Bill C-32 (40th Parliament, 3rd Session) Committee on Feb. 17th, 2011

[The Chair (Mr. Gordon Brown (Leeds—Grenville, CPC)), Conservative, Gord Brown]

I call the meeting to order.

Good morning, everyone. Welcome to this 14th meeting of the special Legislative Committee on Bill C-32.

This morning we are going to hear from Wendy Noss, representing the Canadian Motion Picture Distributors Association, and from Ted East, Patrick Roy, and David Reckziegel of the Canadian Association of Film Distributors and Exporters.

Go ahead, Ms. Noss, for five minutes. You have the floor.

[Wendy Noss, Executive Director, Canadian Motion Picture Distributors Association]

Thank you, Mr. Chair, mesdames et messieurs, members of the committee.

My name is Wendy Noss. I'm the executive director of the Canadian Motion Picture Distributors Association. We represent the six largest international producers and distributors of film, television, and home entertainment programming in Canada.

In the very short time I have, I want to provide you with an understanding of how the film and television industry benefits our economy, and as a result why copyright laws that support the continued health of this industry are so vital. Film and television production last year in Canada was more than $4.9 billion, generating more than 117,000 full-time equivalent jobs. The production studios associated with the CMPDA are major contributors to the foreign production component, which is valued at more than $1.5 billion annually. Production provides jobs for local performers, crews, suppliers, and vendors, as well as tax revenues, and of course the benefits go well beyond production alone. Let me give you some specific examples.

In TV, the Vancouver area has hosted Smallville for more than 10 years. The television series spends over $39 million locally each season, more than half of which is spent on local crew.

In film, the latest installment of The Mummy was shot in Montreal. It spent approximately $50 million, including $22 million on labour and fringe, with cast, crew, and extras totalling more than 1,000 people, and $4 million was spent on renting local facilities in the Montreal area alone.

Unfortunately, these numbers don't tell the whole story. We can no longer ignore the estimated one-quarter of Internet traffic that now involves the unauthorized distribution of copyrighted material. Illicit sites that traffic in pirated film and television content threaten jobs and the ability of the industry to remain an economic engine.

What does this mean for Canada? I've heard many of you ask that of other witnesses. A joint study being released today by Ipsos and Oxford Economics examined the harm caused by movie piracy to the Canadian economy in 2010. Further details have been provided to you, but consider that the study estimates that movie piracy resulted in a loss equivalent to $965 million in GDP across the Canadian economy last year; in terms of jobs, if it weren't for movie theft, we would have had the equivalent of another 12,600 jobs last year alone.

What the Ipsos research tells us is that movie theft has a destructive impact not only on the film industry but throughout our entire economy, threatening all types of jobs and businesses. We desperately need a framework in line with international best practices, establishing clear rules to make online piracy illegal. We know these are the government's objectives; those objectives have been echoed by committee members around this room, and we, of course, support them.

In some critical respects, however, the drafting does not meet these objectives. Technical fixes are needed to ensure unintended consequences do not undermine the very legal framework the government has stated is needed.

Again, mindful of the short time, I'll just briefly mention overarching concerns with key provisions of the bill affecting the illicit distribution of content online. Fundamentally, we appreciate the government's objective to stop those who enable online piracy. The drafting of the enabling section is so restrictive, however, that the very sites the government is targeting will not be stopped unless the bill is amended to clarify the points that follow.

First, the prohibition must apply not just to services primarily designed to enable infringement but to services that operate in a way that enable or induce infringement.

Second, the prohibition must also apply to those who enable or induce infringement by hosting infringing content. This is not clear in the bill, but is absolutely critical, as download hubs--sometimes called cyberlockers--have a business model built on the mass distribution of infringing content at levels as high as 90% and more, and are the most significant growing source of illicit distribution online.

Third, the full range of legal remedies, including statutory damages, must apply to those who enable piracy online.

In addition, unless the drafting of the bill is tightened to match the government's goal, the safe harbours that are intended to only shelter those who act as true neutral intermediaries will provide loopholes that illegitimate operators will exploit to continue their operations in Canada, and will do nothing to stem infringement online. For example, the legislation must provide that online service providers who wish to qualify for the safe harbour be required to adopt and implement an effective policy to prevent use of their services by repeat infringers. A system whereby an infringer simply receives notice after notice after notice, without a belief that there will be meaningful consequences, is not an adequate mechanism for deterring illegal activity. The current drafting of the safe harbour is so overly broad that it will do nothing to stop operators of topsites, large-capacity servers filled with many terabytes of illegitimate content, or content-hosting hubs with many hundreds of thousands of infringing files, from operating with impunity in Canada--

[The Chair, Conservative, Gord Brown]

I'm going to have to cut you off there. We'll get into your content a little more in questioning.

We'll now move to the Canadian Association of Film Distributors and Exporters for five minutes.

[Ted East, President, Canadian Association of Film Distributors and Exporters]

Mr. Chairman and members of the committee, thank you for inviting us to meet with you today.

My name is Ted East. I am president of the Canadian Association of Film Distributors and Exporters, or CAFDE for short.

CAFDE is a non-profit trade association that represents the interests of Canadian-owned and Canadian-controlled feature film distributors and exporters. CAFDE members distribute over 90% of the non-studio and Canadian films released theatrically in Canada each year. CAFDE members distribute films in Canada from all over the world and in the widest ranges of genres and budgets.

With me are two senior executives from CAFDE member companies: Patrick Roy, president and CEO of Alliance Vivafilm, and David Reckziegel, co-president of Entertainment One Films.

Copyright reform is long overdue in this country. The Ipsos study released today emphasizes how urgently Canada needs to modernize its copyright law to stop massive online piracy and encourage the development and delivery of a variety of innovative new business models. Piracy hurts Canadian film distributors because it seriously erodes both the domestic and international markets for Canadian movies, makes it more difficult to finance new productions, jeopardizes the jobs of everyone involved in the creative process, and ultimately affects consumers as lost investment means fewer movies being made for audiences around the world.

We applaud the government's introduction of Bill C-32 and fully support its stated goals and intentions. However, we do not believe the bill as currently drafted achieves those goals.

Changes need to be made in the following areas: the enabling provision must be redrafted to ensure that anyone who enables copyright infringement, including hosting services, is stopped; the current ISP safe harbour provisions are too broad and could actually legalize the operations of illicit Internet sites; the UGC--user-generated content--exception is so vague that it legitimizes copyright infringements and violates Canada's international treaty obligations; and the statutory damages provisions should apply to enablers and should provide an effective deterrent to large-scale illegal file sharing.

CAFDE also opposes the educational exemptions mentioned in clause 29 and asks that changes be made to protect the legitimate business rights of producers and distributors within the Canadian educational sector.

[Patrick Roy, Member, President and Chief Executive Officer of Alliance Vivafilm, Canadian Association of Film Distributors and Exporters]

Mr. Chairman, committee members, Alliance Films is a leading distributor of feature films in Canada. Our company also distributes films in the United Kingdom and Spain. Alliance Films distributes feature films to entertainment theatres, on DVD, online and to television broadcasters.

There may be the belief in some circles that film piracy only affects American studios. However, nothing could be further from the truth. Although I do not have a lawyer's skills to analyze Bill C-32, I am sitting in the front row where I can see the growing impact of piracy on our industry. I'm here today to express the wish that Canada become a leader in the fight against piracy.

According to the Ipsos/Oxford Economics study released today, piracy's impact on the film industry, including cinema owners, distributors, producers and retailers, is an estimated $895 million in sales losses. Government tax losses alone are estimated at $294 million. Online piracy, the most prolific method of piracy, has eaten into the revenues of all the films that Alliance has distributed over the past several years, including such noted Canadian films as De père en flic, Les amours imaginaires, Polytechnique and Bon Cop, Bad Cop.

Like independent films from around the world, Canadian films are financed from a variety of sources. One of the critical components in a film's financing are presales to film distributors. The amount the distributor will put up as an advance for an individual film is determined by expected revenue. This makes it more difficult for the producer to get the film made.

New digital distribution models are emerging and being embraced by consumers both in Canada and around the world. Netflix, Apple iTunes and Cineplex's recently launched digital service are examples.

Like most industry executives, I believe that digital distribution of feature films will replace DVDs in the next few years. Other innovative digital distribution models will provide consumers with a much greater range of choice than currently exists.

However, if piracy continues to flourish, these endeavours will be undermined. This will mean fewer films will get made, a weakening of Canada's production and distribution companies and significant reduction in jobs for the creative and support industries that make these films happen.

Thank you.

[The Chair, Conservative, Gord Brown]

There's only going to be about another 30 seconds.

[David Reckziegel, Member, Canadian Association of Film Distributors and Exporters; Co-President, Entertainment One Films]

I think I'll just focus, then, on the key parts of what I was going to talk about, which is reiterating somewhat what Patrick has said already. This year we've distributed films like Barney's Version and Incendies, which are two of the most acclaimed films of this year, and if we don't do something about Bill C-32, those kinds of films will have more and more difficulty in being made. Those films are being affected directly already.

We've also suffered from this plague of piracy and we need some clear rules and a deterrent in order to prevent this from happening.

Last summer a young filmmaker whose new film we are distributing received congratulations from an acquaintance who had just seen her film. This surprised the filmmaker, since her film wasn't scheduled for commercial release for another month. What she discovered was that her film was already available online and that dozens of other people she knew had seen it as well. This is one anecdotal piece of information, but this happens regularly.

Online piracy is out of control and is damaging the Canadian film industry today. Currently, four of the top ten most pirated films on BitTorrent are distributed in Canada by Canadian distributors.

[The Chair, Conservative, Gord Brown]

Okay, I'm going to have to let you get into it in the questioning.

We're going to move to the first round of questioning, but before we do that, I'd like to welcome Scott Simms and the Hon. Maxime Bernier to the committee.

We will go to the first round. It'll be seven minutes.

Go ahead, Mr. McTeague.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Chair, you're quite right in not referring to Mr. Simms as “honourable”, but that's down the road.

[The Chair, Conservative, Gord Brown]

He's still honourable in my eyes.

[Scott Simms, Liberal, Bonavista—Gander—Grand Falls—Windsor, NL]

Dan's my lawyer.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Not for long, though.

Chair, thank you, and welcome to our members here today.

I would also like to thank the witnesses. Their remarks are very interesting

and I am very interested in pursuing them.

Mr. Reckziegel, the last comment you made was with respect to BitTorrents. I want to get right into this, because it seems this is an area in which the committee is going to have to drill a lot deeper. I know there are a lot of discussions out there, but perhaps I'd go to Ms. Noss first.

The Pirate Bay, which is the world's largest peer-to-peer file sharing torrent, had 2.5 million--if my resources are correct here--registered users in 2008. It's also made an incredible $4 million just from advertising its site alone. They lost an appeal, as some of you know, on conviction in Sweden. The court described it as follows, and I'm quoting here: “The Pirate Bay has facilitated illegal file sharing in a way that results in criminal liability for those who run the service.”

This service, as you know, is not just exclusive to Sweden or other countries. It's also here in Canada. I believe isoHunt in particular, which operates out of British Columbia, is the third most popular infringing BitTorrent site in the world. It continues to operate with more than 40 million peers and over 6.7 million active torrents. These figures are from their own website just a couple of weeks ago, on January 31, 2011. I just want to be absolutely clear that I'm not picking these numbers out of the sky.

Ms. Noss, in your opinion, how would Bill C-32 be able to prevent, stop, and arrest sites like isoHunt from facilitating the mass distribution of unauthorized copies of works, if at all?

[Wendy Noss]

Thank you, Mr. McTeague, for the question.

I think, as I alluded to in my opening remarks, the government's objectives on this issue have been clear: they want to stop those who enable mass piracy online.

I've heard those objectives echoed by all the members of this committee, so what we're trying to do here is help in arriving at legislation that will address the realities of how these sites operate and learn from international best practices.

As I suggested, the enabling provision, as drafted, needs some technical fixes. With respect to BitTorrent sites in particular, BitTorrent itself is a legitimate protocol. It wasn't designed to infringe. It has utility other than to operate as a vehicle for infringement. The concern is the way that those sites are operated to enable and induce infringement, and those are really the critical words that put them offside. Just to put it into some perspective for you, Canada has been home to five of the top ten BitTorrent sites in the world, whether they are operated here or hosted here. This affects not only the domestic market but the international market as well.

Two BitTorrent sites in Quebec that are operated or hosted there affect the European market by having 70% to 80% of their users in France, Switzerland, and Sweden, so again it's the ability to craft an enabling section that has statutory damages applied to those who enable piracy and has the prohibition against those who enable infringement by the way they operate or induce infringement. Again, finally, it should clearly apply to those who host illicit content.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

I've only got maybe three minutes left and I've got a couple more questions, not just for yourself but for the others if we can get to them.

Are you satisfied with the statutory damages provision of Bill C-32 specifically? Let me be clear on this: to some, like myself, there are two problems. The statutory damages do not apply, obviously, to actions of the enablers, but the second problem--and I've raised this with other witnesses who have come before us--is that there's a maximum liability of $5,000 for all infringements deemed to be non-commercial.

Is it your view in your work that a number of commercial-scale pirates are motivated by things other than commercial gain? I'm concerned more specifically about the issue of notoriety and whether or not reputation also factors into this as well. I'm wondering if the statutory damages we have provided here are not only silent on this but on the extent to which that kind of behaviour may have unintended consequences. If it's not perceived by this committee, it's clear that it wasn't perceived by the drafters of the bill. That's not a slight on them, just a recognition of something that's far greater than anything we've anticipated.

Ms. Noss, you or Mr. East might comment.

[Ted East]

Thank you.

I don't believe they're sufficient. I believe that when services like isoHunt are making millions of dollars in advertising, the $5,000 fine just becomes incorporated into the cost of doing business.

As to notoriety, I think it goes deeper than that. I think it goes in some quarters to a philosophical belief that piracy is okay, to the fact that they don't actually believe in the criminal codes of the countries they operate in, including Canada. It's not just, “Look at me; I'm clever. I got away with this”. You've got in some cases people who fundamentally do not believe that what they are doing is wrong and take exception to the laws of the land. I have a big problem with that.

[Wendy Noss]

I will give a quick response. There are those like the isoHunts of this world that are built on an advertising revenue and are commercial operations and make money. There is no question about that. However, in the piracy ecosystem out there, there are many people who do not operate for commercial gain; still, the commercial damage they cause to copyright owners is massive. For film and television content you have something they call topsites, which are FTP servers that house the most valuable content, content that is still in the theatres and that has been recently released on DVD. Those topsites are operated by people who do it for Internet credibility, because they want to do it and because within their own peer group it allows them to move up by a level.

Let me give you an idea of what the scale is, though. A topsite that was recently taken down by a Dutch organization, BREIN, had 220 terabytes. One terabyte is 1,000 gigabytes, and 1,000 gigabytes is 250 feature-length films. These people are not doing it for commercial gain. They're doing it for Internet notoriety. We had a gentleman stand up in front of Minister Clement at the Toronto town hall and brag that he had a six-terabyte server filled with Canadian films he was letting people download all over the world. He's not doing it for commercial gain. If you have a statutory damages provision that says to these people that they can cause as much damage as they want and the most they will ever be liable for is $5,000, you're going to encourage those operations in Canada, not deter them.

[The Chair, Conservative, Gord Brown]

We'll have to move on.

Mr. Cardin, you have seven minutes.

[Serge Cardin, Bloc, Sherbrooke, QC]

Thank you, Mr. Chairman.

Good morning, madam, gentlemen, and welcome to the committee.

The Ipsos/Oxford Economics study was not conducted by nasty separatists or sovereigntists, contrary to what the Conservatives might think. It nevertheless reveals some quite astronomical figures. To date, we've been talking about at least $126 million a year in copyright losses for various artists and creators, but, to that, you're adding at least $800 million. You even mentioned $1.8 billion. These are major economic losses.

The survey reveals a number of things. There is a note on the paper you submitted to us. It states that the survey results paint a conservative picture of the situation. And yet the Conservatives have always told us that this would have no impact on creators. And yet this is a modest picture, and we're talking about nearly $2 billion in losses. That's a considerable amount, which includes losses assessed at other levels and the $1.8 billion you referred to.

Certain minor points are interesting. For example, 48% of consumers of pirated films, that is to say nearly half, said that they would have paid to see a film if it hadn't been unofficially available. Obviously, we're talking about prevention, warnings and simulations to protect the economy and the rights to certain productions.

What do we do with that? When the bill was presented to the committee by the Minister of Industry and the Minister of Canadian Heritage, we sensed that it was more an act for the industry than for copyright protection purposes. It seems to me the Internet and computer industry is suitably equipped.

What do you suggest in order to put a stop to this as soon as possible? Are there any examples from other countries that should be followed? Have other countries made perhaps a more radical start on countering these practices?

[Patrick Roy]

Thank you, sir. With your permission, I'll answer your question.

I'm shocked by the figures that this new study has revealed today. On the other hand, I'm pleased that we can finally have some figures because we've been asked for years now what impact piracy has on us. We have a modest idea of what that represents. As I said at the outset, I'm not a lawyer, I'm not a legislative specialist, but it's clear to me that we have to adopt a zero tolerance policy in this regard. We need a strong act, without loopholes. We also have to educate people because they take this for granted.

I have a Twitter account. A few months ago, someone sent me a message while I was promoting one of my films. He wrote that he had already seen my film on the Internet. I answered him that that was theft, and his response was that, if he found a $10 bill on the street, he would pick it up and keep it. He added that he had looked at his computer, that the film was there and that he had watched it. That's the public's perception. People don't get the impression of stealing when they engage in piracy. So there's an educational component. We absolutely have to have strict measures that leave no doubt and that prevent piracy of works in Canada. That's essential in my mind.

I'm not an expert, but I get the impression that there is a very restrictive law in France, among other places. I don't know whether it has been passed, but what I heard gave me the impression that it was a real act, a strong act. Why not have that kind of act in Canada? I'm asking the question. I would like a clear message to be sent to consumers so they know that piracy has an impact on individuals, on Canadian businesses, and that it has to stop.

[Serge Cardin, Bloc, Sherbrooke, QC]

The individual who put the film on the Internet free of charge is not the one who put the $10 bill on the ground. That would have cost him $10. So he wouldn't have done it.

[Patrick Roy]

Yes.

[Serge Cardin, Bloc, Sherbrooke, QC]

What makes an individual look for a film, find it and exhibit it in this manner, free of charge? He gains nothing from it. Some people copy films illegally in order to profit from them, probably, but the impact... Which of those actions is more costly for your associations, for your industry?

[Patrick Roy]

I think it's a little of both. I get the impression that people do it for profit, but that others do it for the challenge, so they can boast of copying films, distributing them over the Internet and providing access to movies free of charge. It becomes a game and we shouldn't allow this kind of game.

[Serge Cardin, Bloc, Sherbrooke, QC]

How can we make Internet service providers accountable as a whole? We're talking about everyone.

What do you think of the system that enables an offender to receive notice after notice without him expecting any significant consequences?

[Patrick Roy]

I don't know.