; Mr. Michael Rock, general manager; and Mr. Paul Spurgeon, general counsel.
We are extremely pleased to greet you today, knowing that SOCAN is the first collective in Canada and a most important piece of the puzzle regarding Bill C-32.
Mr. Henderson, the floor is yours.
Mr. Bill Henderson (President, Society of Composers, Authors and Music Publishers of Canada (SOCAN)): Thank you, Mr. Chairman. Good afternoon to you and to the members of the committee. My name is Bill Henderson. I'm a composer from British Columbia and I'm the president of the Society of Composers, Authors and Music Publishers of Canada, SOCAN.
On behalf of SOCAN, I'd like to thank you all very much for this opportunity to appear before you and to express our views regarding Bill C-32, an act to amend the Copyright Act. This morning I'm joined by five of my colleagues. I would like to introduce them in case there are some details here that were missed: François Cousineau, a well-known Quebec composer and also a SOCAN director and past president; Alexina Louie, a classical music composer from Toronto and also a SOCAN director; Holger Peterson, music publisher and SOCAN director from Edmonton and also the president of Stony Plain Records; Michael Rock, SOCAN's general manager; and Paul Spurgeon, SOCAN's general counsel.
.1230
I understand that committee members have more detailed biographies in French and English for each of us. You have all received a copy of our Bill C-32 submission, dated August 30, 1996.
You will note that the submission breaks down into three categories. The first three pages are the table of contents, which is followed by six pages of executive summary. The white tab is the beginning of the 39-page submission itself, which we will refer to from time to time today.
To start with, to make it easier to follow our presentation, you might wish to turn to page 1 of the three-page table of contents.
We don't intend to waste your time this morning, ladies and gentlemen, reciting our submission to you word for word. What we would like to do is spend the next 30 minutes highlighting some key areas of concern so that we can leave plenty of time to answer any questions you may have. Here is how we will proceed over the next half hour.
First, I would like to deal with the fundamental question: who will pay for Bill C-32's neighbouring rights? As you can see from the top of page 2 of our submission's table of contents, we believe that users should pay. So Bill C-32's proposed section 90 should therefore be tightened up to ensure that Parliament's intention is made crystal clear.
Second, François will discuss our views on how copyright royalties should be determined. He will therefore be touching on some of the topics outlined in the middle of page 2 of the table of contents. He will discuss the role of the Copyright Board and the collective administration of copyright.
Third, Alexina and Holger will set the record straight on a statement that was made in the submission presented to you by the radio board of the Canadian Association of Broadcasters, the CAB. On page 28 of their submission, the CAB stated:
- SOCAN has estimated in the past that about 80% of authors and composers perform their own
music. These performers will earn new income from neighbouring rights.
Mr. Chairman, allow me to turn now to the first point of SOCAN's presentation, which is a question that members of Parliament of course frequently encounter in legislative committees: who pays?
The Government of Canada answered this question when Bill C-32 was tabled in the House of Commons on April 25, 1996. That day, the Minister of Canadian Heritage and the Minister of Industry issued a press release stating that:
- These measures are about fairness and they acknowledge the rights of creators to receive
recognition and remuneration for the use of their works.
SOCAN's performing rights have been recognized in Canada for seven decades. It's therefore important for Parliament to clearly express its intent that composers, authors and their music publishers not be required directly or indirectly to compensate or make room for Bill C-32's new neighbouring rights.
If Canada now wishes to recognize the neighbouring rights envisaged in the 1961 Rome Convention, users must pay new and additional royalties regarding these rights. In other words, the royalty pie must expand to accommodate the new rights. Our expanding pie theory stands in stark contrast to the cake theory advocated by some users.
For example, the CAB radio board stated on page 28 of their Bill C-32 submission that:
- Broadcasters support the ``cake theory'' that the amount payable for the use of sound
recordings should be a fixed amount. This means that if the cake (fixed amount) is to be divided
among more rights holders, they will get smaller slices.
As you know, Parliament has provided both large and small radio stations with a generous threshold exemption, in addition to a five-year transition period for the larger stations.
In addition to these generous exemptions, we do not believe it's fair for the users to now say that they don't intend to pay for neighbouring rights and that SOCAN's members should accept smaller slices.
Mr. Chairman, I don't want to turn this committee into a baking seminar, so please allow me to summarize and finalize by saying that the radio broadcasters cannot have their cake and eat it too.
The last point I would like to make is that the question of who is to pay for Bill C-32's neighbouring rights is a fundamental policy issue that should be decided by Canada's elected representatives. SOCAN believes that Parliament must decide this pivotal question rather than leaving it up in the air to let the Copyright Board or the courts decide.
In order for its intent to be respected, Parliament must ensure that Bill C-32 contains what is commonly referred to as a non-derogation clause. This clause must make it clear that the addition of Bill C-32's new neighbouring rights must not prejudice, dilute, or derogate in any way from SOCAN's distinct and long-standing performing rights.
It's important to note that SOCAN didn't dream up the concept of a non-derogation clause. The very first article of the 1961 Rome Convention stated that neighbouring rights must leave intact and not prejudice the performing rights of SOCAN's members.
As you can see on pages 16 and 17 of SOCAN's 39-page submission, we say that we believe proposed section 90 of Bill C-32 is a step in the right direction, but it needs some fine-tuning.
On page 17, the next page, we have submitted 11 words. They are in boldface and underlined. These are words that we believe should be added to proposed section 90 during your clause-by-clause consideration of the legislation.
Let me conclude by saying that when it comes to appreciating the importance of ensuring that legislation clearly expresses Parliament's intent, SOCAN speaks with experience. In particular, we do not wish to relive the unfortunate experience that resulted from the unclear wording used when the Copyright Act was amended in 1989 to permit the licensing of music carried by cable systems in Canada. Due to a lack of clear statutory guidance, several years of costly litigation ensued.
In the end, to ensure that Parliament's intent was clearly expressed, a further amendment to the Copyright Act, known as Bill C-88, was required, which was a great cost of time and money both to Parliament and to SOCAN's members. This is why this minor amendment to proposed section 90 of 11 words only is so important to SOCAN. We simply cannot afford to repeat the mistakes of the past.
Now that we've dealt with the issue of who pays, let me turn things over to our past president, François Cousineau, who will discuss how copyright royalties should be determined.
Mr. François Cousineau (Past President, Society of Composers, Authors and Music Publishers of Canada (SOCAN)): Thank you, Bill.
[Translation]
Good afternoon, members of the committee. Before I discuss the role of the Copyright Board and how copyright royalties are determined in Canada, I would like to step back for a moment and place things in their proper historical context. I think that if we have a basic understanding of the past and of how Canadians developed our present system, we will be in a better position to decide on how Bill C-32 should govern our future.
As you know, under the Canadian collective system of performing arts administration, SOCAN is Canada's sole performing rights society. However, we are not a monopoly because, unlike a monopoly, we cannot restrict supply and set our own prices. The Copyright Board establishes royalties, not SOCAN. The collective administration of performing rights is not a new concept. It was developed in its present form over a century ago and the Parliament of Canada has regulated this system since 1931.
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Over 60 years ago, when the Government of Canada set up the Parker Commission to review how copyright royalties should be determined, the decision-makers really had the same three basic options available to them as you have today.
First, they could have Parliament legislate the amount of royalties. The second option they had was to leave it to ministers and their government officials. The third option was to create an arm's length, quasi-judicial tribunal with the technical expertise and the procedures required to ensure that everyone had an opportunity to be heard.
In 1936, the Government of Canada chose the third option and the Copyright Appeal Board became responsible for the regular review and approval of royalties payable to performing rights societies like SOCAN.
Fifty years later, the Copyright Appeal Board was replaced by the current tribunal, the Copyright Board, in 1989. That, in a nutshell, is how we arrived at the system we have today for determining the amount of copyright royalties in Canada.
Now, let's look to the future by answering the following two key questions. First, does the current system work? And second, are the changes proposed in Bill C-32 in the best interest of all of the parties concerned?
With respect to the current system, I believe that the royalties that the Copyright Board establishes for SOCAN are too low. However, I know you have already heard from many of the people who use our creative works, and they argue the royalties are too high. I have heard it said that in politics, if both sides are complaining, you must be doing something right. Therefore, I think it is fair to say that although the Copyright Board system is not perfect, responsible officials are doing their best to balance the interests of creators and users in Canada.
Let me conclude my remarks by stating unequivocally that SOCAN believes that the changes Bill C-32 is proposing for the Copyright Board should not be enacted in their present form. If you turn to page 20 of our submission, you will see that we have reproduced section 66.91 at the top of the page. This clause is unprecedented because Parliament has never provided such sweeping and openhanded powers to governments ministers and their officials to direct the activities of this quasi-judicial tribunal. It is not exactly clear how these undefined and vast powers will effect the way copyright royalties are determined. However, it is clear that the transparency of the process will be diminished because copyright users and owners will be forced to lobby ministers, their political staff and officials to ensure that cabinet regulations do not adversely affect their interests.
In short, section 66.91 could transform the Copyright Board from a quasi-judicial tribunal into a political instrument of the government of the day. There is always that risk.
The liability for a copyright license and the amount of that liability must be determined by an impartial adjudicator that only considers the facts and arguments submitted by the parties. Once a tribunal becomes subject to directives from the political arena, it runs the risk of quickly losing its quasi-judicial nature and its credibility in the eyes of both users and creators. SOCAN therefore submits that section 66.91 should be deleted from Bill C-32.
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In conclusion, I would like to refer you to page 26 of our submission and give you our position on exceptions. Under the heading "Exceptions to Copyright", the second paragraph reads and I quote:
- Exceptions to copyright are, in effect, an expropriation of the rights otherwise granted to some
copyright owners and, in the case of SOCAN's members, an expropriation of the income that
would otherwise accrue to authors and composers as a result of the commercial use of their
works. As a result, exceptions to copyright and exemptions from the obligation to pay royalties
for using creator's work should be avoided.
- As noted earlier when discussing the role of the Copyright Board, SOCAN believes that, rather
than providing statutory exceptions or exemptions from the liability to pay performing rights
loyalties, Parliament should rely on this quasi-judicial tribunal whose primary objective is to
balance the rights of creators and users in its royalty rate decisions.
[English]
Ms Alexina Louie (Director, Society of Composers, Authors and Music Publishers of Canada (SOCAN)): Thank you, François.
Good afternoon, Mr. Chairman and members of the committee.
I am a classical music composer. Like most classical music composers, I do not perform my own music. Rather I write it for other performers, ensembles and orchestras, including the.AAC Orchestra, the San Francisco Symphony, the Toronto Symphony and the Montreal Symphony.
As Bill Henderson mentioned earlier, I would like to set the record straight on a statement that was made in the submission presented to you by the radio board of the Canadian Association of Broadcasters, CAB. On page 28 of their submission, the CAB stated, and I quote:
- SOCAN has estimated in the past that about 80% of authors and composers perform their own
music. These performers will earn new income from Neighbouring Rights.
First of all, we have checked our records and we cannot find any SOCAN statement that 80% of authors and composers perform their own music. The closest thing we have come up with is a statement that was made by a witness who opposed SOCAN in a recent Copyright Board hearing regarding concert tariffs.
In any event, I do not think anyone has an exact answer, because it varies greatly depending on the genre and the use of music involved. For classical music composers, I can assure you that the number is nowhere near 80%. It's closer to 0%.
The fact of the matter is there are many composers like me: lyricists and songwriters who are not performers. We rely solely on performing rights for our copyright income and will not receive anything from Bill C-32's neighbouring rights. We therefore do not believe it is helpful to speculate on how many composers perform their own music. The bottom line is it is not 100%.
Second, we do not believe it is relevant whether 20%, 40%, 60% or 80% of authors or composers perform their own music, because the act of creating music and the act of performing music are two separate and distinct activities, regardless of whether one person, two persons or100 persons are involved.
If you turn to page 3 of our 39-page submission, you will see that long-standing international treaties and Canada's Copyright Act have created several distinct and separate rights that belong to anyone who creates a musical work. If someone broadcasts or performs my music in public, I am entitled to be paid for my work. In addition, if someone makes a sound recording of my work, I am entitled to be paid. It is not an either/or situation. I am entitled to be paid twice, because two separate and distinct uses are being made of my work.
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Likewise, if Bill C-32 creates neighbouring rights, creators who perform their own works should be entitled to additional royalties flowing from these new rights.
In sum, the act of writing music is totally separate and distinct from the act of performing music. Sometimes the same person does both; sometimes, as in my case, they do not.
If Parliament wants Canada to join the approximately 50 countries who recognize the 1961 Rome Convention's neighbouring rights, then performers should be entitled to additional royalties regardless of whether or not they also created the music they perform, and vice-versa. In other words, SOCAN's members should get paid their full and undiminished performing royalties regardless of whether they perform their own music or not.
Thank you.
I would now like to turn things over to Holger Peterson.
Mr. Holger Peterson (Director, Society of Composers, Authors and Music Publishers of Canada; President (SOCAN)): Thank you, Alexina.
Good afternoon, Mr. Chairman and members of the committee. My name is Holger Peterson, and today I would like to follow up on some of the points Alexina just discussed.
It's fair to say I'm a good example of someone in the Canadian music industry who's involved in several different aspects of the business.
First of all, although I do not personally create music, I am a director of SOCAN and the president of Stony Plain Music, which is an independent, Alberta-based music publisher that represents creators. In 1993 the Canadian Country Music Association recognized Stony Plain Music with its Music Publisher of the Year award.
In addition to my music publishing activities, I'm also head of an independent record company called Stony Plain Records. I should also mention that for nine years now I have been the host of CBC AM radio's national program called Saturday Night Blues.
As someone involved in music publishing, recording and broadcasting, I'm a good example of how one person can perform more than one function in the Canadian music industry.
Given that the CAB's overlap argument implies that creators should not be fully paid both performing rights and neighbouring rights royalties when the creator performs their music, where does that leave me and the artists and songwriters I represent? If my independent record company receives neighbouring rights royalties, does that mean the performing rights royalties I receive as a music publisher should be reduced now or in the future?
I don't think these performing rights should be reduced, because I do not think it's fair to be penalized for taking on more than one function in the music industry. Therefore I think the overlap argument is wrong.
To promote Canadian culture, we should reward the synergy that results when someone is a jack of all trades rather than discourage it. In fact wearing several hats has allowed me to be a survivor. Had I been confined to only one source of income, I know I could not have survived as an independent, Canadian-owned record company and music publisher based in western Canada.
I'd like to conclude by saying that my experience in country, jazz and blues music leads me to the same conclusion Alexina reached regarding the degree of overlap in classical music. In country, jazz and blues music, the percentage of creators who perform their own music is nowhere near the 80% figure that has been bandied about.
Many of the creators of these forms of music rely solely on SOCAN's performing rights royalties and will not see their income increase as a result of Bill C-32's neighbouring rights. I therefore cannot agree with the CAB's cake theory or its overlap argument.
Thank you.
Now I'd like to pass the microphone over to our fifth speaker, SOCAN's general counsel, Paul Spurgeon.
Mr. Paul Spurgeon (General Counsel, Society of Composers, Authors and Music Publishers of Canada (SOCAN)): Thank you, Holger.
Good afternoon, Mr. Chairman and members of the committee.
Today I'd like to describe the role SOCAN plays in minimizing the transaction costs involved in licensing and collecting performing rights royalties.
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As we stated on pages 6 and 7 of our 39-page submission, SOCAN performs two principal functions. First, we license the users of music, who pay us copyright royalties in accordance with tariffs set by the Copyright Board of Canada. Second, we distribute these copyright royalties to SOCAN members in Canada and to the thousands of music copyright owners around the world whose works we also license in Canada.
In effect, SOCAN performs a clearing house function that decreases the transaction costs for both music users and music writers. We save music users a lot of time and money because we grant blanket licences. What's a blanket licence? It's a single licence that authorizes a music user to play, to access, Canada's and the world's repertoire of music without having to track down each and every creator every time they wish to use that creator's music.
From the creator's perspective, our one-stop-shopping approach ensures the royalties we collect are not eaten up by transaction costs. We make sure most of the money goes to the writers of the music and their publishers, where it belongs. I find it ironic to hear some users complain they do not have one-stop shopping for reproduction rights, for example. Then they turn around and complain about SOCAN by referring to it as a monopoly.
For example, during the evening session on October 8, the CAB, the broadcasters' television board, referred to SOCAN as ``one of Canada's last monopolies''. As Mr. Leroux rightly pointed out, SOCAN is not a monopoly, because we cannot set our price. The Copyright Board has that power, not SOCAN. Furthermore, as François Cousineau noted, SOCAN cannot restrict the supply of music, since it grants a blanket licence for access to its repertoire.
On page 33 of their submission, the CAB's television board also criticized the role of copyright collectives and the practice of exclusive licensing by suggesting that Bill C-32 require the Copyright Board to ``ensure that...a member of a collecting society may negotiate individually with a user or users...''. In other words, they want to get rid of one-stop shopping and replace it with a system where 100 Canadian television stations and 500 radio broadcasters will negotiate individually with each of SOCAN's 17,000 Canadian members and the tens of thousands of writers and publishers we represent through our bilateral agreements with foreign affiliated performing rights societies.
Mr. Chairman, they cannot have it both ways. They cannot criticize SOCAN's one-stop shopping on the one hand and then complain about the high transaction costs that result when one-stop shopping does not exist in areas such as reproduction rights.
Finally, it must be remembered that in the 1986 phase I of copyright revision - that's Bill C-60, which was enacted in 1988 - the intention of Parliament was to encourage the collective administration of copyright by supporting the formation of copyright collecting societies. Since then we have seen the creation of retransmission rights collectives, reprographic rights collectives, and others. This philosophy continues in the home taping and neighbouring rights provisions of Bill C-32. Furthermore, it's our belief that copyright collectives will become even more relevant on the information highway.
We would therefore ask that Parliament reject the idea that Canada should abandon one-stop shopping and blanket licences. It would not be in the national interest to adopt a one-on-one system that requires users to track down creators and negotiate individual licences with them.
Mr. Michael Rock (General Manager, Society of Composers, Authors and Music Publishers of Canada (SOCAN)): Good afternoon, Mr. Chairman and members of the committee. I promise to be very brief, because we want to leave some time for questions before you have to go to Question Period this afternoon, but I would like to reinforce the point our president, Bill Henderson, made at the beginning of SOCAN's presentation, when he discussed the importance of the Bill C-32 proposed non-derogation section, proposed section 90.
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Based on my experience in the Copyright Board hearings and in Federal Court lawsuits, I can tell you, based on our review, exactly what will happen if Parliament does not clearly state who should pay for Bill C-32's neighbouring rights. We will end up in costly and lengthy hearings and lawsuits, well into the next century.
The position that the CAB will take in this litigation has already been spelled out for you in black and white in the radio board's submission, in their cake theory, on page 28, point five. The very fact that the CAB is advocating the cake theory demonstrates to us that proposed section 90 in its current form is ambiguous.
Unlike the technical issue of how much the royalties should be, the issue of who should pay cannot be left to the Copyright Board or the courts. You, the Parliament of Canada, must decide this pivotal issue.
We understand that the purpose of Bill C-32 and of proposed section 90 is to ensure that users pay performers and producers for neighbouring rights, and we support that principle. We do not support the principle that creators with long-standing performing rights should be shoved aside to make room for other copyright owners with newer neighbouring rights.
Please tighten up proposed section 90 during your clause-by-clause consideration of the bill. If this section remains in its present form, we fear it will lead to litigation, which is in no one's interests.
I would also like to add that in our limited time with you today, we have not covered everything in our submission. This doesn't mean that these items aren't also important to us, and we would therefore ask that you and your officers carefully consider all the points that we've made in our submission.
Finally, I'd like to point out that although we have taken issue with many of the positions advocated by the Canadian Association of Broadcasters, we do not wish to leave the impression that there's bad blood between SOCAN and the broadcasters. Quite the contrary, I feel we have an excellent business relationship. I was in Edmonton last week at the CAB's annual convention and I thoroughly enjoyed their hospitality.
Voices: Oh, oh!
The Chairman: Mr. Rock, was there a lot of cake?
Voices: Oh, oh!
Mr. Rock: There was an excellent Alberta dessert.
The fact of the matter is that SOCAN is one of the broadcasters' principal suppliers and they are our major customers. We therefore have to get along whether we like it or not, even if we strongly disagree from time to time. The disagreements ultimately get back to money, and that's where the Copyright Board's role fits in.
In sum, SOCAN asks that you draft Bill C-32 so that we and the broadcasters don't spend the next decade asking the courts what you meant to say in proposed section 90. Please add the 11 words we've suggested on page 17 of our submission.
Thank you very much. We'd be pleased to answer any questions you may have.
The Chairman: Thank you, Mr. Rock.
Before we start with the questions, just for the benefit of the members, there is a call for a vote, but it's been deferred.
[Translation]
The vote will be deferred.
[English]
I'll recognize, in this order, Mr. Leroux, Mr. Abbott, Ms Phinney and Mr. Peric.
Monsieur Leroux.
[Translation]
Mr. Leroux: Thank you for your submission which enlightened the committee considerably as to current situation. We will have to hold further discussions to come up with a bill which recognizes the rights and is consistent with the objectives of copyright holders. In addition to copyright, another extremely important issue is neighbouring rights. We would be joining the 50 countries that already recognize neighbouring rights and be giving our performers access to long-awaited, legitimate royalties.
I would like to begin by making a series of comments. Both Mr. Rock and Mr. Henderson referred to one important aspect of clause 90.
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In your opinion, clause 90 is ambiguous and would result in a further division of the royalty pie. It would introduce a new royalty which would strain existing copyright royalties.
You recommend that 12 words be added to clarify this extremely important issue of copyright versus neighbouring rights. I would like us to come back later to these 12 words. However, to my mind, this distinction must be clearly established.
You have, of course, cautioned us about a new component of the legislation. I am referring to the power which the government could have to intervene directly, either through its Privy Council or Cabinet, to provide new directions, but also, as everyone knows, new policy directions. We are very mindful of this fact and this will be issue for us to discuss.
As for the third question, I'm not especially disturbed by the fact that the author-composer can become a performer and be paid twice. This doesn't really bother me. As far as I'm concerned, the act of creating and the act of performing are two very legitimate inviolable undertakings.
It is always somewhat difficult to draw an analogy, but it's as if we were to tell someone who designed a hammer: "You will receive royalties if you sell the hammer, but if you use it yourself, we won't be able to pay you anything". This type of demanding attitude boils down to a question of money and fails to recognize the essence of the act of creating and the act of performing. Therefore, as far as I'm concerned, your message got through clearly enough.
Getting back to clause 90, I would like us to discuss further certain issues which you either did not raise in your presentations or which have to do with educational exceptions. You pointed out that royalties are not collected from the performance of music in educational institutions. Could you elaborate further on this? I would also like you to tell me if you have ever licensed the performance of music in the classroom?
I would also like to discuss how the Copyright Board operates and the mechanisms that it employs. Earlier, Mr. Rock concluded his presentation by saying that he did not wish to leave the impression that there was bad blood between SOCAN and the Board and that operating procedures were already well-established. You outline your rate schedule and the Board then sets the rate after reaching an agreement with the parties. I would like us to discuss this process further and exactly how it was established.
[English]
Mr. Rock: You're quite right, Mr. Leroux. We certainly don't want to have any bad blood at all. It's essential that any bill Parliament passes be as clear as possible.
But with respect to your question on educational and other exceptions, our legal counsel,Paul Spurgeon, might want to just touch on them briefly. We have eight pages of them in our submission.
Mr. Spurgeon: Thank you. If committee members will refer to page 40 of Bill C-32, proposed subsection 32.2(3) essentially states that:
- No religious organization or institution, educational institution, and no charitable or fraternal
organization shall be held liable to pay any compensation for doing any of the following acts in
furtherance of a religious, educational, or charitable object
We're saying this act now allows other copyright owners to be paid for other educational uses, but composers are excluded. That seems to be perhaps an anomaly or an oversight.
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The existence of this section exempts the performance of music, but the owners of copyrights in programs can be paid, providing of course the sections of the act dealing with the destruction of tapes, etc., are done. The music people are not entitled to be paid because of that section.
So to answer your question, right now we don't license that. We do, however, license what is called in French parascolaire or extra-curricular musical performances in school. We do license the concerts, school dances and things like that, but not the ones in the face-to-face teacher-student situation.
[Translation]
Mr. Leroux: That is performances which are not for educational purposes, but rather extracurricular in nature.
[English]
Mr. Henderson: That's right.
[Translation]
The Chairman: I believe Mr. Leroux also raised a question concerning clause 90 which deals with the powers of the Board. Perhaps Mr. Cousineau or someone else would like to...
Mr. Cousineau: The question had to do with the 11 words we want to add to clause 90.
A member: I thought it was 12 words.
Mr. Cousineau: No, it's 11. Perhaps it's a translation error; it's 11 words in English and 12 in French.
Mr. Leroux: I see.
Mr. Cousineau: Could we read the 11 words in question?
[English]
The Chairman: Mr. Leroux is trying to find out - and I think we would all be interested - the real impact of the addition of these words compared to not having them.
Mr. Spurgeon: I'll do my best to explain. It boils down to the fact that we have an adversary system out there. We obviously argued these points before the Copyright Board. The music users could argue, ``We want a reduction in the amount we pay to SOCAN in order to pay for this new right''. We're saying we have to make the language absolutely clear so the courts and the Copyright Board will be given the parameters of this legislation.
As I understand it, this legislation creates a new right for a new group of people - performers and producers - and the existing rights holders - the authors - should not be affected by the introduction of this new right. But it goes beyond just not affecting the rights. It also affects the royalties that are determined by the Copyright Board. We want to make sure the royalties that are established by the board won't be diminished or our ability to pursue royalties for authors won't be affected by this new legislation. That's really what those words do.
Without them it's not clear for the board. As Mr. Rock pointed out, I think that's why we see the cake theory developing in the broadcasters' brief. They're going to undoubtedly argue, as I think we've already heard, that the amount going to authors should somehow be divided up differently and they shouldn't be responsible for this new payment. It should come out of the writers' shares.
It's as simple as that. We want to make the legislation clear for the Copyright Board and for the courts. Let's say the Copyright Board were to do that. The courts would then look at this section and say, ``You can't do that. This is a new right and there are existing authors' rights and they are separate and distinct, and the royalties cannot be affected by this new right.'' I hope that answers your question.
[Translation]
Mr. Leroux: Therefore, adding these words would clarify the Board's field of action. Thank you.
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[English]
Mr. Rock: The bill came out in April, and of course all parties that felt affected by proposed Bill C-32 began studying it and making notes on what their concerns and observations were. We looked at proposed section 90 and thought it needed strengthening. We did that in discussions among ourselves with our legal counsel. When we discussed it with other people, some people said we were right and other people said it looked okay. But when we saw the broadcaster's submission, we knew we were right, because they saw the same thing we saw.
If we felt it needed strengthening, they saw an opportunity. This was not clear enough, and the way was clear for them to argue their cake theory. That's why we're on good footing. From our point of view, we're certain we're on the right track.
Mr. Abbott (Kootenay East): First I would like to thank you for your presentation today and also for the time you took to meet privately with me so I could get down to some key issues.
I also want to tell you I'm in full agreement with your submission on page 20 of 39 about proposed section 66.91, where it will basically open the door for us to get into a jangle, as we are with the CRTC. I don't know if it would be political to suggest that very frequently the Liberals seem to like to make sure they maintain control of things, even though they shouldn't.
I would like to discuss the issue of dollars going to the artists under neighbouring rights and perhaps take SOCAN as a template to see where we go. If I take a look at your publication Words and Music, your statement of operations, distribution and financial position, under administrative expenses I see $16.25 million, but that is net of rental income and investment interest, so I guess your actual expense is around $19 million. Is that an accurate reflection of what your actual expenditures are on overhead?
Mr. Rock: Yes, it was exactly $19.094 million in 1995. The investment rental income is deducted and the net overhead that's applied to the licensees we get is $16 million, but our expenses last year were $19 million.
Mr. Abbott: It seems a little distressing to me that while you're only distributing $40 million to Canadian copyright holders, your expenses are $19 million. I realize you're also distributing to foreign copyright holders, but $40 million against a $19 million expense... I throw that out, and you may choose to comment on it. I don't want to leave that by itself.
Mr. Rock: Our financial statements indicate that last year we received $91 million and we had available for distribution $75 million. Over the last number of years, based on the use of music by the broadcasters and others, two-thirds of the distributions were for non-Canadian music and roughly one-third was for Canadian music.
The expenses are what they are. Whether they're high or low is for other people to comment on. SOCAN's board of directors is made up of members who have a direct stake in the distributions, so there's no spending money unnecessarily. It costs what it costs to do the job. As far as the money going out of the country, that's absolutely a function of the broadcasters and other users of music, but not SOCAN.
Mr. Abbott: Taking a look at your business as a template, though, the figures given by the record industry three weeks ago show it could form a collective for $2.2 million in start-up costs and run it for $1.5 million per year. In view of the fact that you have expenses of $19 million and they're saying they are going to be only $1.5 million a year, are their figures actually reasonable or responsible? They don't seem to be, against the template we have from the way in which SOCAN runs.
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Mr. Rock: I really have not seen that, but naturally as they start up and get off the ground their expenses would have to be at the most modest level possible when they take in the relatively modest amounts of money I understand would be available. I have no comment other than that.
Mr. Abbott: I'm just suggesting it seems to be outstanding that where your figure is$19 million or $16 million, whichever figure we choose, they're saying they could do it for $1.5 million. It seems to me we have a ten-times disparity there.
Mr. Rock: Maybe it's an utterly different business. It may be.
Mr. Abbott: That's what I would like to canvass, because I'm wondering why SOCAN couldn't administer neighbouring rights. The basis of tariff or the way in which the fees or whatever they're going to be called are going to be collected under neighbouring rights...are going to be collected using exactly the same method as is used by SOCAN. If you already have an overhead of $19 million, if we're set that neighbouring rights are going to be going ahead, why could they not simply go ahead under SOCAN and use the $19 million overhead? If the objective of the government is to get the money to the performers, wouldn't it get to the performers net of extra overhead, extra burden?
Mr. Rock: Mr. Abbott, before the tabling of Bill C-32, SOCAN and I guess many others put forward positions on various things they thought would be in Bill C-32. SOCAN had a paper called ``SOCAN's Position on Neighbouring Rights''. Many of you may have received that before the tabling of the bill in April. On the back of it, on page 2, we deal with who will administer the neighbouring right.
For the neighbouring right the stakeholders will be the performers and the producers, not SOCAN's members, who are creators, lyricists, composers, songwriters, and their publishers. In a simple world, I think the stakeholders should have the say. What we said is that we will not be the owners, nor the administrators, but we have an existing infrastructure and we would be prepared to discuss with the neighbouring right stakeholders the possibility of SOCAN providing a service.
We did meet with Minister Copps and she asked that question. She said it was the government's concern that in a country the size of Canada there's absolutely no room for any more administrative costs than can possibly be. We said we have an infrastructure in place that we would be pleased to discuss with the stakeholders and if they wish for us to make it available an arrangement would be worked out.
I think many people agree with you, Mr. Abbott, that we have to keep the costs as low as possible.
Mr. Abbott: About ephemeral exemption and transfer-of-format exemption, which the broadcasters are asking for, would you agree that if there is an extra royalty for that, in other words there is an extra payment for the fact that they will be making copies of convenience or whatever it is they're doing with that, that will simply be extra money going to the copyright holders, which in fact just flows because of a change in technology?
Mr. Rock: Mr. Abbott, I could do no more than repeat the representations that have been made to the committee in the past few weeks. On the one side there were the copyright owners - SODRAC and others. On the other side, of course, it was the broadcasters, and later this week there will be representatives of SPACQ, a Quebec-based composers' association, and the Canadian Mechanical Reproduction Rights Agency, or CMRRA. I think they are best able to speak on those issues.
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As I understood the broadcasters' concern, it's that the bill really doesn't change anything. The reproduction right was set in the act in 1924, and as I understand the proposed Bill C-32, nothing changes.
Anyway, it would be best if the authorized administrators of those rights spoke clearly on the record. After our discussion this afternoon, I think they will be able to answer your question dead-on.
The Chairman: I will remind members it's 1:25 p.m. and we've already exceeded our time. I would suggest we go another ten minutes.
Mr. Peric and Ms Phinney.
Mr. Peric (Cambridge): Thank you, Mr. Chairman. I have a few short questions.
Mr. Rock, in your executive summary you state you are a not-for-profit Canadian organization. I'm a little bit confused there. In your statement of operations, we see the revenue is $91 million, and then you have expenses, salaries, taxes and benefits at $10 million; other administrative expenses at $8 million; music promotion, which is really sad, at $800,000 or so; and then you have investments and rental income.
Could you explain to the committee what this is all about?
Mr. Rock: We are a not-for-profit in the sense that we are incorporated under part II of the Canada Corporations Act, and that is the part that deals with so-called not-for-profit organizations.
SOCAN is absolutely a not-for-profit organization. It carries out an administrative service for our members and other copyright owners around the world, who definitely want to see economic returns on the exploitations of their copyrights. That's the answer to that part.
When you get down to something like rental income, we own a building in north Toronto and we have a couple of tenants, so there is some money coming in that way.
As far as the investment income is concerned, today we are getting money in all of our offices across the country from music licensees. We distribute all the money we get in, net, after our expenses, but of course we can't do it tomorrow. The distributions are based on the use of music in radio, television and all the other areas, so it takes months to get together all the information upon which to base the distributions.
So as for the money we get in the door today, some of it goes to pay the bills at the end of this month and the rest of the money is put into interest-bearing bank accounts and earns interest awaiting its distribution. We distribute the money every quarter.
Mr. Peric: I appreciate that explanation, but I am still confused about the 20% of total revenue that, on behalf of the artist, you're spending for salaries. It seems to me SOCAN is a huge bureaucratic machine at the expense of the artist.
Today your heart is bleeding on behalf of the artist, but at the same time you are spending$10 million. Why didn't you reduce your salaries and share with the artists?
Mr. Rock: We have over 200 employees and they are paid market-level salaries.
Mr. Peric: What are market-level salaries, in your opinion? What's the bottom and what's the top?
Mr. Rock: I don't know what more I can say on that. Most people's salaries are based on the market, what it would cost to get another employee.
Reducing expenses would mean reducing some activity we do. We try to keep our expenses as low as possible. If we reduce -
Mr. Peric: I'm talking about sharing the profit. You said before that you are a not-for-profit organization. I'm still confused. Where are you getting income for investment? How did you get that building?
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Mr. Rock: The building was acquired with money that would otherwise be held on deposit, waiting -
Mr. Peric: You're sharing.
The Chairman: You've asked a question. Would you let Mr. Rock answer the question, please.
Mr. Peric: Yes, but a very short answer.
The Chairman: He has the right to answer, so give him a chance to answer.
Mr. Rock: All the money comes from licensees and other countries. The money cannot be distributed instantly. It takes months to put together the documentation. During that time the money sits in interest-bearing bank accounts. That's where the interest comes from. Some of that money was taken to acquire the building.
The Chairman: Ms Phinney.
Ms Phinney (Hamilton Mountain): I would like to ask you a question about exceptions for educational institutions. You state in your brief that it's unfair that educational institutions must pay royalties for performance of news and other programs but are not required to do so for the performance of music. Could you develop this a little? In your opinion, would there be significant royalties from the performance of music in educational institutions?
Mr. Spurgeon: I don't know the significance of the dollar amount, but let me put it this way. There is an exploitation of music in schools not unlike the way there is a usage of other goods and services that schools... It's a multimillion-dollar industry; that's what I'm saying. The education industry, I know, is having a tough time now, but they do buy goods and services and it is a multimillion-dollar industry, and copyrights are one of the things they must purchase.
I guess the proposed sections in Bill C-32 attempt to clarify these rights and obligations of educators insofar as certain copyright owners are concerned, but not for music rights. That's our point. A section is still in the act that is a very broad exception for the use...and our view is that with the existence of a collective these rights could easily be cleared. If there's a dispute over how much the licence fee should be, by the educators or the ministries of education, then there's a process called the Copyright Board that can determine the fee and set the fee that would be paid by that user. It has been in existence since 1937 and has worked well since then.
The Chairman: Mr. Rock, could you clarify something for me? It follows Mr. Abbott's question about the amount of distribution of fees. The way I saw it in your balance sheet, $67 million was distributed in 1995. Mr. Abbott talked about $40 million. In your notes at the back I see that for 1995 you talked about television distributing about $25 million, then radio another $25 million. Then there was a distribution of royalties from affiliated societies. Could you just mention how much is actually distributed by SOCAN, taking 1995 as a typical year? Is it $40 million, as Mr. Abbott suggested, or is it $67 million or $75 million? Just clarify it, because it doesn't seem to be too clear.
Mr. Rock: What I'm looking at now is our statements of our operations. Last year we distributed $67,174,000.
Two different timing periods are covered by our financial statements. In 1995 we got in$91 million, our overhead was $16 million, and we had $75 million available to distribute. We distributed $67 million. The temporarily undistributed then increased by the difference, the$8 million. That has all gone out. Money is going out every quarter.
Mr. Abbott: What I was referring to was that only $40 million of the $91 million ended up being distributed directly to Canadian artists. I was just drawing that point.
The Chairman: Oh, Canadian artists. I see what you mean.
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Thank you very much, Mr. Henderson and all the representatives from SOCAN. We really appreciate your appearance here today. It really clarified a lot of things for us. Thank you.
Just before you leave, could members give me two minutes, please? Tonight, we have a round table consisting of three organizations: the educational media producers,
[Translation]
the Front des créateurs pour la défense du droit d'auteur and the Association nationale des éditeurs de livres.
[English]
At the start, there were five organizations. Two have been shifted for various reasons, in accordance with the agreement of the committee. We have received a request from the Playwrights' Union of Canada to join in this round table.
[Translation]
They do not have a brief.
[English]
They never sent a brief. At the same time, we have space on this round table and they are really an important component. What I would suggest is that, if you agree, we check with the three organizations involved to find out whether they have objections or not. If they don't, then we would ask them in. If they do, then obviously we won't. The choice is yours.
Mr. Bélanger (Ottawa - Vanier): Mr. Chairman, I have objections. Out of respect for the 160 who did send in a brief and of the 140 or so that asked, and of the 60 or so that we turned down, I don't think we should accept at this late date from those who didn't even send in a brief.
Ms Phinney: Are they in Ottawa?
The Chairman: They are in Toronto.
Ms Phinney: How are they going to get here by tonight?
The Chairman: I don't know.
A voice: They can send in a brief if they wish.
Mr. Peric: I agree with Mr. Bélanger. It's not fair to others. It's absolutely not fair to others.
The Chairman: Fair enough. Thank you. The matter is closed.
The meeting is adjourned.