A strange new Canadian court ruling could impose retroactive fees reaching back to the Internet stone age, 1996, but it would only harm those ISPs that tried especially hard to provide good service to subscribers.

by Jim Wagner Managing Editor, ISP-Lists [May 9, 2002]

If Americans think the Copyright Arbitration Royalty Panel (CARP) ruling expected May 21 is overreaching, they should feel some sympathy for their brothers and sisters north of the border, who face a similar Internet-based music distribution nightmare.

The Society of Composers, Authors and Music Publishers of Canada (SOCAN) is winning a courtroom brawl against providers ranging from incumbent telephone carriers to mom-and-pop ISPs over Tariff 22, a piece of legislation that would charge service providers for music stored in caching servers and open the door for even more fees down the road by other industry organizations.

In the U.S., only content providers (i.e., Internet radio stations) would be charged royalty fees to distribute music files, but in Canada, they're thinking of a "caching clause" to rope in the companies storing music files on back office servers.

Last Thursday, the Canadian Federal Court of Appeals (FCA) ruled ISPs in principle shouldn't be charged for carrying the music files its customers under the "common carrier" law. Common carrier statutes put a limit on the liability a service provider incurs for transporting the data packets to and from its subscribers.

But caching SOCAN material on a server, ruled two of the three FCA judges, "is neither a passive nor a necessary function and thus triggers liability," the ruling read.

SOCAN, an industry organization representing music composers, wants to charge ISPs 25 cents per subscriber per month or 3.2 percent of each ISP's yearly revenues for every song or other copyrighted material found in caching servers, retroactive to 1996, when the organization originally filed Tariff 22 with the Canadian copyright board. Tariff 22 sets the standards for the distribution of copyrighted material over the Internet.

Caching files on a network server is a sound business practice employed by many ISPs around the world. It saves consumers from having to download directly from the Web site where the file resides and saves ISPs money in bandwidth consumed by the customer. Cached files are not an "open" server, available to the public, but a place to store files of popular Web pages and files on the ISPs network to save in download times and costs.

For small-town ISPs, the enforcement of that law would be a death knell—forcing them to pay thousands, if not millions, in royalty rates. Imagine, having to pay for the Canadian version of a Vanilla Ice song you kept on your server years ago and are now required to pay. If passed, the caching clause would force ISPs to weigh the price of paying royalties against the price of increased bandwidth consumption by its users.

"If ISPs are lead to pay retroactively, then tell the Judge that he just eliminated about 50 percent of the ISPs in Canada and possibly more," said Rudy Komsic, owner of Canadian ISP Cyberglobe.net. "I know lots of small town ISPs who use caching to help speed up their access and should this judge deal this blow to the ISPs, he would be responsible for putting them out of business," he said. According to Jay Thomson, president of the Canadian Association of Internet Providers (CAIP), there is little recourse to stop the caching clause from going into affect outside of appealing to the Canadian Supreme Court or fighting for lower royalty fees.

He isn't sure whether his ISP organization will file for an appeal with the Supreme Court or not, as the price of fighting SOCAN has tapped the organization's coffers. Like the Recording Industry Association of America (RIAA), which had millions of dollars at its disposal to pass CARP, SOCAN can use cash to steamroll less well-heeled opposition.

Other options are available, he said, though they will likely be much less effective.

"While we consider whether or not to seek leave to appeal, we have already begun to lobby the government for a political solution to the problems posed by the caching component of the FCA decision," he said. "Our argument is that the decision may force Canadian ISPs to reduce or curtail caching, which would harm the operation and the efficiency of the Internet in Canada—something neither we nor the government would want to see happen."

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