Month: January 2022

China surprised many in the trade policy world last September by formally applying for membership in the 11 country “Comprehensive and Progressive Trans-Pacific Partnership” (CPTPP), the trade agreement that rose like a phoenix from the ashes of the 12 country Trans-Pacific Partnership (TPP). There is no guarantee that the current members will agree to negotiate accession with China, or that China is prepared to meet the high standards of the Agreement. But if China did join on the basis that it was prepared to make the necessary trade liberalization concessions, this would be a major boost for trade in the region and would bring greater discipline to the Chinese market. However, would it have much impact on copyright industries, particularly the US film industry that is becoming increasingly dependent on Chinese movie-goers to grow revenue?  This blog posting examines that very question.

First, we need to go back to the TPP, the precursor to the present CPTPP agreement. The TPP process had been led by the United States, beginning in 2008, and was seen as the US’s way of establishing high quality open trade disciplines in the Asia Pacific region. Despite having pushed for the TPP initially and having driven the negotiations largely on its terms and having signed the Agreement in February 2016 (along with Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam), the United States then walked away when Donald Trump “triumphantly” announced US withdrawal from the TPP on his first day in office.

Despite the immediate assumption that the deal was dead without US participation, under Japan’s leadership the remaining TPP partners continued to meet and finally reached a new agreement, based largely on the TPP text. Any references to the US, such as tariff commitments, were removed and some articles were suspended to remove items that were seen to primarily benefit the United States. These were mostly in the area of intellectual property and investment. However, the CPTPP clones well over 90 percent of the original agreement. It went into effect in December 2018 when six of the eleven CPTPP completed ratification and is now in effect for eight countries (Australia, Canada, Japan, Mexico, New Zealand, Peru, Singapore, and Vietnam). It has been so successful that so far three others have applied to join, the United Kingdom (even though it is not in the region), China and Taiwan. In the case of Taiwan it will be applying as a “customs territory”, the same basis on which it has membership in the World Trade Organization (WTO).

It is somewhat ironic, to say the least, that China has now applied to join a high standard trade agreement that was once championed by its arch trade rival, the United States, the more so since the US has turned its back on its own creation. There is plenty of speculation as to China’s motives, as I wrote about back in October last year. (China’s CPTPP Application: Serious Economic Move or Strategic Political Gambit?) China’s motives are probably a combination of the two.

There is no question that its move highlights the absence of the US from regional trade initiatives, and for Beijing brings with it the added bonus of complicating Taiwan’s application. It was an open secret that Taiwan was actively considering an application, but Beijing moved first. Taiwan swiftly submitted its own application just a few days after Beijing’s announcement, but now the existing members will have to more actively take into account the “China factor” in assessing how to deal with Taiwan. It may have been a coincidence, but Beijing’s announcement that it had submitted a letter of application to the CPTPP depository nation, New Zealand, came the day after the surprise announcement of the AUKUS (Australia-United Kingdom-United States) nuclear submarine deal. Reaction from most current CPTPP members has been cautious, with both Australia and Japan noting that any country applying must be prepared to meet the high standards of the CPTPP in terms of trade and investment liberalization and transparency. With regard to China, they haven’t said no, but they also haven’t said yes.

Despite some skepticism as to the depth of China’s commitment to trade reform, there are credible observers who note that China is facing a number of economic challenges, and a good dose of market reform would help. This is based on the supposition that there are economic reformers in Beijing who are not fully invested in the regime’s current preoccupation with self-sufficiency and state capitalism. How realistic this assessment is can be debated. There is no question that China would have to make some significant commitments in the areas of investment, labour rights, digital trade, services access and state owned enterprises (SOEs) if it is to meet CPTPP standards. But what about content and copyright industries? Would CPTPP commitments in this area pose an insurmountable obstacle for China? Surprisingly, no, and while its accession would potentially bring some improvement with respect to enforcement of copyright laws, it would not directly deal with the big-ticket market access issue, China’s film market.

Back in 2016 when the US was still touting the benefits of the TPP under the Obama Administration, it sought to enlist support from Hollywood by promoting the Agreement’s role in strengthening copyright protection and providing other benefits to the audio-visual industries. For example, when put into force, the TPP would set the term of copyright protection for TPP member states at life of the author plus seventy years (“life + 70”) as opposed to the “life + 50” term in place in a number of those countries. This would be of benefit to the US film industry. There was a notice and takedown provision similar to safe harbour provisions in the DMCA, an article requiring the outlawing of unauthorized camcording in theatres, and commitments to ensure that criminal or civil penalties would apply in cases of copyright infringement. Persons found to be circumventing technological protection measures (TPMs) and removing rights management information (RMI) on digital products would be subject to civil and criminal penalties.  

The TPP would bring other benefits as well, such as prohibiting governments from requiring companies to turn over encryption keys, eliminating tariffs on DVDs and other film storage products, and removing local partnership requirements, i.e. the Agreement would prevent governments from requiring that a company or person, as a condition for importing movies or television shows, establish a contractual relationship with a local distributor. In addition, it would prohibit the imposition of customs duties on electronic transmissions (such as transmissions containing audio-visual content) and ensure the protection of encrypted program-carrying satellite and cable signals. Signatories would have to be members of the Berne Convention, the WIPO[i] Copyright Treaty (WCT) and the WIPO Performances and Phonograms Treaty (WPPT).

Those were among the key benefits identified at the time by the US Trade Representative’s Office that would benefit US copyright industries. There was a lot on offer. But then the US withdrew from the agreement, meaning that any concessions or commitments made by the other parties would not be extended to US companies or persons. That’s a pretty significant but not insurmountable problem. The benefits of the agreement could still potentially be accessed by some Hollywood entities through their corporate presence in CPTPP countries. Sony could invoke its Japanese ownership, for example, and content produced under the Village Roadshow banner could access benefits as an Australian entity. However, there is another development that limits many of the gains “advertised” by USTR back in 2016, even if US companies could access the benefits of the Agreement through a roundabout means.

When the remaining eleven countries came together to finalize the CPTPP, they adopted most of the already-negotiated text but suspended some key provisions. They could have eliminated them altogether, but they chose suspension in order to dangle a carrot to entice the US back into the Agreement. Many of the suspended provisions related to the “wins” identified earlier by USTR. For example, the articles relating to the extension of the term of copyright protection, notice and takedown/safe harbours, protection of satellite and cable signals, and prohibitions on circumvention of TPMs and removal of RMI were all suspended. This means that if China (or any other country) were to accede to the CPTPP at the present time, it would not be required to abide by any of these provisions. This will make it easier for China to meet the copyright requirements of the CPTPP.

There are other provisions in the CPTPP’s intellectual property chapter, as well as in its investment and e-commerce chapters that were not suspended and would apply to China. However, these provisions should not present a major difficulty for China since it has already agreed to most of the commitments elsewhere, either by joining the Berne Convention, which it did in 1992, or by acceding to the WCT and WPPT, which it did over a decade ago. More particularly, another regional trade agreement, the Regional Comprehensive Economic Partnership (RCEP) Agreement, which entered into force on January 1, 2022, contains many commitments that are very similar to those in the CPTPP. China, along with all ten ASEAN countries, Japan, South Korea, Australia and New Zealand, is an RCEP signatory state.

As I wrote last year, the RCEP has a fairly robust intellectual property chapter. It includes some provisions not currently in the CPTPP, such a prohibiting the circumvention of TPMs, the removal of rights management information from digital files and a commitment to protect encrypted program carrying satellite and cable signals. It contains similar language to the CPTPP with regard to expeditious remedies to prevent copyright infringement and includes a range of specified civil and criminal measures. Since China has already agreed to all these commitments, it would presumably have no difficulty in signing on to similar commitments in the CPTPP. (Whether it is effectively meeting its commitments is another matter, but non compliance is subject to dispute settlement procedures under both the RCEP and CPTPP.)

If all of the above seems to suggest that the copyright provisions of the CPTPP would not present much of an obstacle for China in terms of accession, that is indeed my conclusion. Nor would China’s accession change much in this sphere for the copyright industries, given that China has already undertaken to comply elsewhere with many of the measures designed to protect copyrighted content. The real issue facing Hollywood and other film producing countries is China’s restrictive regime regarding import and distribution of films. China has always maintained a tight control over its theatrical market by limiting the ability of foreign producers to distribute directly to Chinese audiences.

Back in the “early days” (i.e. 1980s through mid 2000s) this tight distribution was not too much of a problem as the Chinese audience and Chinese venues were relatively limited. Then the explosion of demand occurred and the Chinese theatrical market is now one of the world’s largest and certainly its fastest growing. Hollywood relies heavily on Chinese distribution to generate international revenues and to be able to do so is required to work through China Film (a state owned entity) which retains a virtual monopoly on distribution. Through controlling distribution channels, the Chinese authorities can maintain a tight grip on what content is made available to Chinese audiences (ensuring the “right” political and social messages reach audiences), while also ensuring that Chinese films take a substantial share of box office earnings. As reported by Axios, China blocked all four of the Marvel movies from being released in its theaters last year, a “grim sign” for U.S. film makers.

China not only wants to exercise a tight rein over content, it also wants to propel the Chinese film industry to compete with the US majors. In this regard, it is using its huge domestic market as leverage, just as it has done in other areas, such as automobile manufacturing. Foreign technology and content is welcomed for a while, until such time as Chinese firms can compete, and then the screws begin to tighten. That is what I see happening in China right now. There will always be a market for a few key foreign blockbusters, but they will be distributed on Chinese terms and in accordance with Chinese priorities in the Chinese market, and this will be done in such a way as not to jeopardize the growth of China’s own film industry.

Would China’s entry into the CPTPP change this? It almost certainly would not. While China will have to negotiate its accession, it is clearly going to seek exemptions for certain sectors and industries. One of these sectors will certainly be distribution of AV content. The CPTPP calls for “national treatment” for investment (for example, foreign film distributors and theatre operators should, in principle, be treated on an equal basis with their Chinese equivalents). However, each and every one of the CPTPP member states has made certain exceptions to this rule when it comes to investment, and all of them, without exception, have included reservations with regard to “cultural industries” and content distribution in one form or another. The United States was no exception when it signed the original TPP, identifying a reservation to national treatment for cable television distribution. So, while China will need to get the other CPTPP members to agree to its list of exceptions, it will be difficult for them to argue that China should open its film market when they have all, without exception, claimed the right to discriminate against foreign nationals in various ways when it comes to content distribution.

Will China be able to negotiate accession with the current members? That is the $64 billion dollar question (to update an old expression). First, the UK accession negotiations will have to be completed, giving us an insight into the kind of commitments a new member can be expected to make. China’s accession will be more complicated, not only over questions as to whether it is truly prepared to abide by the standards of the CPTPP, but also by associated political factors, such as its ongoing trade “war” with the United States, even though the US is not a CPTPP member. In theory, the US should be in favour of any process that will induce China to open its market and level the playing field with its trade partners. However, the reality is that at the current time Washington seems disinclined to take any steps that could be construed as doing China any favours, and the US may try to pressure its USMCA partners, Canada and Mexico, to take a hard line on Chinese accession.

Even if China does eventually manage to accede to the CPTPP, the copyright industries, especially the copyright industries in the US, won’t see much direct benefit, although a more open Chinese economy generally would reduce US-China tensions and could potentially help reverse the threatened decoupling between China and western economies. Maybe one day the US would even be prepared to reconsider its position and join the CPTPP instead of continuing to impose managed trade outcomes on China through unilateral application of punitive tariffs. A US-China trade rapprochement along with the adoption of greater trade opening and transparency measures by China would be good for everybody in the long run, copyright industries included.

© Hugh Stephens, 2022. All Rights Reserved.

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[i] World Intellectual Property Organization

On or around January 1 each year we get a recrudescence of the same old story, a “celebration” of all the works that have just entered the public domain in the United States. It is the story that just keeps on giving for journalists facing a quiet day and searching for filler, the most recent example being Michael Hiltzik’s January 3 column in the LA Times. The “hook” this year is the fact that A.A. Milne’s first Winnie-the-Pooh book, published in 1926, is now in the public domain in the US. In Canada, the CBC jumped on this story, notwithstanding the fact that the work has been in the public domain in Canada since 2007. Although Pooh entering the public domain in 2022 is not directly relevant to Canadians, a story is a story so the CBC interviewed Hiltzik, and embellished its report with quotes from a prominent Canadian academic copyright skeptic. (There are other Canadian experts who could have provided an alternate view but that would not have fitted with the CBC’s one-sided editorial slant of “flaws in US copyright law” and “copyright creep”, speculating on how this might apply to Canada).

The explanation of why a large number of works enters the public domain in the United States on the first of January each year is complicated and has to do with the permutations of U.S. copyright law, and extensions to the period of copyright protection passed into legislation over the years. In the most recent extension, in 1998, where the U.S. sought to bring its period of protection into line with that of the EU (which is “life of the author plus 70 years”), copyright protection was aligned with the EU standard for works published after 1978 and set at 95 years from the date of publication for many earlier works, with January 1 of the 95^th year being the trigger date. That means that works published in the US during 1926 fall into the US public domain this year.

In Canada, and in other countries (including the US with regard to more recent works), a work enters the public domain on the first of January of the year following a set period of time after the demise of the author. In Canada, that set period is 50 years, which explains why the Milne work entered the public domain in Canada on January 1, 2007, Milne having died in 1956.  That set period is about to change to bring the duration of copyright protection in Canada into line with that of most developed countries, including the US and EU, that is to say, life of the author plus 70 years. This was one of the copyright issues dealt with in the USMCA/CUSMA trade agreement. Judging by the thrust of its report, however, the CBC doesn’t seem to think this is a good idea.

For groups like the Center for the Study of the Public Domain at Duke University, the proclamation of “public domain day” on January 1 of each year is an attention getter. The public domain has been part of the structure of copyright law ever since the first copyright laws were introduced, although there are those who believe that since copyright is a property right it should not lapse, just as other property rights do not expire. From the perspective of a rights-holder, the impending lapse of copyright in a property could be compared to the clock running out on a property lease on which your house has been built. The closer to the expiration date, the less value there is in the property. However, historically copyright has always been a limited property right. The original copyright law, the 1710 Statute of Anne, provided for 14 years protection with a possible extension of an additional 14 years if the author was still living. This was mirrored by the 1790 US Copyright Act. Since then, the duration of protection has been extended for several good reasons, such as providing additional incentives to authors to create (an extended term of protection makes a work more valuable when the rights are licensed or assigned), to providing the incentive for corporate rights-holders to invest in updating and further developing a property.

Those who go to inordinate lengths to “celebrate” a work going into the public domain help feed the false narrative that a work under copyright is one that is “locked up” and unavailable to the public. The Center notes that works falling into the public domain are “free for all to copy, share, and build upon”. That’s true, but a work under copyright is also available for all these purposes through licensing, and/or fair dealing/fair use exceptions. The original Milne Winnie-the-Pooh book has been in the public domain in Canada now for 15 years and I am still waiting to see the explosion of “re-imagined” new works built on it based on the fact that it is no longer under copyright protection. I am not holding my breath for the sudden emergence of new Pooh-based works in the US either. And when authors create new works based on public domain material—guess what? These new works fall under copyright because authors rightly want to protect what they have created. The reality is that one of the main beneficiaries of works falling into the public domain are publishers who can then republish popular works without having to secure the rights. In theory, these works should be cheaper for the public but often they are just as expensive as similar works under copyright, the publisher having fattened its margins rather than pass on the savings to consumers.

We all know that one of the big reasons for so much interest in Pooh is because of the successful Disney animated films. Disney purchased the rights to Milne’s works and characters in 1961 from the Slesinger family who had obtained the rights from Milne in 1930. In 2001 it was reported that Disney bought out remaining royalty rights for £240 million of which £150 million went to the Royal Literary Fund. Since acquiring the rights, Disney has given a whole new life and personality to the Milne characters. (TTFN says Tigger). So, what does the fact that Milne’s 1926 book has entered the public domain (in the US) mean for the Walt Disney Company? Not much. First, only Milne’s first Pooh book is now in the US public domain, not his later 1928 work where Tigger appeared for the first time. But more important, Disney has copyright in the films that it has made, and the anthropomorphic characters that it created, and these rights will last for several more decades. In addition, it has protected some of its IP through trademark registrations as well. And what is wrong with that?

The Winnie the Pooh that most of us know today is the creation of Disney talent, inspired of course by Milne’s book. In the case of Milne’s characters, which were still under copyright, Disney purchased the rights, as it has done for some of its other films like Alice in Wonderland. In the case of many other Disney works, they were based on works or stories already in the public domain, such as Grimms Fairy Tales, published in 1812 (Sleeping Beauty, Cinderella), Hans Christian Anderson (The Little Mermaid) and others including Robin Hood and Pinocchio. While the Disney films and characters are based on the original books, no-one can deny that the Disney studio has imbued these stories and characters with new life and meaning, creating something quite different in the process. (Often the dark endings have been replaced by something more palatable to modern tastes, plus the characters themselves—like the Seven Dwarfs–have been given unforgettable personalities).

The investment in the creation of these works has been enormous, but for the most part so have the commercial benefits. In the process, Disney has brought delight and entertainment to generations of children and their parents. Without the return on investment from its earlier films, Disney would not have continued to be so creative and productive with its most recent generation of animated film releases. Yet somehow, in the eyes of public domain advocates, Disney is at fault for protecting its considerable investments in animated story-telling. Mickey Mouse is a favourite target. But let us not forget that copyright protection has enabled the business model that has led to a wealth of children’s entertainment enjoyed world-wide. Disney will rightly continue to protect its interpretation of Pooh and his friends for many years to come, and we will all benefit.

I could not end this blog without going back to Pooh to highlight his Canadian connection. Most readers in the UK and US will not be aware of this story, and it may be new to many in Canada as well, although it got coverage from the CBC on Winnie’s 100^th anniversary a few years ago. Winnie was an orphaned bear cub from White River, Ontario who was purchased for $20 by Lt. Harry Colebourn of the Canadian Army Veterinary Corps as his troop train passed though the town on August 24, 1914, on the way to Quebec to embark for Britain with the Canadian Expeditionary Force. Colebourn named the bear Winnipeg (shortened to “Winnie”), in honour of the city where he had been living. Winnie went with the troops overseas and once in Britain, became the mascot of a Winnipeg cavalry regiment, the Fort Garry Horse. When the time came for the unit to be shipped to the fighting in France, Harry decided to donate Winnie to the London Zoo for the duration of the war. Whenever he was back on leave, he would pay the bear a visit. He had originally planned to take Winnie back to Canada after the war, to the Assiniboine Zoo in Winnipeg, but the very tame Winnie had become such a huge crowd pleaser and favourite of children in London that Colebourn made the donation permanent. Winnie’s sojourn at the London Zoo lasted until her death in 1934. (Yes, the real Winnie was a female bear). The full story is recounted in more detail here.

One of the children who regularly visited Winnie at the zoo was Milne’s son, Christopher Robin Milne, who like many children at the time probably played with the bear. Christopher Robin had a teddy bear, named Edward, but apparently soon dubbed it Winnie. When Milne began writing the story of the animals in the Hundred Acre Wood, the chief bear protagonist became Winnie the Pooh. And the rest, as they say, is history.

The town of White River has jumped on the Winnie bandwagon and each year holds a Winnie the Pooh festival. There is also a statue, and a park named after the famous bear. The City of Winnipeg also has a statue of Colebourn and Winnie in Assiniboine Park. A few years ago, Canada Post issued a series of four Winnie the Pooh stamps (see blog image above) in conjunction with the Walt Disney company. There was some controversy about this, but not over copyright issues. Canada Post and Disney collaborated fully on the production of the stamps, but some curmudgeonly Canadian nationalists grumbled about images of the Magic Kingdom appearing on a Canadian postage stamp!

Even though Canada can claim some tenuous connection to the famous bear, Pooh truly belongs to the world. The two Milne books on Pooh have been translated into many languages, even Latin. Winnie Ille Pu is the only book in Latin ever to make the New York Times bestseller list. The Latin translation was copyrighted in 1960 by the translator, Alexander Lenard, so the Center for the Study of the Public Domain will not be “celebrating” the release of this edition from the “bondage” of copyright for a while yet. It is interesting to note that the right to translate, or to authorize translations, is one of the bundle of rights conferred on the author or rights-holder by copyright law. Although the work is only now entering the public domain (in the US), that fact that it has been under copyright has not impeded the spread of the word of the “bear with little brain” in many languages around the world. As Pooh would say, “People say nothing is impossible, but I do nothing every day.”

© Hugh Stephens, 2022. All Rights Reserved.

Nowadays it is not uncommon for major telecommunications companies (telcos) to provide infrastructure in the form of wireless, wireline and fibre optic, cable and satellite connectivity while also directly controlling some of the content distributed via this infrastructure. Think AT&T/Warner Media, NBC Comcast, Sky (owned by Comcast) and, in Canada, Bell Canada and Rogers Communications. In addition, even telcos that are not vertically integrated play a gatekeeper role for content providers (except for content providers that reach audiences through streaming) through their control of distribution platforms. Therefore when telcos merge, there can be significant implications for content providers.

This is the situation in Canada with the proposed acquisition by Rogers of Shaw Communications, a merger estimated at CAD$26 billion. For those not familiar with the Canadian telecommunication and broadcasting landscape, Rogers is a major provider of cable and internet services, primarily in Ontario and Atlantic Canada, and operates one of the four national wireless (mobile phone) networks. Rogers also owns a number of TV stations such as CITYtv in Toronto, the multicultural OMNI channel and sports channels. Shaw is a leading cable and satellite provider in addition to operating a wireless mobile phone division, based in Western Canada. If the merger is approved, Rogers would acquire Shaw’s cable networks in Western Canada, and its national mobile phone division known as Freedom Mobile plus a number of community broadcast channels. Shaw also used to own major content assets, such as the Global TV network, (one of two major private national TV networks in Canada) but spun them off to Corus Entertainment in 2016 although the Shaw family maintains a controlling interest in Corus (but as a separate entity).

Despite Shaw no longer controlling media assets, opponents of the merger–among whom are (to no-one’s surprise) Rogers’ main telco competitors Bell Canada, (itself a vertically integrated company that controls Canada’s other major private TV network, CTV, along with a number of specialty general interest and sports channels and a Pay Per View service called CraveTV), and Telus Corp—are claiming that if allowed to proceed, the combined Rogers/Shaw company would dominate the Canadian television distribution landscape, controlling 47 percent of English-language broadcast subscribers in Canada. According to testimony provided by opponents of the merger, the transaction will give Rogers a dominant position in negotiations for carriage with independent channels, leading to reduced revenues for Canadian content producers.

The real issue is really not about broadcasting, however. It is all about wireless. The Government of Canada has long pushed to have 4 major competing national wireless networks as a means of promoting more competition in the market. Critics are constantly pointing out that Canadian consumers pay some of the highest cell phone rates in the world, and the government wants to change this. What Canadian consumers enjoy right now could be characterized as access to 3 ½ networks; Bell, Telus, Rogers and Shaw’s Freedom Mobile as a weak fourth. Shaw bought the fourth carrier, then known as Wind Mobile, in 2016 after its previous owners found they did not have the deep pockets needed to compete with the “Big Three”. The government had done policy backflips in order to allow Wind to come into existence, making exceptions to the policy that mobile carriers had to be majority Canadian owned, with foreign ownership limited to 33 percent. When Shaw finally stepped in to takeover Wind (selling its media assets to finance the purchase), policy makers breathed a sigh of relief. However, even Shaw could not get the fourth network up to scale and with the need for further major investment to build out 5G technology, the folding of Freedom Mobile into one of its three big rivals began to look inevitable. Rogers got there first.

The combination of Shaw’s market predominance in the west with Rogers strong base in Ontario makes a lot of market sense, unless you happen to be a competitor or perhaps a consumer. Cell phone plans will not go down in price, but at least a combined Rogers/Shaw operation can compete with Bell and Telus in terms of rolling out 5G. The real issue with the merger is going to be whether it will advance or impede competition in the wireless market. That call will be made by the Competition Bureau, which has already called for submissions. (It is not the practice of the Bureau to hold public hearings.) However, unlike the Competition Bureau, the Canadian Radio-television and Telecommunications Commission (CRTC)—the regulator–has recently completed public hearings to review the merger from the perspective of its implications for broadcasting.

While the CRTC is responsible for both broadcasting and telecommunications regulation, it has determined that it has no need to review the telecommunications aspects of the proposed deal. According to the CRTC;

“…the transaction also involves Shaw’s wireline telecommunications services (including home telephone and Internet), wireless telecommunications services (including wireless telephony operating under the brands Freedom Mobile and Shaw Mobile), and business automation and security. The present application does not include these services since the change in ownership of these elements does not require prior approval from the Commission. However, these elements will be subject to review by the Competition Bureau and Innovation, Science and Economic Development Canada.”

While Telus and Bell will certainly oppose the merger in their submissions to the Competition Bureau based on their opposition to consolidation of wireless and wireline phone and internet services, since the CRTC’s review was focused only on broadcasting, that is where they aimed their guns in the public hearings. While the merger entails the acquisition by Rogers of very few direct broadcast content assets (just a few Shaw community channels), the real impact will come when/if it takes over Shaw’s cable and satellite distribution. This will result in one less platform available to content providers (although perhaps the combined platform will have as many or more subscribers), a concern for smaller, independent channels.

Prime space on platforms is limited. Ideally, from the perspective of a small independent channel, the CRTC would give it “must carry” status, meaning in effect it will get a few cents from the platform for every sub whether or not it has much of an audience. Providing diversity of content is the main argument for such a practice. If not a “must carry” then an independent channel must negotiate for carriage with the platform and a Rogers/Shaw merger not only gives the new combined platform considerable market share and consequently power, but also means one less platform for the content providers to negotiate with. It is not surprising, therefore, that several CRTC interventions were made on behalf of independent content providers seeking guarantees of carriage. In particular ethnic media channels, such as TLN Media Group and the Ethnic Channels Group expressed concern that their content could be shut out from an enlarged Rogers platform.

Concern was also expressed by another Rogers competitor, Telus Corporation, about the impact of the merger on Global News, one of Canada’s three private news networks (Rogers’ CITYtv and Bell’s CTV being the others). Global, formerly owned by Shaw but now owned by Corus Entertainment (which as noted above is still controlled by the Shaw family but as a separate entity) currently receives $13 million annually, or about 10 percent of its budget, from Shaw. Shaw is required by the CRTC to contribute to Canadian programming (even though it does not directly own any commercial channels) and is permitted to direct part of its mandated contribution to local news production, which it does through its contribution to Global News. Rogers is proposing to instead redirect these funds to its own network, CITYtv, which has a very limited presence in western Canada. So why would Telus, a major telco but one which owns no media assets and has no connection with Global News, suddenly be so concerned about a network ultimately controlled by the Shaw family, one of its biggest rivals? The answer is that anything that Telus or Bell can do to put a spanner into the works of a Rogers/Shaw merger is worth raising as an issue.

In response to the various criticisms, Rogers agreed to increase the number of independent channels it will carry from 40 to 45, but rejected demands for revenue guarantees. As for being required to continue to fund Global, a Rogers spokesperson said it was hard to “get our head around” the idea of funding a rival network to its own CITYtv. Eventually, sometime in the new year, the CRTC will issue its report. It will likely consider imposing some requirements on Rogers to continue to ensure the vitality of Canadian specialty channels, but these will just be road-bumps for Rogers. The CRTC could in theory recommend that the merger not be permitted to proceed because of the extent of control it will give Rogers over English language broadcasting content distribution in Canada, but this would truly be a case of the content dog wagging the wireless dog.

The real review will be the one conducted by the Competition Bureau. The Bureau’s examination scope is wide, covering mobile wireless services, internet service, fibre transport service, supply of television programming and broadcasting distribution services. However, it is expected to focus primarily on wireless and internet issues. The Bureau could possibly require that Rogers divest Shaw’s Freedom Mobile and not absorb it into Rogers own mobile platform. That seems unlikely as it raises the question of who would buy it. A forced spinoff could cause the entire deal to fall apart and besides, there aren’t many potential suitors for the struggling fourth mobile network. Despite years of government effort, Canada’s wireless market will likely continue to be dominated by the Big Three of Bell, Telus and Rogers, and Canadians will probably continue to complain about the cost of wireless plans. One potential solution is for the CRTC to force the Big Three to open their networks to smaller operators who “ride on top” of their networks. These independents are known as MVNO’s (Mobile Virtual Network Operators). Not surprisingly the big telcos are very resistant to giving these competitors an opening.

In the final analysis, wireless concentration is the major issue that will be addressed in this merger. Despite the not insignificant implications for broadcasting, the CRTC’s review late last year was, frankly, a side show to the main Competition Bureau event.

© Hugh Stephens 2022. All Rights Reserved.

Update: On March 3, 2022, Industry Minister Champagne announced that he would not approve the wholesale transfer of Shaw’s wireless licences to Rogers as part of the merger. The Ministry that Champagne directs is responsible for spectrum allocation. The proposed merger is still being reviewed by the Competition Bureau and the CRTC. Champagne’s announcement means that at least some of Shaw’s Freedom Mobile will have to be spun off if the merger is to be approved.

As I noted in my year-end wrap up a couple of weeks ago, some of the copyright and content related issues that were under discussion in Canada in 2021 will likely move forward in a more aggressive way this year. The federal election last fall put on hold a number of copyright-related issues that were in process. Parliament lost several months of work, plus all pending legislation died at the time of the election call and needs to be re-introduced into the new (44^th) Parliament. So far, the current Parliament has met for just a few weeks, sitting from November 22 to December 17, 2021, primarily to outline new legislative priorities. Mandate letters for ministers were released on December 16, and among the issues tasked to Pablo Rodriguez, the Minister for Canadian Heritage, are four big files concerning content industries. Rodriguez is instructed to;

1. “Work with the Minister of Innovation, Science and Industry to amend the Copyright Act to further protect artists, creators and copyright holders, including to allow resale rights for artists.”
2. “Reintroduce legislation to reform the Broadcasting Act to ensure foreign web giants contribute to the creation and promotion of Canadian stories and music.”
3. “Swiftly introduce legislation to require digital platforms that generate revenues from the publication of news content to share a portion of their revenues with Canadian news outlets to level the playing field between global platforms and Canadian outlets. This legislation should be modelled on the Australian approach and introduced in early 2022.”
4. “Continue efforts with the Minister of Justice and Attorney General of Canada to develop and introduce legislation as soon as possible to combat serious forms of harmful online content to protect Canadians and hold social media platforms and other online services accountable for the content they host. This legislation should be reflective of the feedback received during the recent consultations.”

That is a lot to have on one’s plate and one cannot help but wonder how much of this will actually get done. These issues have all been around for some time, and most have already been the subject of online consultation and in some cases, Parliamentary review through committee. Let’s look at each in turn.

Copyright Act Amendments

On the first item, a Copyright Act update is overdue. In theory the Act is supposed to be reviewed every five years. The last significant legislative update was in 2012. In 2019 two Parliamentary committees reviewed the Act and issued somewhat conflicting recommendations, but to date no changes have been introduced. Last year there were several public consultation documents issued regarding copyright, the first on implementation of Canada’s commitment under the USMCA/CUSMA to extend the term of copyright protection, a second discussing a modern copyright framework for online intermediaries and the third on copyright and artificial intelligence and the Internet of Things.

The copyright term extension question is the most pressing, as Canada is required to implement the twenty-year extension agreed to in the USMCA trade agreement no later than December 31, 2022. The consultation paper addressed a number of implementation issues, such as orphan and out of commerce works, while also seeming to dismiss proposals for the institution of an additional registration requirement in order to access the longer period of protection as advocated by some opponents of extending copyright duration in Canada. The implementation of Canada’s USMCA/CUSMA obligation, hopefully done in a straightforward way without the imposition of additional registration barriers, could be rolled into a broader copyright reform bill, or could be bundled into some other omnibus legislation.

The second consultation paper dealt with issues such as safe harbours for internet intermediaries and possible regulations regarding site-blocking of pirate websites, a measure already upheld on appeal by the courts in Canada. The AI paper raises questions such as ownership of works created by AI and the addition of possible additional copyright exceptions to address data mining, among other topics.

Another copyright issue that needs to be addressed, in addition to the introduction of an Artists Resale Right mentioned in the mandate letter, is the question of mandatory tariffs to fix the disastrous decision by the Supreme Court in July 2021 upholding the Federal Court of Appeal’s (FCA) ruling that mandatory tariffs covering unlicensed use of copyrighted content are not reciprocally binding on rights-holders and users alike. The FCA found that for users they are only optional, thus undermining one of the pillars of Canada’s collective licensing regime. Parliament needs to fix this. The wording in the mandate letter instructing the minister to amend the Copyright Act “to further protect artists, creators and copyright holders” offers some hope. The pendulum has swung so far in favour of unlicensed uses that some rebalancing is badly needed.

Broadcasting Act “Reforms”

The next item on Mr. Rodriguez’s “to do” list is reintroduction of “reforms” to the Broadcasting Act, known as Bill C-10 in the last Parliament. This is a hot potato for a couple of reasons. In the last Parliamentary session, the legislation passed in the House but failed to get through the Senate before the election was called. In the parlance of the mandate letter, it targets “foreign web giants” to ensure that they “contribute” to the production of “Canadian stories and music”. Put more bluntly, it is designed to extract funding from foreign players like Netflix, Amazon Prime, Disney Plus, Spotify and other online streaming platforms to support Canadian production. Not production in Canada, of which there is plenty, some of it supported by these same platforms, but “Canadian production”.

The question of what qualifies as “Canadian production” is, to say the least, arcane. Currently, a production using a Canadian story with a Canadian director and Canadian actors does not qualify as Canadian content if the financing is not Canadian controlled (i.e. it is not produced by a Canadian-owned production company) and, under the draft legislation, if the copyright of the production is not held by a Canadian. What is the goal?  Is it to tell more Canadian stories in Canadian settings to Canadian and global audiences or is it to ensure that more money is put into the hands of “qualified” (i.e. Canadian) producers by extracting from streaming services a “tax” similar to that which is imposed on conventional broadcasters? Those broadcasters must, as a condition of licence, spend at least 30 percent of their aggregate revenue in the previous year on Canadian content programming. While full foreign funding automatically disqualifies a production from meeting Canadian content requirements, there seem to be no qualms about requiring foreign producers to pay into a fund that would then be used to finance Canadian production. In effect the foreign funds are laundered through a Canadian production house. Finding the right balance to promote the creation of Canadian content (and sensibly defining what that is) while incentivizing the telling and distribution of Canadian stories by international production houses is a major challenge.

The other controversial aspect of the previous Bill C-10 was its application to platforms like YouTube, Twitter, Facebook and Instagram through inclusion of user-generated content (UGC) in “discoverability” requirements imposed on the platforms. To have omitted UGC would have created a massive loophole. YouTube, for example, is one of the primary music and video distribution platforms in the country. There is no reason to grant UGC an exemption from the application of law and regulation, as long as individual expression is subject to the normal protections afforded by the courts and the Charter. Critics accused the government of empowering the regulator, the CRTC, to censor content posted to social media by individual Canadians. This was a canard and a misunderstanding of the intent of the legislation since the obligations would have applied only to the platforms and would have had no impact on individual freedom of expression. We will have to wait to see whether and in what form the UGC issue is addressed in the 2022 version of the legislation.

Payment for Unlicensed Use of News Content by Internet Platforms

Rodriguez’s instruction on this issue could not be clearer. “Swiftly introduce legislation” to require payment by digital platforms to Canadian news providers when the platforms generate revenue from that content, “modelled on the Australian approach”. This is clearly an idea whose time has come. One option the government had been considering was following the EU model of granting news publishers an ancillary copyright in their content, but it has now opted for the successful Australian model of using competition law to deal with the issue of free-riding by the platforms. With the Australians having taken on Google and Facebook and brought them to heel, the task should be considerably easier for the Canadian government. (The US government is also studying the issue.) Just the threat of legislation has inspired Google to reach content deals with many Canadian news providers. This legislation will provide the needed legal backstop.

Online Harms Legislation

This will be a big issue in 2022. There is no question that social media platforms and online services (Facebook, Instagram, Twitter, YouTube, TikTok, and Pornhub are specifically identified) need to be held to greater account for the socially harmful content posted by users that they knowingly host (and from which they often profit). The trick is to define “harms” in such a way that is clear and legally sustainable. This is easier to do for some harms than for others. In this regard, the offline world can provide precedents. A consultation paper was released in the fall of 2021 outlining the five categories of harms that would be regulated; terrorist content; content that incites violence; hate speech; non-consensual sharing of intimate images; and child sexual exploitation content.

The consultation paper proposes that a Digital Safety Commission be established to regulate platforms, with strong enforcement powers. Platforms would be required to establish reasonable monitoring mechanisms, assess flagged content, and remove harmful content within 24 hours, subject to appeal. They would also be required to establish a flagging and appeal process. Legislation would require greater transparency from platforms and impose an obligation to notify law enforcement in the case of “imminent serious harm” or potential criminal conduct. The paper elicited a number of comments, some negative, many of them from “internet freedom” advocates traditionally opposed to any meaningful regulation of the internet. Objections range from the requirement for a takedown within 24 hours to the obligation to share information with law enforcement to opposition to site-blocking powers. While one must be careful to target only behaviour and content that is truly harmful and illegal, it is also time to increase the pressure on platforms to exercise greater responsibility.

A recent, egregious example of the kind of harmful material found on the internet was this report in the New York Times about a “how to” suicide website. Site-blocking for online harms would be one effective way to deal with such outrageous content, given that the search engines refuse to delist the website. Those who oppose Canada extending its regulatory reach to international internet platforms, like University of Ottawa law professor Michael Geist, cite Article 19.17 of the USMCA/CUSMA as an obstacle. Geist claims that Canada agreed to provisions in the USMCA/CUSMA that “look very similar” to Section 230 of the 1996 US Consumer Decency Act and makes the dubious claim that if Canada enacts online harms legislation that creates new liability for the platforms, the US might take retaliatory trade action.  Section 230 is the much-criticized US legislation that absolves internet platforms of any civil liability for user content on their platforms. It has been much abused over the years by the platforms who have used it as a shield to avoid taking action to moderate or remove harmful content.

Dr. Geist’s conclusion is inaccurate for several reasons. First, Article 19.17 may contain some phrases that are similar to parts of Section 230, but it is quite different in terms of its effect. As I wrote in an earlier blog posting (here), it imposes no obligations on Canada to enact any laws that would entrench Section 230 immunities in Canadian law because Canada protected its ability to implement 19.17 through its “laws, regulations, or application of existing legal doctrines as applied through judicial decisions”. Second, Article 19.17 is subject to a “public morals and public order” exception (embedded in Annex 19-A), an exception that the US has itself used in the past (Antigua online gambling case). If tackling online harms such as terrorism, child sexual exploitation, incitement to violence etc. doesn’t fall within the ambit of protecting public morals or maintaining public order, then I don’t know what does. Third, Section 230 and indeed Article 19.17 deal only with civil liability. Article 19.17 has an additional provision, subsection 4 (c) which states that;

“Nothing in this Article shall…be construed to prevent..(i) a Party from enforcing any criminal law; or (ii) a supplier or user of an interactive computer service from complying with a specific, lawful order of a law enforcement authority”

The online harms legislation in Canada will involve the Criminal Code. Raising USMCA Section 19.17 as a potential obstacle to introducing online harms legislation in order to hold the platforms more accountable for harmful content they allow to be distributed to users is just one more red herring dangled by opponents of the legislation.

The online harms bill is to be introduced “as soon as possible” while reflecting feedback received during the recent consultation. That suggests that it may not have as high a priority as some of the other items on Minister Rodriguez’s task list.  We shall see.

Other developments

In addition to the four “to do” items included in the Heritage Minister’s mandate letter, there are some other issues in the content field on the 2022 agenda, the primary one being the proposed acquisition of Shaw Communications by Rogers, a subject I plan to write about in a subsequent blog posting. This merger has both significant content and telecommunications impacts.

 It promises to be a busy year as Justin Trudeau’s minority government tries to steer several key pieces of legislation through a Parliament where it will require the support of at least one major opposition party to get anything done. The stakes are high, particularly for rights-holders and copyright industries, and there are hopes–and expectations—that the new 44^th Parliament will achieve more than the unfinished business of the last one.  

© Hugh Stephens 2022. All Rights Reserved.