"A National Dialogue on the Need To Safeguard and Promote Products of the Mind"

Speech by Mr. Graham Henderson,
President, Canadian Recording Industry Association

to

National Press Club

29 September 2005

165 Sparks Street, Ottawa

In some circles it has become fashionable to attack the foundation upon which the careers of artists, writers, performers, actors and software designers (to name but a few) are built. To dilute it, weaken it, circumscribe it, and devalue it. That foundation is intellectual property in general and copyright in particular. This attack, as I hope to demonstrate, strikes at a key sector of Canada's economy and has repercussions for society at large.

The principal tactic in this largely ideological campaign is the self-fulfilling prophecy. And the unwitting foot soldiers in this manoeuvre are those in our community for whom expropriating other people's property online has become second nature - a group with a lot of time on their hands and not so much money. It is a relatively small segment of society, but an important one. Although this group comprises only 21% of our population, it is responsible for 78% of all online theft in this country. Its online activities tie up fantastic amounts of bandwidth, creating bottlenecks for service providers and driving up the cost of service for the rest of us. I am talking about teenagers and young adults.

The first step in solving any problem is to understand the nature of the problem. Once we understand the nature of the problem, we can make decisions about how best to respond to file swapping.

In an effort to convince policy makers that the virtual horse is out of the digital barn, the pro-file swapping lobby has disingenuously promoted the impression that everyone is engaged in file swapping.

A companion argument that we often hear is that we are raising a generation that is used to getting intellectual property for free - one that will never again pay for music, or books, or cultural products.

Both of these views are based on fallacies. First, everyone is not doing it, and even within the relevant age groups, unauthorized file swappers are either bare majorities or in the minority (54% of the 12-17 year old age group and 41% of the 18-24 year old age group). This is an important point, because it is dangerous to over generalize. As Environics points out in their study, "[L]ike Canadian society at large, youth are diverse. Some youth segments will behave more ethically than others."

Second, those who ARE doing it are young. And that means we have an opportunity to change behaviour through education, dialogue, and national leadership on this issue. By leadership, I mean a willingness of our parliamentarians to speak out on these issues and to adopt progressive legislation to address the changing world we live in. These two elements, education and legislation, are what I want to address today.

First let's look at the scope of the problem. CRIA commissioned Environics, an internationally respected research group that has been tracking the ethical behaviour of Canadians for decades, to survey a cross section of Canadians about their willingness to commit illegal acts.

The key things to take away from these charts are: (a) the continental divide between people's attitudes toward physical and "virtual" crime, and (b) the ethical gulf that yawns between those over and those under age 30.

In part, this scenario is made possible by a generational moral laxity that, as we shall see, may not augur well for our country's economic future. But it is also made possible by the rampant confusion regarding what is and is not illegal.

Notice the large number of people who strongly agree with the statement: "It is NOT legal to download from file-sharing sites" (38%). But note that it is counter-balanced by a smaller but significant segment (26%) that strongly agrees with the statement, "It IS legal to download from file-sharing sites." Then there is a large group that either doesn't know or is undecided (36%). Such a split is the manifestation of confusion made possible in this country by a lack of leadership on issues relating to products of the mind -- a confusion that stems largely from a legislative lacuna.

And this lacuna has created a dire situation for Canada's copyright industries. The Organization for Economic Co-Operation and Development ("OECD") noted recently that per capita, Canada has the largest file sharing population in the world. And this in turn has created a dramatic decline in the size of the Canadian music industry - the first, but no doubt not the last, of Canada's cultural industries to be hit by the file-swapping phenomenon.

Opponents of the music industry have turned themselves inside out to find alternative explanations for this decline - everything from the existence of substitute marketplaces, to cheaper retail outlets, to the peculiar theory that on a certain date, curiously coinciding with the date that teenagers began devoting countless hours to attempting to download music off the Internet, artists simply stopped making good music. The fact is that each of these tortured explanations flies in the face of economic common sense. Dr. George Barker, Director for the Centre for Law and Economics at the Australian National University has this to say:

"[E]conomic theory suggests that, for some segment of consumers, the availability of "free" MP3 files downloaded via Kazaa will likely substitute for and thus reduce the sales of CDs…. This is just economic common sense: why would consumers buy the music, after all, when they can get it for free."

The fact is that there is little question that the two are inextricably linked. A recent Pollara study found a direct link between unauthorized downloading behaviour and reduced music buying habits.

BY a country mile, Canadians say the reason they are buying less is because they are expropriating it online. 22% say the principal reason for spending less on music is because they are downloading it for free. And note the 10% who say they have "got enough" -- I think we could all make the same educated guess where they got "enough from". And this number no doubt understates the scope of the problem. Pollara has for some time been tracking reluctance on the part of the public to admit to unauthorized file-swapping. The alternative reasons for the devastation of our industry proffered by the pro-file sharing/anti-copyright movement barely register on the scale.

And the proof is in the pudding. The Pollara findings eloquently bear out both Dr. Barker's remarks and those of Professor Stan Liebowitz:

"The conclusion from examining these alternative explanations is that they do not appear capable of explaining the decline in sound recordings that has occurred. It would take a remarkable confluence of events, a perfect storm if you will, to explain the large drop that has occurred in the sound recording market. That doesn't mean that it could not have happened. But in a choice between file-sharing as an explanation and the confluences of various disparate factors all perfectly aligned to harm the sound recording industry, Occam's razor requires that we accept the file-sharing hypothesis."

The frenetic pace of illegal file swapping has led to an extraordinary result. According to a recent study by Cachelogic, peer-to-peer (p2p) file sharing constitutes 60% of overall Internet traffic and 80% of all "last mile" activity on the Internet.

The tremendous volume of Internet traffic devoted to p2p file-swapping becomes even more alarming when read in conjunction with an independent study undertaken by Palisade Systems, which found that 97% of the files requested on a p2p network could create civil or criminal liability.

The Internet has, in short, become swamped with illegal or morally dubious activity, leading the Institute for Public Policy Research (Britain's leading progressive think tank) to wonder whether "policymakers ought to be celebrating this technology to the extent that they have done."

The IPPR isn't the only one worrying about this. Canadians for their part are worried about spyware, computer viruses, links and pop-ups to pornographic websites and inadvertently sharing personal files.

And they have good reason to be concerned. Our head of anti-piracy recently installed Kazaa on one of our laptops. With it came 146 different pieces of spyware and adware. According to Wired Magazine, 45% percent of the executable files downloaded through Kazaa contain malicious code like viruses and Trojan horses.

It is time society understood and grappled with the fact that unregulated public file swapping networks constitute one of the single greatest threats to privacy we know today. For all of the wonderful opportunities they offer, they have a dark side. And concerned Canadians have virtually nowhere to turn.

This needs to be discussed openly and candidly. Particularly by the pro-file swapping lobby, whose behaviour in this regard has been reprehensible - particularly those who style themselves as acting in the public interest. It is one thing to extol the virtues of file sharing, but to do so without warning potential users of the tremendous risks they run on unregulated public file swapping networks is nothing short of irresponsible.

Of course, beyond threats to user privacy and mislabelled, often malicious, content, unregulated public peer-to-peer networks are the single greatest source for copyright theft in the world today. Eric Garland has said, "The tools of the digital age are de facto tools of infringement." And as a result, our cultural products are susceptible to theft on a massive, previously unimaginable scale.

Now it used to be considered "inappropriate" to even refer to this as theft. Artists and copyright owners were disparaged and ridiculed when they referred to the theft of their work. Even some judges joined in. The word did not play well before the 9th Circuit Court of Appeals in the Grokster case, where a judge (during oral argument) referred to the use of the term "theft" as "abusive language".

But policy makers and educators should be aware that the mood is changing as the enormity of the damage being done becomes apparent. Perhaps one of the best indicators of this was the opinion of Justice Breyer when Grokster finally reached the US Supreme Court. In sharp contrast to the lower court judge, Justice Breyer went out of his way to state that, "deliberate unlawful copying is no less unlawful taking of property than garden variety theft".

You will encounter quibblers here in Canada, academics and pro-file swappers who will parse laws and legal decisions in a desperate attempt to suggest that music downloading is legal in Canada. One camel they cannot get through the eye of the needle is this: as far as every single other product of the mind is concerned, there is no doubt at all. If without authorization you download a movie, a television programme, a book, a video game, a piece of business software, the activity is categorically, without question, infringing. So let's stop splitting hairs here and call a spade a spade.

And most Canadians subscribe to Justice Breyer's view. Those who don't are for the most part teenagers. And we need to understand why this is the case. Environics prepared at CRIA's request a short paper entitled "Youth Values and Ethics in Canada". In many respects this paper constitutes an excellent starting point for any discussion of the future of copyright.

Part of my reason for saying this goes back to my earlier remark about the "unwitting foot soldiers" of the self-proclaimed "copyleft" movement. I think it is safe to say that very few teenagers subscribe to the tenets of the so-called copyleft movement. They are motivated more than anything else by a simple self-directed amorality that has governed the behaviour of teenagers for centuries. Perhaps one of the best examples I can give you is this.

A friend of mine has a daughter who is a heavy downloader. She is 13. In an effort to wean her away from the illegal networks, I gave her a $40 Puretracks Gift card. With one proviso - that she provide me with a critique of the site - tell me how we could make it better for kids. Sure enough, a month letter, the critique arrived. At its end was a remarkably candid assessment. Now that she has used up her $40 card, she was going to revert to file-swapping because, as she said, "kids are cheapskates".

As the Environics paper is at pains to point out, fears about the moral decline of young people are hardly new - reminding us that Socrates was put on trial for corrupting the youth of his day. But it does go on draw a distinction about the present generation:

"Concerns about the values of youth are not always irrational. Societies do change across generations, particularly when the conditions of those societies' lives change significantly, as they have in the past several decades. Since the 1950s, Canada has undergone a profound shift in its social values, moving from a code of religiosity, deference to authority and deferred gratification, to one of secularism, individualism and immediate gratification."

The paper goes on to point out that youth today are measurably different in their values. On the whole, young people report a weaker than average commitment to everyday ethics; a relatively cavalier attitude to the law; a stronger than average attraction to novelty; and a greater that average sense of disconnectedness with society.

Introduce this into an environment in which the technological advances have facilitated the theft of intellectual property of ALL sorts, and you have a lethal cocktail. Youth however, cannot be thought of as subscribing to the values of the copyleft movement. Their behaviour should not be used as an excuse to rewrite copyright law out of existence. It SHOULD be used as a spur to education about the importance of intellectual property, and what the Canadian Copyright Institute calls "digital civics."

Environics concludes by saying,

"[I]t is plain that on the whole Canadian youth are less concerned with matters of personal ethics than were their parents and grandparents. This values shift, coupled with advances in technology, is creating a new landscape in which intellectual property is under unprecedented threat. Responses to this threat will need to apply numerous tools-from technological protections to marketing campaigns to legal frameworks-to ensure that creativity and innovation continue to receive their due rewards in the Canadian marketplace."

We know that some of the sharp edges of the values of today's youth will be softened by maturity, but as Environics points out, unchecked, "their basic worldviews will persist into adulthood."

The economic effects of this would be enormous. The Government of Canada, in its study "Supporting Culture and Innovation," estimated that in 2000 the gross domestic product (GDP) of our copyright-related sectors was $65.9 billion, accounting for 7.4% of Canadian GDP. These sectors were growing at an average annual rate of 6.6%; double that of the rest of the Canadian economy. The study concluded that Canada's copyright-related sectors constitute "the third most important contributor to [our] economic growth."

But for the unstable and uncertain environment in which the copyright industries have been living for the past five years, these numbers would be even better. Instead, the creative sector has been hamstrung.

Those who oppose copyright reform talk very loosely about how copyright reform will stifle innovation -- they base this on imagined horror stories and anecdotal speculation. Push it, and none of this speculation stands up. By contrast, the effects of our failure to enact copyright reform are immediate, real and omnipresent.

Start-up Canadian-owned independent record companies have found investment almost impossible to obtain. According to Stephen Ehrlick, Managing Director of Orange Record Label,

"Private investors consistently regurgitated what they were reading in the newspapers. Kids were stealing music with impunity. How was a new record company going to make any money? There wasn't a bank or a venture capitalist that would touch us. They considered the music industry to be the Wild West -- no laws, no marshals, and most importantly to them, no profits."

Grant Dexter, President of Maple Music had this to say:

"We recently launched our music label. It was a labour of love that was not made any easier by the fact that it was damn near impossible to raise money from the typical sources that entrepreneurs like us look to. We live in a country in which copyright laws do not protect businesses like mine and in which courts and Copyright Boards support the proposition that downloading and uploading of music is legal. This isn't legal anywhere else. But they say it is here. That makes no sense to me, as a businessperson, at all. As a result of this, raising capital to grow our business was almost impossible. Prospective investors view the music industry as a no-fly zone. And they will continue to until we get the proper laws to protect developing businesses like mine. Maple has been a success; but it sure as hell hasn't been easy. We make it work because we have to."

And it isn't only Indies that have trouble finding investors. Artists can't find labels that will invest in them because the labels can't find the money. One of our brightest talents, Kathleen Edwards, says:

"Everyone seems to think this is just hurting the labels and the superstars, so who cares? Wrong. People who download music have friends playing music in clubs in their hometowns and those people are never going to get record deals because record companies won't have sold enough records to support a new artist."

Today in Canada, we are creating a generation of musicians capable of selling 20,000 to 30,000 records, but no more. If you are Hawksley Workman - another of Canada's most talented young artists -- you have to sit back and watch while Canadians make 1.7 million attempts to download your new record. And you go on to sell 15,000 copies. If you are Jully Black - again, an immensely talented young artist -- you watch Canadians make 2.8 million attempts to download your new album; and you end up selling 30,000 copies. You may become a household name this way, but you will never own a house.

So what can we do about it? I think the answer is relatively obvious: legislation and education -- and in that order. I say legislation first, because that is how it all begins.

We are where we are today because Canada has drifted listlessly into the digital age without clear legal signposts to help our society to understand what is right and wrong. This has left people confused and uncertain. It has damaged careers -- in some cases irretrievably. And it has acted as a brake on creative innovation.

The Government of Canada's commendable efforts to produce a bill to bring our Copyright Act into the digital age represents an important first step. I want to take the opportunity today, on the eve of the debates that are about to begin on this Bill, first to thank all those who got us this far, and second to offer some insight into how the Bill could be improved.

The proclamation of a robust WIPO-compliant Bill will send a clear message to our trading partners that we want to rejoin the community of digital nations on an equal footing. It will send a clear message to creators that their future is secure.

With your permission, I will dare to venture briefly into the shark-infested, technical waters of the legislation's Technical Protection Measures provisions.

The WIPO Treaties establish an international obligation upon countries to legally protect technological measures employed by rights holders to protect their copyrighted works -- often referred to as Technical Protection Measures, or TPMs. They do so for all copyrighted works on the Internet, and they specifically do so for music.

The WIPO treaties recognize that the ease of digital copying and distribution - oftentimes instantaneous and global - requires special protection if copyright is to have any chance of surviving in the digital realm. In order to protect copyrighted works, rights holders increasingly resort to TPMs to ensure that works are used for the purpose for which they are licensed.

But an arms race quickly ensues. As fast as a protection is devised, a hack is formulated and instantaneously distributed via the Internet. Digital locks are picked, attributions stripped, and content is stolen. The WIPO Treaties recognize that no one can win an arms race. Rights holders must be protected against hacks.

The WIPO Treaties require every WIPO ratifying country to provide "adequate legal protection and effective legal remedies against the circumvention" of TPMs. This allows rights holders to safeguard their intellectual property against digital theft and distribution. But just as importantly, it benefits consumers and kick starts the digital economy by enabling the potential of the digital realm to sustain new business models and new methods of distribution. Consumers can get music, and software, and books and magazines, and movies, and games, and any other intellectual property in ways undreamed of even a decade ago.

It also means that for the first time, the Internet's potential as what the US Supreme Court described as a "digital soapbox" can be fully realized. Until now, the Internet has allowed creators to widely disseminate their works. For the first time, TPMs and Digital Rights Management allow creators to get paid when they do so. And they can do so directly, without intermediaries.

In a recent law review article, Professor Jane Ginsburg of Columbia University describes how TPMs unlock the potential for creators to directly enter the digital marketplace:

"The technological measures that reinforce legal control may enable and encourage authorial entrepreneurship, because authors may be able to rely on these measures to secure the distribution of and payment for their works, and new business models may therefore emerge. [This] offer[s] the public an increased quantity and variety of works of authorship, as authors whom the traditional intermediary-controlled distribution system may have excluded now or soon may directly propose to the public (and be compensated for) their creations. "

Leading Canadian IT practitioner Barry Sookman identified the enormous benefits that TPMs can create for consumers, in an article published in the Canadian Journal of Law and Technology earlier this year. Mr. Sookman points out that TPMs "are seen as being crucial for the development of new business models" that allow consumers to "gain access to content wherever and whenever they choose." He explains, "Given their ability to unbundle copyright into discrete and custom-made products, [TPMs] promise a much greater range of consumer choice and perhaps even a reduction in prices."

In countries where strong TPM laws have been established, this is precisely how they have worked, driving new digital economies that benefit both creators and consumers. In her law review article, Professor Ginsburg surveyed the US experience with the DMCA and concluded:

"The US experience to date indicates that legal protection for technological measures has helped foster new business models that make works available to the public at a variety of price points and enjoyment options, without engendering the "digital lockup" and other copyright owner abuses that many had feared."

Professor Ginsburg's conclusions are echoed by a recently concluded 3-year study conducted by Columbia Law School's Kernochan Center for Law, Media and the Arts. That study found that the TPM provisions of the DMCA have:

"provided substantial benefits to consumers by encouraging the development of innovative new business models for delivering sound recordings, motion pictures, books and other copyrighted works to consumers. . . . [T]here is little evidence…that technological controls are preventing privileged uses. Flexibility in the law, the realities of the digital environment and market imperatives appear to be accommodating legitimate uses…. [N]ew business models…are emerging in the marketplace. . . . The benefits -- more works available to consumers at a variety of price and convenience points -- are real, and the costs have so far been manageable.… [W]e should allow the new business models enabled by [the DMCA] the opportunity to continue to flourish."

Regrettably, our legislation as drafted does not offer the same benefits to both creators and consumers as do European and American legislation. By focusing on the imagined potential for abuses of DMCA and European-style legislation, it missed the potential for benefits both to authors AND consumers.

There are other omissions, all of which are easily cured. For example, the legislation omitted to include criminal sanctions for individuals who hack technical protection measures or digital rights management. A single hacker can cause millions of dollars, TENS of millions of dollars, of damage, and under the legislation as contemplated, he could walk free. There is almost no other country in the world where this could happen. I am certain that omissions of this nature were mere oversights that came to pass because of the great and commendable speed with which the government worked to table this legislation.

And there are plenty of places we can look to for guidance. For example, the European Directive and the unfairly-maligned Digital Millennium Copyright Act (DMCA) provides safe harbours for a wide range of individuals who might be worried about the anti-circumvention provisions.

for example, the DMCA contains six exceptions and they are worth noting because the cover virtually ALL of the concerns raised by opponents of robust WIPO legislation. They are:

1. An exception for non-profit libraries, archives and educational institutions to circumvent access control solely for the purpose of making a good-faith determination as to whether they wish to obtain authorized access to the works concerned.
2. A "reverse engineering" exception permitting circumvention, and the development of technological means for circumvention, by a person who has lawfully obtained a right to use a copy of a computer program for the sole purpose of identifying and analyzing elements of the program necessary to achieve interoperability with other programs.
3. An exception for encryption research permitting circumvention of access control measures, and the development of the technological means for this, in order to identify flaws and vulnerabilities of encryption technologies.
4. An exception for the protection of minors.
5. A personal privacy exception permitting circumvention when the technological measure, or the work it protects, is capable of collecting or disseminating personally identifiable information about the online activities of a natural person.
6. A security testing exception permitting circumvention of access control measures, and the development of technological means for circumvention, for the purpose of testing the security of a computer, computer system or computer network, with the authorization of its owner or operator.

There are other exceptions as well, and in fact the United States Copyright Office is required by law to conduct a triennial review of the DMCA to ensure that a chill on innovation is not developing. After the second such review, the Registrar of Copyright concluded:

"The voluminous record of the two rulemakings conducted by the Copyright Office over the last six years . . . reveals a thriving marketplace that is operating largely as Congress anticipated. . . . To say that the balance of copyright has shifted to the detriment of the public ignores this empirical evidence about the marketplace as a whole."

The empirical evidence is conclusive. And if it is exceptions we are worried about, there is a wealth of experience around the world to help guide the drafters' hands to ensure that our legislation does not upset the marketplace.

And if you are worried about privacy - well Canada has one of the most robust privacy laws in the world -- PIPEDA -- and any business employing DRM or TPM will be required to comply with these laws.

So much for the legislation. I am not able today to prescribe solutions to all of the problems that I have discussed. We will be making detailed submissions to the legislative committee in that regard.

I merely hope to signal the importance of the debate and to help initiate the national conversation. And that is my challenge to you today. Especially to those of you who have the direct opportunity to shape public policy, now and in the future. The problem isn't a partisan one, and the solution isn't likely to be either. But it will not be resolved in any meaningful way without your participation. Let's recognize that, put our resources together and work toward a responsible and reasonable solution.