Copyright Taxation Without Representation

The Copyright Board of Canada and the various tariffs that it certifies rarely attract media attention. But a tariff recently certified received coverage by most major media outlets. That tariff, mandating payments for playing recorded music in weddings and other events for the years 2008-2012, will be collected by Re:Sound, a private organization representing record companies and performing musicians. If the events include dancing, the fee is double. This unusual media attention, often describing the fees as a “wedding tax” or “dancing tax”, is not surprising because it reflects how undemocratic some aspects of Canada’s copyright system have become. If that is not enough, Re:Sound now contemplates a threefold increase in the “dancing tax” according to its newly proposed tariff for the years 2013-2015.

Copyright owners may resent the use of the “T” word, but pointing out the ways in which copyright and taxes may resemble each other is not entirely new. Indeed, back in 1841, in a debate on copyright reform before the House of Commons in London, Lord Macaulay remarked that copyright “is a tax on readers for the purpose of giving a bounty to writers.” Macaulay, however, used the “T” word rhetorically—to emphasize that increasing the bounty to writers can only be justified if it benefits society, yet the similarity between copyright and a tax extends beyond mere rhetoric. Both are instruments that governments often employ to overcome the inherent failure of markets to produce desirable public goods. Both are justified as long as they promote public goals rather than private gain.

Beyond these similarities, however, differences abound. Tax money is imposed, collected, and distributed centrally by the government, whereas the copyright system is based on a decentralized marketplace. Taxes are compulsory, and therefore must be a product of a democratic process and can only be imposed by Canadians’ elected representatives, while copyright transactions are voluntary and competition in the marketplace, while imperfect, is expected to guarantee fair prices and high quality. If we’re unhappy with our taxes we can vote our government out the next election. If we’re unhappy with a book’s price or its quality, we can vote with our feet and buy a different one.

Over the last few decades, however, a new system of private copyright “taxes” has emerged in Canada. Several copyright reforms have made it possible for copyright owners to cartelize growing swaths of the copyright landscape by establishing “collective societies” who can ask the Copyright Board to certify “tariffs”, and then collect those fees. These tariffs mean, of course, that it is not the market but the Copyright Board that sets prices. Moreover, users often cannot opt for a different provider, because the collectives—sometimes de facto, and sometimes de jure—may be the sole providers. The result is an expansive and expensive system of elaborate copyright taxes and levies, which retards the introduction of many innovative digital services in Canada, and, according to Industry Canada, accumulates over $400 million of an annual, but hardly visible, transfer.

Only small amounts from this enormous transfer actually support creators. Most of the money finds its way to multinational corporations in the music, film, and book industries, after paying the salaries of those who run the collectives, and the handsome fees charged by their consultants, lobbyists, and lawyers. If this massive transfer were the outcome of a competitive voluntary process, economists could debate how efficient this outcome is, but otherwise there would be very little to complain about. If it were part of the government budget, they would reflect a democratic process in which Canadians, through their elected representatives, debated about how much would be collected, from whom, how the money would be distributed, and for what purposes. But currently, hundreds of millions of dollars are transferred annually, without the checks of the democratic process or the balances of competitive markets. The only check is an ineffective Copyright Board, which tends to be more supportive of the collectives it was intended to regulate than of the public it is supposed to protect. Worse still, the collectives use funds from their ongoing tariffs to finance the pursuit of newer and ever higher tariffs, which, with the exception of the broadcasting and telecom oligopolies, few of those who pay these tariffs can afford to oppose.

A most vivid example of this undemocratic private taxation system is the recent “dancing tax”. The Board did not explain why dancing attracts a double fee. Probably, the answer is that while most Canadians get married at least once in their lifetime, marrying couples and the dancing public do not hire lawyers to argue their case before the Copyright Board. Canada has established a “dancing tax”, collected by, and for the benefit of, private entities, because they asked, nobody could afford to vigorously object, and the Board approved.

While the economic benefits of a system that allows this private taxation system could be debated, its very existence is anti-democratic. The seeds of constitutional democracy were sown in the middle ages, when the monarchs pledged not to raise taxes without the approval of the Commons. Constitutional democracy reached another milestone when in 1623 Parliament passed the Statute of Monopolies, and took away the Crown’s power to grant various kinds of monopolies, commissions, grants, licenses, charters, and letters patents, often used to tax the public while avoiding Parliamentary scrutiny. Constitutional democracy began to resemble its present form when, at the turn of the 18th Century, Parliament revolted against the system of press censorship and monopolistic control over the book trade and passed the first Copyright Act, which sought to create a competitive market system based on limited copyrights.

With the imprimatur of the Copyright Board, Canada’s copyright system moves away from a market-based system, and increasingly resembles the monopolies of the 17th century. It is time to end this system of private copyright taxes, which are a toll on the Canada’s economy, and an embarrassment to its democracy.

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