Society of Composers, Authors and Music Publishers of Canada v. Canadian Assn. of Internet Providers, [2004] 2 S.C.R. 427, 2004 SCC 45

Canadian Association of Internet Providers, Canadian Cable Television Association, Bell ExpressVu, Telus Communications Inc., Bell Canada, Aliant Inc. and MTS Communications Inc. Appellants/Respondents on cross-appeal

v.

Society of Composers, Authors and Music Publishers of Canada Respondent/Appellant on cross-appeal

and

Internet Commerce Coalition, European Telecommunications Network Operators’ Association, European Internet Service Providers’ Association, Australian Internet Industry Association, Telecom Services Association, U.S. Internet Industry Association, Canadian Recording Industry Association and International Federation of Phonogram Industry Interveners

Indexed as: Society of Composers, Authors and Music Publishers of Canada v. Canadian Assn. of Internet Providers

Neutral citation: 2004 SCC 45.

File No.: 29286.

2003: December 3; 2004: June 30.

Present: McLachlin C.J. and Iacobucci, Major, Bastarache, Binnie, Arbour, LeBel, Deschamps and Fish JJ.

on appeal from the federal court of appeal

Constitutional law — Extraterritorial application of laws — Parliament’s legislative competence to enact laws having extraterritorial effect — Presumption that Parliament did not intend to do so in absence of clear words or necessary implication to contrary.

Copyright — Applicability of copyright legislation — Communication of music on Internet — SOCAN seeking to impose liability for royalties on Internet Service Providers — Whether real and substantial connection to Canada sufficient to support application of Copyright Act.

Copyright — Infringement — Communication to public by telecommunication — Communication of music on Internet — SOCAN seeking to impose liability for royalties on Internet Service Providers — Copyright Act deeming participants in telecommunication that provide only means of telecommunication not to be communicators — Whether Internet Service Providers providing solely a conduit for information communicated by others can claim benefit of s. 2.4(1)(b) of Copyright Act — Whether Internet Service Providers impart or transmit copyrighted music and thereby infringe copyright — Whether creation of “cache” of Internet material, even for a purely technical reason, infringes copyright — Copyright Act, R.S.C. 1985, c. C-42, s. 2.4(1)(b).

This appeal raises the question of who should compensate musical composers and artists for their Canadian copyright in music downloaded in Canada from a foreign country via the Internet.

The respondent is a collective society which administers in Canada the copyright in music of Canadian members and foreign members of counterpart societies. The respondent wants to collect royalties from Internet Service Providers located in Canada because, it argues, they infringe the copyright owner’s exclusive statutory right to communicate the work to the public by telecommunication and to authorize such communication. The appellants represent a broad coalition of Canadian Internet Service Providers. They argue that they neither “communicate” nor “authorize” anyone to communicate musical works because they are merely a conduit and do not regulate the content of the Internet communications which they transmit.

In 1988 Parliament added what is now known as s. 2.4(1)(b) to the Copyright Act which provides that persons who only supply “the means of telecommunication necessary for another person to so communicate” are not themselves to be considered parties to an infringing communication.

In 1995, the respondent applied to the Copyright Board for approval of Tariff 22 which proposed the amount and allocation of the royalty. The Board convened a hearing to determine which activities on the Internet attract liability under the tariff. The Board held that copyright liability attaches to content providers but that the normal activities of Internet Service Providers other than the content providers did not constitute “a communication” for the purpose of the Copyright Act and thus fall within the protection of s. 2.4(1)(b). Even where the intermediary does more than act as a conduit, the Board held that no copyright liability is incurred in Canada unless the communication originates from a server located in Canada (except perhaps if the content provider has “the intention to communicate it specifically to recipients in Canada”).

The Federal Court of Appeal found that copyright may be imposed in respect of any telecommunication that has a real and substantial connection with Canada, and is not restricted only to an Internet communication from a host server located in Canada. The Board’s exclusion of the appellants from copyright liability where they perform a pure intermediary function was upheld. However, the majority held that where an Internet Service Provider in Canada creates a “cache” of Internet material, even for purely technical reasons, they no longer act as a mere intermediary and thus become a participant in the copyright infringement and are liable to that extent under Tariff 22. The dissenting judge agreed with the Board that to cache for the purpose of enhancing Internet economy and efficiency did not constitute infringement.

Held: The appeal should be allowed in part; the cross-appeal should be dismissed.

Per McLachlin C.J. and Iacobucci, Major, Bastarache, Binnie, Arbour, Deschamps and Fish JJ.: The capacity of the Internet to disseminate works of the arts and intellect is one of the great innovations of the information age. Its use should be facilitated rather than discouraged, but this should not be done unfairly at the expense of the creator of the works. The Internet presents a particular challenge to national copyright laws, which are typically territorial in nature.

By enacting s. 2.4(1)(b) of the Copyright Act, Parliament made a policy distinction between those who use the Internet to supply or obtain content such as “cheap music” and those who are part of the infrastructure of the Internet itself. Parliament decided that there is a public interest in encouraging intermediaries that make telecommunications possible to expand and improve their operations without the threat of copyright infringement. Section 2.4(1)(b) indicates that in Parliament’s view, Internet intermediaries are not “users” at all, at least for purposes of the Copyright Act.

A telecommunication occurs when music is transmitted from the host server to the end user. An Internet communication that crosses one or more national boundaries “occurs” in more than one country, at a minimum, the country of transmission and the country of reception. To occur in Canada, a communication need not originate from a server located in Canada. To the extent that the Board concluded that a communication that does not originate in Canada cannot be said to occur in Canada, it erred. To hold otherwise would not only fly in the face of the ordinary use of language, but would have serious consequences in other areas of law relevant to the Internet.

The applicability of the Copyright Act to communications that have international participants will depend on whether there is a sufficient connection between this country and the communication in question for Canada to apply its laws consistently with the principles of order and fairness. A real and substantial connection to Canada is sufficient to support the application of our Copyright Act to international Internet transmissions in a way that will accord with international comity.

In terms of the Internet, relevant connecting factors would include the situs of the content provider, the host server, the intermediaries and the end user. The weight to be given to any particular factor will vary with the circumstances and the nature of the dispute. The conclusion that Canada could exercise copyright jurisdiction in respect both of transmissions originating here, and transmissions originating abroad but received here, is not only consistent with our general law but with both national and international copyright practice.

It is a different issue, however, whether Canada intended to exercise its copyright jurisdiction to impose copyright liability on every participant in an Internet communication with “a real and substantial connection” to Canada. This latter issue raises questions of statutory interpretation of the Copyright Act.

Section 2.4(1)(b) of the Copyright Act provides that participants in a telecommunication who only provide “the means of telecommunication necessary” are deemed not to be communicators. The provision is not a loophole but is an important element of the balance struck by the statutory copyright scheme. The words of s. 2.4(1)(b) must be read in their ordinary and grammatical sense in the proper context. In this context, the word “necessary” is satisfied if the means are reasonably useful and proper to achieve the benefits of enhanced economy and efficiency. The “means” include all software connection equipment, connectivity services, hosting and other facilities and services without which such communication would not occur. So long as an Internet intermediary does not itself engage in acts that relate to the content of the communication, but confines itself to providing “a conduit” for information communicated by others, then it will fall within s. 2.4(1)(b). The attributes of such a “conduit” include a lack of actual knowledge of the infringing contents, and the impracticality (both technical and economic) of monitoring the vast amount of material moving through the Internet. However, the protection provided by s. 2.4(1)(b) relates to protected functions, not to all of the potential activities of an Internet Service Provider.

A content provider is not immune from copyright liability by virtue only of the fact that it employs a host server outside the country. Conversely, a host server does not attract liability just because it is located in Canada. The liability of a host server should be determined by whether or not the host server limits itself to “a conduit” (or content-neutral) function and thereby qualifies for protection under s. 2.4(1)(b).

The creation of a “cache” copy is a serendipitous consequence of improvements in Internet technology, is content neutral, and in light of s. 2.4(1)(b) of the Act ought not to have any legal bearing on the communication between the content provider and the end user. “Caching” is dictated by the need to deliver faster and more economic service, and should not, when undertaken only for such technical reasons, attract copyright liability and therefore comes within the shelter of s. 2.4(1)(b). The Board’s view is correct and its decision in that regard should be restored.

An Internet Service Provider’s knowledge that someone might be using content-neutral technology to violate copyright is not necessarily sufficient to constitute authorization, which requires a demonstration that the defendant did give approval to, sanction, permit, favour, or encourage the infringing conduct. Notice of infringing content, and a failure to respond by “taking it down”, may in some circumstances lead to a finding of “authorization”. Therefore, authorization could be inferred in a proper case, but all would depend on the facts.

The Copyright Act is often presented as “a balance” between the rights of those who create works of the arts and the intellect and those who wish to use such works. However, the balance is only tangentially at issue here because Parliament has expressed the view in s. 2.4(1)(b) that those who provide internet infrastructure are not properly to be considered “users” of such works for purposes of the Act.

Per LeBel J.: Except for the analysis of the appropriate test for determining the location of an Internet communication under the Copyright Act, the judgment of the majority and the disposition of the appeal is agreed to. Parliament’s power to legislate with extraterritorial effect is well-settled as a matter of Canadian law. However, it is a common law presumption that Parliament does not intend legislation to apply extraterritorially. The presumption is rebuttable where the contrary intention is expressly stated or implied by the legislation. Nothing in the Copyright Act impliedly gives s. 3(1)(f) extraterritorial effect, particularly given the principle of territoriality of copyright law. Therefore, given that Parliament did not intend the Act to have effect outside Canada, an Internet communication only occurs within Canada where it originates from a host server located in Canada. In this way, the copyright works physically exist within Canadian territory and thus attract the protection of s. 3(1)(f). This test for determining the situs of a communication, which is the location of the host server, has the virtue of simplicity; it best accords with the principle of territoriality and harmonizes our copyright law with international treaty principles, and it diminishes privacy concerns. It is also sound from an operational perspective and it provides the requisite predictability and best accords with the meaning and purpose of the Act.

By contrast, importing the real and substantial connection test that was developed in a very different context is inappropriate to determine whether a communication occurred within Canada. The real and substantial connection test was developed to deal with the exigencies of the Canadian federation and should not be lightly transposed as a rule of statutory construction. The real and substantial connection test is not a principle of legislative jurisdiction; it applies only to courts. Furthermore, it is inconsistent with the territoriality principle and its use should not be understood as a limit on Parliament’s power to legislate with extraterritorial effect. There is also a danger that this approach could also result in a layering of royalty obligations between states.

This Court should adopt an interpretation of s. 3(1)(f) that respects end users’ privacy interests, and should eschew an interpretation that would encourage the monitoring or collection of personal data gleaned from Internet-related activity within the home. Locating the communication at the place of the host server addresses privacy concerns, as such concerns are diminished because it is the content provider who has made the information public by posting it on the server. By contrast, the real and substantial connection test, insofar as it looks at the retrieval practice of end users, encourages the monitoring of an individual’s surfing and downloading activities. Privacy interests of individuals will be directly implicated where owners of copyrighted works or their collective societies attempt to retrieve data from Internet Service Providers about an end user’s downloading of copyrighted works.

Cases Cited

By Binnie J.

Referred to: Théberge v. Galerie d’Art du Petit Champlain inc., [2002] 2 S.C.R. 336, 2002 SCC 34; CCH Canadian Ltd. v. Law Society of Upper Canada, [2004] 1 S.C.R. 339, 2004 SCC 13; Citron v. Zundel (2002), 2002 CanLII 78205 (CHRT), 41 C.H.R.R. D/274; Reference re Earth Future Lottery, [2003] 1 S.C.R. 123, 2003 SCC 10; Braintech, Inc. v. Kostiuk (1999), 1999 BCCA 169, 171 D.L.R. (4th) 46; Dow Jones & Co. v. Gutnick (2002), 194 A.L.R. 433, [2002] HCA 56; Goldman v. The Queen, 1979 CanLII 60 (SCC), [1980] 1 S.C.R. 976; Dr. Q v. College of Physicians and Surgeons of British Columbia, [2003] 1 S.C.R. 226, 2003 SCC 19; Tolofson v. Jensen, 1994 CanLII 44 (SCC), [1994] 3 S.C.R. 1022; Morguard Investments Ltd. v. De Savoye, 1990 CanLII 29 (SCC), [1990] 3 S.C.R. 1077; Unifund Assurance Co. v. Insurance Corp. of British Columbia, [2003] 2 S.C.R. 63, 2003 SCC 40; Libman v. The Queen, 1985 CanLII 51 (SCC), [1985] 2 S.C.R. 178; Canada (Human Rights Commission) v. Canadian Liberty Net, 1998 CanLII 818 (SCC), [1998] 1 S.C.R. 626; Kitakufe v. Oloya, [1998] O.J. No. 2537 (QL); Hunt v. T&N plc, 1993 CanLII 43 (SCC), [1993] 4 S.C.R. 289; Holt Cargo Systems Inc. v. ABC Containerline N.V. (Trustees of), [2001] 3 S.C.R. 907, 2001 SCC 90; Spar Aerospace Ltd. v. American Mobile Satellite Corp., [2002] 4 S.C.R. 205, 2002 SCC 78; Beals v. Saldanha, [2003] 3 S.C.R. 416, 2003 SCC 72; Bell ExpressVu Limited Partnership v. Rex, [2002] 2 S.C.R. 559, 2002 SCC 42; WIC Premium Television Ltd. v. General Instrument Corp. (2000), 2000 ABCA 233, 8 C.P.R. (4th) 1; Re World Stock Exchange (2000), 9 A.S.C.S. 658; Commission of the European Communities, Commission Decision of 8 October 2002 relating to a proceeding under Article 81 of the EC Treaty and Article 53 of the EEA Agreement (Case No. COMP/C2/38.014 — IFPI “Simulcasting”); National Football League v. PrimeTime 24 Joint Venture, 211 F.3d 10 (2000); Los Angeles News Service v. Conus Communications Co., 969 F.Supp. 579 (1997); National Football League v. TVRadioNow Corp., 53 USPQ2d 1831 (2000); Trib. gr. inst. Paris, May 22, 2000 (UEJF v. Yahoo! Inc.); Yahoo! Inc. v. Ligue contre le racisme et l’antisémitisme, 145 F.Supp.2d 1168 (2001); Bishop v. Stevens, 1990 CanLII 75 (SCC), [1990] 2 S.C.R. 467; Compo Co. v. Blue Crest Music Inc., 1979 CanLII 6 (SCC), [1980] 1 S.C.R. 357; Menear v. Miguna (1996), 1996 CanLII 8214 (ON SC), 30 O.R. (3d) 602, rev’d (1997), 1997 CanLII 4432 (ON CA), 33 O.R. (3d) 223; Newton v. City of Vancouver (1932), 46 B.C.R. 67; Sun Life Assurance Co. of Canada v. W. H. Smith & Son, Ltd., [1933] All E.R. Rep. 432; Electric Despatch Co. of Toronto v. Bell Telephone Co. of Canada (1891), 1891 CanLII 11 (SCC), 20 S.C.R. 83; Canadian Assn. of Broadcasters v. Society of Composers, Authors and Music Publishers of Canada (1994), 1994 CanLII 19611 (FCA), 58 C.P.R. (3d) 190; Religious Technology Center v. Netcom On-line Communication Services, Inc., 907 F.Supp. 1361 (1995); Vigneux v. Canadian Performing Right Society, Ltd., 1945 CanLII 346 (UK JCPC), [1945] A.C. 108; Muzak Corp. v. Composers, Authors and Publishers Association of Canada, Ltd., 1953 CanLII 47 (SCC), [1953] 2 S.C.R. 182; Apple Computer Inc. v. Mackintosh Computers Ltd., 1986 CanLII 6820 (FC), [1987] 1 F.C. 173, aff’d 1990 CanLII 119 (SCC), [1990] 2 S.C.R. 209; C.B.S. Inc. v. Ames Records & Tapes Ltd., [1982] 1 Ch. 91; Godfrey v. Demon Internet Ltd., [1999] 4 All E.R. 342; A & M Records, Inc. v. Napster, Inc., 114 F.Supp.2d 896 (2000), aff’d in part, 239 F.3d 1004 (2001).

By LeBel J.

Referred to: Croft v. Dunphy, 1932 CanLII 317 (UK JCPC), [1933] A.C. 156; Reference re Offshore Mineral Rights of British Columbia, 1967 CanLII 71 (SCC), [1967] S.C.R. 792; Reference re Newfoundland Continental Shelf, 1984 CanLII 132 (SCC), [1984] 1 S.C.R. 86; Bolduc v. Attorney General of Quebec, 1982 CanLII 224 (SCC), [1982] 1 S.C.R. 573; Arcadi v. The King, 1931 CanLII 68 (SCC), [1932] S.C.R. 158; Morguard Investments Ltd. v. De Savoye, 1990 CanLII 29 (SCC), [1990] 3 S.C.R. 1077; Beals v. Saldanha, [2003] 3 S.C.R. 416, 2003 SCC 72; Hunt v. T&N plc, 1993 CanLII 43 (SCC), [1993] 4 S.C.R. 289; R. v. Sharpe, [2001] 1 S.C.R. 45, 2001 SCC 2; Daniels v. White, 1968 CanLII 67 (SCC), [1968] S.C.R. 517.

Statutes and Regulations Cited

Agreement on Trade-Related Aspects of Intellectual Property Rights, 1869 U.N.T.S. 299 (being Annex 1C of the Marrakesh Agreement Establishing the World Trade Organization, 1867 U.N.T.S. 3).

Berne Convention for the Protection of Literary and Artistic Works, September 9, 1886, art. 5.

Constitution Act, 1982, s. 52(2)(b), (c), Sch., item 17.

Copyright Act, R.S.C. 1985, c. C-42, ss. 2 “telecommunication” [ad. 1988, c. 65, s. 61], 2.4(1)(b) [ad. 1997, c. 24, s. 2], 3(1) [repl. idem, s. 3(1)], (f) [rep. & sub. 1988, c. 65, s. 62], 27(1).

Copyright Act 1968 (Australia), No. 63 of 1968, s. 10(1) “communicate”, “to the public”.

Copyright Amendment (Digital Agenda) Act 2000 (Australia), No. 110 of 2000, Sch. 1, ss. 6, 16.

Digital Millennium Copyright Act, 17 U.S.C. § 512 (1998).

Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market (“Directive on electronic commerce”), [2000] O.J. L. 178/1, Preamble, clauses 17, 19, 22, 42, arts. 3(1), 13(1).

Statute of Westminster, 1931 (U.K.), 22 Geo. 5, c. 4 [reprinted in R.S.C. 1985, App. II, No. 27], s. 3.

WIPO Copyright Treaty, CRNR/DC/94, December 23, 1996, art. 8, Agreed Statements, art. 8.

WIPO Performances and Phonograms Treaty, CRNR/DC/95, December 23, 1996.

Authors Cited

Anonymous. “The music industry: In a spin”, The Economist (March 2003), p. 58.

Black’s Law Dictionary, 6th ed. St. Paul, Minn.: West Publishing Co., 1990, “necessary”.

Brown, Raymond E. The Law of Defamation in Canada, vol. 1, 2nd ed. Scarborough, Ont.: Carswell, 1999 (loose-leaf).

Canada. House of Commons. Sub-Committee on the Revision of Copyright of the Standing Committee on Communications and Culture. A Charter of Rights for Creators. Ottawa: House of Commons, 1985.

Gervais, Daniel J. “Transmissions of Music on the Internet: An Analysis of the Copyright Laws of Canada, France, Germany, Japan, the United Kingdom, and the United States” (2001), 34 Vand. J. Transnatl. L. 1363.

Gratton, Eloïse. Internet and Wireless Privacy: A Legal Guide to Global Business Practices. Toronto: CCH Canadian, 2003.

McKeown, John S. Fox on Canadian Law of Copyright and Industrial Designs, 4th ed. Toronto: Thomson/Carswell, 2003 (loose-leaf).

Nimmer, Melville B. Nimmer on Copyright, vol. 3. New York: Matthew Bender (loose-leaf updated December 2002, release 59).

Pietsch, Matthew V. “International Copyright Infringement and the Internet: An Analysis of the Existing Means of Enforcement” (2001-2002), 24 Hastings Comm. & Ent. L.J. 273.

Reindl, Andreas P. “Choosing Law in Cyberspace: Copyright Conflicts on Global Networks” (1997-1998), 19 Mich. J. Int’l L. 799.

Shorter Oxford English Dictionary on Historical Principles, vol. 1, 5th ed. Oxford: Oxford University Press, 2002, “communicate”.

Smith, Graham J. H. Internet Law and Regulation, 3rd ed. London: Sweet & Maxwell, 2002.

Sullivan, Ruth. Sullivan and Driedger on the Construction of Statutes, 4th ed. Markham, Ont.: Butterworths, 2002.

Takach, George S. Computer Law, 2nd ed. Toronto: Irwin Law, 2003.

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APPEAL and CROSS-APPEAL from a judgment of the Federal Court of Appeal, [2002] 4 F.C. 3, 215 D.L.R. (4th) 118, 290 N.R. 131, 19 C.P.R. (4th) 289, [2002] F.C.J. No. 691 (QL), 2002 FCA 166, affirming in part a judgment of the Copyright Board (1999), 1999 CanLII 35813 (CA CB), 1 C.P.R. (4th) 417. Appeal allowed in part; cross-appeal dismissed.

Thomas G. Heintzman, Q.C., and Barry B. Sookman, for the appellants/respondents on cross-appeal.

Y. A. George Hynna, Brian A. Crane, Q.C., Gilles M. Daigle and C. Paul Spurgeon, for the respondent/appellant on cross-appeal.

Andrea Rush and Stephen Zolf, for the interveners the Internet Commerce Coalition, the European Telecommunications Network Operators’ Association, the European Internet Service Providers’ Association, the Australian Internet Industry Association, the Telecom Services Association and the U.S. Internet Industry Association.

Glen A. Bloom, for the interveners the Canadian Recording Industry Association and the International Federation of Phonogram Industry.

The judgment of McLachlin C.J. and Iacobucci, Major, Bastarache, Binnie, Arbour, Deschamps and Fish JJ. was delivered by

1 Binnie J. — This appeal raises the difficult issue of who should compensate musical composers and artists for their Canadian copyright in music downloaded in Canada from a foreign country via the Internet. In an era when it is as easy to access a website hosted by a server in Bangalore as it is to access a website with a server in Mississauga, where is the protection for the financial rights of the people who created the music in the first place? Who, if anyone, is to pay the piper?

2 The Internet “exists”, notionally, in cyberspace. It has been described as a “fascinating exercise in symbiotic anarchy”; see G. S. Takach, Computer Law (2nd ed. 2003), at p. 30. It is not contained by national boundaries. The Internet thus presents a particular challenge to national copyright laws, which are typically territorial in nature.

3 The answer to this challenge proposed by the respondent, the Society of Composers, Authors and Music Publishers of Canada (“SOCAN”), is to seek to impose liability for royalties on the various Internet Service Providers located in Canada irrespective of where the transmission originates. There is no doubt that such an imposition, from SOCAN’s perspective, would provide an efficient engine of collection.

4 The appellants, on the other hand, representing a broad coalition of Canadian Internet Service Providers, resist. Their basic argument is that none of them, as found by the Copyright Board, regulate or are even in the usual case aware of the content of the Internet communications which they transmit. Like a telephone company, they provide the medium, but they do not control the message.

5 Parliament has spoken on this issue. In a 1988 amendment to the Copyright Act, R.S.C. 1985, c. C-42, it made it clear that Internet intermediaries, as such, are not to be considered parties to the infringing communication. They are service providers, not participants in the content of the communication. In light of Parliament’s legislative policy, when applied to the findings of fact by the Copyright Board, I agree with the Board’s conclusion that as a matter of law the appellants did not, in general, “communicate” or “authorize” the communication of musical works in Canada in violation of the respondent’s copyright within the meaning of the Copyright Act.

6 SOCAN sought a judicial review of the Board’s decision by the Federal Court of Appeal, which essentially upheld the Board’s exclusion of the appellants from copyright liability where they perform a pure intermediary function: 2002 FCA 166, [2002] 4 F.C. 3. However, the court, in a 2-1 majority decision, also held that where an Internet Service Provider in Canada creates a “cache” of Internet material, even for purely technical reasons, they are no longer a mere intermediary but a communicator and thus become a participant in the copyright infringement. A contrary conclusion was reached by Sharlow J.A., dissenting in part, who agreed with the Copyright Board that to cache for the purpose of enhancing Internet economy and efficiency does not constitute infringement. I agree with the dissent on this point. To that extent, the appeal should be allowed.

7 The respondent’s cross-appeal seeking to hold Internet intermediaries liable for copyright royalties even where serving only as a conduit should be dismissed.

I. Facts

8 The Internet is a huge communications facility which consists of a worldwide network of computer networks deployed to communicate information. A “content provider” uploads his or her data, usually in the form of a website, to a host server. The content is then forwarded to a destination computer (the end user). End users and content providers can connect to the Internet with a modem under contract with an Internet Service Provider.

9 An Internet transmission is generally made in response to a request sent over the Internet from the end user (referred to as a “pull”). The host server provider transmits content (usually in accordance with its contractual obligation to the content provider). The content at issue here is the copyrighted musical works in SOCAN’s repertoire.

10 In its decision dated October 27, 1999 ((1999), 1999 CanLII 35813 (CA CB), 1 C.P.R. (4th) 417, at p. 441), the Copyright Board provided a succinct description of an Internet transmission:

First, the file is incorporated to an Internet-accessible server. Second, upon request and at a time chosen by the recipient, the file is broken down into packets and transmitted from the host server to the recipient’s server, via one or more routers. Third, the recipient, usually using a computer, can reconstitute and open the file upon reception or save it to open it later; either action involves a reproduction of the file, again as that term is commonly understood.

11 The respondent, SOCAN, is a collective society recognized under s. 2 of the Copyright Act, to administer “performing rights” in Canada including those of (1) its Canadian member composers, authors and music publishers, and (2) foreign composers, authors and music publishers whose interest is protected by a system of reciprocal agreements with counterpart societies here and in other countries. Essentially, SOCAN administers in Canada “the world repertoire of copyright protected music”.

12 In 1995, SOCAN applied to the Copyright Board for approval of Tariff 22 applicable to Internet telecommunications of copyrighted music. Tariff 22 would require a licence and a royalty fee

to communicate to the public by telecommunication, in Canada, musical works forming part of SOCAN’s repertoire, by a telecommunications service to subscribers by means of one or more computer(s) or other device that is connected to a telecommunications network where the transmission of those works can be accessed by each subscriber independently of any other person having access to the service . . . .

13 Recognizing that there might be many participants in any Internet communication, the Board convened a Phase I hearing to “determine which activities on the Internet, if any, constitute a protected use targeted in the tariff” (p. 424).

14 SOCAN initially argued that “virtually everyone involved in the Internet transmission chain is liable [to pay royalties] for the communication, including those who provide transmission services, operate equipment or software used for transmissions, provide connectivity, provide hosting services or post content” (p. 426).

15 SOCAN now disclaims any intent to target the Backbone Service Providers, which are the entities that do not retail Internet services to individual subscribers but provide the facilities and long distance connections including fibre optics and telephone lines that support the Internet.

16 The appellants, on the other hand, stand at the portals of the Internet. They operate the infrastructure provided by the Backbone Service Providers. They retail access to the Internet both to content providers and to end user subscribers. Familiar examples include Bell Globemedia’s “Sympatico” service and the Rogers “Hi-Speed Internet” service. As such, according to SOCAN, they are not passive conduits like the Backbone Service Providers but active participants in the alleged acts of copyright infringement.

17 The Internet operates by means of a series of protocols that enable higher level applications such as the World Wide Web to operate. Transmission control protocol (“TCP”) is the most common protocol and it controls most of the applications used on the Internet. The TCP resides in both host server and end user computers and it controls the sending and receipt of packets transmitted over the Internet. However, routers and other intermediate points on the Internet have no involvement in TCP operation.

18 A content provider may store files on its own computer, but it may also purchase space on a “host server” operated by an Internet Service Provider under commercial arrangements that include storing, making available and transmitting Web site content to end users. Once a musical work or other content has been posted on a host server, it is possible for any person with a computer and an arrangement with an Internet Service Provider to access the work on demand from anywhere in the world via the Internet.

19 The Copyright Board found that Internet Service Providers who “host” Web sites for others are generally neither aware of nor control the content of the files stored in memory; however, in some cases they do warn content providers not to post illegal content (e.g., criminal pornography, defamatory material, copyright infringing materials, viruses, etc.), and will usually retain a master “root” password that allows them to access all the files on the server. The contract generally reserves to the host server provider the authority to periodically review for content posted in breach of their agreement and to remove such files. The existence of such means of control, and the host server provider’s discretion in whether or not to exercise them, justifies the imposition of liability for a copyright licence on host servers, according to SOCAN.

20 The host server breaks the content down into units of data called “packets” consisting of a series of bytes (typically no more than 1500). Each packet has a destination address attached to it in the form of a “header”. The host server transmits the packets to a router which reads the address in the packet’s header and performs computations to determine the most appropriate transmission route over which to send the packet to its destination. The router does not access the data portion of the packet. The various packets are forwarded from router to router and may follow different transmission routes along the way until they reach the Internet Service Provider at the receiving end which, under contract to the end user, transmits the packets to a computer operated by the end user. The result is the reconstitution on the end user’s computer of all that is required to view or, in the case of music, “to play” the work, either at that time or later if the work is saved on the end user’s computer.

21 It is evident that a single corporate entity like Rogers, Bell or AT&T Canada can play a variety of roles in Internet transmission. The Board’s analysis therefore focussed on what functions attract copyright liability. To the extent a particular entity performs a specified function, it may be liable for copyright infringement in respect of the function unless licensed.

22 The appellants initially argued against copyright liability on the theory that intermediaries only handle “packets” of incomplete music in computer coded compressed form, which may be sent or received out of order. In their view they were not communicating the musical works as such, and thus could not be guilty of copyright infringement. This was rejected by the Copyright Board on the basis that the fragmentation into packets was dictated by “the technical exigencies of the Internet” (at p. 447):

While some intermediaries may not be transmitting the entire work or a substantial part of a work, all of the packets required to communicate the work are transmitted from the server on which the work is located to the end user. Consequently, the work is communicated.

The correctness of this finding is no longer contested.

23 A particular issue arose in respect of the appellants’ use of “caching”. When an end user visits a Web site, the packets of data needed to transmit the requested information will come initially from the host server where the files for this site are stored. As they pass through the hands of an Internet Service Provider, a temporary copy may be made and stored on its server. This is a cache copy. If another user wants to visit this page shortly thereafter, using the same Internet Service Provider, the information may be transmitted to the subsequent user either directly from the Web site or from what is kept in the cache copy. The practice of creating “caches” of data speeds up the transmission and lowers the cost. The subsequent end user may have no idea that it is not getting the information directly from the original Web site. Cache copies are not retained for long periods of time since, if the original files change, users will get out-of-date information. The Internet Service Provider controls the existence and duration of caches on its own facility, although in some circumstances it is open to a content provider to specify no caching, or an end user to program its browser to insist on content from the original Web site.

24 SOCAN argued that where a cache copy is made on a computer located in Canada and then retransmitted, there is a distinct violation in Canada of copyright protection. This, as stated, is the issue that divided the Federal Court of Appeal.

25 The Board was also required to consider the potential copyright infringement of “hyperlinks”, particularly when the link is automatic. Automatic links employ an embedded code in the Web page that automatically instructs the browser, upon obtaining access to the first site, to download a file from a second site. The user does not need to do anything but visit the initial site before information from the second site is “pulled”. A different legal issue may arise where the user must take action, such as to click the mouse button over the hyperlink, in order to obtain access to the information from the second site.

26 While much of the Internet discussion focussed on music available on the World Wide Web, Tariff 22 may also apply to copyrighted music sent by e-mail or displayed on business bulletin boards or other Internet applications.

II. Relevant Statutory Provisions

27 Copyright Act, R.S.C. 1985, c. C-42

2. . . .

“telecommunication” means any transmission of signs, signals, writing, images or sounds or intelligence of any nature by wire, radio, visual, optical or other electromagnetic system;

2.4 (1) For the purposes of communication to the public by telecommunication,

(b) a person whose only act in respect of the communication of a work or other subject-matter to the public consists of providing the means of telecommunication necessary for another person to so communicate the work or other subject-matter does not communicate that work or other subject-matter to the public; and

3. (1) For the purposes of this Act, “copyright”, in relation to a work, means the sole right to produce or reproduce the work or any substantial part thereof in any material form whatever, to perform the work or any substantial part thereof in public or, if the work is unpublished, to publish the work or any substantial part thereof, and includes the sole right

(f) in the case of any literary, dramatic, musical or artistic work, to communicate the work to the public by telecommunication,

and to authorize any such acts.

III. Judicial History

A. Decision of the Copyright Board

28 Tariff 22 proposed the amount and allocation of a royalty payable to copyright owners for the communication of music on the Internet. At the end of the first phase of its proceeding, geared to determining who might be liable to pay royalties, the Copyright Board held that a royalty can be imposed on content providers who post music on a server located in Canada that can be accessed by other Internet users. However, the Board also held that the normal activities of Internet intermediaries not acting as content providers do not constitute “a communication” for the purpose of the Copyright Act and thus do not infringe the exclusive communication rights of copyright owners. The parties did not frame an issue in relation to infringement of the right of reproduction, and its role, if any, did not play a significant part in the Board’s decision.

29 In reaching its conclusions the Copyright Board considered a number of questions, including the following (at p. 443):

1. When does a communication to the public occur on the Internet?

2. Who “communicates” (in the copyright sense) on the Internet? In particular, who can benefit from paragraph 2.4(1)(b) of the Act?

3. When does the act of “authorizing” a communication on the Internet occur?

4. When does a communication on the Internet occur in Canada?

30 After hearing 11 days of evidence and submissions and a subsequent period of reflection, the Board concluded that an Internet communication occurs at the time the work is transmitted from the host server to the computer of the end user, regardless of whether it is played or viewed at that time, or later, or never. It is made “to the public” because the music files are “made available on the Internet openly and without concealment, with the knowledge and intent that they be conveyed to all who might access the Internet” (p. 445). Accordingly, “a communication may be to the public when it is made to individual members of the public at different times, whether chosen by them (as is the case on the Internet) or by the person responsible for sending the work (as is the case with facsimile transmissions)” (p. 445). This is no longer contested.

31 In order to determine the level of intermediate participation in Internet transmission of musical works that could trigger liability for infringement under s. 3(1) of the Copyright Act, the Board was required to interpret the scope of the limitation in s. 2.4(1)(b), which says that an Internet Service Provider does not “communicate” a copyrighted work if its “only act” is to provide “the means of telecommunication necessary for another person to so communicate the work” (emphasis added).

32 The Board rejected SOCAN’s argument that s. 2.4(1)(b) should be narrowly construed as an exemption to copyright liability. The Board held that where an intermediary merely acts as a “conduit for communications by other persons” (p. 453 (emphasis added)), it can claim the benefit of s. 2.4(1)(b). If an intermediary does more than merely act as a conduit (for example if it creates a cache for reasons other than improving system performance or modifies the content of cached material), it may lose the protection. Insofar as the Internet Service Provider furnishes “ancillary” services to a content provider or end user, it could still rely on s. 2.4(1)(b) as a defence to copyright infringement, provided any such “ancillary services” do not amount in themselves to communication or authorization to communicate the work. Creation of an automatic “hyperlink” by a Canadian Internet Service Provider will also attract copyright liability.

33 As to “authorization”, the Board found that knowledge by an Internet Service Provider that its facilities might be used for infringing purposes was not enough to incur liability. The Internet Service Provider needed to grant “the person committing the infringement a license or permission to infringe” (p. 458).

34 In the result, the Board stated that an Internet communication occurs in Canada only if it originates from a server in Canada. Thus, a content provider is subject to a royalty approved by the Board if, but only if, the content is posted on a server located in Canada.

B. The Federal Court of Appeal

1. Evans J.A. (Linden J.A. Concurring) for the Majority

35 SOCAN’s application for judicial review was allowed in part. Evans J.A. concluded that the standard of review of the Copyright Board’s interpretation of the s. 2.4(1)(b) defence was correctness, but as to other issues involving the application of the Copyright Act to the facts, the proper standard of review was unreasonableness.

36 The Federal Court of Appeal did not agree with the Board’s insistence that an Internet communication only occurred in the country where the host server is located. In its view, a communication (and therefore a royalty) may arise in respect of any telecommunication that has a real and substantial connection with Canada. The real and substantial connection test would also be applied to a content provider who authorized posting copyright material on a host server. In the court’s view, the Board’s decision undercompensated SOCAN’s members for a potential loss of music sales in the Canadian market as a result of the receipt in Canada of copyright music on the Internet.

37 According to Evans J.A., the Copyright Board erred in law when it ignored all connecting factors other than the location of the host server for the purpose of identifying communications that occur in Canada, and which therefore attract liability to pay a royalty to SOCAN. The most important connecting factors will normally be the location of the content provider, the end user and the intermediaries, in particular the host server. The location of the end user is a particularly important factor in determining if an Internet communication has a real and substantial connection with Canada. The location of a cache or a linked site in Canada from which material is transmitted would provide additional potential connecting factors.

38 As to the limited protection of s. 2.4(1)(b), the majority opinion ruled that the Board erred in law when it held that an Internet Service Provider who caches material is thereby providing a means necessary for another to communicate it. The fact that the cache enhances the speed of transmission and reduces the cost to the Internet access provider does not render the cache a practical necessity for communication. To decide otherwise would further erode copyright holders’ right to be compensated for the use of their works by others.

2. Sharlow J.A. (Dissenting in Part)

39 Sharlow J.A. disagreed with the majority on the interpretation of “necessary” in s. 2.4(1)(b), and found that in the context of that paragraph, something should be considered “necessary” for communication if it makes communication practicable or more practicable. Sharlow J.A. therefore agreed with the Board’s conclusion that intermediaries who carry out caching activities are entitled to rely on s. 2.4(1)(b) of the Act.

IV. Analysis

40 This Court has recently described the Copyright Act as providing “a balance between promoting the public interest in the encouragement and dissemination of works of the arts and intellect and obtaining a just reward for the creator (or, more accurately, to prevent someone other than the creator from appropriating whatever benefits may be generated)” (Théberge v. Galerie d’Art du Petit Champlain inc., [2002] 2 S.C.R. 336, 2002 SCC 34, at para. 30; CCH Canadian Ltd. v. Law Society of Upper Canada, [2004] 1 S.C.R. 339, 2004 SCC 13, at para. 10). The capacity of the Internet to disseminate “works of the arts and intellect” is one of the great innovations of the information age. Its use should be facilitated rather than discouraged, but this should not be done unfairly at the expense of those who created the works of arts and intellect in the first place.

41 The issue of the proper balance in matters of copyright plays out against the much larger conundrum of trying to apply national laws to a fast-evolving technology that in essence respects no national boundaries. Thus in Citron v. Zundel (2002), 2002 CanLII 78205 (CHRT), 41 C.H.R.R. D/274, the Canadian Human Rights Tribunal wrestled with jurisdiction over an alleged hate Web site supplied with content from Toronto but posted from a host server in California. In Reference re Earth Future Lottery, [2003] 1 S.C.R. 123, 2003 SCC 10, the issue was whether sales of tickets from an Internet lottery in Prince Edward Island constituted gambling “in the province” when almost all of the targeted on-line purchasers resided elsewhere. The “cyber libel” cases multiply. In Braintech, Inc. v. Kostiuk (1999), 1999 BCCA 169, 171 D.L.R. (4th) 46, the British Columbia Court of Appeal refused to enforce a Texas judgment for Internet defamation against a B.C. resident where the B.C. resident’s only connection with Texas was “passive posting on an electronic bulletin board” (para. 66). There was no proof that anyone in Texas had actually looked at it. On the other hand, in Dow Jones & Co. v. Gutnick (2002), 194 A.L.R. 433, [2002] HCA 56, the High Court of Australia accepted jurisdiction over a defamation action in respect of material uploaded onto the defendant’s server in New Jersey and downloaded by end users in the State of Victoria. The issue of global forum shopping for actions for Internet torts has scarcely been addressed. The availability of child pornography on the Internet is a matter of serious concern. E-commerce is growing. Internet liability is thus a vast field where the legal harvest is only beginning to ripen. It is with an eye to this broader context that the relatively precise questions raised by the Copyright Board must be considered.

A. Communication Under the Copyright Act

42 It is an infringement for anyone to do, without the consent of the copyright owner, “anything that, by this Act, only the owner of the copyright has the right to do” (s. 27(1)), including, since the 1988 amendments, the right “to communicate the work to the public by telecommunication . . . and to authorize any such acts” (s. 3(1)(f) (emphasis added)). In the same series of amendments, “telecommunication” was defined as “any transmission of signs, signals, writings, images or sounds or intelligence of any nature by wire, radio, visual, optical or other electromagnetic system” (s. 2). The Board ruled that a telecommunication occurs when the music is transmitted from the host server to the end user. I agree with this. The respondent says that the appellants as intermediaries participate in any such transmission of their copyrighted works, and authorize others to do so, and should therefore be required to pay compensation fixed under Tariff 22.

43 In the United States, unlike Canada, detailed legislation has now been enacted to deal specifically with the liability of Internet intermediaries; see the Digital Millennium Copyright Act, 17 U.S.C. § 512 (1998). Australia has enacted its Copyright Amendment (Digital Agenda) Act 2000, No. 110 of 2000. The European Commission has issued a number of directives, as will be discussed. Parliament’s response to the World Intellectual Property Organization’s (“WIPO”) Copyright Treaty (1996), CRNR/DC/94, and the Performances and Phonograms Treaty (1996), CRNR/DC/95, remains to be seen. In the meantime, the courts must struggle to transpose a Copyright Act designed to implement the Berne Convention for the Protection of Literary and Artistic Works of 1886, as revised in Berlin in 1908, and subsequent piecemeal amendments, to the information age, and to technologies undreamt of by those early legislators.

44 The Board took the view that “[t]o occur in Canada, a communication must originate from a server located in Canada on which content has been posted” (p. 459), except perhaps if the content provider has “the intention to communicate it specifically to recipients in Canada” (p. 460). In my view, with respect, this is too rigid and mechanical a test. An Internet communication that crosses one or more national boundaries “occurs” in more than one country, at a minimum the country of transmission and the country of reception. In Dow Jones, supra, the defendant argued that the appropriate law should be that of the jurisdiction where the host server is located, but this was rejected in favour of the law of the State of reception by the High Court of Australia. To the extent the Board held that a communication that does not originate in Canada does not occur in Canada, I disagree with its decision.

45 At the end of the transmission, the end user has a musical work in his or her possession that was not there before. The work has necessarily been communicated, irrespective of its point of origin. If the communication is by virtue of the Internet, there has been a “telecommunication”. To hold otherwise would not only fly in the face of the ordinary use of language but would have serious consequences in other areas of law relevant to the Internet, including Canada’s ability to deal with criminal and civil liability for objectionable communications entering the country from abroad.

46 The word “communicate” is an ordinary English word that means to “impart” or “transmit” (Shorter Oxford English Dictionary on Historical Principles (5th ed. 2002), vol. 1, at p. 463). Communication presupposes a sender and a receiver of what is transmitted; see Goldman v. The Queen, 1979 CanLII 60 (SCC), [1980] 1 S.C.R. 976, at p. 995. The “communicator” is the sender, not the recipient. Thus, says SOCAN, all those entities located in Canada (other than Backbone Service Providers) who participate in the act of imparting or transmitting a copyrighted work across the Internet are guilty of infringement of the Canadian copyright. Any lesser protection, SOCAN says, would not strike an appropriate balance between the rights of copyright owners and the public interest in the encouragement and dissemination of their musical works (Théberge, supra, at para. 30).

47 As the Board ruled against SOCAN on this question, we must decide what standard of judicial review is applicable.

B. Standard of Review

48 It is not necessary in this case to address at length the “pragmatic and functional” test to determine the appropriate standard of judicial review. I agree with Evans J.A. that a standard of correctness is indicated by the customary four factors: (i) presence or absence of a privative clause, or statutory right of appeal; (ii) the expertise of the tribunal relative to that of the reviewing court on the issue in question; (iii) the purpose of the legislation and any particular provision in issue; and (iv) the nature of the question (Dr. Q v. College of Physicians and Surgeons of British Columbia, [2003] 1 S.C.R. 226, 2003 SCC 19, at para. 26).

49 There is neither a preclusive clause nor a statutory right of appeal from decisions of the Copyright Board. While the Chair of the Board must be a current or retired judge, the Board may hold a hearing without any legally trained member present. The Copyright Act is an act of general application which usually is dealt with before courts rather than tribunals. The questions at issue in this appeal are legal questions. For example, the Board’s ruling that an infringement of copyright does not occur in Canada when the place of transmission from which the communication originates is outside Canada addresses a point of general legal significance far beyond the working out of the details of an appropriate royalty tariff, which lies within the core of the Board’s mandate.

50 None of the parties is challenging the Board’s view of the facts themselves. It is the legal significance of the facts that is in issue. In my view, accordingly, the decision of the Board on the legal questions at issue in this appeal should be reviewed on a correctness standard.

C. Application and Scope of the Copyright Act

51 The Federal Court of Appeal was unanimous in its conclusion that copyright infringement occurs in Canada where there is a real and substantial connection between this country and the communication at issue. Evans J.A. stated, at para. 191:

In my opinion, therefore, the Copyright Board erred in law when it ignored all connecting factors other than the location of the host server for the purpose of identifying communications that occur in Canada and can therefore attract liability to pay a royalty to SOCAN.

52 I agree with the general proposition that the Board erred in holding that the only relevant connection between Canada and the communication is the location of the host server. As a matter of international law and practice, as well as the legislative reach of our Parliament, Canada’s jurisdiction is not so limited.

53 It is a different issue, however, whether Canada intended to exercise its copyright jurisdiction to impose copyright liability on every participant in an Internet communication with “a real and substantial connection” to Canada. This second issue raises questions of statutory interpretation of the Copyright Act.

1. Canada’s Legislative Reach

54 While the Parliament of Canada, unlike the legislatures of the Provinces, has the legislative competence to enact laws having extraterritorial effect, it is presumed not to intend to do so, in the absence of clear words or necessary implication to the contrary. This is because “[i]n our modern world of easy travel and with the emergence of a global economic order, chaotic situations would often result if the principle of territorial jurisdiction were not, at least generally, respected”; see Tolofson v. Jensen, 1994 CanLII 44 (SCC), [1994] 3 S.C.R. 1022, at p. 1051, per La Forest J.

55 While the notion of comity among independent nation States lacks the constitutional status it enjoys among the provinces of the Canadian federation (Morguard Investments Ltd. v. De Savoye, 1990 CanLII 29 (SCC), [1990] 3 S.C.R. 1077, at p. 1098), and does not operate as a limitation on Parliament’s legislative competence, the courts nevertheless presume, in the absence of clear words to the contrary, that Parliament did not intend its legislation to receive extraterritorial application.

56 Copyright law respects the territorial principle, reflecting the implementation of a “web of interlinking international treaties” based on the principle of national treatment (see D. Vaver, Copyright Law (2000), at p. 14).

57 The applicability of our Copyright Act to communications that have international participants will depend on whether there is a sufficient connection between this country and the communication in question for Canada to apply its law consistent with the “principles of order and fairness . . . that ensure security of [cross-border] transactions with justice”; see Morguard Investments, supra, at p. 1097; see also Unifund Assurance Co. v. Insurance Corp. of British Columbia, [2003] 2 S.C.R. 63, 2003 SCC 40, at para. 56; Sullivan and Driedger on the Construction of Statutes (4th ed. 2002), at pp. 601-2.

58 Helpful guidance on the jurisdictional point is offered by La Forest J. in Libman v. The Queen, 1985 CanLII 51 (SCC), [1985] 2 S.C.R. 178. That case involved a fraudulent stock scheme. U.S. purchasers were solicited by telephone from Toronto, and their investment monies (which the Toronto accused caused to be routed through Central America) wound up in Canada. The accused contended that the crime, if any, had occurred in the United States, but La Forest J. took the view that “[t]his kind of thinking has, perhaps not altogether fairly, given rise to the reproach that a lawyer is a person who can look at a thing connected with another as not being so connected. For everyone knows that the transaction in the present case is both here and there” (p. 208 (emphasis added)). Speaking for the Court, he stated the relevant territorial principle as follows (at pp. 212-13):

I might summarize my approach to the limits of territoriality in this way. As I see it, all that is necessary to make an offence subject to the jurisdiction of our courts is that a significant portion of the activities constituting that offence took place in Canada. As it is put by modern academics, it is sufficient that there be a “real and substantial link” between an offence and this country . . . . [Emphasis added.]

59 So also, in my view, a telecommunication from a foreign state to Canada, or a telecommunication from Canada to a foreign state, “is both here and there”. Receipt may be no less “significant” a connecting factor than the point of origin (not to mention the physical location of the host server, which may be in a third country). To the same effect, see Canada (Human Rights Commission) v. Canadian Liberty Net, 1998 CanLII 818 (SCC), [1998] 1 S.C.R. 626, at para. 52; Kitakufe v. Oloya, [1998] O.J. No. 2537 (QL) (Gen. Div.). In the factual situation at issue in Citron v. Zundel, supra, for example, the fact that the host server was located in California was scarcely conclusive in a situation where both the content provider (Zundel) and a major part of his target audience were located in Canada. The Zundel case was decided on grounds related to the provisions of the Canadian Human Rights Act, but for present purposes the object lesson of those facts is nevertheless instructive.

60 The “real and substantial connection” test was adopted and developed by this Court in Morguard Investments, supra, at pp. 1108-9; Hunt v. T&N plc, 1993 CanLII 43 (SCC), [1993] 4 S.C.R. 289, at pp. 325-26 and 328; and Tolofson, supra, at p. 1049. The test has been reaffirmed and applied more recently in cases such as Holt Cargo Systems Inc. v. ABC Containerline N.V. (Trustees of), [2001] 3 S.C.R. 907, 2001 SCC 90, at para. 71; Spar Aerospace Ltd. v. American Mobile Satellite Corp., [2002] 4 S.C.R. 205, 2002 SCC 78; Unifund, supra, at para. 54; and Beals v. Saldanha, [2003] 3 S.C.R. 416, 2003 SCC 72. From the outset, the real and substantial connection test has been viewed as an appropriate way to “prevent overreaching . . . and [to restrict] the exercise of jurisdiction over extraterritorial and transnational transactions” (La Forest J. in Tolofson, supra, at p. 1049). The test reflects the underlying reality of “the territorial limits of law under the international legal order” and respect for the legitimate actions of other states inherent in the principle of international comity (Tolofson, at p. 1047). A real and substantial connection to Canada is sufficient to support the application of our Copyright Act to international Internet transmissions in a way that will accord with international comity and be consistent with the objectives of order and fairness.

61 In terms of the Internet, relevant connecting factors would include the situs of the content provider, the host server, the intermediaries and the end user. The weight to be given to any particular factor will vary with the circumstances and the nature of the dispute.

62 Canada clearly has a significant interest in the flow of information in and out of the country. Canada regulates the reception of broadcasting signals in Canada wherever originated; see Bell ExpressVu Limited Partnership v. Rex, [2002] 2 S.C.R. 559, 2002 SCC 42. Our courts and tribunals regularly take jurisdiction in matters of civil liability arising out of foreign transmissions which are received and have their impact here; see WIC Premium Television Ltd. v. General Instrument Corp. (2000), 2000 ABCA 233, 8 C.P.R. (4th) 1 (Alta. C.A.); Re World Stock Exchange (2000), 9 A.S.C.S. 658.

63 Generally speaking, this Court has recognized, as a sufficient “connection” for taking jurisdiction, situations where Canada is the country of transmission (Libman, supra) or the country of reception (Liberty Net, supra). This jurisdictional posture is consistent with international copyright practice.

64 In a recent decision of the European Commission involving “simulcasting”, a model reciprocal agreement approved by the Commission was based on the country-of-destination principle. The decision commented that according to the principle “which appears to reflect the current legal situation in copyright law, the act of communication to the public of a copyright protected work takes place not only in the country of origin (emission-State) but also in all the States where the signals can be received (reception-States)”: Commission Decision of 8 October 2002 relating to a proceeding under Article 81 of the EC Treaty and Article 53 of the EEA Agreement (Case No. COMP/C2/38.014 — IFPI “Simulcasting”), para. 21 (emphasis added).

65 Canada is a signatory but not yet a party to the WIPO Copyright Treaty. This treaty responded to the development of the Internet and other on-demand telecommunications technology. Article 8 provides that:

. . . authors of literary and artistic works shall enjoy the exclusive right of authorizing any communication to the public of their works, by wire or wireless means, including the making available to the public of their works in such a way that members of the public may access these works from a place and at a time individually chosen by them.

The “making available” right is generally exercised at the point of transmission. This does not deny the interest of the country of reception but avoids, as a matter of policy, a “layering” of royalty obligations in different countries that are parties to the WIPO Copyright Treaty.

66 In 2000, the European Commission issued what is known as its E-Commerce Directive; see Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market (“Directive on electronic commerce”), [2000] O.J. L. 178/1. Its purpose was to ensure the free movement among Member States of “information society services”, defined as “any service normally provided for remuneration, at a distance, by means of electronic equipment . . . and at the individual request of a recipient of a service” (Preamble, clause 17). The E-Commerce Directive preferred as a matter of policy the law of the Member State on whose territory the service provider is established (art. 3(1)). It was thought that “[i]nformation society services should be supervised at the source of the activity . . . to that end, it is necessary to ensure that the competent authority provides such protection not only for the citizens of its own country but for all Community citizens” (Preamble, clause 22 (emphasis added)). The Directive notes that the place where a service provider is established should be determined by the case law of the European Court of Justice, which holds that the proper situs is not the place where the technology is, or the place where the person accessing the service is, but rather where the service provider’s centre of activities is (Preamble, clause 19); see G. J. H. Smith, Internet Law and Regulation (3rd ed. 2002), at p. 269.

67 Supranational organizations such as the European Commission may thus allocate responsibility among their member States — whether the state of transmission or the state of reception — as a matter of policy. In the absence of such regional or international arrangements, the territorial nature of copyright law must be respected.

68 National practice confirms that either the country of transmission or the country of reception may take jurisdiction over a “communication” linked to its territory, although whether it chooses to do so is a matter of legislative or judicial policy; see generally M. V. Pietsch, “International Copyright Infringement and the Internet: An Analysis of the Existing Means of Enforcement” (2001-2002), 24 Hastings Comm. & Ent. L.J. 273.

(a) The United States

69 At present there is authority in the United States for taking copyright jurisdiction over both the sender of the transmission out of the United States and the receiver in the United States of material from outside that country.

70 In National Football League v. PrimeTime 24 Joint Venture, 211 F.3d 10 (2d Cir. 2000), the U.S. defendant caused satellite transmission of NFL football games from the U.S. to Canada. The court found this to violate the NFL’s U.S. copyright even though the broadcasts were being sent to the satellite and thence to Canada for Canadian viewers. The United States was the country of transmission. It was held sufficient to constitute U.S. copyright infringement that a significant step in the telecommunication had taken place in the United States (at p. 13):

. . . it is clear that PrimeTime’s uplink transmission of signals captured in the United Sates is a step in the process by which NFL’s protected work wends its way to a public audience. In short, PrimeTime publicly displayed or performed material in which the NFL owns the copyright. Because PrimeTime did not have authorization to make such a public performance, PrimeTime infringed the NFL’s copyright.

71 At the same time, some U.S. courts take the view that U.S. copyright is also breached when the U.S. is the country of reception. Thus in Los Angeles News Service v. Conus Communications Co., 969 F.Supp. 579 (C.D. Cal. 1997), the plaintiff had videotaped riots that occurred in Los Angeles in connection with the Rodney King assault case. The CBC broadcast some of the footage in Canada. Inevitably, some homes in border States saw the CBC broadcast. The plaintiff alleged breach of U.S. copyright. The CBC moved to dismiss the U.S. proceeding for lack of jurisdiction, but was unsuccessful. The court held, at pp. 583-84:

Under the plain language of the Act, the subject footage was “displayed” on television sets within the United States within the meaning of the Copyright Act. To find otherwise would leave a substantial loophole in the copyright laws. Broadcasters could deliberately transmit potentially infringing material from locations across the U.S. borders for display in the United States without regard to the rights of copyright owners set forth in the U.S. Copyright Act.

72 Equally, in National Football League v. TVRadioNow Corp., 53 USPQ2d 1831 (W.D. Pa. 2000), the court found that a Web site in Canada that “streamed” U.S. cable television through the Internet with worldwide availability infringed the U.S. transmission rights of the copyright owners despite the fact that the defendant was located in Canada and arguably was not in violation of Canadian copyright laws.

(b) Australia

73 Australia has recently adopted the Copyright Amendment (Digital Agenda) Act 2000 to implement its obligations under the WIPO treaties. The definition of “communication to the public” appears to apply Australian copyright law to communications entirely within Australia, those originating within Australia and received by an end user outside Australia, and those originating outside Australia but received by an end user in Australia:

10. Interpretation

(1) In this Act, unless the contrary intention appears:

communicate means make available online or electronically transmit (whether over a path, or a combination of paths, provided by a material substance or otherwise) a work or other subject‑matter.

to the public means to the public within or outside Australia. [Emphasis added.]

(Copyright Act 1968 (Australia), No. 63 of 1968, s. 10(1), as amended by the Copyright Amendment (Digital Agenda) Act 2000, Sch.1, ss. 6 and 16)

74 The definition of “to the public” seems to permit Australian copyright holders to exact royalties on both communication from Australia of material directed to overseas audiences as well as overseas communications received in Australia.

(c) France

75 An analysis of liability in France suggests that “[c]ourts will likely assert jurisdiction not only over transmissions from France, but also transmissions into France that are alleged to cause damage” (emphasis added); see D. J. Gervais, “Transmissions of Music on the Internet: An Analysis of the Copyright Laws of Canada, France, Germany, Japan, the United Kingdom, and the United States” (2001), 34 Vand. J. Transnatl. L. 1363, at p. 1376. In UEJF v. Yahoo! Inc., Trib. gr. inst. Paris, May 22, 2000, the court ordered Yahoo! Inc., a U.S. based Internet company, to block access by French users to an Internet auction offering Nazi paraphernalia because [translation] “the harm is suffered in France”. (The U.S. courts refused to give effect in the United States to the French court order, not on jurisdictional grounds as such, but based on First Amendment rights; see Yahoo! Inc. v. Ligue contre le racisme et l’antisémitisme, 145 F.Supp.2d 1168 (N.D. Cal. 2001).)

76 Accordingly, the conclusion that Canada could exercise copyright jurisdiction in respect both of transmissions originating here and transmissions originating abroad but received here is not only consistent with our general law (Libman, supra, and Liberty Net, supra), but with both national and international copyright practice.

77 This conclusion does not, of course, imply imposition of automatic copyright liability on foreign content providers whose music is telecommunicated to a Canadian end user. Whether or not a real and substantial connection exists will turn on the facts of a particular transmission (Braintech, supra). It is unnecessary to say more on this point because the Canadian copyright liability of foreign content providers is not an issue that arises for determination in this appeal, although, as stated, the Board itself intimated that where a foreign transmission is aimed at Canada, copyright liability might attach.

78 This conclusion also raises the spectre of imposition of copyright duties on a single telecommunication in both the State of transmission and the State of reception, but as with other fields of overlapping liability (taxation for example), the answer lies in the making of international or bilateral agreements, not in national courts straining to find some jurisdictional infirmity in either State.

2. The Interpretation of the Copyright Act

79 I therefore turn to the question of the extent to which Canada has exercised its copyright jurisdiction in relation to the Internet Service Providers at issue in this appeal.

80 SOCAN asserts Canadian copyright in the material transmitted from outside Canada to an end user in Canada. It is true that end users in Canada wind up with copyrighted material in their possession, and a communication to the Canadian user has therefore occurred. The question is whether Tariff 22 imposes a licensing requirement on the appellants and others performing an intermediary function in telecommunications.

81 At this point the prospect of seeking to collect royalties from foreign infringers is not an attractive prospect for SOCAN. The question therefore is whether any or all of the appellants, in the ordinary course of their business, impart or transmit copyrighted music, and thereby do themselves infringe the copyrights represented by the respondent, within the meaning of the Act.

82 In Canada, copyright is a creature of statute, and the rights and remedies provided by the Copyright Act are exhaustive; see CCH, supra, at para. 9; Théberge, supra, at para. 5; Bishop v. Stevens, 1990 CanLII 75 (SCC), [1990] 2 S.C.R. 467, at p. 477; Compo Co. v. Blue Crest Music Inc., 1979 CanLII 6 (SCC), [1980] 1 S.C.R. 357, at p. 373.

83 The respondent must show that the appellants infringed its “sole right”, in relation to the musical works at issue, to “communicate to the public by telecommunication”.

84 This will require consideration of two related legal issues:

(i) Can the appellants claim the protection of the limitation in s. 2.4.(1)(b)?

(ii) What is the meaning of “authorization” of copyright infringement, in the context of Internet communications?

(a) The Section 2.4(1)(b) Protection

85 A telecommunication starts, as the Board found, at p. 450, with the content provider.

The fact that [the communication] is achieved at the request of the recipient or through an agent neither adds to, nor detracts from the fact that the content provider effects the communication.

86 The 1988 amendments to the Copyright Act specify that participants in a telecommunication who only provide “the means of telecommunication necessary” are deemed not to be communicators. The section as presently worded provides as follows:

2.4 (1) For the purposes of communication to the public by telecommunication,

(b) a person whose only act in respect of the communication of a work or other subject-matter to the public consists of providing the means of telecommunication necessary for another person to so communicate the work or other subject-matter does not communicate that work or other subject-matter to the public; [Emphasis added.]

87 Parliament did not say that the intermediaries are engaged in communication of copyright content but enjoy an immunity. Instead, s. 2.4(1)(b) says that such intermediaries are deemed, for purposes of the Copyright Act, not to communicate the work to the public at all. Whether or not intermediaries are parties to the communication for legal purposes other than copyright is an issue that will have to be decided when it arises.

88 The respondent contends that s. 2.4(1)(b) is an exemption from liability and should be read narrowly; but this is incorrect. Under the Copyright Act, the rights of the copyright owner and the limitations on those rights should be read together to give “the fair and balanced reading that befits remedial legislation” (CCH, supra, at para. 48).

89 Section 2.4(1)(b) is not a loophole but an important element of the balance struck by the statutory copyright scheme. It finds its roots, perhaps, in the defence of innocent dissemination sometimes available to bookstores, libraries, news vendors, and the like who, generally speaking, have no actual knowledge of an alleged libel, are aware of no circumstances to put them on notice to suspect a libel, and committed no negligence in failing to find out about the libel; see Menear v. Miguna (1996), 1996 CanLII 8214 (ON SC), 30 O.R. (3d) 602 (Gen. Div.), rev’d on other grounds (1997), 1997 CanLII 4432 (ON CA), 33 O.R. (3d) 223 (C.A.); Newton v. City of Vancouver (1932), 46 B.C.R. 67 (S.C.); Sun Life Assurance Co. of Canada v. W. H. Smith & Son, Ltd., [1933] All E.R. Rep. 432 (C.A.). See generally R. E. Brown, The Law of Defamation in Canada (2nd ed. (loose-leaf)), vol. 1, at § 7.12(6).

90 The 1988 amendments, including the predecessor to s. 2.4(1)(b), followed on the recommendation of an all party Sub-Committee on the Revision of Copyright of the House of Commons Standing Committee on Communications and Culture. Its report, entitled A Charter of Rights for Creators (1985), identified the need for a broader definition of telecommunication, one that was not dependent on the form of technology, which would provide copyright protection for retransmissions. This led to the adoption of the broad definition of communication in s. 3(1)(f). In conjunction with this, the Committee recommended, at p. 80, that those who participate in the retransmission “solely to serve as an intermediary between the signal source and a retransmitter whose services are offered to the general public” should not be unfairly caught by the expanded definition. The ostensible objective, according to the Committee, was to avoid the unnecessary layering of copyright liability that would result from targeting the “wholesale stage” (p. 80).

91 The words of s. 2.4(1)(b) must be read in their ordinary and grammatical sense in the proper context. “Necessary” is a word whose meaning varies somewhat with the context. The word, according to Black’s Law Dictionary,

may mean something which in the accomplishment of a given object cannot be dispensed with, or it may mean something reasonably useful and proper, and of greater or lesser benefit or convenience, and its force and meaning must be determined with relation to the particular object sought. [Emphasis added.]

(Black’s Law Dictionary (6th ed. 1990), at p. 1029)

In context, the word “necessary” in s. 2.4(1)(b) is satisfied if the means are reasonably useful and proper to achieve the benefits of enhanced economy and efficiency.

92 Section 2.4(1)(b) shields from liability the activities associated with providing the means for another to communicate by telecommunication. “The ‘means’”, as the Board found, “. . . are not limited to routers and other hardware. They include all software connection equipment, connectivity services, hosting and other facilities and services without which such communications would not occur” (p. 452). I agree. So long as an Internet intermediary does not itself engage in acts that relate to the content of the communication, i.e., whose participation is content neutral, but confines itself to providing “a conduit” for information communicated by others, then it will fall within s. 2.4(1)(b). The appellants support this result on a general theory of “Don’t shoot the messenger!”

93 In rejecting SOCAN’s argument on this point, the Board concluded (at p. 453):

In the end, each transmission must be looked at individually to determine whether in that case, an intermediary merely acts as a conduit for communications by other persons, or whether it is acting as something more. Generally speaking, however, it is safe to conclude that with respect to most transmissions, only the person who posts a musical work communicates it. [Emphasis added.]

94 The Board also found, after its analysis of the activities of the various participants in an Internet transmission, that the person who “make[s] the work available for communication” is not the host server provider but the content provider (at p. 450):

Any communication of a work occurs because a person has taken all the required steps to make the work available for communication. The fact that this is achieved at the request of the recipient or through an agent neither adds to, nor detracts from the fact that the content provider effects the communication. [Emphasis added.]

95 This conclusion, as I understand it, is based on the findings of fact by the Board of what an Internet intermediary, including a host server provider, actually does. To the extent they act as innocent disseminators, they are protected by s. 2.4(1)(b) of the Act. As the Board put it, at p. 452:

As long as its role in respect of any given transmission is limited to providing the means necessary to allow data initiated by other persons to be transmitted over the Internet, and as long as the ancillary services it provides fall short of involving the act of communicating the work or authorizing its communication, it should be allowed to claim the exemption.

I agree with this approach. Having properly instructed itself on the law, the Board found as a fact that the “conduit” begins with the host server. No reason has been shown in this application for judicial review to set aside that conclusion.

96 A comparable approach to technology infrastructure was taken by this Court in a contract dispute involving telephone companies back in 1891:

The owners of the telephone wires, who are utterly ignorant of the nature of the message intended to be sent, cannot be said within the meaning of the covenant to transmit a message of the purport of which they are ignorant.

(Electric Despatch Co. of Toronto v. Bell Telephone Co. of Canada (1891), 1891 CanLII 11 (SCC), 20 S.C.R. 83, at p. 91, per Gwynne J.)

97 Interpretation of s. 2.4(1)(b) in this way is consistent with art. 8 of the WIPO Copyright Treaty. In the accompanying Agreed Statements, the treaty authority states:

It is understood that the mere provision of physical facilities for enabling or making a communication does not in itself amount to communication within the meaning of this Treaty or the Berne Convention.

98 Similarly, the European E-Commerce Directive provides, in clause 42 of its Preamble, that Internet intermediaries are not liable where their actions are confined to

the technical process of operating and giving access to a communication network over which information made available by third parties is transmitted or temporarily stored, for the sole purpose of making the transmission more efficient; this activity is of a mere technical, automatic and passive nature, which implies that the [Internet intermediary] has neither knowledge of nor control over the information which is transmitted or stored.

99 While lack of knowledge of the infringing nature of a work is not a defence to copyright actions generally (J. S. McKeown, Fox on Canadian Law of Copyright and Industrial Designs (4th ed. (loose-leaf)), at pp. 21-4 and 21-5), nevertheless the presence of such knowledge would be a factor in the evaluation of the “conduit” status of an Internet Service Provider, as discussed below.

100 The Internet Service Provider, acting as an intermediary, does not charge a particular fee to its clients for music downloading (although clearly the availability of “free music” is a significant business incentive).

101 I conclude that the Copyright Act, as a matter of legislative policy established by Parliament, does not impose liability for infringement on intermediaries who supply software and hardware to facilitate use of the Internet. The attributes of such a “conduit”, as found by the Board, include a lack of actual knowledge of the infringing contents, and the impracticality (both technical and economic) of monitoring the vast amount of material moving through the Internet, which is prodigious. We are told that a large on-line service provider like America Online delivers in the order of 11 million transmissions a day.

102 Of course an Internet Service Provider in Canada can play a number of roles. In addition to its function as an intermediary, it may as well act as a content provider, or create embedded links which automatically precipitate a telecommunication of copyrighted music from another source. In such cases, copyright liability may attach to the added functions. The protection provided by s. 2.4(1)(b) relates to a protected function, not to all of the activities of a particular Internet Service Provider.

103 On the other hand, as Evans J.A. pointed out, at para. 141, Internet Service Providers who operate a host server would not lose the protection of paragraph 2.4(1)(b) by providing their normal facilities and services, such as housing and maintaining the servers, and monitoring “hits” on particular Web pages, because these added services are merely ancillary to the provision of disk space and do not involve any act of communication.

(b) The Liability of the Host Server

104 Having held quite specifically that “the content provider effects the communication” (p. 450) and that “only the person who posts a musical work communicates it” (p. 453 (emphasis added)), the Board added the further limitation that to attract copyright liability, “a communication must originate from a server located in Canada” (p. 459).

105 This added limitation arose from a misreading by the Board of the earlier decision of the Federal Court of Appeal in Canadian Assn. of Broadcasters v. Society of Composers, Authors and Music Publishers of Canada (1994), 1994 CanLII 19611 (FCA), 58 C.P.R. (3d) 190 (“CAB 1994”). The Board described what it conceived to be the effect of CAB 1994 as follows at p. 459:

CAB 1994 makes it clear that communications occur where the transmission originates. The place of origin of the request, the location of the person posting the content and the location of the original Web site are irrelevant. As a result, the right to authorize must be obtained from the person administering the right in Canada only when the information is posted on a Canadian server, and the right to communicate must be obtained from that same person only when the transmission originates from a server located in Canada. [Emphasis added.]

I agree with Evans J.A. that CAB 1994 which dealt with the timing of a transmission, not its location, “does not support the Board’s conclusion” (para. 172). The correct view is that a content provider is not immunized from copyright liability by virtue only of the fact it employs a host server outside the country.

106 Conversely, a host server does not attract liability just because it is located in Canada. A simple “host server” test would catch communications that have no connection to Canada other than the location of a piece of physical equipment, serving a neutral role as a technological conduit. Indeed it may be “impossible for the user to predict the location of the [host] server”; see A. P. Reindl, “Choosing Law in Cyberspace: Copyright Conflicts on Global Networks” (1997-1998), 19 Mich. J. Int’l L. 799, at p. 820.

107 It is on this aspect of the test that I respectfully disagree with my colleague LeBel J., who accepts the Board’s geographic limitation, i.e., that for copyright purposes there is no communication in Canada unless a communication “originates from a host server located in Canada. . . . [This] provides a straightforward and logical rule” (para. 146). My colleague agrees that in the first instance the liability of a host server provider, as with any other Internet Service Provider, should be determined by whether or not the host server provider limits itself to “a conduit” function, as discussed above, and thereby qualifies for protection under s. 2.4(1)(b). However, in my colleague’s view, even those participants in an Internet telecommunication who step outside the “conduit” role, and who would otherwise be liable for copyright infringement, will be exempt from liability for Canadian copyright unless the host server itself happens to be located here. In my view, with respect, such an added requirement would be unduly formalistic and would tilt the balance unfairly against the copyright owners. If there are to be formalistic rules they should be imposed by Parliament.

108 My colleague LeBel J., at para. 149, also relies on art. 8 of the WIPO Copyright Treaty, which gives the copyright owner the exclusive right of “making available to the public . . . their works”, but as previously noted, the Board found that in copyright terms it is the content provider, not the host server provider, that makes the work available. Accordingly, as I see it, the issue of the relevance of art. 8 to the interpretation of the Copyright Act does not arise.

109 The Board found that a host server provider like AT&T Canada “merely gives the customer [i.e., the content provider] the right to place information on the servers” (p. 441). Typically the host server provider will not monitor what is posted to determine if it complies with copyright laws and other legal restrictions. Given the vast amount of information posted, it is impractical in the present state of the technology to require the host server provider to do so. In any event, it is unrealistic to attribute to a provider an expertise in copyright law sufficient to “lawyer” all of the changing contents of its servers on an ongoing basis in the absence of alleged infringements being brought to their attention.

110 However, to the extent the host server provider has notice of copyrighted material posted on its server, it may, as the Board found, “respond to the complaint in accordance with the [Canadian Association of Internet Providers] Code of Conduct [which] may include requiring the customer to remove the offending material through a ‘take down’ notice” (p. 441). If the host server provider does not comply with the notice, it may be held to have authorized communication of the copyright material, as hereinafter discussed.

111 Shorn of its misreading of the CAB 1994 case, the Board was correct in its general conclusion on this point, which for ease of reference I set out again (at p. 453):

In the end, each transmission must be looked at individually to determine whether in that case, an intermediary merely acts as a conduit for communications by other persons, or whether it is acting as something more. Generally speaking, however, it is safe to conclude that with respect to most transmissions, only the person who posts a musical work communicates it. [Emphasis added.]

112 In my view, the Federal Court of Appeal was right to uphold this aspect of the Board’s ruling.

(c) The Use of Caches

113 The majority in the Federal Court of Appeal concluded that the use of caching amounts to a function falling outside s. 2.4(1)(b). Evans J.A. took the view, at para. 132, that protection is only available “when, without that person’s activity, communication in that medium of telecommunication would not be practicable or, in all probability, would not have occurred”. This is a high eligibility test which could inhibit development of more efficient means of telecommunication. SOCAN and others representing copyright owners would always be able to argue that whatever the advances in the future, a telecommunication could still have been practicable using the old technology, and that one way or the other the telecommunication would “in all probability” have occurred. In my view, with respect, Evans J.A. has placed the bar too high.

114 Parliament has decided that there is a public interest in encouraging intermediaries who make telecommunications possible to expand and improve their operations without the threat of copyright infringement. To impose copyright liability on intermediaries would obviously chill that expansion and development, as the history of caching demonstrates. In the early years of the Internet, as the Board found, its usefulness for the transmission of musical works was limited by “the relatively high bandwidth required to transmit audio files” (p. 426). This technical limitation was addressed in part by using “caches”. As the Board noted, at p. 433: “Caching reduces the cost for the delivery of data by allowing the use of lower bandwidth than would otherwise be necessary.” The velocity of new technical developments in the computer industry, and the rapidly declining cost to the consumer, is legendary. Professor Takach has unearthed the startling statistic that if the automobile industry was able to achieve the same performance-price improvements as has the computer chip industry, a car today would cost under five dollars and would get 250,000 miles to the gallon of gasoline: see Takach, supra, at p. 21. Section 2.4(1)(b) reflects Parliament’s priority that this entrepreneurial push is to continue despite any incidental effects on copyright owners.

115 In the Board’s view, the means “necessary” under s. 2.4(1)(b) were means that were content neutral and were necessary to maximize the economy and cost-effectiveness of the Internet “conduit”. That interpretation, it seems to me, best promotes “the public interest in the encouragement and dissemination of works of the arts and intellect” (Théberge, supra, at para. 30) without depriving copyright owners of their legitimate entitlement. The creation of a “cache” copy, after all, is a serendipitous consequence of improvements in Internet technology, is content neutral, and in light of s. 2.4(1)(b) of the Act ought not to have any legal bearing on the communication between the content provider and the end user.

116 As noted earlier, SOCAN successfully relied on the “exigencies of the Internet” to defeat the appellants’ argument that they did not communicate a “musical work” but simply packets of data that may or may not arrive in the correct sequence. It is somewhat inconsistent, it seems to me, for SOCAN then to deny the appellants the benefit of a similar “exigencies” argument. “Caching” is dictated by the need to deliver faster and more economic service, and should not, when undertaken only for such technical reasons, attract copyright liability.

117 A comparable result has been reached under the U.S. Digital Millennium Copyright Act, which in part codified the result in Religious Technology Center v. Netcom On-line Communication Services, Inc., 907 F.Supp. 1361 (N.D. Cal. 1995), where it was observed, at pp. 1369-70:

These parties, who are liable under plaintiffs’ theory, do no more than operate or implement a system that is essential if Usenet messages are to be widely distributed. There is no need to construe the Act to make all of these parties infringers. Although copyright is a strict liability statute, there should still be some element of volition or causation which is lacking where a defendant’s system is merely used to create a copy by a third party.

See also M. B. Nimmer, Nimmer on Copyright (loose-leaf ed.), vol. 3, at p. 12B-13.

118 The European E-Commerce Directive mandates member States to exempt Internet Service Providers from copyright liability for caching (art. 13(1)).

119 In my opinion, the Copyright Board’s view that caching comes within the shelter of s. 2.4(1) is correct, and I would restore the Board’s conclusion in that regard.

(d) “Authorizing” Infringement

120 Authorizing a communication by telecommunication is a discrete infringement of s. 3(1); see Compo, supra, at pp. 373 and 376.

121 The respondent argues that even if the appellants did not themselves infringe the copyright, they were guilty of “authorizing” content providers to do so because Internet intermediaries know that material (including copyright material) placed on their facilities by content providers will be accessed by end users. Indeed as Evans J.A. pointed out, at para. 120: “Knowledge of the content available on the Internet, including ‘free’ music, and of end users’ interest in accessing it, are powerful inducements for end users to sign up with access providers, and content providers with operators of host servers.”

122 Of course there is a good deal of material on the Internet that is not subject to copyright, just as there was a good deal of law-related material in the Great Library at Osgoode Hall that was not copyrighted in the recent CCH appeal. In that case, as here, the copyright owners asserted that making available a photocopier and photocopying service by the Law Society of Upper Canada implicitly “authorized” copyright infringement. This Court, however, held that authorizing infringement under the Copyright Act is not so easily demonstrated, at para. 38, per McLachlin C.J.:

. . . a person does not authorize infringement by authorizing the mere use of equipment that could be used to infringe copyright. Courts should presume that a person who authorizes an activity does so only so far as it is in accordance with the law. . . . This presumption may be rebutted if it is shown that a certain relationship or degree of control existed between the alleged authorizer and the persons who committed the copyright infringement. . . . [Emphasis added.]

See also Vigneux v. Canadian Performing Right Society, Ltd., 1945 CanLII 346 (UK JCPC), [1945] A.C. 108 (P.C.); Muzak Corp. v. Composers, Authors and Publishers Association of Canada, Ltd., 1953 CanLII 47 (SCC), [1953] 2 S.C.R. 182. SOCAN contends that the host server in essence acts as a commercial partner with the content provider when material is made available on the Internet, but there was no such finding of fact by the Board, and I do not think the rights and obligations of partnership can be so casually imposed.

123 The operation of the Internet is obviously a good deal more complicated than the operation of a photocopier, but it is true here, as it was in the CCH case, that when massive amounts of non-copyrighted material are accessible to the end user, it is not possible to impute to the Internet Service Provider, based solely on the provision of Internet facilities, an authority to download copyrighted material as opposed to non-copyrighted material.

124 On this point the Board concluded as follows (at p. 458):

Even knowledge by an ISP that its facilities may be employed for infringing purposes does not make the ISP liable for authorizing the infringement if it does not purport to grant to the person committing the infringement a license or permission to infringe. An intermediary would have to sanction, approve or countenance more than the mere use of equipment that may be used for infringement. Moreover, an ISP is entitled to presume that its facilities will be used in accordance with law.

This conclusion is generally consistent with the decision of this Court in the CCH case, although I would point out that copyright liability may well attach if the activities of the Internet Service Provider cease to be content neutral, e.g. if it has notice that a content provider has posted infringing material on its system and fails to take remedial action.

125 Under the European E-Commerce Directive, access to cached information must be expeditiously curtailed when the Internet Service Provider becomes aware of infringing content. At that time, the information must be removed or access disabled at the original site (art. 13(1)(e)). Under the U.S. Digital Millennium Copyright Act, those who cache information are not liable where they act expeditiously to remove or disable access to material once notice is received that it infringes copyright (s. 512(b)(2)(E)). If the content provider disputes that the work is covered by copyright, the U.S. Act lays out a procedure for the resolution of that issue.

126 In the present appeal, the Federal Court of Appeal stated that, in the case of host servers, “an implicit authorization to communicate infringing material might be inferred from their failure to remove it after they have been advised of its presence on the server and had a reasonable opportunity to take it down” (para. 160). Reference was made to Apple Computer Inc. v. Mackintosh Computers Ltd., 1986 CanLII 6820 (FC), [1987] 1 F.C. 173, aff’d 1990 CanLII 119 (SCC), [1990] 2 S.C.R. 209, at pp. 211 and 208, citing C.B.S. Inc. v. Ames Records & Tapes Ltd., [1982] 1 Ch. 91, at p. 110, i.e., an Internet Service Provider may attract liability for authorization because “. . . indifference, exhibited by acts of commission or omission, may reach a degree from which authorisation or permission may be inferred. It is a question of fact in each case . . . .” See also Godfrey v. Demon Internet Ltd., [1999] 4 All E.R. 342 (Q.B.).

127 The knowledge that someone might be using neutral technology to violate copyright (as with the photocopier in the CCH case) is not necessarily sufficient to constitute authorization, which requires a demonstration that the defendant did “(g)ive approval to; sanction, permit; favour, encourage” (CCH, at para. 38) the infringing conduct. I agree that notice of infringing content, and a failure to respond by “taking it down” may in some circumstances lead to a finding of “authorization”. However, that is not the issue before us. Much would depend on the specific circumstances. An overly quick inference of “authorization” would put the Internet Service Provider in the difficult position of judging whether the copyright objection is well founded, and to choose between contesting a copyright action or potentially breaching its contract with the content provider. A more effective remedy to address this potential issue would be the enactment by Parliament of a statutory “notice and take down” procedure as has been done in the European Community and the United States.

128 In sum, I agree with the Court of Appeal that “authorization” could be inferred in a proper case but all would depend on the facts.

D. Achieving a Balance Fair to Copyright Owners

129 There is no doubt that the exponential growth of the Internet has created serious obstacles to the collection of copyright royalties. As Pietsch, supra, writes, at p. 278:

The Internet makes it possible for large numbers of people to rapidly copy protected materials worldwide. With software like Gnutella, they can do so without any centralized clearinghouse that intellectual property owners could target in an effort to enforce copyright protection, such as Napster. Such developments have led some to hypothesize that copyright law is dead because technology is so far ahead of the law that enforcement is impossible, and should not even be attempted.

See, e.g., A & M Records, Inc. v. Napster, Inc., 114 F.Supp.2d 896 (N.D. Cal. 2000), aff’d in part, 239 F.3d 1004 (9th Cir. 2001).

130 It has been estimated that in 2002 sales of recorded music fell by almost 10 percent due to Internet-based file sharing (see Anonymous, “The music industry: In a spin”, The Economist (March 2003), at p. 58), but this “estimate” is a matter of ongoing controversy. Some say Napster was a boon to the music recording industry.

131 Nevertheless, by enacting s. 2.4(1)(b) of the Copyright Act, Parliament made a policy distinction between those who abuse the Internet to obtain “cheap music” and those who are part of the infrastructure of the Internet itself. It is clear that Parliament did not want copyright disputes between creators and users to be visited on the heads of the Internet intermediaries, whose continued expansion and development is considered vital to national economic growth.

132 This appeal is only tangentially related to holding “the balance” between creators and users. Section 2.4(1)(b) indicates that in Parliament’s view, Internet intermediaries are not “users” at all, at least for purposes of the Copyright Act.

V. Disposition

133 For the foregoing reasons, I would allow the appeal with costs with respect to copyright liability for caches of data created in a manner that is content neutral for the purpose of economy and efficiency and dismiss the cross-appeal with costs, but otherwise return this case to the Copyright Board to proceed with Phase II of its hearings in accordance with these reasons.

The following are the reasons delivered by

LeBel J. —

I. Introduction

134 Among the difficult issues raised by this appeal is how to determine, under the Copyright Act, R.S.C. 1985, c. C-42, whether an Internet communication occurs in Canada. I have read my colleague Binnie J.’s reasons and, although I agree with his judgment in all other respects and with his disposition of the appeal, I respectfully disagree with his analysis of the localization issue. My disagreement is confined to the appropriate test for determining the location of an Internet communication under the Copyright Act and does not touch on determining liability. For the reasons that follow, I would affirm the Board’s determination that an Internet communication occurs within Canada when it originates from a server located in Canada.

135 Determining whether an Internet communication occurs within Canada is critical to phase two of the Tariff 22 hearings and to future infringement enforcement proceedings because it will determine who will be liable in Canada to pay musical composers and artists for their copyright in works under the Copyright Act. A vast amount of information is distributed by the Internet every day. This includes a high volume of music and other potentially copyrighted works. Internet stakeholders need to know with a degree of certainty whether they will be liable in Canada for a communication of copyrighted works. In my opinion, the test provided by the Board — the location of the host server — is sound from an operational perspective; it provides the requisite predictability and best accords with the meaning and purpose of the Act. By contrast, importing the real and substantial connection test that was developed in a very different context is, in my view, inappropriate to determine whether a communication occurred within Canada.

II. Relevant Statutory Provisions

136 Copyright Act, R.S.C. 1985, c. C-42

3. (1) For the purposes of this Act, “copyright”, in relation to a work, means the sole right to produce or reproduce the work or any substantial part thereof in any material form whatever, to perform the work or any substantial part thereof in public or, if the work is unpublished, to publish the work or any substantial part thereof, and includes the sole right

(f) in the case of any literary, dramatic, musical or artistic work, to communicate the work to the public by telecommunication,

and to authorize any such acts.

III. Decision of the Copyright Board ((1999), 1999 CanLII 35813 (CA CB), 1 C.P.R. (4th) 417)

137 The Board’s decision is more nuanced than Binnie J. avers to. The Board held that a communication occurs in Canada, under s. 3(1)(f) of the Act, where it originates from a host server located in Canada. The location of the content provider — the person who uploads content onto a host server — is irrelevant. The location of the end user — the person making the request — is also irrelevant. The Board held it is only when the copyrighted work is posted on a Canadian host server that the rights to authorize or communicate must be obtained from the person administering those rights in Canada. Foreign content providers who post content on a Canadian host server must, therefore, obtain a licence from the Canadian rights holder.

138 If a communication originates from a mirror site located in Canada, that constitutes a communication in Canada regardless of the location of the original site. A mirror site is an Internet site on which content from another site is copied. Further, communications triggered by an embedded hyperlink occur at the location of the site to which the hyperlink leads. If the hyperlink leads to a site on a host server situated in Canada, then the communication occurs in Canada.

139 However, where the host server is located outside of Canada but the content provider specifically targets Canadian recipients, the Board held that it remains an open question whether this constitutes a communication within Canada. In other words, specifically targeting a Canadian audience may well constitute a communication within Canada under the Act. Such a determination will depend on the facts of a given case, and is not foreclosed by the decision of the Board.

140 I would endorse the Board’s approach on this issue for the reasons that follow.

IV. Analysis

A. Extraterritorial Effect of Federal Law

141 As a matter of domestic law, Parliament is fully competent to enact statutes that have extraterritorial effect. This principle is not in doubt; nor is it directly implicated in this case. The question was considered by the Privy Council in Croft v. Dunphy, 1932 CanLII 317 (UK JCPC), [1933] A.C. 156, in which a party challenged a Canadian anti-smuggling provision that authorized the seizure of vessels within twelve miles of Canada’s coast, which was nine miles beyond Canada’s then territorial waters. The Privy Council held that Parliament was fully competent to pass legislation with extraterritorial effect (at p. 163):

Once it is found that a particular topic of legislation is among those upon which the Dominion Parliament may competently legislate . . . their Lordships see no reason to restrict the permitted scope of such legislation by any other consideration than is applicable to the legislation of a fully Sovereign State.

The Privy Council held that the British North America Act, 1867 (now the Constitution Act, 1867) imposed no restriction on the scope of Parliament’s plenary legislative power (p. 167).

142 Any doubts in this regard had been put to rest shortly before Croft v. Dunphy, was heard by the Privy Council, when the Imperial Parliament passed the Statute of Westminster, 1931 (U.K.), 22 Geo. 5, c. 4. Section 3 provides: “It is hereby declared and enacted that the Parliament of a Dominion has full power to make laws having extra-territorial operation.” The Privy Council, however, did not need to consider whether s. 3 had retroactive effect because it decided that Parliament had the requisite power under the British North America Act, 1867 standing alone. Of course, the Statute of Westminster, 1931 has now been incorporated into our Constitution: see Constitution Act, 1982, s. 52(2)(b) and (c), and the Schedule, item 17.

143 Parliament’s power to legislate with extraterritorial effect is well settled as a matter of Canadian law: see, e.g., Reference re Offshore Mineral Rights of British Columbia, 1967 CanLII 71 (SCC), [1967] S.C.R. 792, at p. 816; Reference re Newfoundland Continental Shelf, 1984 CanLII 132 (SCC), [1984] 1 S.C.R. 86, at p. 103. I would not want Binnie J.’s use of a real and substantial connection test to be understood as a limit on Parliament’s power to legislate with extraterritorial effect. The real question is whether Parliament did in fact intend that s. 3(1)(f) of the Copyright Act apply extraterritorially. If not, what then constitutes a communication within Canada?

144 It is a common law presumption that Parliament does not intend legislation to apply extraterritorially. But this presumption is rebuttable where the contrary intention is expressly stated or implied by the legislation: see Bolduc v. Attorney General of Quebec, 1982 CanLII 224 (SCC), [1982] 1 S.C.R. 573, at p. 578; Arcadi v. The King, 1931 CanLII 68 (SCC), [1932] S.C.R. 158, at p. 159. This presumption flows from the principle of territoriality, a tenet of international law. Because each State is sovereign in its own territory, it is presumed that States hesitate to exercise jurisdiction over matters that may take place in the territory of other States: see Morguard Investments Ltd. v. De Savoye, 1990 CanLII 29 (SCC), [1990] 3 S.C.R. 1077. Neither s. 3(1)(f), nor any other related provision of the Act expressly states that it applies beyond Canada’s territorial limits. Moreover, nothing in the Act impliedly gives s. 3(1)(f) extraterritorial effect, particularly given the principle of territoriality of copyright law.

B. Communication Within Canada

145 Given that Parliament did not intend the Act to have effect outside Canada, when does a communication occur within Canada for the purpose of s. 3(1)(f)? Any choice between the location of the end user, host server or content provider, or all three, will be somewhat arbitrary and will import its own set of problems. Each choice has its own supporters and critics; for an overview of positions, see A. P. Reindl, “Choosing Law in Cyberspace: Copyright Conflicts on Global Networks” (1997-1998), 19 Mich. J. Int’l L. 799.

146 I share the Board’s view that a communication occurs within Canada where it originates from a host server located in Canada. In this way, the copyrighted works physically exist within Canadian territory and thus attract the protection of s. 3(1)(f). This does not mean that the host server provider is liable; it is the content provider who is liable for an infringing communication. The Board’s approach, as I have observed, provides a straightforward and logical rule for locating communications occurring within Canada that will be readily applicable by the Board in setting tariffs, by the courts in infringement proceedings, and by solicitors in providing advice to their clients.

147 With respect, I disagree with the approach taken by Binnie J. Turning first to the real and substantial connection test, it is my view that a test that was developed by this Court to deal with the exigencies of the Canadian federation should not be lightly transposed as a rule of statutory construction. The real and substantial connection test grew out of the recognition and enforcement of judgments between sister provinces as well as the appropriate assumption of jurisdiction by a court in one province over matters affecting another province, and was more recently applied to the recognition and enforcement of foreign judgments from outside Canada: see Morguard, supra; Beals v. Saldanha, [2003] 3 S.C.R. 416, 2003 SCC 72. There is no constitutional imperative raised in this appeal, unlike interprovincial cases (Hunt v. T&N plc, 1993 CanLII 43 (SCC), [1993] 4 S.C.R. 289), though international comity is implicated. The real and substantial connection test is not a principle of legislative jurisdiction; it applies only to courts.

148 The only question is whether Parliament intended the Act to have effect beyond Canada. The principle of territoriality operates at the level of a rebuttable presumption that Parliament does not intend the Act to operate beyond Canada’s borders. Moreover, copyright law is territorial in nature and thus limited to its enacting State. The territoriality principle has been incorporated into a number of international treaties, to which Canada is a signatory: see, e.g., Berne Convention for the Protection of Literary and Artistic Works (1886); Agreement on Trade-Related Aspects of Intellectual Property Rights (1994), 1869 U.N.T.S. 299; World Intellectual Property Organization Copyright Treaty (1996), CRNR/DC/94 (“WCT”); and World Intellectual Property Organization Performances and Phonograms Treaty (1996), CRNR/DC/95.

149 Article 5 of the Berne Convention calls for the territorial treatment of copyright; however, the Berne Convention does not specifically address the communication of works over the Internet. Canada is a signatory to the WCT, but it is not yet party to the treaty; it has yet to ratify it. The Board refused to interpret the Act in light of the WCT because the WCT is “not binding in Canada since it has been signed but not ratified by the Canadian Government” (p. 448). I disagree. Although Canada has not ratified the treaty, this does not mean that it should not be considered as an aid in interpreting the Act. Article 8 of the WCT provides:

Right of Communication to the Public

Without prejudice to the provisions of Articles 11(1)(ii), 11bis(1)(i) and (ii), 11ter(1)(ii), 14(1)(ii) and 14bis(1) of the Berne Convention, authors of literary and artistic works shall enjoy the exclusive right of authorizing any communication to the public of their works, by wire or wireless means, including the making available to the public of their works in such a way that members of the public may access these works from a place and at a time individually chosen by them. [Emphasis added.]

The purpose of art. 8 of the WCT is to harmonize domestic copyright laws in the party States with respect to the right of communication of copyrighted works. We should not ignore that fact.

150 As L’Heureux-Dubé, Gonthier and Bastarache JJ. recently held, even though international norms are generally not binding without domestic implementation, they are relevant in interpreting domestic legislation: see R. v. Sharpe, [2001] 1 S.C.R. 45, 2001 SCC 2, at para. 175. Parliament is presumed not to legislate in breach of a treaty, the comity of nations and the principles of international law. This rule of construction is well established: see Daniels v. White, 1968 CanLII 67 (SCC), [1968] S.C.R. 517, at p. 541. Although the Copyright Act has not yet been amended to reflect the signing of the WCT, I believe this cannon of interpretation is equally applicable to the case at bar.

151 How to interpret the meaning of “communicate” in s. 3(1)(f) in the context of the Internet so as to best respect the principle of territoriality in the Berne Convention? In my opinion, the host server test adopted by the Board has the benefit of clearly complying with the territoriality requirement of international copyright law. It also accords with the WCT communication right (art. 8), which includes “the making available to the public of their works in such a way that members of the public may access these works from a place and at a time individually chosen by them”; copyrighted works are made available on the Internet when they are posted on a host server. Before they are posted on a host server, they are not available to the public.

152 The real and substantial connection test proposed by Binnie J. is inconsistent with the territoriality principle in that it may reach out and grasp content providers located in Bangalore who post content on a server in Hong Kong based only on the fact that the copyrighted work is retrieved by end users in Canada. Unlike a broadcaster, a content provider does not know in advance which territories will receive its transmissions. Placing an emphasis on the end user is also inconsistent with the “making available” right in the WCT. A danger with Binnie J.’s approach is that it could result in a layering of royalty obligations between States. This danger is particularly acute with the Internet: content posted on a server is usually accessible from anywhere on the globe. With respect, to say that asserting jurisdiction over communications originating elsewhere but received in Canada accords with national and international copyright practice overstates the case. A review of various national laws demonstrates precious little harmonization in law or practice.

153 My second concern relates to privacy issues. Insofar as is possible, this Court should adopt an interpretation of s. 3(1)(f) that respects end users’ privacy interests, and should eschew an interpretation that would encourage the monitoring or collection of personal data gleaned from Internet-related activity within the home.

154 Locating the communication at the place of the host server addresses privacy concerns. In general, once the content provider has posted content on a host server, it is available to the public. Owners of copyrighted works and their collective societies can easily monitor such public content by trawling the publicly accessible servers with specially designed software. Privacy concerns are diminished because it is the content provider who has made the information public by posting it on the sever. Although privacy concerns are attenuated, they are not eliminated with the host server test. It is now common for Internet site operators to collect personal data from end users when users visit their Web site: see E. Gratton, Internet and Wireless Privacy: A Legal Guide to Global Business Practices (2003), at p. 6. But that is a question for another day.

155 By contrast, the real and substantial connection test, insofar as it looks at the retrieval practices of end users, encourages the monitoring of an individual’s surfing and downloading activities. Such habits tend to reveal core biographical information about a person. Privacy interests of individuals will be directly implicated where owners of copyrighted works or their collective societies attempt to retrieve data from Internet Service Providers about an end user’s downloading of copyrighted works. We should therefore be chary of adopting a test that may encourage such monitoring.

V. Conclusion

156 On the whole, I would adopt the Board’s test for determining the situs of a communication because it has the virtue of simplicity; it best accords with the principle of territoriality and harmonizes our copyright law with international treaty principles; and it diminishes privacy concerns. In all other respects I agree with Binnie J. I would allow the appeal in part but otherwise remit the case to the Copyright Board to proceed with the second phase of its Tariff 22 hearings in accordance with these reasons.

Appeal allowed in part with costs; cross-appeal dismissed with costs.

Solicitors for the appellants/respondents on cross-appeal: McCarthy Tétrault, Toronto.

Solicitors for the respondent/appellant on cross-appeal: Gowling Lafleur Henderson, Ottawa.

Solicitors for the interveners the Internet Commerce Coalition, the European Telecommunications Network Operators’ Association, the European Internet Service Providers’ Association, the Australian Internet Industry Association, the Telecom Services Association and the U.S. Internet Industry Association: Heenan Blaikie, Toronto.

Solicitors for the interveners the Canadian Recording Industry Association and the International Federation of Phonogram Industry: Osler, Hoskin & Harcourt, Ottawa.