Canada’s Link Tax (Bill C-18) Tabled. Our Analysis

Bill C-18, Canada’s link tax, has been tabled. So, we took a deep dive and offer our usual stable analysis of it.

Yesterday, we wrote a backgrounder on Canada’s impending link tax law. The lead up and history all points to a complete disaster in the making. Now, we have learned that the legislation has now been tabled. So, we took a deep dive into the legislation to bring you all the facts about the legislation. For reference, the text of the bill currently can be found here so you can read this bill along with us if you want to verify that what we quoted is true.

Definitions

We start off with the general definitions. This one stands out right away:

Commission means the Canadian Radio-television and Telecommunications Commission.‍

So, this bill seems to already hint that it is handing even more market power to the CRTC, a regulator with a long history of being one of the most anti-consumer, pro monopoly regulators in Canada. So, obviously, we are not off to a good start here when the Canadian poster child of regulatory capture is going to be in charge of something new.

We then see this as well:

digital news intermediary means an online communications platform, including a search engine or social media service, that is subject to the legislative authority of Parliament and that makes news content produced by news outlets available to persons in Canada. It does not include an online communications platform that is a messaging service the primary purpose of which is to allow persons to communicate with each other privately.‍

Another clarifying point we note is this:

Making available of news content

(2) For the purposes of this Act, news content is made available if

(a) the news content, or any portion of it, is reproduced; or

(b) access to the news content, or any portion of it, is facilitated by any means, including an index, aggregation or ranking of news content.

Makes sense we note this for clarification purposes. After all, the reference to “the commission” was repeatedly missed (likely intentionally) by supporters of the legislation. So, it’s kind of mandatory to put this at the very top of this analysis.

Application

We then see this in the “application” section of the bill:

Application

6 This Act applies in respect of a digital news intermediary if, having regard to the following factors, there is a significant bargaining power imbalance between its operator and news businesses:

(a) the size of the intermediary or the operator;

(b) whether the market for the intermediary gives the operator a strategic advantage over news businesses; and

(c) whether the intermediary occupies a prominent market position.

Probably the good news in this that the aggregators and websites this impacts is, as far as this part of the bill is concerned, only the bigger players. This suggests that the CRTC isn’t going to be hitting up smaller websites with demands to pay millions. Of course, that can always change at a later time when an abomination like link taxes is normalized, but for now, smaller sites and services are going to be left alone as far as this section is concerned.

Still, this is quite vague language as it doesn’t get into specifics of, say, what it means by “size of the intermediary or the operator”. Hopefully, we can find a more clear definition somewhere else, but this isn’t defined here.

We then get to this gem:

List of digital news intermediaries

8 (1) The Commission must maintain a list of digital news intermediaries in respect of which this Act applies. The list must set out each intermediary’s operator and contact information for that operator and specify whether an order made under subsection 11(1) or 12(1) applies in relation to the intermediary.

So, in other words, the CRTC is going to decide who counts as a news organization and who does not. Remember the definition of “the commission” just a little up in this article? That is clear cut that the CRTC is going to decide who is a media organization and who is not. So, the worry at this point is that the CRTC is basically deciding winners and losers in the online news market.

Exceptions

The previous snippet references subsection 11(1). That subsection is this:

Exemption order

11 (1) The Commission must make an exemption order in relation to a digital news intermediary if its operator requests the exemption and the following conditions are met:

(a) the operator has entered into agreements with news businesses that operate news outlets that produce news content primarily for the Canadian news marketplace and the Commission is of the opinion that, taken as a whole, the agreements satisfy the following criteria:

(i) they provide for fair compensation to the news businesses for the news content that is made available by the intermediary,

(ii) they ensure that an appropriate portion of the compensation will be used by the news businesses to support the production of local, regional and national news content,

(iii) they do not allow corporate influence to undermine the freedom of expression and journalistic independence enjoyed by news outlets,

(iv) they contribute to the sustainability of the Canadian news marketplace,

(v) they ensure a significant portion of independent local news businesses benefit from them, they contribute to the sustainability of those businesses and they encourage innovative business models in the Canadian news marketplace, and

(vi) they involve a range of news outlets that reflect the diversity of the Canadian news marketplace, including diversity with respect to language, racialized groups, Indigenous communities, local news and business models; and

(b) any condition set out in regulations made by the Governor in Council.

So, a news organization can opt out of this system, but it requires jumping through this many hoops. As section (b) indicates, further road blocks can be erected on top if this as well. Otherwise, payments for links are mandatory. If Freezenet says “no, the link tax is stupid and we want no part of this”, then the government basically says, “F*** you, we are forcing Google and Facebook to pay for links to your site anyway.” Our right to determine the future of our site was basically taken away by the government.

As a side note, if there is any doubt that the CRTC is picking and choosing which news sites qualify, this next section pretty much repeats that, yes, the CRTC is picking and choosing websites that benefit from the link tax:

Publication of orders

17 The Commission must publish on its website each exemption order and interim order that it makes.

Eligibility

So, one big question in all of this is this: what news organizations qualify to receive compensation? For that, we see the following:

Eligibility
Eligible news businesses — designation

27 (1) At the request of a news business, the Commission must, by order, designate the business as eligible if it

(a) is a qualified Canadian journalism organization as defined in subsection 248(1) of the Income Tax Act; or

Question: what is subsection 248(1)? We found this. It’s a long section, but with the magic of “CTRL+F”, we found the following:

qualified Canadian journalism organization, at any time, means a corporation, partnership or trust that

(a) meets the following conditions:

(i) in the case of a corporation,

(A) it is incorporated under the laws of Canada or a province,

(B) the chairperson or other presiding officer, and at least 3/4 of the directors or other similar officers, are citizens of Canada, and

(C) it is resident in Canada,

(ii) in the case of a partnership,

(A) it is formed under the laws of a province, and

(B) individuals who are citizens of Canada or persons, or partnerships, described in any of subparagraphs (i) to (iii) hold interests in the partnership

(I) representing in value at least 75% of the total value of the partnership property, and

(II) that result in at least 75% of each income or loss of the partnership from any source being included in the determination of their incomes,

(iii) in the case of a trust,

(A) it is formed under the laws of a province,

(B) it is resident in Canada, and

(C) if interests as a beneficiary under the trust are held by one or more persons or partnerships, at least 75% of the fair market value of all interests as a beneficiary under the trust are held by

(I) individuals who are citizens of Canada, or

(II) persons or partnerships described in any of subparagraphs (i) to (iii),

(iv) it operates in Canada, including that its content is edited, designed and, except in the case of digital content, published in Canada,

(v) it is engaged in the production of original news content, which

(A) must be primarily focused on matters of general interest and reports of current events, including coverage of democratic institutions and processes, and

(B) must not be primarily focused on a particular topic such as industry-specific news, sports, recreation, arts, lifestyle or entertainment,

(vi) it regularly employs two or more journalists who deal at arm’s length with the organization in the production of its content,

(vii) it is not significantly engaged in the production of content

(A) to promote the interests, or report on the activities, of an organization, an association or its members, or

(B) for a government, Crown corporation or government agency, and

(C) [Repealed, 2021, c. 23, s. 61]

(viii) it is not a Crown corporation, municipal corporation or government agency, and

(b) is designated at that time by the Minister and, for this purpose, the Minister shall take into account any recommendations of a body established for the purpose of this definition; (organisation journalistique canadienne qualifiée)

Long story short, you absolutely have to have a business license that is recognized in the province you operate in. So, for a large portion of smaller independently run outlets such as us, you won’t qualify.

Of course, the big key word is “or”. The act continues with the following:

(b) produces news content that is primarily focused on matters of general interest and reports of current events, including coverage of democratic institutions and processes, and

(i) regularly employs two or more journalists in Canada,

(ii) operates in Canada, including having content edited and designed in Canada, and

(iii) produces news content that is not primarily focused on a particular topic such as industry-specific news, sports, recreation, arts, lifestyle or entertainment.

So, what does that mean? Well, if you operate in Canada, have someone hired to write the news and have someone contracted out from out of the country (which is actually a fairly common thing), then you are not a journalism outlet in the eyes of the government.

Then, there is (iii) which really kills the ability for 99% of outlets qualifying as a journalism outlet. A vast majority of digital first content that is in the world of news specializes in a particular topic. In our case, we are specialized in digital rights and technology. In the eyes of the law, that disqualifies us automatically. What about, say, talking about religion? Nope, that disqualifies you as well. How about news discussing the lives of the LGBTQ+ community? You are no longer a journalism outlet. How about a news outlet that documents the struggles black or indigenous people? You are not a journalism outlet in the eyes of the law. How about an outlet that talks about sports? Disqualified.

Really, the examples are endless. The primary goal is to exclude as many independent producers as possible from the compensation coming out of the mandatory requirements to have the likes of Google and Facebook paying money into the system.

A vast majority of websites that start up with news in mind have a specific focus in mind. Does the website you want to start up talk about video games? Are you covering fashion trends? How about photography? Maybe you want to talk about the great outdoors or even survival tips. This is a common way to not only offer focus for a news website starting up, but is also a way to building up an audience with similar interests. Anyone who has even a cursory knowledge of the Internet will see that trend on different websites.

If this law was written with little or no knowledge about how the Internet work, then this provision would have never made its way into the bill in the first place. The fact that it is in there with such specific detail suggests that those drafting the bill explicitly had excluding almost every online news outlet from receiving compensation in mind. It is pure anti-competitive behaviour baked straight into the bill. What’s more is that this provision was clearly written with ill-intent in mind. Bottom line, this is pure evil.

Public List of News Organizations

The bill then circles back to the public list of news organizations that is supposed to be publicly posted. We see the following:

Public list

29 (1) The Commission must maintain a list of eligible news businesses and publish that list on its website. An eligible news business is only included on the list if it gives its consent.

So, in other words, an organization can simply refuse to give consent and that magic decision mean it can hide itself from the list of organizations. This also opens up quite a can of worms for shadowy secrecy.

Platform/Search Engine Ability to Revoke Status of News Organization

So, over top of the law doing what it can to exclude as many news organizations from the process (outside of only the largest players), we then see that the platform or search engine can also ask to have a news organization status revoked:

Application to Commission

31 (1) If the operator is of the opinion that a news outlet identified under section 30 by an eligible news business or group of eligible news businesses should not be a subject of the bargaining process, it may apply to the Commission for a determination of the issue.
Determination

(2) A news outlet is to be a subject of the bargaining process if the Commission is of the opinion that the outlet is operated exclusively for the purpose of producing news content — including local, regional and national news content — consisting primarily of original news content that is

(a) produced primarily for the Canadian news marketplace;

(b) focused on matters of general interest and reports of current events, including coverage of democratic institutions and processes;

(c) not focused on a particular topic such as industry-specific news, sports, recreation, arts, lifestyle or entertainment; and

(d) not intended to promote the interests, or report on the activities, of an organization, an association or its members.

So, there is one more way to exclude even more outlets from the process.

Then as a nice little insult, the bill throws this worthless provision in:

Purpose of code

(2) The purpose of the code is to support fairness and transparency in bargaining in relation to news content.

The problem is, of course, there is nothing fair about this entire legislation in the first place. It favours large corporations and screws over the smaller players. It picks winners and losers in the respective field and is completely anti-competitive. Is it right that an organization like the Toronto Star receive money because Google linked to Freezenet? Absolutely not. Yet, this is precisely what this bill does in the first place.

CRTC Power To Revoke News Eligibility

In a later section, we see the following:

Contravention — eligible news business

59 (1) If an eligible news business contravenes a provision of this Act, a provision of the regulations or an order made under this Act, the Commission may, by order,

(a) impose any conditions on the business that are designed to further its compliance with this Act, including conditions respecting its participation in the bargaining process set out in sections 18 to 44;

(b) suspend, for the period the Commission specifies, the order designating the business as eligible; or

(c) revoke the order designating the business as eligible.

So, breaking any of a host of regulations under this act can mean that the CRTC is able to revoke a news organizations eligibility to being considered a news organization. This over top of the extremely high burden of becoming eligible in the first place.

CRTC Gets Power to Change the Laws As Well

Another notable section we found is this:

Regulations — Commission

85 The Commission may make regulations

(a) respecting requests for orders referred to in subsection 11(1);

(b) respecting the bargaining process set out in sections 18 to 44;

(c) respecting requests for designations referred to in subsection 27(1);

(d) establishing the code of conduct referred to in section 49;

(e) respecting complaints referred to in section 52;

(f) respecting the manner in which groups of eligible news businesses are to be structured and the manner in which they are to exercise their rights or privileges and carry out their obligations under this Act;

(g) respecting the provision of information by groups of eligible news businesses to the Commission respecting their structure;

(h) respecting the exercise by any person appointed under section 8 of the Canadian Radio-television and Telecommunications Commission Act of any of the powers — other than the power to make regulations — or the carrying out of any of the duties or functions, of the Commission under this Act; and

(i) respecting the Commission’s practices and procedures in relation to this Act.

So, in other words, the CRTC can, after this law pass, change these laws in any way they see fit on top of it all. Given the history of the CRTC, that is definitely cause for concern.

Act Under Review Every 5 Years

Another notable section that is pretty self explanatory is this:

Review of Act
Review

87 Before the fifth anniversary of the day on which this section comes into force, the Minister must cause a review of this Act and its operation to be conducted and cause a report on the review to be laid before each House of Parliament.

So, every 5 years, a review takes place to consider changes that lawmakers might deem necessary.

Concluding Thoughts

After looking through this bill, and there is certainly that possibility that we missed something somewhere along the line given its high degree of complexity, I can safely conclude that this is an absolute horror show.

For one, it forces sites and services like Facebook and Google to pay money for the mere presence of a news article being linked. That is bad news in and of itself because there is no means for any news organization to opt out that we are aware of. For another, it gets the CRTC to decide what is an is not an “eligible” news organization to receive that compensation.

Section 27 (1) (iii) clearly lays out that if an organization focuses on a specific topic, then it is not possible to become eligible for compensation. This eliminates a vast majority of smaller news outlets and completely undermines the market for news, making if favour only the largest players (i.e. Bell Media, Toronto Star, Global News, etc.).

The results is obvious: When Google links to your news outlet, they are forced to pay money. However, that money will then get put into a fund that is destined to large corporations that already has vast resources and money. In other words, the tax, in effect, steals from the smaller players and gives it to the larger players. The smaller players get no benefit, but have to deal with the boat anchor of their news site having a price tag associated with said linking. This is flat out immoral on so many levels and is the exact opposite of “levelling the playingfield” that backers so often repeat.

The only response that can be made is that this bill needs to be scrapped completely. It is anti-competitive and gives a permanent advantage to the biggest of players while leaving the smaller players to fend for themselves. There is absolutely nothing fair about that.

Drew Wilson on Twitter: @icecube85 and Facebook.



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