Before the Copyright BoardObjection to Levy Proposal

2003-2004

Evidence of Richard C. Pitt

Where’s the Gun Registry?

Outline of EvidenceOutline of Evidence

• References of Richard C. PittReferences of Richard C. Pitt

• Copy vs. Playing – The Transitory Nature Copy vs. Playing – The Transitory Nature of typical Audio Media Useof typical Audio Media Use

• Amount of Levy in questionAmount of Levy in question

• Flaws in the proposed calculation methodsFlaws in the proposed calculation methods

• SummarySummary

• Suggestions and AlternativesSuggestions and Alternatives

References of Richard C. Pitt

• Audio Background

• Business Background

• Computer Background

• Consumer

Pitt – Audio BackgroundPitt – Audio Background

• AnalogAnalog• Tubes, transistors – amplifiers, pre-amps, speakersTubes, transistors – amplifiers, pre-amps, speakers

• Tape – ¼”, 2”, 8-track, cassetteTape – ¼”, 2”, 8-track, cassette

• Recording/mixingRecording/mixing

• Radio – system design and operationRadio – system design and operation

• High Priced stereo equipment sales/installationHigh Priced stereo equipment sales/installation

• DigitalDigital• All manner of recording and manipulationAll manner of recording and manipulation

Pitt – Business Background

• 3 years Business Admin at SFU• CEO – Whole in the Wall Stereo• Salesman/Manager – Radio Shack Computers• Independent Consultant• CEO - Wimsey Information Services Inc.• CEO – FirePlug Computers Inc.• CEO – Belcarra Messaging Corp.

Pitt – Computer BackgroundPitt – Computer Background

• Batch and Interactive MainframesBatch and Interactive Mainframes

• Microcomputers from day 1Microcomputers from day 1

• DOS, Windows, MAC, Unix, LinuxDOS, Windows, MAC, Unix, Linux

• Embedded SystemsEmbedded Systems• Design, product management, costing, engineering Design, product management, costing, engineering

managermanager

• Set-top boxes, PDAs, multi-media juke boxSet-top boxes, PDAs, multi-media juke box

• Home computer products – next generationHome computer products – next generation

Pitt – Consumer of Audio

• 45’s, 33’s – hundreds in boxes and can’t play them

• $10,000 analog stereo system pre CD

• 3 surround systems, CD changer (broken)

• 150+ CDs – all ripped to hard disk

• Have tried downloads and found them wanting

Enough about mewhat about the Levy?

Copying vs. Playing

• Technology Concerns• Translation necessary• Costs of technology determine use

• Legal Concerns• Private Study• Definition of “Transitory”

• Conventional Expectations• “Payment for using recorded music”• When, Where, How Often Consumer Wants

Copy vs. Play - Technology

Enjoyment of commercial recordings with some of today’s playing technologies REQUIRES copy (and translation) from CD (wav) to player (MP3) – so can only be classed as playing.

Copy vs. Play – Costs play a part

Even though a CD-R is “permanent”, many consumers treat them as disposable in their use due to their low cost vs. re-recordable media. This is especially true when creating playable media from a PC. A couple of unwanted tunes will cause them to throw the CD-R away and try again.

Copy vs. Play – Legal Concerns

Private Study – there is no indication that the government intended to deprive the public of the fact of private study. In order to practice this concept, the private individual in many cases must make a copy – one which is typically transitory in nature as well.

Copy vs. Play – Legal Concerns

A work is “fixed” in a tangible medium of expression when its embodiment in a copy or phonorecord, by or under the authority of the author, is sufficiently permanent or stable to be perceived, reproduced, or otherwise communicated for a period of more than a transitory duration. Abstracted from US Title 17 (could not find Canadian equivalent)

There may be a reason that parliamentdid not see fit to specifically defineFIXED in the light of technologieseven then available, which allows theBoard to be flexible in its ruling

Copy vs. Play – Legal Concerns

The definition of “transitory” as it relates to being the opposite of “fixed” or “fixation” gives rise to the note that any re-recordable medium is in fact host to transitory works when used by most private individuals. In the technological environment of today, this is significant!

Copy vs. Playing – Convention and Expectations

• In its “Fact Sheet on 2003-04 Tariff” (supplementary evidence item), CPCC categorized the levy as “A payment for using recorded music” which brings up the fact that most people expect to actually use the music media they purchase by playing it, when and where they want, as many times as they want. This is the whole reason for the fact of commercial recorded music media.

Copy vs. PlayingCopy vs. Playing – Convention and Expectations

TheThe whole reason for purchase of music media is so that the individual can play it; when, where, and as frequently as they want. No other reason exists for the vast majority of private individuals.

TheThe use of transitory copies merely enables the innate objective of the commercial distribution of music via recorded media, PLAYING IT!

Copy vs. Play – Compared to or equivalent to Computer ProgramsThe Copyright Act 30.6 – It is not an infringement…

make a single reproduction of the copy by adapting, modifying or converting the computer program or translating it into another computer language if the person proves that the reproduction copy is:

• Essential for the compatibility of the computer program with a particular computer

• Solely for the person’s own use…

What Amount Should The Levy Collect?

Relative Amount of Levy in Question

Given that the objective of “private” copying of music is for the most part in fact to play and listen to it, there is a disconnect between the amount of the levy proposal and the amounts of other tariffs in the Copyright Act.

Relative Amount

Compare!• $100/year for “community systems” (presumably

community broadcast systems)• US$0.0007/song for each Internet “broadcast”

stream.• 15,600 works/year at 20 hours/week listening and

no repeats15,600 * US$0.0007 = US$10.92 = CDN$18.02But individuals already own music and still buy retail

too – so must be discounted heavily!

Absolute Amounts – large disks

CPCC has seen a little bit of light in that they now propose a declining levy for large digital media based on the total storage in the device. The problem is, there is no maximum!

Nobody would listen in a lifetime to the amount of music that can be stored on one of today’s capacity devices, let alone tomorrow’s.

Absolute Amounts - Calculation

Given 4 Megs/work for 4 minute song in MP31000/4 = 250 songs/Gigabyte120 Gigabyte disk = 30,000 songs (cost of drive is

$400)Or approximately 2 years worth of average 20

hours/week listening with no repeats!BUT! The average listener likes to re-hear their

favorites over and over – and typically has a repertoire of only a few thousand songs – and they still purchase retail too!

Central Disk System in Furnace Room

Amounts Compared

While I lack specific evidence, I note that the levy amounts proposed will put the cost of several of the levied media enough higher in Canada compared to our NAFTA neighbours (let alone the rest of the world) that the difference will more than pay for the cost of shipping those items in from the US, even on single unit purchases.

Linux-based PDA with CF and SM slots and media player

Calculation Concerns

Calculation ConcernsMarket Value of a Copy

CPCC seems to think that they can impose by fiat the same compensation per copy that a commercial publishing house pays. This may have been valid in days when the number of private copies was insignificant compared to the number of retail sales, but we now have a new market dynamic and it is called “free market”

Market Value of a Copy

In addition to the free market, we also note that there is an instance of “no market”. When I create a copy of a work I otherwise already own, there is no market value to the “transaction” – who purchases from themselves?

These “internalized” copies are for convenience and done only to aid in the act of playing.

They have no market value.

Market Value – Private Study

Not counting “internalized copies” points up the concept that the only copies due remuneration “in respect of” are the first copies acquired via copying from outside sources (borrowed disks, Internet, radio, etc.) Add to this the concept of private study to eliminate many of these initial copies as well since after the first listening, the individual would not normally decide to purchase so no retail transaction would have taken place deserving of remuneration “in respect of”.

Market Value“In Respect Of”

In a closed market (the one that we have no longer have due to large-scale private copying – where the publishers controlled the content 100%) the public limits their purchases to their budgeted amount of disposable income.

Now that the market is no longer closed, the public can bypass the publishers – note that the price of CDs is trending down to compensate!

This means the market compensation to the “eligible creators” must also be less than it is/was in retail.

Market Value“in respect of”

So what should the per unit compensation be?I make the informed statement that the compensation

would trend towards that of other methods of delivering music to an individual, when, where, and in what order and repetition the individual dictates – with an example being self-programmed, individual Internet single-cast music streams at US$0.0007/selection or about CDN$20/year or less per person based on listening habits.

The copies on my server in the furnace room are only an aid to playing

Market Value“in respect of”

Checking the calculation of $20 we find that purchase of 1 retail CD/month (high in our estimate – don’t have real numbers) would give 12 x $1.75 in compensation at full rate to eligible creators or $21 per year – a very close approximation to the Internet streaming remuneration if no retail purchases were ever made again (obviously not the case) so must be heavily discounted to reflect the fact that there still is retail.

Market ValueOnly count the ones you love

CPCC is asking for the levy to be on every title in the CD realm, when the public has “voted with their dollars” to only “purchase” the ones they like

Either they like enough on an album that they purchase and covet the “real thing” or they only like a couple of tunes and will forgo the purchase in favor of private copy

No matter, the levy must only compensate in respect of “good” tunes – the rest can go suck eggs (see Exhibits 11/12)

One of several boxes of old records I own – and no player

Remuneration?

So what copies should remunerate artists?

• - First copies from radio, friends, internet?

• - Private study copies?

• - Sampled and discarded copies?

Calculation ConcernsPrivate Study

CPCC has not allowed any amount for private study, despite the fact that there is no indication that parliament meant to deprive the private individual of this valuable tool in the determination of what is worth purchasing and what is not.

I suggest that much of Internet download/copy is in fact for private study. 75% bad downloads is estimate of my children and their peers and less than half of the remaining are ever listened to a second time – 12.5%

Calculation ConcernsTransitory translation for playingCPCC has not allowed for copies made in the

process of necessary translation for playing on systems for which the music industry has not provided commercially available and compatible media/sources.

We feel that in excess of ½ of private copying is done for this reason alone and all copying done to re-writeable media falls under this category and should therefore not be considered for compensation “in respect of”.

One of my record albums – warped beyond redemption from box

Calculation ConcernsLevied Media

Now we come to the big one – what media?

CPCC should not be allowed to arbitrarily select which digital media is or is not leviable – the uncertainty is a concern

Either levy it all – and set the levy to an amount that is insignificant per unit but adds up to a reasonable amount “in respect of” or set the criteria objectively instead of subjectively so industry can know in advance when something is leviable.

Other Concerns

A complete Linux Distribution today is 5 CDs

Other Concerns

• Digital use of CD-R is significant and growing

• DVD recorders are $600 now and not falling as fast as CPCC seems to think they will – and the media is not yet standardized or inexpensive enough – it is only suitable to DVD copying!

Other Concerns

Regarding the levy on imported/manufactured blank audio media - the Copyright Act should be read as: 82(1)

“Every person who imports blank audio recording media for the purpose of trade” of blank audio recording media

If it is rendered non-blank by the importer/manufacturer, then they are not trading in blank audio recording media! (Costco take note!)

Other Concerns

• If CPCC can characterize the Apple iPOD as an MP3 player based upon the advertised use of it, despite its further uses as a general purpose PDA – then media labeled and packaged for use other than consumer blank audio recording media should not be considered leviable!

This includes large amounts, unlabeled, for use in re-manufacture such as document CDs and photo CDs, etc. – Note also Exhibit 9 – Flash “Digital Film” – not one word about use in audio devices

Summary

8k RAM data watch - 1995

64Meg Sharp Zaurus - 2003

With a CF anda SM card slot

It’s not going to get easier

Summary

• A significant portion of what CPCC claims is copying is in fact part of the playing process and is in many cases required by the technologies involved

• The case for this is similar to the case for translation of computer software for different systems covered in the Act(30.6)

Summary

• The largest use of re-writeable media by private individuals in regards to music is in transitory use while playing music which has been purchased in one manner or another.

• Private Study is a valid consideration for much of music downloaded from the Internet

Summary

• A levy which extracts more than the equivalent amount which might be charged in other circumstances in achieving the same end (playing of music when, where the consumer wants it) is in excess of market and not otherwise justified (CDN$0.0010/play approximately for Internet streaming = approx $20/year)

Summary

• The market value of a consumer generated copy of what might originally have been a retail product is much less than that of the original product – by 2 orders of magnitude (I.e. 1/100th at least) putting it also in the same realm as the Internet streaming play at $0.001 – and again, if not discounted completely, should be discounted for the fact that it is many times only transitory

Summary

• Regardless of all else, there must be a limit on the levy per device, regardless of the amount of storage it might hold.

• There is only so much time an individual can/will listen to music

• There is only so much music available

• There is a limit to the number of works an individual likes, wants, or will copy and organize

• There is no practical limit to the size of a device yet

Summary

There are good and valid reasons to completely exempt industrial quantities of digital media from any consideration of levy, including but not limited to such a thing as “zero rating”

Business must not have to endure CPCC’s levy (and scrutiny!) just because it uses digital media in its product/process.

Summary

• Regardless of all else, no levy amount should give rise to the potential for significant (or even insignificant) bypass (gray market) movement by the Canadian public, for this very specifically shows that the free market has been ignored and the “in respect of” clause is not being adhered to in spirit.

• And CPCC will get no levy from these.

Alternative Proposalsand Suggestions

Alternative Proposals

In its 2001-2002 ruling, the Board seemed to be looking for proposals different from CPCC’s.

Therefore we specifically propose the following for consideration as alternatives to CPCC’s complex, confusing and invasive regime of levy implementation

Proposed that:

No device with only non-removable digital storage be considered leviable. These devices must use copying in order to facilitate playing.

No device with re-writeable digital storage of any kind as its main storage be considered leviable. These devices are used only in the transitory containment of works during playing

Proposed that:

No re-writeable random access media be leviable since these devices are used only in the transitory containment of works during the process of playing.

Only recordable media which cannot be returned to a “blank” state substantially similar to it’s virgin unrecorded state be considered leviable.

Proposed that:Only retail packaged and typical retail quantities of

recordable media be considered for levy. The definition of retail packaging might currently include up to 100qty CD-R packages shrink-wrapped and labeled with UPC bar code and use instructions as contrasted to cartons of 1000 or more with no labels or non-music use labels (specific to a particular company’s photo business or document business for example) and no use instructions.

This proposal eliminates the problem of “zero rating” for major users of recordable digital media for non music products.

Proposed that:

In order to be considered a “copy” which deserves remuneration “in respect of” the copy must displace one which would otherwise have been purchased by the individual in a retail transaction.

Note that making a copy for your own personal use from a copy you already own does not displace a retail transaction because you would not purchase from yourself (and is part of playing the music).

Note also that this allows for “private study” where the individual would not otherwise have purchased a copy because they find they don’t like the work.

Proposed that:

Regardless of other proposals being adopted or not, the levy amount on any medium or device have a maximum of $5 per unit or sales quantity package. This compares with the tariff collected for other, similar music use and CPCC’s data on music listening habits (20 hours/week). Note that a better documented case could likely substantiate a maximum of less than $5 fairly easily.

Suggestions

It is strongly suggested that the board take note of the number of objectors and the fact that several are self-funded and have little or no direct involvement in the import or sales of leviable or proposed leviable media.

Finally,

• Re-Recordable media use is transitory and facilitative

• Huge media is mostly for other uses• Private study, translation, and backup do not

constitute private copying• Excessive levies produce black and gray markets• Extra copies of owned music don’t double the

listening experience

Thank you for your time and attention to these issues

Richard C. Pitt

Canadian and proud of it!