Where do US interests lie when it comes to Canada’s Online News Act?

Back in November, US Trade Representative Katherine Tai met virtually with her Canadian counterpart, International Trade Minister Mary Ng. According to the account of the meeting released by USTR, among the issues raised was impending or proposed Canadian legislation related to digital platforms;

“Ambassador Tai expressed concern about Canada’s proposed unilateral digital service tax and pending legislation in the Canadian Parliament that could impact digital streaming services and online news sharing and discriminate against U.S. businesses.”

The critics of the pending legislation, particularly Bill C-18, the Online News Act, jumped on this statement as proof that the US might retaliate if the Bill is passed, sounding the klaxon of doom. In case anyone missed it, C-18 is designed to implement a negotiation process (backed up by government enabled compulsory arbitration if negotiations fail) for compensation for the use of news content by “digital news intermediaries” (which for sure include platforms such as Alphabet/Google and Meta/Facebook, and possibly others in future) and designated news businesses in Canada. It is based on Australia’s example where that country introduced a News Media Bargaining Code requiring the platforms to negotiate payment with news providers for providing access to Australian news. If a suitable deal was reached, the platforms could avoid designation under the Code. Not surprisingly, incentivized by the threat of legislation, the platforms managed to strike deals with most media outlets in Australia, although not without some initial game-playing and resistance by both Google and Facebook. The Canadian legislation is designed to do much the same, although with more transparency and more guidance on where the money is to be spent (on newsrooms).

The platforms have pulled out all the stops to oppose the Canadian legislation, which they probably see as writing on the wall for what is likely to happen eventually in the US. Facebook has threatened to block posting of Canadian news on its site in Canada, a tactic it also employed in the US to fight back similar legislation (Journalism Competition and Preservation Act, JCPA) being considered in Congress. (The JCPA almost made it through the US legislative mill last year, having been attached to the National Defense Appropriations Bill, but in December of 2022 the platforms and others mounted a counter-offensive that succeeded in getting the news provision dropped from the Defense Bill at the last moment).

Another tactic the platforms have used is to dredge up various claims that C-18 violates Canada’s commitments under the new NAFTA, the USMCA (or CUSMA in Canada), or the Berne Convention. An industry association to which both Google and Meta belong (Computer & Communications Industry Association, or CCIA) produced a White Paper arguing that if enacted, C-18 would violate Canada’s international trade obligations in several ways. The CCIA’s paper not only misconstrued key elements of C-18, its analysis did not stack up in terms of demonstrating any denial of national treatment to US companies, as I outlined in a previous blog post and article, (Bill C-18, the Online News Act: Does it Violate Canada’s Trade Agreement Obligations?).

One voluble critic of C-18 made much of the fact that the USTR read-out of the meeting contained the reference to Canadian legislation that I reproduced at the top of this blog post, whereas the Canadian read-out did not. (Michael Geist, A Tale of Two Readouts). Suggesting that there was some sort of subterfuge by Canada on this is just plain silly.  For its part, the Canadian statement mentioned topics that did not make it into the US read-out such as softwood lumber and the need to maintain a well-functioning dispute settlement system within the WTO, both areas where Canada is not happy with US positions. (The latter refers to the current US position on the WTO’s dispute settlement system which has led it to block future appointments to the WTO’s Appellate Body). Regardless of the relative merits of the issues discussed, it is standard practice in reporting on such meetings that each side highlights the issues it has raised, not those brought up by the other side. The fact that the Canadian statement did not include Ambassador Tai’s comments on digital legislation is not even worth commenting on—unless you want to make a big deal out of nothing.

More important is the import of what USTR Tai had to say. Was the fact that she “expressed concern” over legislation that “could…discriminate” against US businesses an “Oops, we’ve got it wrong, and had better change the legislation” moment for Canada? Hardly. It is true that USTR was laying down a marker, as it frequently does, expressing its view that US businesses should not be discriminated against, especially when there are national treatment commitments that could be infringed. And of course, Trade Minister Ng “reassured” Tai that Canada’s legislation is consistent with its trade obligations. This is standard back-and-forth positioning between countries when measures that could affect the interests of the other are under consideration.

Of particular concern to the US is the position of Canada and a number of other countries regarding a proposed Digital Services Tax (DST). DST’s have been proposed in many countries because some large companies operating digital platforms have managed to avoid being taxed in many jurisdictions where they generate considerable revenue, yet have no or minimal physical presence. Note that many, indeed most, of these companies are incorporated in the US. The DST is designed to tax companies doing business digitally but with no physical presence by imposing a levy based on a percentage of income (usually around 3%) earned in respective jurisdictions. The EU has been particularly active in this regard, and some countries have already imposed a digital tax. In 2020 the US imposed retaliatory tariffs on French luxury goods because France had imposed a DST that captured some US companies.

The OECD has been working for some time on an international agreement on profit-shifting that would address the issue of digital companies doing business in countries without a physical presence. If implemented, the agreement would avoid imposition of digital services tax by individual jurisdictions. That process is going slowly, but a draft Convention has now been reached. The US, however, has not yet signed on. The Biden Administration is onside but the problem, as always, is getting the deal approved by Congress. Given this situation, a number of countries, Canada included, have prepared DST legislation and are prepared to enact it if a suitable agreement is not finalized soon. It is against this backdrop of shadow-boxing that USTR Tai “expressed concern about Canada’s proposed unilateral digital service tax”. Since Canada is also developing the Online Streaming Act (to bring streaming content under the Broadcasting Act) and the Online News Act, C-18, why not throw them in too as areas of “concern”? But does this mean that this is setting the stage for a trade challenge by the US to C-18? Most unlikely.

Apart from the fact that C-18 is of far less concern to the US Government than the digital tax issue (the main issue with the DST is that if other countries tax US-based digital companies unilaterally, there could be less revenue for the US Treasury), there is also a huge difference in the impact and design of the legislation. While C-18 will likely target a couple of large US-based digital players, it will also benefit any US news companies that have qualifying news bureaux in Canada. Bloomberg and the NYT come to mind. The Online News Act is not discriminatory legislation aimed at US companies; rather it is legislation designed to reign in and require payment for content by mammoth internet platforms that exist as virtual monopolies. And the goal of this legislation has support in the US.

The fact that the interests of the United States and those of Google and Facebook are not one and the same was clearly highlighted in the form of a letter written to USTR Tai in mid-December by Danielle Coffey, Executive Vice President and General Counsel to the News/Media Alliance (NMA), a US industry association representing over 2000 publishers nation-wide. (News/Media Alliance Reminds USTR of the Importance of High-Quality Journalism). The NMA has been actively pushing for similar legislation to C-18 in the US and has been an active proponent of the JCPA (Journalism Competition and Preservation Act). Even though the JCPA just failed to secure adoption in the last Congress, the NMA will continue to advocate for it.

In its letter, the Media Alliance expressed its “serious concerns” over the comments that Tai made to Trade Minister Ng about C-18. The NMA letter says, “We believe this…fails to represent wider US business interests, in addition to contravening the public policy concerns underlying Canada’s C-18 and similar efforts elsewhere , including the United States”.

The letter goes on to say;

“Numerous studies, reports, and investigations have shown without question the ways that (a few dominant) platforms impose unfair terms on news publishers and other actors in the online ecosystem and reap the majority of the benefits, including digital advertising dollars and user data. The legislative measures – in Canada, other countries, and the United States – aim to correct these market failures and rebalance the online marketplace by making sure the platforms cannot benefit from publisher content without compensation. They are focused on tackling specific business practices by those with the most power – regardless of their national origin. The fact that many of the dominant companies engaging in these damaging practices, and therefore affected by the legislations, are incorporated in the United States does not make these laws discriminatory.”

It continues;

“Publishers in the United States stand firmly with our international partners in supporting laws to combat market abusive business practices in the online ecosystem, including the Online News Act. Not only do many of our members have readers or operations in Canada, we strongly believe that such laws correspond with the public policy objectives of the United States to protect the free press.”

Finally, it concludes with; (emphasis added)

“We strongly believe that the Office of the USTR should represent the whole of the United States, not the interests of a few large companies… we urge you to refrain from taking positions that benefit one sector of the U.S. economy at the expense of others.”

That last sentence says it all. Important US interests align with the objectives of C-18. This is yet one more reason why the US Government will not be bringing retaliatory trade action against Canada for implementing the Online News Act.

© Hugh Stephens, 2023. All Rights Reserved.

More Public Domain “Triumphs”: Winnie the Pooh “Blood and Honey”, and The Great Gatsby (Zombie Version)

Credit: Generated on Stable Diffusion by author

Every year around the beginning of January, a lot of public domain hyperbole hits the airwaves with stories about how our lives are about to be enriched now that such-and-such a work is no longer under copyright protection but has fallen into the public domain. It will now be free for anyone to use for remixing, reissue, republication, alteration, distortion…etc. Usually this “excitement” is fed by groups such as the Center for the Study of the Public Domain at Duke University, which has carved out a niche for itself as the go-to place for any reporter who wants a quick sound-bite or commentary to do a public domain story. The Center has proclaimed January 1 of each year as “Public Domain Day”.

This year is no exception, except that in Canada the “celebrations” have been put on hold because Canada has just extended its term of copyright protection by an additional twenty years, bringing its duration of copyright into alignment with that of its major trading partners, the US, EU, UK, Japan, Korea, and Australia. This has led to some hand-wringing in certain circles, such as the Canadian Association of Research Libraries, (which nonetheless has a fair point about access to orphan and out-of-commerce works, an issue that has yet to be addressed by the government,) to outright vitriol and misinformation from anti-copyright voices like TechDirt. (“Canada Steals Public Domain Works from the Public”). We are informed by other copyright skeptics that the works of former Canadian Prime Minister Lester B. Pearson, who died in 1972, will now not be in the public domain for an additional twenty years. (Is that the sound of silence that I hear?).

Much of the ballyhoo around “Public Domain Day” turns on the ability of anyone to “copy, share and build upon” previously copyrighted works (to quote the Duke Center). With copyright no longer applying to A.A. Milne’s 1926 book “Winniethe-Pooh”, which entered the public domain in the US last year (although it’s been in the public domain in Canada since 2007) and Arthur Conan Doyle’s “Sherlock Holmes”, which became a public domain work in the US on January 1 of this year (public domain in Canada since 1980), no licence, payment or permission is required to use, copy or adapt these works. Not only do the rights-holder’s economic rights over the work cease to exist, but so too does the ability to control any use of the work. In many cases, the rights are held by the author’s descendants, such as their children and grandchildren. One of the reasons for granting a period of protection post-mortem lasting for approximately two generations after death is the premise that to protect the integrity of the work, control over its use should be vested in those who have a living memory of the author.

With Milne’s first book now in the public domain, the door has opened to the “copy, share and build upon” phenomenon so dear to the folks at the Duke Public Domain Center, resulting in such new creations as the movie “Winnie the Pooh: Blood and Honey”. I haven’t actually been able to bring myself to watch it but according to the New York Times, “the pudgy yellow bear turns feral. In one scene, Pooh and his friend Piglet use chloroform to incapacitate a bikini-clad woman in a hot tub and then drive a car over her head”.  Great stuff. Duke’s Center for the Public Domain also touts the creation of Ryan Reynolds’ “Winnie-the-Screwed” ad for Mint Mobile and a comic strip in which Pooh celebrates his nudity as proof of the benefits of the Bear of Little Brain entering the public domain in 2022. When F. Scott Fitzgerald’s “The Great Gatsby” entered the public domain in the US in 2021, the Duke Center gushed that ,“There were …new works such as Michael Farris Smith’s prequel Nick, which tells the backstory of Nick Carraway, a graphic novel adaptation, The Gay Gatsby, The Great Gatsby Undead (the zombie edition), and reports of an animated movie as well as a Gatsby musical by Florence Welch from Florence + the Machine.” Wow. I am sure that F. Scott would have been delighted. What new interpretations of the sleuth of Baker Street can we await in 2023 thanks to Conan Doyle’s “The Case Book of Sherlock Holmes”, the final set of twelve of his short stories, now being in the public domain?

Those who make a big deal of celebrating the arrival of works into the public domain every January 1 are consciously feeding the misconceived narrative that a work under copyright is a work that is largely inaccessible to the public. The opposite is true. Copyright exists as an incentive for the production and dissemination of works. Without it, there would not only be much less creativity, but creative works would increasingly become the exclusive domain of those who are independently wealthy or subsidized in some other way (such as by having an academic position). Alongside this utilitarian purpose are certain moral rights allowing the author to protect the integrity of their work.

Those who want to see as much content put in the public domain in as short a time as possible, like the Canadian Association of Research Libraries to judge by its public positions, seem to regard copyright protection as an inconvenience to be bypassed or neutralized whenever and however that can be achieved. I mean, just think how much easier it would be for hunters and hikers if there was no private property and they weren’t ever impeded by “No Trespassing” signs. They could do whatever they want. The same mindset seems to apply in many of our academic institutions and in the library sector.  Others who want classic works in the public domain as soon as possible include publishers who specialize in re-issuing books where copyright has expired. There are many, but in Canada Broadview Press has been particularly vocal. This of course does not stop Broadview or other publishers like them from copyrighting the derivative editions they have just put on the market.

Let me conclude by saying that I am not opposed to the public domain, nor do I subscribe to the theory that copyright should last forever, a position advocated by some. For better or for worse, it is not a perpetual property right and there is no question that the existence of copyright can pose an impediment in some cases where a work is long out of print and the rights-holder cannot be located. These situations can be dealt with through specific exceptions, much as fair use and fair dealing allow for specified unauthorized uses that do not damage the rights of the author. However, the narrative that the public domain liberates content from the shackles of copyright is utter nonsense, although the way that some organizations and some journalists portray it, you would think that is exactly what happens.

It is pretty clear that Disney, the current holders of A.A. Milne’s copyright, would not have authorized the Winnie the Pooh horror film, nor would the F. Scott Fitzgerald estate, who control that writer’s copyrights, have greenlighted the zombie, gay or prequel editions of Fitzgerald’s work. If now having such (copyrighted) works available to the public is a breakthrough in creativity, as the Duke Center seems to believe, then so be it. To me, these “triumphs” are hardly a convincing demonstration of the wonders that await us once a work enters the public domain.

How about Sherlock Holmes meets Godzilla? Oh, Godzilla is not yet in the public domain? Damn! That would have been a major contribution to creativity and culture. How can we possibly live without it?

© Hugh Stephens Blog, 2023. All Rights Reserved.  

Why Can’t Canada Produce Top Quality Localized TV Drama like the Aussies Do?

Source: http://www.shutterstock.com

Canada’s Online Streaming Act, (Bill C-11) the draft legislation that will bring online streaming content under the purview of the Broadcasting Act, will continue its slow progress through Parliament in 2023. Review in the Senate last year led to a number of amendments, one of which dealt with the definition of Canadian content (Cancon). That amendment added a provision that no factor is determinative in establishing Cancon standards or equitable contribution rules. It is unclear at this point whether the government will accept any of the amendments adopted by the Senate or will reject them and send the Bill back to the Red Chamber for further review.

The Bill has many provisions and objectives but one of them requires the broadcasting regulator, the CRTC, to update the arcane formula that determines what content qualifies as “Canadian”. An amendment that would give the CRTC the flexibility to weigh various elements in determining what constitutes Cancon, rather than being bound by an outdated and inflexible formula, would be welcome. That is the approach taken in Australia, and this more flexible definition seems to have been successful in producing content that is recognizably and unabashedly Aussie.

As an example, I have just started watching the Australian “political thriller” Total Control, being broadcast and streamed on my local public television provider, Knowledge Network. It is a gripper, with great character development, contemporary storyline, and realistic settings. Most of all, it proudly and unabashedly Australian. For those not familiar with the show, it is the story of an Aboriginal woman, Alex Irving (played by Deborah Mailman) who achieves national prominence because of her bravery in stopping an act of gun violence. As a result of that, she is approached by the office of the Prime Minister of Australia (a women, played by Rachel Griffiths) to fill a vacancy in the Australian Senate. (While the Australian Senate, unlike the Canadian Senate, is an elected body, if a vacancy occurs due to a senator’s death, resignation or expulsion, a replacement can be appointed by the Governor of a state to complete the term. This was the case in this scenario). The government in the show has a narrow majority, and the PM is concerned about her future political career and the possibility of an internal coup. Given recent Australian political history, this is entirely plausible.

The new Senator has to deal with the pressure of adapting to her new political role while championing her people and the region she represents. The show is set in Canberra, where the corridors of power in Parliament are displayed both through the interactions of the protagonists and the physical settings of the offices and chambers, and in the outback, where Alex Irving lives. As a Canadian who has visited Australia, including the Parliament in Canberra a few times, it spoke to me. I can imagine that for Australians it is a story that has resonance. Certainly, the show has enjoyed generally positive reviews in Australia and is now being distributed globally. While acclaim has not been universal, what no-one can deny is that this is an Australian production that tells Australian stories in an Australian way. Australia has long been known for the excellence of its productions in telling Australian stories (and I am not talking about Crocodile Dundee), as well as producing Hollywood-style product for the international market. It has a thriving film industry and as a country that has managed to project its culture globally, it punches above its weight.

Canada also has a strong film industry, the largest part (in terms of value) based on Foreign Location Shooting (FLS), which brings many benefits. But when it comes to projecting Canadian culture through film productions, Canada punches well under its weight. In fact, you could say it has barely climbed into the ring. I cannot recall a Canadian drama where Canada’s political culture was a central part of the story. Ottawa and the Canadian Parliament never seem to appear on screen. Many of the themes explored in Australian productions such as the clash between Indigenous and “settler” cultures are similar to those in Canada, yet I don’t see this being explored in televised Canadian drama. Instead, we get clones of US shows (“Family Feud Canada”) or productions, like the award-winning Schitt’s Creek, where any possible indication that the show was filmed in Canada has been airbrushed out—all on the dubious premise that if it is to be sold in the US market, it must look American if it is to appeal to US audiences. (I am not convinced this is the case. When I look at the offerings provided by Netflix, they include US shows to be sure, but also Nordic, German, Spanish, Korean and Australian. Squid Game, produced in Korea with a Korean soundtrack, was Netflix’s most watched show. They even have some “Canadian” films on their platform, although not all of them meet the legal definition of “Canadian content”). I find it interesting that Australian shows seem to revel in their “Australian-ness” while Canadian shows generally go to great lengths to hide any reference to their Canadian origins. What accounts for this difference?

Some will say Canada’s geographical proximity to the United States is the biggest factor. It certainly is one reason why a lot of FLS production takes place in Canada, and there is no question that the sheer weight and quality of US content can easily overwhelm competing voices. But if that is true in Canada, it is also true in Australia, New Zealand, and perhaps to a lesser extent in the UK, just to name the leading English-speaking markets. To provide support to local production, Canada, Australia and the UK (as well as the EU) all have local production incentives linked to content requirements. Canada’s are particularly convoluted and confusing, as I wrote recently (“Unravelling the Complexities of the Canadian Content (CanCon) Conundrum”). Canada’s financial incentives for “CanCon” are essentially tied to who produces, directs, and finances a production. It matters not if the story has any Canadian connection whatsoever.

Blogger and commentator Michael Geist has had fun with his Cancon quiz in which readers are invited to guess whether a given production qualifies as Canadian content. (Hint: anything with any obvious relationship to Canada in terms of storyline, location or author doesn’t qualify whereas any production you have never heard of likely does). Most people don’t do too well on the quiz. Obscure co-productions with Norway or Ireland qualify but Disney’s “Turning Red, about a Chinese-Canadian girl growing up in Toronto, starring Canadian actor Sandra Oh, does not qualify nor does a production like “Ultimate Gretzky” or Margaret Atwood’s “Handmaid’s Tale”. The current Cancon policy is designed to support jobs in film production, not to promote identifiably Canadian stories. It is an industrial policy, not a cultural policy. The biggest single impediment to a production qualifying as Cancon, and thus being eligible to receive production incentives as well as meeting Cancon airtime broadcasting quotas, is the requirement that the copyright must be held by a Canadian. This eliminates all productions financed by international producers, from Amazon to Netflix to a Hollywood studio. The only exception is a treaty co-production—but there is no co-production treaty with the US.

Australia also has content quotas for commercial television broadcasting.[i] While less onerous than Canada’s, they are designed to do essentially the same thing by ensuring that a certain amount of Australian content is shown on primetime TV. Australia is also considering extending the quotas to online streaming (Subscription Video on Demand—SVOD) services as is happening in Canada with Bill C-11, the Online Streaming Act although, as in Canada, there is some pushback. The big difference between Australia and Canada, however, is not how content quotas are applied, but in how national content is defined. I have already referred to the unnecessarily complex and confusing formulae for deciding on Canadian content. It is based on four key elements (production control, copyright and distribution rights, creative positions and production spend) and calculated using a complicated points system, where productions must get a minimum of 6 points out of a possible 10 (10/10 for access to some funding), based on the following;

The writer gets 2 points; the director gets 2 points. Either the writer or the director must be Canadian. The highest and second highest paid performers each get 1 point and one of these two must be Canadian. For live action productions the other 4 points go to the Director of Photography, the Production Designer; the Music Composer and the Picture Editor.”

Simple it’s not.

Australia, like the UK, takes a broader view of what constitutes Australian content. According to Screen Australia and the Government of Australia in its “Producer Offset Guidelines”, the SAC (Significant Australian Content) Test—which is applicable for the producer offset (tax rebate) and compliance with quotas–covers the following;

  • the subject matter of the film
  • the place where the film was made
  • the nationalities and places of residence of the persons who took part in the making of the film
  • the details of the production expenditure incurred in respect of the film
  • and any other matters that we consider to be relevant.

More detail is provided on each element. For example, in assessing the subject matter of the film, the following factors are taken into account;

  • did the project originate in Australia or was it developed by Australians?
  • is the project under Australian control?
  • were Australian citizens or residents involved in the project’s development?
  • is the project based on an Australian story?
  • is the project about Australian characters?
  • is the project set in Australia?
  • does the project reflect a cultural background that is particular to Australia or Australians?
  • does the project reveal some aspect of Australia’s or Australians’ cultural background or experience?
  • are there other relevant factors which are specific to the individual project?

To be sure, as in Canada, factors such as the nationality of the main players in the production (executive producer, producer, writer and director, lead cast members, creative heads of department such as the director of photography, production designer, editor, costume designer, sound designer and composer; and other cast, crew and service providers) are all considered. Australian “creative control” has set criteria set in legislation. However, for me the single most important element of the assessment is the statement that “The SAC test is a holistic one and no single element is determinative”. In other words, there is no rote formula and unlike the Canadian definition, an element of judgement actually enters into the assessment. Hopefully C-11 will give the CRTC that flexibility when it passes.

If Canada had a content definition that placed more emphasis on the story, location and talent rather than on the production and source of funding, would it result in more shows like Total Control?[ii] Richard Stursberg has argued for a different way to assess Canadian content. Stursberg is the former head of English services (TV, radio, digital) at the CBC, former CEO of Telefilm Canada, and former chairman of the Canadian Television Fund. He has written in his book, “The Tangled Garden (A Canadian Cultural Manifesto for the Digital Age)”, and more recently in an op-ed in the Globe and Mail, that Canadian content should look, sound and feel Canadian. He cites the British content definition that takes into account (by according points on the scorecard) things such as whether the program is clearly set in Britain, is based on British subject matter, and offers an interpretation of British culture, heritage or diversity. The definition does not require production companies to be British-owned and controlled, simply that the company be incorporated and pay taxes in Britain. The Harry Potter films, set in Britain and based on the work of English author J.K. Rowling, but produced and distributed by Warner Bros., qualify. A similar production in Canada would not.

According to the Minister responsible for bringing forth C-11, Pablo Rodriguez, one goal of the Online Streaming Act is to modernize the definition of Canadian content. If a redefinition leads to the production of more shows and films that are recognizably Canadian through their stories and settings, that would be very welcome from my perspective. It would also incentivize the big US producers to produce content that looks Canadian, at the same time unleashing the power of their global distribution systems to promote Canadian content since they would have skin in the game by being able to invest in and earn a return on certified Cancon, which could in turn be used to meet content quotas where they apply. More production would create more work for Canadian writers, actors, film-makers, etc. not just for FLS production but also to produce recognizably Canadian stories. That would be both good business for the studios and help meet Canadian cultural objectives of telling Canadian stories in a recognizably Canadian way. Maybe one day, I will be able to watch a drama series about an Indigenous legislator from Canada’s “outback” (Saskatchewan?) dealing with political issues in the corridors of power in Ottawa, set in a recognizably Canadian setting, along the lines of Total Control in Australia.

© Hugh Stephens, 2023. All Rights Reserved

[i] Total Control was aired on the Australian public broadcaster, ABC, which is governed by its Charter, rather than by content rules that apply to commercial broadcasters. However, its Charter requires it to “to broadcast programs that contribute to Australia’s sense of national identity, inform and entertain, and reflect the cultural diversity of the Australian community…”. 


“Controlled Digital Lending”: Could Canadian Universities Find Themselves Out on a Limb?

In my year end blog post looking back at significant developments for copyright and creators in 2022 and looking forward to topics that will be at the top of the agenda in 2023, I identified questions over the legality of a contrived and unproven concept, so-called “Controlled Digital Lending” (CDL), as one of the big issues likely to be clarified this year.

Back in June 2020, four major publishers (Hachette Book Group, HarperCollins Publishers, John Wiley & Sons and Penguin Random House), all members of the American Association of Publishers (AAP) filed suit against the Internet Archive for Systematic Mass Scanning and Distribution of Literary Works”. The Internet Archive (IA), an organization that brands itself as “a non-profit library of millions of free books, movies, software, music, websites, and more”, provides a number of services including archiving the internet through its “Wayback Machine”, archiving television programs and audio recordings, and digitizing documents and books, both those in the public domain and others still protected by copyright.  Although registered as a US non-profit, it was founded and still led by Brewster Kahle, a multimillionaire entrepreneur and digital “guru”.

The publishers’ lawsuit was provoked by the IA’s decision to create a self-described “National Emergency Library” in March 2020, during the peak of the COVID pandemic. The Emergency Library expanded the untested theory of Controlled Digital Lending (CDL), championed by the Archive, by eliminating even the pretence of limits on the numbers of digital copies of books that could be borrowed, in effect eliminating all wait times. As I noted in an earlier blog post (“Are Authors the Enemies of Authors and Publishers?”), COVID was the pretext used by the Archive for pushing the envelope on CDL. Under the IA’s interpretation of CDL, a digital scan of a book can be substituted for the original work by a lending library as long as the library holds the requisite number of physical copies. As is the case with legitimate lending of licensed e-books, there is no need for the borrower to physically collect the work; it is all done digitally including terminating the loan once the book is due.

The issue of scanning a book without authorization in order to provide a substitutable digital version is clearly at odds with the law, especially when it comes to US case law which has been very clear and consistent on this point. As authors and publishers point out, it is a form of copying that destroys the licensing market for e-books. Despite this obvious fact, this has not stopped advocates, like the Internet Archive, from claiming that the practice is somehow fair use under US law. Until COVID hit, the Archive purported to follow what it characterized as normal lending rules by allowing only as many digital copies into circulation as it physically held in its inventory, with a digital copy having to be “returned” before a new copy could be loaned out. However, in reality it exercised no actual controls, simply asserting that it was following the correct “own to loan” ratio. Then, with the arrival of COVID, the Archive dropped all pretence of controls and announced that it was suspending the normal practice of maintaining a wait list and would allow unlimited digital copies to go into circulation.

While a few initially misguidedly lauded the Archive for taking measures to assist consumers who were self-isolating because of the pandemic, it didn’t take long for authors and publishers to push back, pointing out that this unilateral move was a case of giving away someone else’s property without consultation or permission. Although the possibility of litigation had been simmering for some time, the IA’s declaration of the “National Emergency Library” was the precipitating event leading to the filing of suit by the publishers. The IA then ended the Emergency Library program prematurely and Kahle appealed to the publishers to settle the dispute in the boardroom rather than the courtroom. The hypocrisy of this appeal was not lost on authors and publishers who had been trying for years to engage the Archive in meaningful discussions. Both sides moved for summary judgment, and those motions are currently pending in front of the judge.

So, how does this all affect Canadian institutions? Some Canadian universities and research libraries are avid devotees of CDL and have worked closely with the Internet Archive. The IA established a Canadian branch, Internet Archive Canada, in 2016. In fact, when the National Emergency Library was announced in 2020, among the major sources of digital books being offered for unlimited lending was the collection of Trent University, in Peterborough ON. Another keen Canadian university proponent of CDL is the University of Alberta.

Using an invented doctrine such as CDL to skirt both authors’ rights and the commercial market is clearly seductive to many libraries, but it ignores the basic rights of the authors and publishers who created the works. Unauthorized CDL copies are not “free goods” to expand the reach of libraries, or to reduce wear and tear on books, or to cut storage and handling costs, but this is what some very reputable institutions seem to think. For example, when it wanted to downsize its physical collection, the National Library of New Zealand turned to the Internet Archive to digitize its holdings. The institution decided it would simply turn over large parts of its collection to the Archive to be digitized—and then seemed somewhat nonplussed when this scheme was attacked by New Zealand writers and publishers whose copyrighted works were being “volunteered” for digital copying without any reference to them as rights-holders. After initially stubbornly insisting that what it was doing was good public policy, the National Library finally backed down in the face of mounting political opposition.

Like most things that sound almost too good to be true, they usually are–and CDL is no exception. In this case, there is a major “inconvenient truth”. To engage in CDL, in many instances a library has to make an unauthorized copy of a copyrighted work. Of course, they could license a digital version (e-book) from a publisher if one is available, but that would involve additional payment and the need for licence renewal after a specified number of uses. (Books wear out and get replaced; digital copies don’t).

As for the unauthorized copy, CDL advocates argue this is a case of technological neutrality—doing the same thing (lending a book) by a new technological means, akin to format shifting—but format shifting is carefully defined under the law. CDL proponents also claim that the making of the (unauthorized) copy is a fair use (in the US context) or a fair dealing (for research, private study, or education purposes) under Canadian law. However, another inconvenient truth is that the unauthorized copy often substitutes for the normal exploitation of the work in the market and constitutes unauthorized distribution. Even if there is not currently a licensed digital version of the work available in the market, the making and distribution of an unauthorized copy undermines any economic incentive to produce a legitimate digital version for licensing. In short, there are some fundamental questions regarding the legality of CDL. The Hachette v Internet Archive case in the US is surely going to provide some clarity on this question in terms of US law.

Meanwhile, Canadian institutions and libraries that have embraced CDL should be wary. Its proponents in Canada argue that it is “likely legal” and if not, it should be[i]. They argue that since there is no language in the Copyright Act that specifically prohibits CDL, it must be legal. Except we all know it doesn’t work that way. The courts play an important role in interpreting the application of legislation when there is uncertainty. Depending on how the Hachette case turns out in the US (and it will surely be appealed no matter which party prevails), there are potential knock-on effects for Canada and other countries, with attendant risks for libraries that have embraced the IA’s version of CDL. (One relevant point is whether the Internet Archive even qualifies as a library. It earns over US$30 million a year from its digitization services).

Genuine libraries will be watching. There is already a provision in Canada’s Copyright Act (Section 30.1.1) allowing Libraries, Museums and Archives to digitally copy copyright protected published and unpublished works in order to maintain and manage their collections. Examples include copies for insurance purposes, preservation of a rare or unpublished work that is deteriorating or damaged or making a copy in a new format if the original format is obsolete. However, this does not authorize distribution or CDL and does not apply if “an appropriate copy is commercially available in a medium and of a quality that is appropriate…”.

Libraries engaged in digital lending can mitigate their risk by licensing legitimate digital works (e-books) when they are available, by focusing on works already in the public domain or by obtaining permission to make and distribute digital copies of works still under copyright and–while still potentially carrying some risk–lending only out of print titles, especially those long out of print. It worth noting that the US publishers are not suing the Internet Archive for its digitization project or for all the digitized books in its collection. They are suing it for the use of 127 specific works, although the Archive reportedly has over 3 million digitized books that are in-copyright in its inventory.

Authors, publishers, libraries and readers are all part of the same ecosystem, as I wrote in an earlier blog about e-books. (“Books, e-Books, Authors, Publishers and Libraries: A Complex Relationship”). They are interdependent. Technology is changing but that interdependence has not changed. Some libraries and librarians don’t like the terms on which e-books are made available, but forcing compulsory licensing or worse, doing an end run on the licensing market by making unauthorized digital copies through the Internet Archive and then distributing them without authorization, is not the answer. At the end of the day, libraries, while playing important roles in both local communities and scholarship, are customers that support the creation of more books by participating in the legitimate marketplace. The Internet Archive has been on a crusade to break the system, and although it calls itself an open library, it is not really a library at all. However, real libraries have been courted by, and in some cases succumbed to, the blandishments and digital services of the Archive and seem to think that CDL is the solution. It is not the answer from the perspective of those who create the content, authors, those who distribute it—publishers– and anyone who values the right to earn a living through creating. As the Copyright Alliance, a US-based advocacy group representing over 2 million individual creators and over 15,000 organizations in the United States., put it;

“…While the Internet Archive masquerades as a library, it does not behave like one. Legitimate Libraries pay for the eBooks they lend, helping to support authors, publishers and the creation and dissemination of books. Internet Archive doesn’t pay authors for books – it simply takes the books, copies them and distributes them without any permission, and without compensating the authors or publishers who created the books in the first place. To be clear: this lawsuit is about stopping systematic theft. It is not about library lending.”

It was no doubt inevitable that CDL would end up before the courts, especially given the cavalier attitude of the Internet Archive toward digital copying and lending compounded by eliminating all pretence of limits through its self-described National Emergency Library. We probably won’t know the results of the court case for some time, but if the Internet Archive is found liable for copyright infringement, this will inevitably have an impact on the question of CDL’s legality elsewhere. Canadian research libraries and universities that are big users of the Internet Archive model need to think and act carefully if they don’t want to find themselves out on the end of a long and fragile limb.

© Hugh Stephens, 2023. All Rights Reserved.

[i] https://summit.sfu.ca/item/18093; see Ariel Katz and Patrick Pang, “Is Controlled Digital Lending Legally Permissible”.

This blog post has been edited and updated for clarity, including noting that the court’s decision on summary judgement is still pending.