Vendors fear media levy could extend to hard drives

The recent Copyright Board of Canada decision to extend levies to non-removable memory in devices like MP3 players has the industry worried that hard drives may be next.

A Dec. 12 board decision froze existing levies on recordable media like blank CDs. But a new levy was introduced on non-removable

memory, ranging from $2 to $25 depending on the capacity of the device.

One of the first affected was Apple Canada, which immediately added the levy to the retail price of its iPod MP3 players in order to comply with the board’s decision. Other MP3 players that use flash memory, which can be removed from the device, were not affected.

Jacqueline Famulak, Apple Canada’s legal counsel, said that customers are being unfairly penalized by this levy, since in many cases they’re being charged to copy music they already own. The situation is exacerbated by the impending arrival of Apple’s iTunes. The $0.99 per song downloading service is currently available in the U.S. and may eventually be available in Canada, though an official date hasn’t been announced yet.

The levy system as it now exists could see future iTunes users in Canada hit even harder, said Famulak. “”We’re not happy, but we’re complying,”” she said.

Earlier this week, members of the Canadian Coalition for Fair Digital Access — which includes Apple Canada, Dell Canada, HP Canada and Intel of Canada — asked a federal appeals court to dismiss the levy that affects MP3 players. On the retail side, stores including Wal-Mart Canada and Future Shop are asking the court to declare the portion of the levy that affects blank media “”unconstitutional.””

What concerns Famulak right now is what the Copyright Board will set its sights on next.

“”We’re closely watching this, because in March there will be new levies proposed. Will they try to cover other products? It could extend to a broader range.””

The argument is that if the storage component of an MP3 player can be levied, so could any other permanent storage device, namely computer hard drives.

“”On the positive side, the fact that they did not get the increase on existing levies is a good thing,”” said Intel of Canada country manager Doug Cooper of the Dec. 12 decision.

“”The negative side is that the decision to extend (the levy) to non-removable media like MP3 players sets a bad precedent, because really there’s nothing stopping them from extending the levy to any other device that can hold music,”” he said.

Intel does not manufacture anything that could be directly levied, but does produce the chipsets that are part of PCs. A levy that affects hard drives would affect the price of the PCs that hold them.

“”Our concern is the very same,”” said Paul Frew, vice-president of government relations with Motorola Canada. “”We build products that use memory for a lot of different things other than music. Memory products being what they are, they’re common.””

In Motorola’s case, what could prove more damaging to the company than a levy against PCs is a levy against the memory contained in cell phones. “”That was our main concern, and obviously with cell phones having more and more capability, it’s a concern to us, because we don’t want to add cost to a product that’s already extremely price-sensitive. It’s primary purpose is certainly not to record music.””

“”I think one of the motivations for HP becoming involved in this issue is the concern that it’s just too broad a law,”” added Barbara Caplan, senior corporate counsel for HP Canada. “”For a whole host of reasons, it’s not a good law. We believe that copyright holders should be compensated, but this isn’t just the right way to do it.””

HP escaped the levy this round: the company’s digital cameras use flash media, which will not be levied by the Copyright Board. But the possibility that hard drives could be next is very real for Caplan. “”Maybe not today, but maybe tomorrow,”” she said. “”There has been enough allusion to that happening.””

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