Putting Amazon on USTR’s “Hit List”

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Getting recognized by the US Trade Representative’s Office (USTR) in its annual “Notorious Markets” piracy and counterfeiting report is not the sort of recognition that most companies seek. USTR’s hit list, one might even say *hit list, is best avoided. When you consider that among the entities on the list is The Pirate Bay, Alibaba’s ecommerce platform Taobao, dodgy websites such as Phimmoi (Vietnam), FMovies (Ukraine), MP3Juices, Rapidgator, and Sci-Hub (all based in Russia) and a number of others that you have probably never heard of hosted in countries from the Netherlands to Bulgaria to Bosnia, you can understand why Amazon was not thrilled to be included. Of course, it wasn’t Amazon.com (the US company) that was listed but rather Amazon’s sites in Canada, France, Germany, India and the UK. USTR is mandated only to report on IP infringing markets and online sites abroad, not stateside, so Amazon the parent company could not be listed–but putting five of its national sites on the Notorious Markets list cuts pretty close to home. In fact, I believe it is unprecedented for a US company to be listed, even via the ruse of using its offshore businesses as a target. What gives? 

First it is probably appropriate to give a bit of background about USTR’s Notorious Markets report, for those who don’t make reading government documents a normal part of their day. The Notorious Markets report is an adjunct to USTR’s annual “Special 301” report mandated by Section 301 of the US Trade Act of 1974. Actually, the preparation of Special 301 reports dates back only to the late 1980s when the US Congress amended the Act to include a report on the intellectual property practices and IP enforcement of US trade partners.  It has become an annual exercise to construct a list of countries that fail to protect intellectual property according to US standards or which deny “fair and equitable market access for U.S. firms that rely on intellectual property”. At first the list was used to threaten trade sanctions; later it became more of a “name and shame” exercise. 

The listing of Notorious Markets was first made part of the Special 301 report in 2006; from 2011 it has been published separately. Unlike the Special 301 report, it does not name countries but rather calls out specific marketplaces, both physical and online. Despite being an official US government document, USTR is quick to put in disclaimers, stating that the Notorious Market report “does not make findings of legal violations nor does it reflect the U.S. Government’s analysis of the general IP protection and enforcement climate in the countries connected with the listed markets.” This year most of the named markets are in Asia or Latin America, but in past years they have been closer to the US such as the Pacific Mall in the Toronto suburb of Markham, about which I wrote a year or so ago (here.) 

From a corporate perspective, the Amazon online sites in Canada, France, Germany, the UK and India are not so far away from the US either. In this age of COVID and self-isolation, ecommerce platforms like Amazon have come into their own as truly essential services. Judging by the volume of product that its fulfillment centres are shipping, Amazon must be keeping a lot of consumers happy by shipping them the “real stuff”. However, the problem lies not with the products that Amazon distributes directly from its warehouses, but with the third party sellers on its website, a certain number of which flog pirated and counterfeited product to unwary consumers, using the imprimatur of being “on Amazon” to gain credibility. These “third-party sellers” now constitute more than half of Amazon’s sales. 

While Amazon is a boon to small retailers who otherwise would have difficulty in reaching consumers online, the extensive presence of third party sellers exposes Amazon to accusations of tolerating—even turning a deliberate blind eye to–the sale of pirated and counterfeited goods, among other undesirable products. This has been a problem for some time. Some brand owners and organizations have gone so far as accusing Amazon of being “knowingly complicit” in the sale of counterfeits through the service. Back in 2018, the American Apparel and Footwear Association petitioned to get Amazon put on the Notorious Markets list because of the extensive presence of fake goods on the site. 

Amazon has responded that it has a policy against sale of pirated and counterfeit goods, that it takes its responsibilities to keep them off the site seriously (using algorithms and a brand registration service) but at the end of the day its position is that it is not responsible for what third party sellers do. Apart from the liability shield of Section 230 (used to evade responsibility in non-IP cases), another Amazon defence is that goods for sale on its sites displaying false trademarks may not technically be illegal if the US trademark is not registered in the country where the goods are being offered. In one notorious case, a Chinese company sold Kodi boxes (to enable illegal content streaming) on Amazon with fake FCC (Federal Communications Commission) logos, implying authenticity and conformity with tech standards. 

Part of the problem is that because Amazon has such amazing reach, it attracts miscreants of all kinds (as well as tens of thousands of legitimate retailers of course). That would suggest that with large market power comes large responsibility, but a lot seems to slip through Amazon’s automated and human checks. It is not just copyright infringing products that are problematic. The non-profit website The Markup reported on the ease with which they were able to find products banned by Amazon on the site with little difficulty, like pill presses for making opioids and parts for automatic weapons. Fraudsters and criminals can easily trick the system, as The Markup demonstrated;

“Last month, we successfully listed two banned items for sale: an AR-15 10-round magazine and an AR-15 armorer’s wrench. We removed them within minutes of confirming they had posted. We were able to evade detection by Amazon’s automated filters by purchasing a universal product code for the magazine and by both avoiding specific keywords and miscategorizing the items…The listings went up even though we had no seller history and had already twice been prohibited from listing the same items using more precise descriptions.”

According to people who have worked at Amazon, the automated systems and algorithms used by the company tend to look back at past bad behaviour to weed out products that should not be listed, but human ingenuity (unfortunately) can usually stay a step ahead of AI systems, especially when there are illicit profits to be gained. Clearly Amazon has a problem, whether it is with products that infringe IP or other products that violate the company’s own standards. 

This year’s Notorious Markets report (which deals only with IP infringing goods) notes that USTR did not request submissions on U.S. based ecommerce platforms and online third-party marketplaces, such as Amazon.com, but commented that the Administration has been looking further at their role following last year’s Presidential Memorandum addressing trafficking in counterfeit and pirated goods.  With respect to Amazon’s foreign domains, this excerpt gives a good indication of the nature of the problem according to USTR; 

“…right holders expressed concern that the seller information displayed by Amazon is often misleading such that it is difficult for consumers and right holders alike to determine who is selling the goods and that anyone can become a seller on Amazon with too much ease because Amazon does not sufficiently vet sellers on its platforms. They also commented that Amazon’s counterfeit removal processes can be lengthy and burdensome, even for right holders that enroll in Amazon’s brand protection programs. In addition, as the scale and sophistication of the counterfeiters have continued to grow and evolve over the years, these right holders indicate that Amazon should commit the resources necessary to make their brand protection programs scalable, transparent, and most importantly, effective. More specifically, they ask that Amazon take additional actions to address their concerns, including by collecting sufficient information from sellers to prevent repeat infringers from creating multiple storefronts on the platforms, making detailed information about the real seller of a product obvious to consumers and right holders, being more responsive to complaints of counterfeits by right holders, and being more proactive in preventing counterfeit goods from appearing on the platform.”

The report outlines a series of best practices that should be followed by ecommerce platforms to address such problems. 

Is Amazon that big a problem? Given its scale, anything that happens on Amazon has enormous impact. Amazon has implemented a number of policies to combat the presence of fake or pirated goods on its site and is a member of the Alliance for Creativity and Entertainment (ACE), a grouping of 30 plus companies from around the world, including the major Hollywood studios, that have come together to fight online piracy, but many would argue it is not doing enough. 

Recently Amazon-owned site Twitch, which styles itself as “the world’s leading live streaming platform for gamers” has come under fire for allowing use of copyright infringing music in streams put up by gamers, even though its music guidelines specifically require that the music be owned or licenced by the streamer. As the site has become more popular, the music industry has started to take notice and recently began issuing takedown notices for clips that in some instances had been up for a couple of years or more. Under US legislation, Amazon is not liable for copyright infringing material posted on Twitch, but it is required to take it down when notified by rights-holders. The music industry would like Amazon to licence music for use by Twitch creators. 

In the background to the USTR listing of Amazon’s foreign sites is the ongoing open “warfare” between Amazon CEO Jeff Bezos, reputedly the world’s richest man, and Donald Trump which has touched on many issues including Bezos’ control of one of Trump’s nemeses, the Washington Post. Indeed, an Amazon spokesperson claimed that “This purely political act (the USTR listing) is another example of the administration using the U.S. government to advance a personal vendetta against Amazon.”

Maybe. Or maybe Amazon could be more pro-active in searching out and delisting third-party sellers who pass off infringing or counterfeit goods (and list other undesirable products), and who confuse consumers by hiding in plain sight on Amazon’s site. The company is so big, and has so many resources, that it has no need to attract consumers with an offer of substandard products, and has the wherewithal to ensure that its listings are properly and thoroughly vetted. It just requires the will to do so. To depend on rights-holders and brand owners to police the Amazon site, especially in cases where pirated or non-genuine products are clearly on offer, is to hide behind legalities, a position not becoming of a company like Amazon. 

Perhaps next year, Amazon’s foreign sites will be off the USTR hit list, or perhaps USTR will do something that has never been done in a Notorious Markets report—directly list a US company. Will there be political factors involved? By next year, it may, or may not be, the “Trump Administration” that we are talking about and if there is a new Administration after November 3, and if Amazon if off the 2021 list, will it be because they upped their game in tackling infringing content and products on the Amazon.com and related sites, or will it be because the Administration changed? There are so many elements to this puzzle that it is impossible to separate out the various factors involved, or to predict what will happen. 

One thing is certain. Amazon will still be around, bigger and likely more essential than ever. 

© Hugh Stephens 2020. All Rights Reserved. 

Why is Piracy so Common in China? Confucian Cultural Traditions or Just Plain Commercial Advantage? (A Historical Perspective)

Credit: photo and calligraphy: author

I usually write about current international copyright issues but occasionally I dip back into the past to look at where copyright has come from. Sometimes this can be very illuminating in terms of what is happening today. A couple of years ago, I wrote about the thriving pirate book industry in Taiwan back in the 1960s and 1970s when the “ingenious rascals” of Chungking Street in Taipei routinely disassembled, photocopied and reprinted western books, from encyclopedias to medical texts.  And all this was perfectly legal under local law in Taiwan at the time.

These were the laws of the “Republic of China”, implemented and enforced by the Kuomintang (KMT) regime that administered Taiwan from 1945 on. The KMT had loosely governed China from the overthrow of the Qing (Manchu) dynasty in 1911, through the period of war with the Japanese in the 1930s and 1940s, up until 1949 when the “People’s Republic of China” was proclaimed by Mao Zedong in Beijing. The KMT then decamped to Taiwan (which had been ruled by Japan up to 1945) where the existing Republic of China laws continued to apply. Among these was a copyright regime that protected only works that had a Chinese copyright registration, which was notoriously difficult to obtain. At the time neither the Republic of China (Taipei), nor the People’s Republic (Beijing) was a signatory to the Berne Convention.

Respect for copyright in China, or lack thereof, has been a recurring topic over the years. While China is very much in the spotlight for intellectual property (IP) violations, generally these are infringements that relate to trade secrets, patents or trademarks, including forced transfer of IP from companies seeking to invest in China. However, copyright has not been exempt from complaints as repeated reports by the US Trade Representative’s Office clearly show. For example, the most recent USTR Special 301 report on China, issued in April of this year, states that;

“It is critical that China address major deficiencies in its copyright framework, such as the lack of deterrent civil damages, ineffective criminal enforcement, and the failure to provide protection against the unauthorized transmission of sports and other live broadcasts.”

The report also raised concerns around digital piracy. These relate to distribution of unauthorized audiovisual content and dissemination of unauthorized copies of scientific, technical, and medical journal articles and academic texts, as well as China’s failure to take sustained action against websites, devices or apps that offer or facilitate access to unlicensed content.

Mind you, the section on copyright was mild in comparison to the criticisms of China’s failings in a range of other areas of intellectual property. In the past, criticism of China’s copyright practices has ranged from widespread book, DVD and music piracy to failure to establish or enforce effective copyright laws. The lack of effective enforcement remains a concern today. The most recent annual IP index produced by the Global Innovation Policy Center of the US Chamber of Commerce scores China at 2.53 out of a possible 7 in the area of copyright, or 36%.  Let’s just say there is lots of room for progress. By way of comparison, Japan’s copyright score was double this.

The reason for China’s lack of robust IP protection, including in the area of copyright, has been attributed to a number of factors. A common academic view seeks to explain China’s lack of respect for IP as a cultural phenomenon. Here is a good example of this line of argument, based on supposed Confucian cultural and moral values. It is taken from a respected academic journal, titled “The Dissonance between Culture and Intellectual Property in China.

The primary orientation of Chinese culture is toward mutual reliance…One distinction is that all forms of creativity are for the collective; any copying or imitating is a high form of flattery…”

It is true that some Confucian values still permeate traditional Chinese world views, but do they really explain rampant copyright violations in China? Are copyright pirates in China motivated by a desire to flatter the artists they are stealing from? Hardly.

Another take on explaining widespread copyright piracy in China comes from what is often considered to be the definitive work on the subject of Chinese copyright and its traditions, William P. Alford’s “To Steal A Book is an Elegant Offense”, (Stanford, 1995). In this widely-quoted work, the author postulates a number of reasons for China’s weak IP performance, reaching back far into history. At the risk of oversimplifying Prof. Alford’s opus, his main thesis is that while China appears to have had a form of copyright (and trademark) protection extending as far back as the Tang dynasty, in actual fact these regulations were primarily intended to protect the power and prerogatives of the state rather than the works of individual artists or authors.

Virtually all known examples of efforts by the state to provide protection for what we now term intellectual property in China prior to the twentieth century seem to have been directed overwhelmingly toward sustaining imperial power”.

Thus it was forbidden to reproduce government works on astronomy, the civil service examinations and other matters considered sensitive for purposes of security and censorship, but when it came to private ownership of materials, there was no legal tradition of protecting original works. Indeed, Alford points out that “the Confucian disdain for commerce fostered an ideal, even if not always realized in practice, that true scholars wrote for edification and moral renewal rather than profit”.

However, while a true Confucian scholar might disdain profit, the merchant class were entrepreneurial and aggressive—one might even say rapacious—in their drive for profit, including in the publishing industry. They had no hesitation in reprinting whatever they could (avoiding the pirating of government publications that would land them in trouble), yet at the same time they devised a sort of code that regulated their conduct toward each other. When it came to pirating foreign materials, however, that was another matter.

At the end of the 19th century, the Qing Empire was on the verge of collapse. The Chinese had been thrashed by the Japanese in the Sino-Japanese War of 1894-95 (which led to the Japanese occupation of Taiwan) and European powers were tearing at the hem of China, nibbling off little pieces for themselves. Chinese reformers recognized that China needed to adopt some western values, including promotion of modernization and innovation. The development of IP laws was considered one element of this. At the same time, the European powers were keen to impose on China (at gunpoint if necessary) various obligations to protect their own economic interests, including copyright. As a result several bilateral treaties were signed between China and European countries and the United States regarding IP protection, although the Chinese were slow to implement these obligations into law, and even slower to attempt any enforcement. For example while the US and China signed a bilateral treaty providing for reciprocal protection of copyrights and trademarks in 1903, the Chinese did not get around to enacting their first copyright law until 1911. That was the same year that the Qing Empire collapsed and China entered an extended period of internal turmoil. Needless to say, given the prevailing political situation, enforcement of copyright was not a high priority for the new Republican government.

The lack of statute law protecting copyright under the Qing Empire was thus a major obstacle, and is advanced as one reason for widespread tolerance of book piracy in China. Foreign publishers were regularly pirated, but did this occur because of a lack of understanding of the fundamentals of copyright, or was it simply a case of commercial opportunism? An interesting new work has just been published that calls into question much of the conventional wisdom regarding Chinese attitudes to copyright, and suggests that Chinese publishers, booksellers and authors were well aware of the importance of copyright at the beginning of the 20th century and later, at least insofar as it applied to them and not to foreigners. The book, “Pirates and Publishers: A Social History of Copyright in Modern China” (Princeton, 2019) by Prof. Fei-Hsien Wang, argues that;

 “contrary to common belief, copyright was not a problematic doctrine simply imposed on China by foreign powers with little regard for Chinese cultural and social traditions…Developing multiple ways for articulating their understanding of copyright, Chinese authors, booksellers and publishers played a crucial role in its growth and eventual institutionalization in China. These individuals enforced what they viewed as copyright to justify their profit, protect their books and crack down on piracy…”

And how did they do this? In the absence of a copyright law (in the period prior to 1911) or enforcement of the law (for many years after the law was enacted), the Chinese book trade established guilds with its own registration, code of enforcement, tracking system, detectives (piracy investigators), and sanctions. Wang cites the case of Ginn & Co, the noted US publisher who brought suit in 1911 in Shanghai against the Shanghai Commercial Press, which had reprinted Ginn’s history textbook without authorization. Representing Ginn was T.R Jernigan, a noted commercial lawyer and former US Consul General in Shanghai. Jernigan faced significant legal obstacles because the new copyright law did not apply to foreigners, (despite bilateral treaties being one of the reasons for passage of the law) so he argued on the basis of common law that since Chinese publishers respected and enforced copyright amongst themselves, these local practices should apply to the defendants in the Ginn case. He did not prevail, but the incident helps shed light on an informal copyright code that existed in China—but for Chinese only, and then only some Chinese.

Shanghai was the centre of the Chinese publishing and bookselling industry and naturally enough this is where the copyright guilds emerged. There were two main groups, the Shanghai Booksellers’ Guild and the Shanghai Booksellers’ Trade Association. Titles were registered based on the original printing blocks (shudi or master copy) for works, or type plates or paper stereotypes for letterpress printing. Generally members of the guild respected each other’s banquan (the word today used to translate “copyright”, which can be literally translated as “the authority or power to print”), but if there were disputes the guild would mediate. It would also dole out punishments, such as fines and burning of offending copies along with the pirated shudi masters. Sometimes there were negotiated solutions in which pirates could pay to have their editions authorized.

While Shanghai was the main commercial centre, it had rivals in Beijing (known at the time as Beiping after the national capital had moved to Nanjing). The booksellers and publishers in Beijing did not belong to the Shanghai guilds nor did they pay them much heed. Although China was technically unified under the KMT regime in Nanjing, local authorities had considerable power and the national government had a difficult time in enforcing its writ. Local “initiative” was the order of the day and Beijing became the book pirate capital of China.

According to Dr. Wang, in the early 1930s the Beijing representatives of the leading Shanghai publishers petitioned the Beiping city government to act against open piracy, even describing several “notorious markets” (echoing the description in USTR’s annual Special 301 reports today) where pirated works were sold openly. Like today, there would be a raid and then the zeal of the local authorities would fade. The Shanghai publishers realized that they needed their own people on the ground to ferret out the pirates and so they formed their own team of private investigators. (Sound familiar?). The investigators would build a case and present it to the Beiping authorities, who might or might not act, particularly since most of the so-called banquan was not legally registered copyright but was rather the unofficial copyright registered with the Shanghai guilds. Moreover, as Dr. Wang points out, while to the Shanghai publishers the Beijing booksellers were pirates, to the local authorities they were “business leaders” who deserved to be sheltered.

The experience of the Shanghai publishers from the early 1900s until the late 1930s when much of China was taken over by the Japanese is eerily reflective of the experience of many western copyright holders in China in recent years. Even today, despite the presence of strict laws against copyright and other forms of IP theft, pirated and counterfeit goods are sold openly, often in “notorious markets”. Private companies and associations have resorted to hiring private investigators to gather evidence to bring before Chinese courts. On occasion there is a big bust or anti-piracy (“strike hard”) campaign, which then peters out once the time period of the campaign is over. Frequently local authorities are not interested in pursuing IP crimes or are actively engaged in protecting local interests engaged in pirating or counterfeiting activities, which they see as contributing to local economic activity. In short, nothing much has changed. USTR’s Special 301 Notorious Markets report lists a number of physical and now online marketplaces in China dedicated to selling pirated and counterfeit products. In fact, China tops the list with no less than 7 named physical markets plus 3 online markets.

They say that those who fail to learn from history are doomed to repeat it. It was revealing to me to see how similar the experience of the Shanghai publishers was in Beijing eighty or more years ago compared to the struggles faced today by both foreign and Chinese copyright holders seeking to protect their rights. For the Shanghai book sellers of the early 20th century, self-help was the only way to succeed in a country with weak copyright laws and limited or no will or ability to enforce them. At the same time, the efforts of the Shanghai publishing and bookselling guilds clearly establishes that Chinese merchants were well aware of copyright and used it to promote and protect their economic interests. They did not subscribe to vague Confucian theories of sharing the common good of knowledge, or of producing content for its own sake. They were hard-headed business people who not only took collective action to protect their own copyright, but when they could get away with it, had no qualms about appropriating foreign content without payment.

Collective behaviour is normally rooted in cultural traditions and beliefs, and it would be wrong to say that Confucian values have no sway in China today. There may even be a residual belief among some Chinese scholars that the notion of copyright to protect individual economic interests and moral rights (which incentivizes more creation) is at odds with traditional collective Confucian beliefs. But that is a very thin cloak to use as justification for wide-scale IP theft in China. A look back a century or more into Chinese history (thanks to Prof. Wang’s new book) shows that Chinese entrepreneurs were well able to grasp the importance of copyright and employ it to advance and protect their own economic interests. Where they failed to respect copyright, as in the case of foreign works unprotected by weak Chinese laws, they did so knowing full well what they were doing and did so pragmatically for commercial gain, pure and simple. Confucius the scholar may be turning in his grave but Cai Shen, the God of Wealth, is laughing all the way to the bank.

© Hugh Stephens, 2020. All Rights Reserved.

When is a “Mandatory Copyright Tariff” mandatory only if you opt-in? When you’re in Canada, that’s when.

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It’s a long and complicated story, and it may not be over. In the latest turn of a very big wheel, the Federal Court of Appeal (FCA) in Canada has overturned part of the landmark Access Copyright v York University case, on which I have written in the past (here, here, and here). That case had restored some balance to copyright law in Canada, with the Federal Court handing a victory to Access Copyright on the two issues under dispute, (1) whether the interim tariff certified by the Copyright Board of Canada was mandatory (York had decided to opt-out of paying the tariff on the basis that its use of materials in Access Copyright’s repertoire was covered by fair dealing) and (2) whether York’s Guidelines on copying were consistent with fair dealing. In the initial case, the Federal Court ruled that even an interim tariff (the final tariff being still under review) was mandatory (i.e. York could not opt-out), and that York’s fair dealing guidelines were, in the words of Mr. Justice Phelan, “…not fair in either their terms or their application”. York appealed.

On April 22 the FCA released its decision. In a setback for Access Copyright, based on a lengthy review of historical legal precedents dating back to the 1930s, it ruled that the certified tariff–whether interim or final–is not mandatory, i.e. not binding on a user such as York if the user declines to pay the tariff to obtain a de facto licence from a collective society such as Access Copyright. At the same time, however, it upheld the earlier decision that York’s fair dealing guidelines were not fair from a copyright law perspective. You could say it was a mixed result but, as with many things, whether the glass is half full or half empty depends on where you are standing. Copyright critic Michael Geist of the University of Ottawa proclaimed that “Federal Court of Appeal Deals Access Copyright Huge Blow…”. Pro-copyright lawyer Richard Owens countered with “The Court Backs Creators, Not Universities”. There is truth in both assertions.

Access Copyright itself stated that the outcome was a “mixed outcome for Canadian creators and publishers”. The Association of Canadian Publishers was less equivocal stating that the Canadian copyright framework is “broken” after the Court’s decision. It issued a press release saying it was “frustrated” and “disappointed” by the decision and called for “Urgent action on the part of the federal government…to implement reforms that will correct market damage and provide a policy framework that supports future investment in Canadian writing and publishing”.

While the Appeal Court upheld the finding that York’s fair dealing practices were unfair, this was not actually relevant to the case once the Court had decided that the Copyright Board tariff was not mandatory. York had offered fair dealing as a defence against its unauthorized use of materials from Access Copyright’s repertoire given that it had opted not to pay the tariff. (The tariff would in effect have provided it with a licence for specified copying). That defence was dismissed but at the same time, Access Copyright’s suit against York for opting out and not paying the “mandatory tariff” was also dismissed. Since York was not obligated to pay the tariff, whether or not its Guidelines for use of Access Copyright content were consistent with fair dealing was moot. There is little doubt that York is now vulnerable to suits alleging copyright infringement, but these suits will have to be pursued separately by owners of the infringed copyrights, not by the collective.

Access Copyright did not bring suit against York for copyright infringement because although it represents copyright holders in licensing negotiations it does not itself hold any copyrights; its individual members do. As a result, it cannot sue on behalf of copyright owners, who will have to take that action themselves. Large publishers may be able to take on the legal costs of bringing suit, but individual authors and small publishers are unlikely to do so.

Collective licensing was a way of avoiding endless, costly litigation. The Appeal Court’s decision to declare that what had previously been considered binding tariffs are in fact only optional has exposed a major weakness in the structure of collecting and enforcing copyright royalties in Canada. One of the reasons why collective societies (also known as collective management organizations, or CMOs) exist is to provide the strength of a collective entity to negotiate licences with users on behalf of individual authors and publishers, but also to provide a mechanism for licensing that would avoid the need for litigation, thus serving both rights-holders and users.

How did it come to this? How did a “mandatory” tariff become optional? It is really complicated and I am not sure I can explain it without going into far too much detail. But it all goes back to the 1930s when collective societies (at that time called Performing Rights Organizations) were established for the music industry. At the time there was a concern that these organizations were acting as monopolies, depriving users (in the quaint language of the era) of “gramophones, sheets of music and radio receiving sets”) of access to the repertoire that the organizations represented. A form of compulsory licence was introduced through legislation, with administration of “mandatory” tariffs overseen by the Copyright Appeal Board (which became the Copyright Board of Canada in 1989). While not fixed in law, the term mandatory tariff has been widely used since that time and there was a widespread assumption within the copyright legal community that that is exactly what they were once certified by the Board—mandatory; in other words, compulsory, required by law, binding, obligatory. Pick your definition. But it turns out that the only thing mandatory about the tariffs was that once a user offered to pay or paid the tariff, it was mandatory on the CMO to licence the content, in this case, music.

Ariel Katz, a law professor at the University of Toronto, has made a crusade of arguing that the tariffs are not mandatory when applied to users. In a long blog post that he put up in 2017 right after York lost the initial case to Access Copyright, Katz criticized York’s counsel for not taking his (Katz’s) advice to argue the case on the basis that tariffs were not mandatory, based on the historical antecedents discussed above, and wondered why his (apparently unsolicited) advice was not followed. He concluded that, “the notion that tariffs are mandatory for users has been accepted as conventional wisdom among copyright collectives, the small group of copyright lawyers whose practice revolves around Copyright Board proceedings, and the clients they advise.” He surmised that since submissions to the Copyright Board were part of the bread and butter of intellectual property lawyers, who sometimes represented rights-holders and sometimes users, a form of “confirmation bias” had set in. In a conclusion that no doubt won him few friends in the practicing legal profession he declared;

“Having always assumed that tariffs were mandatory and having strategized their cases accordingly, is it possible that the lawyers involved might have ignored or minimized the importance of all arguments indicating otherwise?…Is it possible that the confirmation bias becomes even stronger because it is also self-serving? I have previously written how the view that tariffs are mandatory has served lawyers who specialize in Copyright Board proceedings nicely.”

Another reason for the assumption that the tariff was mandatory was the fact that a number of enforcement cases, where collective societies sued non-licensees, have been decided by requiring the tariff be paid. Most of these cases were decided by default with awards to the collective societies based on the amount of the tariff. However the FCA declared that damages awarded based on the tariff are different from actual enforcement of the tariff. The judge writing the FCA’s decision stated;

“I acknowledge that such enforcement (of Copyright Board approved tariffs against non-licensees) has been taking place but, in my view, it is the result of the confounding the enforcement of the tariff with awarding damages based on tariff amounts. This appears to have led to the general view that tariffs are mandatory since the measure of damages for infringement has been held to be the amounts prescribed by the tariff.”

So despite years of accepted practice based on the premise that a “tariff” (licence fee) certified by the Copyright Board requires payment by all users who use copyrighted content covered by the tariff (unless the use is covered by fair dealing), whether they voluntarily agree to obtain a licence or not, suddenly this fundamental principle no longer applies. In effect, the Court has demolished a major pillar of the collective licensing system. The fact that this interpretation is based on perceived monopolistic behaviour by Performing Rights Societies eighty or ninety years ago is particularly problematic, but it may be that from a legal perspective successive redrafting of copyright legislation did not adequately address changes that have occurred in the nature of collective societies and licensing. Far from withholding repertoire, as was apparently the case in the 1930s, collective societies today are eager to licence their content. Any “monopolistic” or market power element they may have is controlled by the Copyright Board, which has the power to certify a tariff (i.e. regulate it), although collective societies and users are also free to strike their own licensing arrangements.

Now that the Appeal Court has supported Katz’s interpretation, what happens next? Of course, the legislation could be redrafted, which is what the publishers seem to be suggesting, but that is a long-term play at best. However, all is not lost for rights-holders. As Owens points out in his Financial Post article, if you take the “glass half full” approach, the decision confirms that York’s practices as embodied in its Guidelines are inconsistent with fair dealing, opening it to litigation for infringement. This puts York (and other universities) at risk; surely it would be better to simply obtain the licence from Access Copyright by paying the modest per student tariff.

But York seems to be dug in on its position. Perhaps it is betting on the fact that suing for infringement is costly and can be complex, since proof of infringement of specific content owned by specific rights-holders must be proven. But what if Access Copyright could be assigned the rights by the owners, and sue on their behalf? To do so, they would need to change their contractual relationship with their members, but it has been done in the case of the music industry, so why not publishing? As the FCA noted (para 197), SOCAN, which is the collective rights management organization for music creators, music publishers and visual artists has been active in enforcing copyrights but it differs from Access Copyright in that it is the assignee of its members’ copyrights (at least for broadcast retransmission rights) and can thus sue for infringement without reference to a tariff.

While more litigation, perhaps on a class action basis or brought by a collective (assuming it has been assigned the copyright in infringed works), is always an option, it is hard to see how this advances the interests of either creators or users. A simple, straightforward, fair system of remuneration for copying is vastly preferable to ongoing litigation over infringements great and small. The FCA’s decision now calls that trade-off into question. Will this now be appealed to the Supreme Court of Canada–and will the SCC accept the appeal? That remains to be seen.

The original case between Access Copyright and York dates to 2013, so if there is a further appeal, we may have to wait some time yet before we know for certain whether a “mandatory tariff” is truly mandatory or simply an option to be exercised by a user.

© Hugh Stephens 2020. All Rights Reserved.

Reforming Section 230 is the Right Idea—But Not When Done in the Wrong Way for the Wrong Reasons

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In the ongoing war between US President Trump and Twitter over Twitter’s actions to fact-check one or two of the President’s more truth-stretching tweets, Trump has unveiled his chosen weapon to teach the social media platform a lesson. He is proposing to reinterpret elements of Section 230 of the Communications Decency Act of 1996. (I’ll explain the significance of this in a minute). When Twitter first added a “contextual label” to Trump’s assertions that mail-in ballots equated to fraudulent voting, directing readers to alternate interpretations (specifically to the Washington Post and CNN, both among the major bêtes noires of the media world as far as Trump is concerned), Trump threatened (on Twitter of course) to “strongly regulate” or “close…down” tech giants that “silence conservative voices”.

On May 28, he issued an Executive Order designed to try to exert control over social media companies in several ways, the most draconian of which would be to reinterpret Section 230 so that if an online platform engages in any editing or restricting of content posted by users, this will make it a “publisher” of such material and open it to potential legal liability. Although Donald Trump in his role as President of the United States cannot be sued for defamation for any action taken in the exercise of his responsibilities (such as communicating to the public), it would appear that if this proposal becomes law platforms like Twitter could nonetheless be exposed to legal liability for the defamatory comments of the President if they fact checked them! That’s unlikely to happen, however, as the intent of the law is clear, and Trump by himself cannot change the law. Section 230 does just the opposite of what is proposed in the Executive Order by giving platforms immunity from liability if, in good faith, they remove material that is “obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable, whether or not such content is constitutionally protected”. According to Section 230, taking such action will not put the platforms in the position of becoming the publisher of the material by virtue of exercising editorial judgement.

So far Twitter has not removed anything posted by Trump, but according to the law it has the explicit power, indeed the responsibility, to do so if comments fall into any of the above categories. However Section 230 is not just about removing objectionable content. In the way that it has been interpreted by US courts since it became law almost 25 years ago, it also provides internet platforms with immunity from legal liability if they do not remove content because, according to this law, they are not considered publishers of the material (unless they control the content put up on the platform). In this respect, Section 230 has been described as both a sword and a shield. The sword is the ability to take down objectionable content; the shield is immunity from prosecution for doing so, as well as not being responsible for the content posted by users.

Unfortunately it is the shield aspect of the legislation that has been most often invoked by internet platforms, allowing them to ignore all sorts of abusive material on their sites on the basis that they are merely passive bulletin boards, and not responsible for content posted by others. Thus hate speech, content promoting terrorism and violence, revenge porn, sex trafficking, and so on has been allowed to proliferate on the internet with no legal recourse against the platforms providing access to the material. In some cases, platforms have had no incentive to remove access to objectionable material because they have been able to monetize it by attracting consumer eyeballs and thus advertisers. The website Backpage, which was eventually shut down after Congress passed targeted legislation carving sex trafficking  content out of Section 230 immunity, was a good example of how the original intent of Section 230 had become distorted over the years as a result of numerous court rulings.

Backpage was a classified ad online service, a bit like Craig’s List, except that it had a section offering “adult services”, which allegedly knowingly allowed and encouraged users to post ads related to prostitution and human trafficking, particularly involving minors. It was alleged by state prosecutors that as much as 99% of Backpage’s revenues came from these sources, and that the company was failing to cooperate in curtailing illegal activity. However, despite strong evidence that Backpage actively participated in promoting the website as a sex clearing house, several claims against it were dismissed by US courts on the basis of the immunities provided by Section 230.

As a result of these types of abuses, there has been a strong push for reform of Section 230 by, among others, members of the copyright community who would like to see internet intermediaries act responsibly and exercise a greater degree of (or indeed any) control over any content that they host, distribute or enable. (This is despite the fact that Section 230 explicitly carves copyright infringement out of the immunity provided. That issue is dealt with in separate legislation, the DMCA.) If the content industries have serious reservations about how Section 230 has been used, the tech industry, social media and internet intermediaries love it and have fought tooth and nail against any suggestion of reform. Silicon Valley has gone so far as to push the US Trade Representative (USTR) to seek Section 230-like immunities for internet platforms in trade agreements negotiated by the United States. As a result, the new NAFTA (USMCA/CUSMA) contains Article 19.17, a key element of which reads as follows:

“…no Party shall adopt or maintain measures that treat a supplier or user of an interactive computer service as an information content provider in determining liability for harms related to information stored, processed, transmitted, distributed, or made available by the service, except to the extent the supplier or user has, in whole or in part, created, or developed the information”.

In plain English, for “interactive computer service” read social media platform, search engine or internet bulletin board and for “information content provider” read publisher.

This provision has been controversial in both Canada and the US. As I have written elsewhere (“Did Canada get “Section 230” Shoved Down its Throat in the USMCA?”), the final text does not require Canada to provide any new immunities for internet intermediaries as existing Canadian law–including secondary liability–will continue to apply, although there is a potential restraint on enacting new legislation that could treat platforms as publishers. In the US, there was an eleventh hour move to have Article 19.17 dropped from the text of the USMCA when Democrats reviewed changes they wanted to see made before they would agree to ratification in Congress. In the end, unfortunately in my view, Article 19.17 remained as House Speaker Nancy Pelosi expressed regrets that she had moved too late on this issue. It should never have been included in the USMCA, or any other trade agreement, given that one of the main objectives of the tech industry was to limit the ability of Congress to amend Section 230 in future as it would have become a treaty obligation. In a furious last-ditch campaign to keep Article 19.17 in the Agreement, the US tech industry went on record to concede that inclusion in the USMCA/CUSMA did not in fact prevent Congress from making future changes. Worth noting is that USMCA/CUSMA is scheduled to come into force on July 1 of this year, all three countries having now completed the ratification process.

It will be interesting to see if President Trump’s threat to modify Section 230 in order to punish Twitter will run into any legal issues as a result of US commitments under the USMCA. While that is theoretically possible (although the US could choose to ignore its obligations under the Agreement on this one point, and would likely not be challenged by either Canada or Mexico), this is unlikely to arise as there is little likelihood that Trump will get his way on Section 230. His request that the Federal Communications Commission (FCC) take action to determine whether social media platforms are acting in good faith (and thus qualify for immunity from liability) runs head on into considerations related to the First Amendment of the US Constitution, which guarantees freedom of speech, and is a real stretch. More particularly, the use of an Executive Order to bypass the will of Congress expressed through legislation is fraught with challenges.

It is not just the political process that is a problem. Trump has decided to use Section 230 in order to take personal revenge on Twitter, not to reform it or to address the fundamental issues inherent in the abuse of its immunity provisions by internet intermediaries who have used it to avoid taking down clearly harmful content. By making this allegedly about “silencing conservative voices”, Trump has in effect hijacked the issue of Section 230 reform. As copyright blogger David Newhoff put it in his aptly titled piece on this issue, What Happens When the Biggest Troll on Twitter is the President?”;

“The EO (Executive Order) itself may be a worthless piece of paper Trump signed to make himself and a few of his fans feel good, but now that he’s stamped his brand of partisanship on this narrative, one can imagine any number of ways this non-partisan discussion can become needlessly mired in the muck. As mentioned, I can certainly imagine the (tech) industry using this story as leverage to stymie legitimate review.”

There is a real risk that meaningful and needed reform of Section 230 to make platforms more accountable for harmful content they host or distribute will become conflated with the highly partisan political debate taking place in the run up to the US election in the fall, clouding the real issues and leading to no action at all.

It is ironic to see Trump, who has apparently made over 52,000 tweets since becoming President and who reportedly has over 80 million followers, get into a head-butting confrontation with Twitter. The US journal The Atlantic’s take on this was that, “The president’s two strongest instincts stand pitted against each other: his need for attention and his need to punish enemies.”

Meanwhile Canadians (and Mexicans), who each have an indirect stake in this debate given the inclusion of Article 19.17 in the new NAFTA, will sit on the sidelines and watch this debate play out in Washington. Even if the USMCA is not directly engaged, reform of Section 230 to make internet platforms in the US more responsible for the harms created by the content that they distribute or enable would be a step toward greater accountability. It would be in line with Canada’s announced intent to require social media platforms to remove illegal content within 24 hours or face significant penalties. Appropriate Section 230 reform would be welcome and is certainly needed, but it should be done in the right way and for the right reasons. Punishing Twitter for fact-checking is not one of them.

© Hugh Stephens, 2020. All Rights Reserved.