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April 18, 2011

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lAw Times • April 18, 2011 An online resource 1.800.263.3269 Focus On IT/TELECOMMUNICATIONS LAW Should ISPs be subject to Broadcasting Act? SCC to clarify matter as regulator refers more legal issues to court BY ROBERT TODD Law Times I nternet service providers in Canada are gearing up for a Supreme Court hearing that will determine whether they should be subject to the Broadcast- ing Act and therefore regulated by the Canadian Radio-television and Tele- communications Commission. Th e reference case was initially be- fore the Federal Court of Appeal to de- termine whether "retail Internet service providers (ISPs) carry on, in whole or in part, 'broadcasting undertakings' sub- ject to the Broadcasting Act . . . when, in their role as ISPs, they provide access through the Internet to 'broadcasting' requested by end-users?" Th at question arose through a 2008 review and public consultation on the regulator's 1999 new media exemption order. It provided a Broadcasting Act exemption for "new media broadcasting undertakings." During those consultations, a num- ber of organizations identifi ed as the "cultural group" — consisting of the Al- liance of Canadian Cinema, Television, and Radio Artists, the Canadian Media Production Association (formerly the Canadian Film and Television Produc- tion Association), the Directors Guild of Canada, and the Writers Guild of Canada — argued for lifting the exemp- tion. Th e group argued Internet users can acquire broadcast content online, which means ISPs are in fact broadcast- ing undertakings. In their view, the ISPs should therefore have to contribute fi - nancially to a fund aimed at promoting domestic new media content. Although the CRTC expressed its disagreement with the cultural group's view, it nonetheless opted to refer the issue to the Federal Court of Appeal. For its part, the court ruled in the ISPs' favour. "In providing access to 'broadcasting,' ISPs do not transmit programs," wrote Justice Marc Noël on behalf of justices Marc Nadon and Eleanor Dawson. "As such, they are not 'broadcasting' and therefore they do not come within the defi nition of 'broadcasting under- taking.' In so holding, I wish to reiterate . . . that this conclusion is based on the content-neutral role of ISPs and would have to be reassessed if this role should change." Th e cultural groups subsequently sought leave to appeal from the Su- preme Court of Canada. It granted that request on March 24, but as per the top court's tradition, it didn't disclose its reasons for taking the case. Michael Koch, a partner at Good- mans LLP, says it's interesting that the Supreme Court has granted leave in a number of loosely related cases, all of which likely address an eff ort to sort out issues of Internet behaviour. Aside from the ISP reference matter, the top court also agreed to hear two other appeals, both of which address questions of the applicability of copyright law to online transactions involving video game and music sales. Koch, who represented MTS All- stream Inc. at the CRTC in relation to the case, says the Broadcasting Act ref- erence matter boils down to the follow- ing issue: is provision of the means of communication suffi cient to make the ISP a broadcasting undertaking? "Obviously, this issue is of great in- terest because we're seeing a lot more in the press these days about what some of us refer to as 'over-the-top' broadcast- ing," says Koch, citing Netfl ix as an ex- ample of that. "So in a world where Canadians may — and I say may because I think we're still in early days — start to get more of their entertainment and information over the Internet, I think it's not surpris- ing that the Supreme Court of Canada wants to make sure that we have it right router that's taking the ISP and deliver- ing it to the computer; and even a satel- lite dish and its manufacturer, he says. "If you took that to its conclusion, you can think of all the corporate names that would now be looped into broad- casting — everybody that makes a com- puter, everybody that makes a dish. Ev- erybody that makes equipment between those two spots, under their theory, could be included under a broadcasting undertaking." All of this leads Addy to believe that what the case is really about for the cul- tural group is an attempt to have ISPs included in the regulatory umbrella "so that they can extract compulsory invest- ment in Canadian content." Meanwhile, Koch suggests the refer- Michael Koch sees a new trend as the CRTC asks the courts rule on legal issues rather than doing so itself. in terms of who is subject to the Broad- casting Act, which is the issue here." George Addy, a senior partner at Davies Ward Phillips & Vineberg LLP and former executive vice president and chief general counsel at Telus Commu- nications Co., says he fi nds the theory that underlies the cultural group's posi- tion peculiar. "What they're suggesting, in eff ect, is that every piece of equipment — ev- ery facility, if you want — between the producer of content and the consumer of the content is part of a broadcasting undertaking, and I fi nd that troubling and strange," says Addy. "If you take their theory to its logical conclusion, it means that everything be- tween that producer of content and my eyeballs is part of a broadcasting under- taking." Th at would, of course, include the computer that takes the signal and converts it into audio and video; the ence case may also signal a shift in ap- proach by the CRTC. He says it has traditionally been uncommon for the regulator to refer legal issues to the court. Instead, it typically takes its own position on the issue and makes a corre- sponding decision despite any confl ict- ing opinions, leaving it up to the losing party to pursue an appeal. "Under this chairman, Konrad von Finckenstein, he decided to refer the legal issue to the court and he subse- quently referred another legal issue to the court on the subject of the CRTC's jurisdiction to levy a value-for-signal payment," Koch notes. "So it's interesting that he's taking a somewhat diff erent approach to resolv- ing legal issues as they come before the commission. It's certainly within the commission's jurisdiction to determine legal issues, yet he's decided to refer these to the courts." Koch also suspects the Supreme Court is eager to clarify the status of all parties operating on the Internet — whether they be intermediaries or otherwise — under key federal legisla- tion such as the Copyright Act and the Broadcasting Act. Foreign-owned companies score victory on dark fibre BY ROBERT TODD Law Times T he Canadian Radio-television and Telecom- munications Commission has issued an im- portant clarifi cation on the lighting of leased dark fi bre that's being viewed as a victory for foreign- owned companies. Th e decision found that a service provider that leases dark fi bre and lights it with its own optical equipment doesn't own or operate a "transmission facility." Moreover, the ruling states that when a pro- vider off ers services using these facilities, it's not a "telecommunications common carrier" under the Telecommunications Act. Th e regulator took on the issue after European telecommunications company AboveNet Commu- nications Inc. requested registration of its Canadian subsidiary, AboveNet Canada Inc., as a reseller. Th e company planned to resell dark and lit fi bre-optic services that it would obtain from Telus Communi- cations Co. through an existing facilities lease agree- ment. Telus subsequently issued a letter to the CRTC opposing AboveNet's request to register as a reseller, saying it should consider it a common carrier. Th e CRTC responded by undertaking a consulta- tion process on the issue. It considered that input in its decision but ultimately ruled in favour of Abo- veNet's position. Baker & McKenzie LLP partner Arlan Gates says the clarifi cation resolves an important grey area in the application of foreign ownership restrictions in the telecommunications sector. Gates points out that non-Canadian companies could previously own unlit dark fi bre and could also lease dark-fi bre capacity that had been lit by a Cana- dian carrier. Foreign companies could even make long- term arrangements for both of those options through indefeasible right of use (IRU). Th at approach sees the Canadian carrier off er a long-term lease to a foreign company enabling it to utilize certain capacity. Th e CRTC had previously considered whether that type of extended deal was tantamount to foreign ownership and whether there should be restrictions to prevent IRUs involving non-Canadian companies, Gates notes. In the end, it had always determined that IRUs were simply leases. What remained unclear, however, was whether non-Canadian companies could light a portion of dark fi bre using their own equipment. "Th ere was defi nitely a diff erence of opinion in the industry on whether that constituted the opera- tion of dark fi bre as a transmission facility or whether it was merely an operation of equipment, where the equipment could be considered exempt transmission apparatus," says Gates. See CRTC, page 11 PAGE 9

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