October 22, By

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1 October 22, 2001 Comments Government of Canada Copyright Reform c/o Intellectual Property Policy Directorate Industry Canada 235 Queen Street 5 th Floor West Ottawa, ON K1A 0H5 By copyright-droitdauteur@ic.gc.ca The Media Content Coalition is pleased to provide the attached reply comments with respect to the Government of Canada s Consultation Paper on the Application of the Copyright Act s Compulsory Retransmission Licence to the Internet. The Media Content Coalition is comprised of the Canadian Association of Broadcasters, the Canadian Film and Television Production Association, the Canadian Motion Picture Distributors Association, the Canadian Broadcast Rights Agency, and the Copyright Collective of Canada. Sincerely, Michael McCabe, President and CEO Canadian Association of Broadcasters Elizabeth McDonald, President and CEO Canadian Film and Television Production Association The Hon. Douglas C. Frith, President The Canadian Motion Picture Distributors Association, Copyright Collective of Canada Encl.

2 CONSULTATION PAPER on the APPLICATION of the COPYRIGHT ACT S COMPULSORY RETRANSMISSION LICENCE TO THE INTERNET A reply submission to: Department of Canadian Heritage Industry Canada Prepared by: The Media Content Coalition The Canadian Association of Broadcasters The Canadian Film and Television Production Association The Canadian Motion Picture Distributors Association The Canadian Broadcasters Rights Agency The Copyright Collective of Canada October 22, 2001

3 TABLE OF CONTENTS Paragraph No. EXECUTIVE SUMMARY DETAILED SUBMISSIONS Introduction 1 Urgency 4 Technological Neutrality is Not an Appropriate Principle for the Compulsory Retransmission Licence 9 The Internet is Insecure and Should Not be Eligible for the Licence 16 (a) Adequate Foreign Remedies Are Not Available 16 (b) Technological Constraints Are Inadequate to Prevent Unauthorized 19 Reception of Internet Retransmissions The Internet Differs Materially from Conventional Retransmission Technology 28 Internet Retransmission Would Not Provide Any Significant Public Benefit 34 (a) Internet Retransmitters Would Not Contribute to the Canadian Broadcasting 34 System (b) Internet Retransmitters Would Endanger the Canadian Broadcasting System 40 (c) When Internet Transmission is Acceptable, Internet Retransmission Will Not 42 Be Necessary Relevance of the New Media Exemption Order 45 Reception Restriction Technology 51 (a) Standards 51 (b) Monitoring 57 (c) Remedies 60 Eligible Retransmitters Should Be Restricted to a Subscription Model 65 Eligible Retransmitters Should Be Restricted With Respect to Advertising 67 (a) Control of Advertising by Retransmitters Should Not Be Left to the CRTC 71 (b) Advertiser-Based Retransmitters May Not Be Able To Pay Fair Royalties 76 Simultaneously and Without Alteration 80 Conclusion 81

4 These are the reply comments of the Media Content Coalition (the MCC) in response to Submissions with respect to the Consultation Paper on the Application of the Copyright Act s Compulsory Retransmission Licence to the Internet (the Consultation Paper) published by the Departments of Canadian Heritage and Industry (the Departments) on June 22, EXECUTIVE SUMMARY 1. Although Jump has withdrawn its application to the Board, the issue remains urgent. Another Internet retransmitter could commence operations at any time (as Jump has indicated it might) under the existing Tariff. If not now, when? 2. The real principle behind technological neutrality is legislative stability and the attempt at technological neutrality in the current Licence provisions has proven to be unstable. A Regulation defining "retransmitter" for the purpose of section 31 would allow for a technologically neutral Act and promote legislative stability while providing all necessary flexibility as unforeseen technological developments occur. 3. CCTA's main concern is that the Licence should not exclude the use of Internet Protocol technology on a closed, secure network. MCC agrees with this in principle and proposes that a new Regulation defining "retransmitter" be drafted so as to permit the uses outlined in CCTA s Submission. In particular, such a regulation should provide that for a retransmitter to qualify for the Licence, the retransmission of the local or distant signals must take place entirely over a closed user system, as defined in the regulations. Such a system would not include, for example, the World Wide Web. 4. While all conventional retransmission technologies are vulnerable to circumvention of the technology intended to restrict their reception to subscribers in Canada, no technology should be eligible for the Licence if it is likely to "spill-over," i.e. if it is likely to result in any unintended reception without any attempt at circumvention. 5. Unauthorized reception, particularly reception outside Canada, is a Canadian issue and not a matter "for countries where such spill-over is received to address as they see fit." To qualify for the Licence, the retransmitter must take reasonable border and technological controls (as defined further in the regulations) to restrict the reception of local or distant signals to subscribers located in Canada. 6. Technologies, such as the Internet, which are subject to spill-over and circumvention, should not be eligible for the Licence. Eligible retransmitters should be those whose restrictive technologies have been voluntarily and broadly accepted by rights holders, as evidenced by their having licensed a body of works comparable to those licensed to over-the-air broadcasters to other programming undertakings that are delivered by such technologies. 7. The Internet is the first new retransmission technology since the Licence was created. It was not foreseen when the provisions of the Licence were drafted, and has attributes which make it inappropriate as a technology eligible for the privileges of the Licence.

5 8. Eligible technologies should be restricted to those that are truly competitive with conventional technologies and contribute (largely through regulation) to the Canadian broadcasting system. The Internet does not. 9. When rights holders accept the Internet as a distribution technology, intermediate distribution undertakings will not be necessary for Internet delivery. 10. The New Media Exemption Order is an experiment in relief from regulation of broadcasting undertakings who use the Internet as a delivery method. It cannot be rationally interpreted as a reason why Internet delivery should get the benefits of regulation under s. 31 of the Copyright Act. 11. The New Media Exemption Order is an indication that the requirement that retransmissions must be "lawful under the Broadcasting Act" is insufficient when broadcasting policy objectives differ from those of copyright policy. 12. The CRTC's goals for new media were focussed on the delivery of new media content produced expressly for the Internet, and delivered by (or with the consent of) the owner of that content. The CRTC s process did not specifically address unauthorized Internet retransmission of broadcast signals. 13. If MCC s proposals are adopted with respect to a new Regulation defining retransmitters," advertising restrictions and requiring all eligible retransmitters to take reasonable border and technological controls, as defined further in the regulations, to restrict the reception of local and distant signals to subscribers located in Canada, MCC will not insist on specific statutory provisions with respect to standards for reception restriction technology, monitoring requirements, or provisions with respect to unauthorized retransmission by recipients. Otherwise, MCC submits that such provisions are necessary and that the standard should be that which would be acceptable to copyright owners in a negotiated licence. 14. Any breach of any condition required by the Licence results in all subsequent retransmissions being an infringement of the works that are retransmitted. All remedies for infringement should be available. 15. It should be a condition of the Licence, expressed in regulations defining the term retransmitter, that eligible retransmitters must take reasonable border and technological controls to restrict the reception of local or distant signals to subscribers located in Canada. 16. MCC supports the amendments to the Departments proposal with respect to limitations on advertising, as recommended by the Bell Group. In particular, MCC urges that one of the requirements for an eligible retransmitter be that the retransmitter may not insert or cause to be inserted advertising, as defined in the regulations, in or around the retransmitted signal. 17. Retransmitters should be required to retransmit each signal simultaneously and in its entirety and without alteration," rather than simultaneously and in its entirety.

6 DETAILED SUBMISSIONS 1. These comments refer to the Submissions of the following organizations: Bell Canada (including Bell Sympatico Internet service provider) and Bell Globemedia Inc. (including CTV Inc. and Sympatico-Lycos Inc.) on behalf of Aliant Inc., Bell ExpressVu LP, Northwestel Inc. and Télébec ltée (the Bell Group ) Canadian Association of Internet Providers ( CAIP ) Canadian Cable Television Association ( CCTA ) Directors Guild of Canada and Directors Rights Collective of Canada ( DGC ) Intellectual Property Institute of Canada - Technical Group ( IPIC ) JumpTV.com Canada Inc. ( Jump ) National Association of Broadcasters ( NAB ) 2. The MCC is a coalition of a broad group of stakeholders: private Canadian broadcasters, Canadian producers and multi-national program suppliers. MCC is pleased to see the diversity of the additional organizations that support many of our Submissions, and is optimistic that an outcome that is consistent with sound copyright policy, and acceptable to most of those directly concerned, can be attained. 3. The term Internet, as used in this Reply Submission (and in MCC s original Submission) means an open network of the type characterized by CCTA as the Web. Urgency 4. Jump (at page 1 of its Submission) and CCTA (at paragraphs 4, 6 and 7 of its Submission) objected to legislation relating to the compulsory retransmission licence (the Licence ) while the issue of the eligibility of Internet retransmitters was before the Copyright Board. Subsequently Jump has withdrawn its application to the Board. 5. The parties directly concerned with Internet retransmission (including rights holders and their retransmission collectives) have spent a great deal of time and money dealing with icravetv's activities and Jump's application. Who's next? 6. We are now in the same situation as when the MCC first came to the Departments in the spring of Another Internet retransmitter could commence operations at any time (as Jump has indicated it might) under the existing Tariff. 7. Although Jump has withdrawn its application to the Copyright Board, it has also suggested that it may commence operations at any time under the existing Television Retransmission Tariff using a subscription model. MCC therefore replies in some detail to Jump's original Submissions. 8. MCC submits that now is the time to deal with the statutory provision of the Licence, rather than waiting for urgency to become emergency again. If not now, when?

7 Technological Neutrality Is Not an Appropriate Principle for the Compulsory Retransmission Licence 9. Jump, CAIP, the Bell Group and CCTA say in their Submissions that the retransmission regime should remain technologically neutral. MCC replies that the real principle underlying technological neutrality is legislative stability. To the extent that the Licence, as written, attempts technological neutrality, this process (which began with informal submissions more than a year and a half ago), the litigation involving icravetv and Jump s application to the Copyright Board demonstrate that this attempt has resulted in legislative uncertainty and instability. 10. CCTA's Submission indicates that their chief concern is that the Licence should not exclude the use of Internet Protocol technology on a closed, secure network. MCC agrees with this in principle and proposes a Regulation defining "retransmitter", so as to permit the uses outlined in CCTA s Submission at paragraphs 28 to CCTA (at paragraph 18 of its Submission) quotes the 1995 IHAC Report, which said, The government should pursue technologically neutral policies, i.e., it should not be selecting the technologies to be used for future service delivery of the Information Highway. MCC agrees that the government should not be selecting the technologies to be used for future service delivery," but submits that IHAC was not saying that all technologies should necessarily have the benefit of a compulsory licence intended to benefit regulated, secure retransmission systems without first scrutinizing their impact on copyright owners and evaluating their benefits and risks. 12. CCTA (at paragraph 20 of its Submission) quotes the 1997 IHAC Report: there is a continuing need for government and the CRTC to adapt their policy and regulatory regimes to the rapid pace of technological change. In an age of headlong technological transformation, it is critical that market forces determine what technology is appropriate for the provision of a particular service. [Emphasis added.] 13. MCC agrees with IHAC that market forces should determine what technology is appropriate for the provision of a particular service. However, MCC submits that only when rights holders retain their right of authorization do market forces have this effect. A compulsory licence distorts market forces, by allowing unauthorized use. 14. Jump says (at page 3 of its Submission) that a technology specific exemption would "complicate the administration of the Licence and the development of new business opportunities in the future." MCC has not proposed a technologically specific exemption, but rather a new Regulation, which would address this issue. 15. We agree with CCTA (paragraph 23 of its Submission): To the extent that these new technologies can be used in a manner that does not erode the principles that underlie Canada s existing retransmission regime, then the Copyright Act should not be amended in any way that would create barriers to innovation. We believe that our proposals have that effect. In particular, we propose that a regulation should provide that for a retransmitter to qualify for the Licence, the retransmission of the local or distant signals must take place entirely over a closed user system, as defined in the regulations. Such a system would not include, for example, the World Wide Web.

8 The Internet Is Insecure and Should Not Be Eligible For the Licence (a) Adequate Foreign Remedies Are Not Available 16. Jump stresses (at pages 4 and 5 of its Submission) that all conventional retransmission technologies have some spill-over, which is "clearly a matter for countries where such spill-over is received to address as they see fit," and not appropriate for Canadian legislation. 17. Jump takes this position notwithstanding the clearly-enunciated statement to the contrary in the Discussion Paper, at section 3.2, with which the MCC agrees: Although it has been argued that recourse to foreign law ought to be the solution for rights holders concerned with the preservation of their territory-specific business models," the departments believe this could be an inequitable consequence of a compulsory licensing regime. 18. Remedies in foreign jurisdictions will not be available when there are insurmountable jurisdictional obstacles to the ability to either bring an action in a foreign jurisdiction or to enforce foreign judgments in Canada (or elsewhere). In any event, as copyright is a matter of domestic law, there may also be difficulties with respect to determining where the infringement occurred and whether appropriate causes of action and remedies are available in the foreign jurisdiction in the first place. (b) Technological Controls Are Inadequate to Prevent Unauthorized Reception of Internet Retransmissions 19. Jump admits (at page 5 of its Submission) that adequate technological controls do not exist with respect to the Internet, but predicts that they will eventually : Moreover, there exist Internet-based border-limiting and origin-detecting technologies being developed that will adequately protect against potential spill-over." These will eventually be able to control the retransmission of signals and maintain them within the jurisdiction where they are licensed. [Emphasis added.] 20. MCC replies by directing the Departments to the NAB s Submissions at Section IV Claims That Technological Means Can Effectively Limit Internet Retransmission Of Broadcast Signals To Subscribers Truly Residing Within Canada Are Unfounded." 21. MCC is in complete agreement with the NAB s conclusion that if over-the-air programming is transmitted over the Internet, it will not be possible to confine the signal within Canadian borders. In particular, MCC has closely reviewed the analysis of Mr. Benjamin Edelman, an expert in web server administration retained by the NAB to identify and describe the limitations and challenges to a system purporting to restrict access to Internet retransmissions of broadcast signals to end users located within Canada. Mr. Edelman s study confirms MCC s understanding of the impossibility of containing retransmissions within Canada. The study only underscores our concerns about the porous nature of the Internet as a retransmission vehicle, which makes signal leakage inevitable. 22. MCC also agrees with the NAB (at Section V of its Submission) that a compulsory licence that allows parties outside Canada to receive U.S. signals would violate international law. Like the NAB, MCC is concerned that without a means to guarantee geographic signal containment, Canada would put itself in contravention of

9 the Berne Convention, which requires member countries to impose territorial limitations on retransmissions that are carried out under a compulsory licence. 23. Jump says (at page 6 of its Submission) that all retransmission technologies are subject to spill-over and that "piracy risks are associated with retransmission regardless of the technology employed." 24. MCC replies that it is important to distinguish between (a) what Jump calls spillover (and MCC calls leakage ), i.e. the accidental unintended reception of retransmitted signals without any tampering with measures intended to restrict reception, and (b) piracy risks, i.e. reception that is unintended by the retransmitter and which only results from the deliberate circumvention of restrictive measures. MCC submits that the Internet is the only retransmission technology that is subject to spill-over," and that no such technology should be eligible for the Licence. The current level of security provided by cable BDUs, by contrast, provides reasonable border and technological control. 25. With respect to piracy risks, MCC replies that technologies used by all BDUs have been evaluated and accepted by rights holders, as demonstrated by the fact that they have licensed their works to pay and specialty signals, which are not subject to the compulsory licence, and which are delivered only by the same technologies used for retransmission. There has been no comprehensive voluntary licensing to permit these signals, or the cinematographic works licensed to them, to be delivered by the Internet. 26. New distribution technology provides attractive commercial opportunities to rights holders, together with new risks of leakage and piracy. Absent a compulsory licence, rights holders are able to evaluate a licensee s technology (both as to quality and security), financial stability, business reputation, marketing ability, etc. If both parties are willing to enter into a licence, they negotiate mutually acceptable terms and conditions (including the consequences of a breach), in addition to those that relate to payment. 27. A compulsory licence takes away the rights holder s ability to assess and negotiate. Therefore, when a government decides to make a right subject to a compulsory licence, equity requires that government to assume obligations on behalf of the rights holders affected. The first of those obligations is to evaluate the class of potential users, excluding those that rights holders themselves do not license. The second of those obligations, after eligible users have been identified, is to draft appropriate terms and conditions that are comparable to those that a rights holder would insist on in a negotiated licence. The Internet Differs Materially from Conventional Retransmission Technology 28. Jump says at pages 5 and 6 of its Submission that applying the compulsory licence to Internet retransmitters would no more be an extension of the Licence than its application to DTH and multipoint wireless systems was. MCC replies that both DTH and multipoint wireless systems were contemplated when the retransmission regime was created. The first Television Retransmission Tariff for 1990 and 1991 contained the following definitions in section 2.

10 "retransmitter" has the meaning attributed to it in section of the Copyright Act, R.S., 1985, c-42, as enacted by S.C., 1988, c. 65, s. 63, and includes a cable system (including a master antenna system), an LPTV and a direct-to-home satellite system; [Emphasis added.] "LPTV" means a Low Power Television Station or a Very Low Power Television Station (as defined in sections E and G of Part IV of the Broadcast Procedures and Rules of the Department of Communications effective February, 1989), and includes a multipoint distribution system; [Emphasis added.] 29. MCC submits that Internet technology is the first new retransmission technology since the Licence was created, that the Internet was not foreseen when the provisions of the Licence were drafted, and that the Internet has attributes which make it inappropriate as a technology eligible for the privileges of the Licence. 30. Jump addresses the point that the Licence was intended to benefit BDUs who (unlike Internet retransmitters) make significant and socially beneficial investments in infrastructure, by saying (at page 8 of its Submission), "cable companies have more than recouped their investments in infrastructure." MCC replies that it is obvious that conventional BDUs continue to invest in infrastructure. In any event, whether specific investments are recouped is irrelevant; the point is that they were made and the necessary capital was put at risk in the first place. 31. Jump also asserts (at pages 7 and 8 of its Submission) that Internet retransmission requires "a similar substantial investment in infrastructure as do other retransmission technologies," but gives no support for this other than that "JumpTV must lease its lines from telecommunication service providers." 32. MCC agrees with the DGC s remarks in Section VII of its Submission: The Departments note that the leasing of broadband Internet capacity necessary to operate an Internet-based retransmission undertaking over a shared network may initially be undertaken on a modest scale. But what if, rather than one or two corporate Internet retransmitters or various ISPs taking over the field, a plethora of unregulated small operators sprouts up? As the technology becomes more and more accessible, the existing (relatively minor) barriers to entry may fall and make this possible. If small, unregulated retransmitters proliferate, how will the Copyright Board conduct retransmission tariff hearings? How will distant signal royalties be collected? How will compliance with the terms of the Licence be monitored? 33. MCC also supports the NAB s Submission that consensual transmissions of radio broadcast signals are not comparable to non-consensual retransmissions of television broadcast signals, and are not a justification for them (Section VI of NAB Submission). MCC similarly supports the NAB s Submission that signal leakage by existing BDUs is not comparable to Internet-based retransmissions, and is not a justification for them (Section VIII of NAB Submission).

11 Internet Retransmission Would Not Provide Any Significant Public Benefit (a) Internet Retransmitters Would Not Contribute to the Canadian Broadcasting System 34. Jump states (at page 7 of its Submission) that Internet retransmission is desirable (as a matter of broadcast policy) because it will facilitate "country wide access to over-theair signals." As stated in MCC's original Submission, the various conventional BDUs already provide access to over-the-air signals to all Canadian households. Furthermore, unlike Internet retransmitters, BDUs also provide: (a) specialty and pay-tv services; (b) substantial financial contributions to Canadian programming production; (c) enhanced reception quality; (d) subsidiary signals; and (e) a preponderance of Canadian signals. 35. Internet retransmitters, being unregulated, would have no obligation to retransmit Canadian signals at all. 36. At page 8 of its Submission, Jump states that a technologically specific restriction would inhibit the Canadian broadcasting distribution system from employing the most effective technologies available and will have a decisive impact on the viability of all future retransmission technologies in Canada. 37. In 1964 and 1965 CESM-TV Ltd. used "the most effective technology available" to provide programming on Winnipeg television stations to its subscribers in Thompson. CESM made videotapes of television signals received over-the-air in Winnipeg, took them to Thompson, Manitoba and "retransmitted" them to its subscribers. CESM s retransmission method was "the most effective technology available" (given that it was relatively affordable and that CESM was unable or unwilling to use more expensive conventional cable technology) and was used "with the approval or concurrence of the Board of Broadcast Governors, the governmental body responsible for the regulations of broadcasting at that time." 1 Nevertheless CESM s activity was found to be an infringement of the plaintiffs' copyrights, without any apparent impact on the viability of all future retransmission technologies in Canada. 38. MCC submits that no one (with the possible exception of Jump) believes that the viability of the Internet depends on a compulsory licence for Internet retransmission. All technology that can be used for retransmission has other applications. The merits of those other applications, in the opinion of consumers and owners of the content they deliver, are what determine that technology's viability. 39. At page 8 of its Submission, Jump says, "[G]iving Canadians the option of a fourth retransmission technology can only have positive effects by increasing potential access to and the vibrancy of the Canadian broadcasting system." [Emphasis added.] In reply, MCC submits that potential access to the Canadian broadcasting system cannot be increased, as 100% of Canadian households have access through conventional BDUs. Furthermore most of the effects would not be positive. The 1 Warner Bros.-Seven Arts Inc. et al. v. CESM-TV Ltd., (1971) 65 CPR 215 (Ex Ct).

12 vibrancy of the Canadian broadcasting system could not possibly be enhanced by an activity that would threaten the viability of over-the-air broadcasting. (b) Internet Retransmitters Would Endanger the Canadian Broadcasting System 40. In this regard, just as the NAB has demonstrated in its Submission that allowing third party Internet services to retransmit U.S. television station signals over the Internet could cause incalculable harm to those stations, MCC replies that such harm would be equally felt in Canada. The basic economics underlying this situation is the same in Canada as it is in the U.S.: the success of both broadcasting systems in providing communities with access to free local, over-the-air television is based on local programming exclusivity. 41. As the NAB has shown through the work of Dr. Mark Fratrik, [I]f local viewers are able to watch network and syndicated programs on distant signals over the Internet, the value of local stations being the exclusive provider of that programming in their market will be lost" (NAB Submission at Section III). Local program exclusivity is crucial to the viability of both the U.S. and the Canadian broadcasting systems. Allowing this exclusivity to be undermined by extending the compulsory licence to Internet-based retransmitters, as the NAB has explained in detail in its Submission, would be devastating to the territorial program protection regimes that both Canada and the U.S. have established as the cornerstone of each country's system of free over-the-air broadcasting. (c) When Internet Transmission Is Acceptable, Internet Retransmission Will Not Be Necessary 42. Jump states, without reservation (at pages 4 and 9 of its Submission), that the Internet will eventually become the sole means of distribution of television. Jump's assertion is reminiscent of predictions that television broadcasting would replace movie theatres and radio, that VCRs would replace television broadcasting, and that electronic on-demand delivery will replace videocassettes and DVDs. History indicates that new distribution technologies tend to find their own niche in a way that is complementary to those previously established. 43. MCC agrees with the statement of the DGC in Section IV of its Submission under the heading Disintermediation : Should a reasonably reliable technology for re-establishing borders on the Internet become available, that technology would remove an impediment to direct Internet licensing by rights owners, enabling broadcasters to transmit to the Internet without the intervention of a retransmitter. Thus, the very technology border control - that Internet retransmitters are relying on to facilitate their operations and to qualify for the Licence, would tend to eliminate the need for their existence. Border controls on the Internet would facilitate the licensing of existing broadcasters to make authorized Internet transmissions directly. 44. Jump warns (at page 10 of its Submission) that when the Internet becomes the sole means of distribution of television, if it is not eligible under the compulsory licence the result will be "the extinction of the entire retransmission regime in Canada." MCC replies that for Jump s prediction to come true, rights holders would first have determined that the Internet (as configured and made secure at that future date) was not just an acceptable delivery technology, but also the best delivery technology. In

13 that case, broadcasters would be able to stream their signals directly, having obtained all necessary rights, and intermediaries such as "retransmitters" would not be necessary. Relevance of the New Media Exemption Order 45. The fact that the CRTC has exempted new media broadcasting from regulation, for reasons related to broadcasting policy, cannot be taken as evidence that it is good copyright policy to allow Internet retransmitters to benefit from the Licence. MCC agrees with the following comments from Section V of the DGC s Submission: The CRTC New Media Report, in its study of the impact of new media on conventional broadcasting and telecommunications, concluded, To impose licensing on new media would not contribute in any way to its development or to the benefits that it has brought to Canadian users, consumers and businesses. 2 In that forum, it was recognized that to interfere through the imposition of compulsory licensing on the developing marketplace for Internet delivery and new media would not benefit Canadians. Yet, armed with this freedom from broadcast regulation, Internet retransmitters seek to shelter from market forces by resort to compulsory licensing of copyrights in that very market. This is a classic case of sucking and blowing. The wonder is that commentators, who support Internet retransmitters as free market innovators," have failed to see the contradiction. They miss the perverse fact that the compulsory retransmission licence is regulation, for the purposes of the Copyright Act. [Emphasis added.] 46. Proponents of Internet retransmission want the benefits of exemption from the CRTC s regulatory scheme plus the benefits of inclusion in the retransmission regulatory regime, but no rational argument can be made in support of this position. 47. The New Media Exemption Order is, however, an indication that the requirement that retransmissions must be "lawful under the Broadcasting Act" is insufficient when broadcasting policy objectives differ from those of copyright policy. In this regard, MCC concurs with the Submission of the Bell Group in Part IV of its Submission entitled Moving Away From Reliance on the Broadcasting Act. 48. Specifically, MCC agrees with the remarks in the Bell Group's Submission (at paragraph 30) with respect to the significance of the CRTC's New Media Exemption Order: The CRTC s decision to exempt Internet-based broadcasters has made it clear that it is no longer sufficient to make reference to the legality of the retransmission pursuant to the Broadcasting Act in order to restrict the scope of the Licence. The government can no longer rely on indirect definitions that are subject to change for policy reasons, other than those related to the Copyright Act. Section 31 of the Copyright Act should specifically define who is a retransmitter and what is a retransmission. 49. We also agree with the related comments of the IPIC/CBA Technical Group at paragraph 4 of its Submission: 2 CRTC Report on New Media, infra at Note 8, at page 11, paragraph 49

14 We think it is desirable that to the greatest extent practical copyright issues be dealt with in the Copyright Act in a manner that they cannot be adversely affected by changes to the Broadcasting Act. We recognize that in formulating copyright policy the Government s policy in respect to broadcasting has to be taken fully into account. Broadcasting and copyright give rise, however, to different problems, which affect different constituencies. In our experience, unless this approach is taken, issues are likely to be considered principally from one perspective (the present problem with the Internet is a good example). We recognize that certain references to the Broadcasting Act continue to be desirable (e.g. the compulsory licence regime should not apply to a cable operator who is operating without an otherwise required licence). 50. Jump takes the position (at page 7 of its Submission) that unless Internet retransmissions are included in the Licence, the goals of the CRTC, as set out in the New Media Exemption Order will be "under attack" and effectively suppressed. MCC disagrees. The CRTC's goals for new media were focussed on the delivery of new media content produced expressly for the Internet, and delivered by (or with the consent of) the owner of that content. The CRTC s process did not specifically address unauthorized Internet retransmission of broadcast signals. Reception Restriction Technology (a) Standards 51. Insofar as reasonable standards for territorial restrictions are concerned, copyright owners have voluntarily accepted the risks inherent in conventional BDU technology, as indicated by the fact that works are licensed to pay and specialty signals that are only distributed by means of such technology. There is no such confidence in the Internet, for good reason. 52. If MCC s proposed Regulation defining "retransmitter", restricting advertising and requiring that all eligible retransmitters take reasonable border and technological controls, as defined further in the regulations, to restrict the reception of local and distant signals to subscribers located in Canada, is adopted, MCC will not insist on specific statutory provisions with respect to standards for reception restriction technology. Otherwise, MCC submits that such provisions are necessary and that the standard should be that which would be acceptable to copyright owners in a negotiated licence, as evidenced by their voluntary licensing of their works, on a significant commercial scale, to signals that are not subject to the Licence. 53. Jump asserts (at page 11 of its Submission) that standards and other provisions relating to reception restriction technology should be imposed on all retransmitters. Jump is opposed to the unwarranted competitive advantage that would result from a [sic] legislation that would require significant capital expenditures from some industry players while exempting others (e.g. DTH satellite sand [sic] multipoint wireless systems, which raise spill-over concerns). However, at pages 7 and 8 of its Submission, Jump says that if Internet retransmission does not require expenditure on infrastructure comparable to that required for other retransmission technologies (which Jump denies) new retransmission technologies should not be restricted from competing on those grounds alone. These two statements appear to MCC to be contradictory. Jump appears to endorse disparities in capital expenditure only when it suits its own interests. Furthermore, Jump does not address the gross differences in the levels of security possible between the Internet and conventional BDUs.

15 54. Furthermore, Jump says, at page 11 of its Submission, an unintentional foreign reception of a retransmitted signal, where reasonable preventive measures have been put in place, should not result in the violation of any territorial restrictions. 55. Jump is willing to accept technological restrictions as long as the use of whatever technology is available satisfies those restrictions. 56. MCC assumes Quova s GeoPoint 2.0 technology meets the standards proposed by Jump, as that is the technology that Jump has indicated it would use. MCC submits that this technology, and all technology developed to control reception of the Internet, is inadequate. In support of this submission MCC directs the Departments to the NAB s Submission, which elaborates on the sheer ineffectiveness of technological means to limit Internet retransmission of broadcast signals to subscribers truly residing in Canada (Section IV and Appendix B of the NAB s Submission). In particular, MCC is in firm agreement with the NAB that a qualified territorial restriction cannot remedy the flaws in a compulsory licence, and that effective corrective action is unworkable and patently unfair to rightsholders. (b) Monitoring 57. Jump has submitted, at page 11 of its Submission, that monitoring the effectiveness of reception restriction technology should not be an obligation imposed on any retransmitters. 58. CCTA, at paragraph 46 of its Submission, argues that cable should be exempt from any monitoring obligation. 59. If MCC s proposed Regulation defining "retransmitter", restricting advertising and requiring that all eligible retransmitters take reasonable border and technological controls, as defined further in the regulations, to restrict the reception of local and distant signals to subscribers located in Canada is adopted, MCC will not insist on specific statutory provisions with respect to monitoring of reception restriction technology. Otherwise, MCC submits that the maintenance of effective monitoring technology, and the obligation to report the results of such monitoring, should be part of a legislated requirement to maintain effective reception restriction technology. (c) Remedies 60. At page 12 of its Submission Jump proposes that if a retransmitter s reception restriction technology is found to be willfully, recklessly or negligently inadequate, its eligibility should be probationary for an unspecified period, followed by the loss of Licence benefits, following which rights holders would finally be in a position to seek remedies if retransmission continued. Jump s proposed remedy would only apply where the technology was unreasonable (but not necessarily merely ineffective) or the retransmitter intended for the reception to occur. MCC replies that this is entirely inadequate. 61. CCTA states (at paragraph 62 of its Submission) that injunctive relief is the only remedy that should be available in Canada for a breach of reception restriction provisions. In reply, MCC repeats that any breach of any condition required by the

16 Licence results in all subsequent retransmissions being an infringement of the works that are retransmitted. All remedies for infringement should continue to be available. 62. MCC directs the Departments to paragraph 63 of the Bell Group s Submission: In a cable, Multipoint Distribution System or DTH subscription-based operation, the services provided by the retransmitter (the BDU operator in Broadcasting Act terminology) are intended for the use of the subscriber and not for subsequent retransmission to non-subscribers. If a subscriber were engaged in retransmission, one would expect the operator, irrespective of any possible obligations pursuant to the Licence, to disconnect the subscriber. The retransmitter should be obliged to effect such disconnections to ensure continued access to the Licence. 63. MCC also supports the position of the DGC, as stated in Section XII of its Submission under the heading Unauthorized Retransmission by Authorized Users : Our position is that we do not think it appropriate at this time that Internet-based retransmitters be given the benefit of the Licence. The possibility of unauthorized retransmission of signals outside Canada by persons authorized within Canada to receive them demonstrates the extreme difficulty of adequately protecting the interests of rightsholders in signals retransmitted over the Internet. The problem admits of no satisfactory regulatory solution that we can see at this time. Examination of these difficulties fuels our argument in favour of Internet exclusion. 64. If MCC s proposed Regulation defining "retransmitter", restricting advertising and requiring that all retransmitters take reasonable border and technological controls, as defined further in the regulations, to restrict the reception of local and distant signals to subscribers located in Canada is adopted, MCC will not insist on specific statutory provisions with respect to unauthorized retransmission by recipients. Otherwise, MCC submits that retransmitters should be required to discontinue service to recipients (authorized or not) who are using that service to retransmit. If that requires shutting down the entire retransmission service, MCC repeats that such a result is appropriate given that conventional BDUs use technology that allows termination of only the offending subscriber, therefore there is no risk of denying Canadian households access to broadcasting services. Furthermore, MCC repeats that it is inconsistent with sound policy to encourage the use of retransmission technology that cannot protect the programming that makes the broadcasting system s service essential to the maintenance and enhancement of national identity and cultural sovereignty. Eligible Retransmitters Should Be Restricted to a Subscription Model 65. In footnote 11 of its Submission, Jump concedes that it is true that Internet retransmitters might not use technology restricting their reception to authorized recipients, but says, there is likewise no guarantee that DTH satellite BDUs will avail themselves of proper encryption technology. MCC replies that DTH operators have an incentive to restrict their reception to subscribers because their revenue comes from subscription payments. Such incentives would not apply to retransmitters whose revenue comes from advertising. Rather, their commercial interests would be an incentive to make their service as broadly receivable as possible. 66. MCC submits that "retransmitter" should be defined by Regulation as one that restricts the reception of local and distant signals to subscribers located in Canada.

17 Eligible Retransmitters Should Be Restricted With Respect To Advertising 67. Jump says (at page 12 of its Submission), the market is the best judge, and is the best placed to decide which, if any advertising, it wishes to take note of. It appears, from the context in which it is used, that by market Jump means consumers, i.e. viewers. MCC agrees with this statement, and therefore supports (subject to our comments in the next paragraph) the proposal set out in the Discussion Paper, which would restrict advertising made available by retransmitters, including leaving it to viewers to decide whether they wish to see advertisements made available by retransmitters. 68. MCC supports the amendments to the Departments proposal with respect to limitations on advertising, as recommended by the Bell Group at paragraph 49 of its Submission. MCC submits that such a limitation adequately addresses all of the legitimate concerns of retransmitters, as set out in the Discussion Paper and in CCTA s Submission. 69. In further reply, MCC also endorses Section XII of the NAB Submissions Banner Advertising Should Not Be Permitted In Any Event and paragraphs of the Bell Group Submission. In particular, MCC urges that one of the requirements for an eligible retransmitter be that the retransmitter may not insert or cause to be inserted advertising, as defined in the regulations, in or around the retransmitted signal. This condition would not preclude the delivery of advanced interactive features, including delivery of Internet to a TV screen simultaneously with a retransmitted signal, delivery of an interactive programming guide, or delivery of interactive programming features where the interactive features are initiated by the subscriber and not by the transmitter. 70. MCC does not disagree with Jump s assertion (at page 12 of its Submission): banner ads are an integral part of the new media and MCC is not opposed to the use of banner ads on Internet web sites that distribute content authorized by its owners. We do submit, however, that banner advertising offered as part of a retransmission service is not an integral part of the new media. (a) Control of Advertising by Retransmitters Should Not Be Left to the CRTC 71. At paragraphs 48 to 53 of its Submission, CCTA recognizes the concerns caused by the sale of advertising by eligible retransmitters, but proposes that the solution is to leave the issue to the CRTC, rather than to address it through an amendment to the Copyright Act. 72. MCC agrees that the CRTC has jurisdiction to address this issue. However, MCC replies that it is not appropriate to rely on the CRTC to address copyright issues. 73. MCC agrees with Section XI of the DGC s Submission under the heading Banner Advertisements : The DGC is of the view that the use of banner advertising indeed, any advertising by retransmitters, does raise issues of copyright policy. The pairing of the works contained in the communications signal with advertising (which is the means by which broadcasters and hence program owners are compensated for the licensed use of the works) conflicts with the normal exploitation of the works and would unreasonably prejudice the legitimate interests of the program owners and broadcasters

18 who seek proceeds of exploitation from advertising. It would do so by potentially siphoning off advertising dollars, thereby harming the broadcaster in a way that subscription-based retransmission does not. It introduces direct competition. It could implicate the moral rights of authors in the works contained in the communication signals; New concepts of advertising could potentially create a compilation creating a combined work without authorization through the combining of the communications signal and works with extraneous material, whether a banner ad, or embedded links or web pages, in an effort to create something which is interactive for commercial ends. This competition would extend, not only to traditional advertising, but also to contemplated interactive commercial linkages. 74. Jump asserts (at page 12 of its Submission) that there is no public policy rationale that would support a limitation on advertising simply because it is in competition with other advertising. MCC replies that the compulsory licensing scheme, in exempting retransmission of local signals from any royalty obligation, presumes that there will be no substantial benefit to retransmitters from retransmitting local signals in their local market, and that there will be no harm to local broadcasters (and therefore to their program suppliers). An advertiser-based retransmitter would negate both of these presumptions. 75. In this respect, MCC endorses Section XII of the NAB Submissions Banner Advertising Should Not Be Permitted In Any Event and paragraphs of the Bell Group Submission. MCC agrees with both parties that permitting banner advertising would only exacerbate the harms arising from non-consensual retransmission, by forcing broadcasters to compete with retransmitters for the ad revenues that are made possible by the broadcasters own programming. (b) Advertiser-Based Retransmitters May Not Be Able To Pay Fair Royalties 76. Jump claims (at page 8 of its Submission) that "subjecting Internet-based retransmitters to the applicable copyright tariffs will ensure that all stakeholders are treated in a fair and equitable fashion, which is the standard by which the Copyright Board sets these tariffs." The Copyright Act does require the Board to set "fair and equitable royalties," but one of the factors that the Board has taken into account historically is the affordability of royalties to the retransmitters. It is easy to imagine a situation where an Internet retransmitter s advertising revenue might be a very nominal amount and yet its retransmission operation would still be profitable, given the relatively low costs of entry. In such a situation 100% of the retransmitter s advertising revenue would not be sufficient to compensate copyright owners for the harm done to their domestic and international markets. 77. It remains to be seen whether the Board would take reception outside Canada into account in determining royalties payable by an Internet retransmitter, but in any event, it is doubtful whether any royalty payable by an advertiser-supported retransmitter could possibly be a fair royalty for copyright owners, given the potential harm. 78. On October 10, 2001 Jump sent a letter to the Copyright Board withdrawing its application for an Internet retransmission tariff on the basis that "JumpTV is currently