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Bill C-18, the Online News Act: Does it Violate Canada’s Trade Agreement Obligations?

Written by: Hugh Stephens
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As Bill C-18 continues its deliberate journey down the Canadian Parliamentary legislative track on its way toward enactment, the Bill’s prime targets (Alphabet, in the form of Google Search and Meta in the form of Facebook) continue to deploy the full force of their lobbying efforts to derail the legislation. Their most recent effort is a White Paper released earlier this month by Washington DC-based tech industry lobby group, the Computer & Communications Industry Association (CCIA). In a valiant but scarcely credible effort the CCIA attempts to argue that if enacted, C-18 would violate Canada’s international trade obligations, specifically commitments it made in the recently updated NAFTA accord (USCMA/CUSMA) and those required by virtue of its membership in the international copyright treaty, the Berne Convention.

In the process, the paper rolls out a number of other arguments against the legislation, such as claiming that it will benefit only a “select few large and powerful media companies” and will “do little or nothing to support sustainable or quality journalism in Canada”, while claiming that it will promote disinformation and content from untrusted third parties. The paper’s authors even claim that any payment from the digital intermediaries, who have scooped up the lion’s share of ad revenues (largely through leveraging content produced by others, usually without any payment), will “jeopardize the long-term viability of the (media) sector”. How will this happen? I guess it is supposed to make them fat and lazy. I will give the authors an “A” for creativity in terms of the range of objections they manage to roll out, but an “F” for making a convincing argument.

What readers should know is that the legislation is currently targeted primarily at two major US-based internet platforms, “digital news intermediaries” in the words of the legislation, just as Australia’s recent legislation to enact a News Media Bargaining Code aimed at the same two companies (Google and Facebook). However, they are not named in the Bill which, if passed, will apply to 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.”

Intermediaries have to self-designate, and the definition is generic, but it is clear who we are talking about. The CCIA paper goes to great lengths to quote Canadian politicians to show that Google and Facebook are the main targets although there are also references to “GAFAM”. (Google, Apple, Facebook, Amazon, Microsoft). If the shoe fits, wear it. No one has ever denied where the problem lies. And yes, they happen to be all US companies—for the moment.

The CCIA paper argues that if Alphabet and Meta are the only companies captured by the legislation, this amounts to a denial of national treatment (treating entities of your trading partners in an equivalent manner to domestic entities) and would be a USMCA/CUSMA treaty violation. But is this true? Hardly. Unless a measure is proven to be a disguised barrier to trade, as long as it applies to all companies, domestic or foreign, it will be difficult to substantiate a national treatment violation even if at the moment it affects only certain companies because of their size, market dominance or some other reason. Just because the affected companies happen to be headquartered in the US, it does not follow that this is an action targeted exclusively at US or foreign companies. For example, given the growing use of its platform for news distribution, it is possible that a platform like TikTok could fall within the ambit of the legislation.

C-18 is no more a violation of the national treatment principle than the EU’s Digital Markets Act (DMA), which targets the anti-competitive behaviour of “internet gatekeepers”, who happen to be prominently represented among the GAFAM US-based companies. The US government has not objected to the DMA on national treatment grounds (although Silicon Valley certainly has). Such criticisms as there are accuse the EU of targeting US “gatekeeper” companies in order to protect competing European companies. In the case of Canada, there is no suggestion that any provision of C-18 is designed to offer trade protection to Canadian companies competing with the “digital news intermediaries”. In short, charges that C-18 violates Canada’s national treatment obligations are a red herring.

Just as the Bill contains a definition for digital intermediaries that are subject to the legislation, so too it defines an “eligible news business”. An eligible business, one that can enter bargaining with the platforms for compensation for use of Canadian news content, is any entity producing news content that receives the journalism tax credit or which has a minimum of two journalists in Canada and operates and edits material in Canada. That hardly limits the benefit to “large and powerful media companies”. The CCIA paper goes on to argue that the definition of an eligible news business will make it difficult for Canada to avoid a charge of unjustified discrimination against US media organizations. This argument must truly be galling to US news producers, none of whom belong to the CCIA and most of whom are engaged in trying to bring about the same legislation in the US as Canada is proposing.

In claiming that the legislation is a violation of national treatment, the CCIA makes the laughable comparison with the maple syrup industry, where Canada apparently has a 66% percent market share in the US. (Canada exports 85% of global production). Apart from the fact that there are over 8000 businesses producing maple syrup in Canada spread over 5 provinces (although the large majority are in Quebec, where the climate is most conducive), it is hard to equate the $300 million in Canadian maple syrup exports to the US to the role that Google and Facebook play in the Canadian digital ecosystem. There is no one, giant maple producer that controls 95% of the market in the way that Google dominates online search, or which controls 80% of digital advertising revenues as Google and Facebook do. But this is not the only flaw in reasoning in the paper.

It claims, incorrectly, that C-18 “in essence” imposes a must-carry obligation on US digital news intermediaries with respect to Canadian news content because of the non-discrimination provisions of the legislation. This is way off base and just plain wrong. While it is likely true that to operate successfully in Canada, Google and Facebook need to reference and link to Canadian news media content in order to appeal to Canadian consumers, they are not obliged to do so by the legislation. However, if the platforms opt to “make available” Canadian news content, then they will be subject to the Act and be required to enter compulsory bargaining with news providers, subject to final, binding arbitration if negotiations fail, as was the case in Australia. (If they voluntary reach agreement with news providers, the compulsory bargaining and arbitration provisions will not apply, again, as per the Australian example).

C-18 (Section 51) imposes a non-discrimination requirement on any internet intermediary that makes Canadian news content available in order to ensure that platforms cannot demote or promote certain content over others for their favoured or disfavoured partners, particularly during the negotiation phase. But Section 51 does not require them to make Canadian content available, as the CCIA paper claims, and the law does not prescribe any form of mandatory carriage. The CCIA paper also states incorrectly that if a digital intermediary decided not to make available any Canadian news content, this would prevent it from displaying non-Canadian sources such as the New York Times or the South China Morning Post. This is a fanciful re-interpretation of the Bill. To reiterate, the non-discrimination provision does not require that Canadian news content be made available; however, if it made available then it must be done in a non-discriminatory manner. Distribution of non-Canadian content is not subject to this provision. The wording is Section 51 is clear. The non-discriminatory provisions apply only to “news content that is produced primarily for the Canadian news marketplace by a news outlet operated by an eligible news business”. An “eligible news business” must be based in Canada.

While there is no legal requirement to carry (make available) Canadian news content, nor is there any provision that prevents the distribution of non-Canadian news content in Canada, the market reality is that if Google and Facebook are to be successful in the Canadian market of 38 million people, they will have to make Canadian news content available to their users, as they have been doing. They produce not one column inch of content yet benefit from the readership that this content attracts through domination of digital ad markets. It is this anomaly that the legislation is designed to correct.

Because the CCIA paper has chosen to mischaracterize the bill, its arguments that C-18 violates Canada’s trade obligations under the USMCA/CUSMA and Berne do not stand up to scrutiny. First, as noted above, simply because a measure at the present time may capture a couple of US companies even though broadly targeted, this does not mean the action is a violation of national treatment. The argument that the non-discrimination provisions are, in effect, a “must-carry” requirements for Canadian news content are also inaccurate, negating the argument that this is a violation of the investment chapter of the USMCA that prohibits the imposition of “performance requirements” on investments from a NAFTA country. Even if the above arguments were valid, which they are not, Canada could still invoke discriminatory measures under the cultural exception provision of the CUSMA, Article 32.6, because publication of newspapers, periodicals and magazines is defined as a cultural industry. The cultural exemption clause allows Canada to take measures to protect or promote a cultural industry even if to do so would infringe a USMCA/CUSMA obligation. However, invoking 32.6 would invite retaliation of equivalent commercial effect, and there is no need to do so because C-18 is not in violation of the USMCA.

Another argument trotted out by the CCIA is that C-18 will lead to a breach of Canada’s obligations under the Berne Convention (incorporated into the WTO) because, under Berne, there is a “right to quotation”. The paper also claims that the bill undermines longstanding legal principles related to limitations and exceptions to copyright protection. In Canada, these largely fall under the fair dealing provisions of the Copyright Act; in the US they fall under the somewhat broader “fair use” provisions. In fact, C-18 makes no changes to the Copyright Act, and designated internet intermediaries could still exercise a right to quotation under fair dealing if, for example, they produced content that required use of quotations. Fair dealing and other user rights under the Act are unaffected. However, fair dealing cannot be invoked by the designated platforms to avoid their obligation to enter bargaining with news providers, which is a measure designed to redress a market imbalance rather than adjudicate copyright issues. Put another way, the exercise of fair dealing under the Copyright Act does not provide immunity from the need to comply with other legislation, whether it be the Online News Act or some other legal requirement.

The relevant part of the draft legislation dealing with this issue (Section 24) states that “For greater certainty, limitations and exceptions to copyright under the Copyright Act do not limit the scope of the bargaining process.” As I recently discussed (here and here), while the term “making available” covers linking, which is generally not a violation of copyright (except in certain, well-defined circumstances) and is thus a permitted activity under the Copyright Act, it is also subject to the bargaining framework when employed by designated digital intermediaries—and only the designated digital intermediaries, not other users.

While all these nuances could, potentially, be argued before a WTO or NAFTA panel (except that the US has frozen the WTO process by blocking appointments to the WTO’s appellate body), this raises the more fundamental question as to whether the US Government would be willing to take up cudgels on behalf of Google and Facebook. (A company cannot bring a trade dispute case itself; it has to be done by a government). Neither corporation is exactly in good odour in Washington these days and some of the actions the CCIA objects to are in fact already underway in the US. While the CCIA paper argues against C-18 because it will allow the Canadian media to bargain collectively, (becoming a “cartel” in the CCIA’s words), legislation that would provide exactly the same exemption from anti-trust provisions is currently before the US Congress. (The Journalism Competition Preservation Act-JCPA). It is also worth recalling that the US Government represents US interests broadly. Among those interests are the US journalism industry (which would like to see legislation similar to C-18 in the US) and other companies within the tech sector that are competitors of Google and Facebook. Let’s recall that when Google threatened to pull out of Australia, removing its search function because of impending Australian legislation very similar to C-18, Microsoft stepped in and offered to fill the void, at the same time indicating it would be happy to comply with the Australian law. (Google’s Tussle Over Payment for News Content in Australia: Microsoft Scrambles the Cards–With Positive Implications for Canada and Others) When there are disparate US interests and different voices–equally influential–to consider, don’t expect the US Government to rush to become advocates for Google and Facebook. While the CCIA took up their case, I note that both companies are members of the organization. Microsoft does not appear to be a member.

So, what then are we to make of all this? Simply put, the CCIA paper is a valiant but unconvincing lobbying effort. It tries to invoke scare tactics and threaten US retribution under the USMCA/CUSMA, but it’s a paper tiger. Its arguments are unconvincing and tendentious, and the likelihood of the US Government actually bringing a CUSMA case if C-18 becomes law are somewhere between very slight to zero. And if they did, the case would almost certainly fail.

Australia and France have already brought the big internet platforms to heel when it comes to working out equitable income sharing arrangements with news media. Canada will undoubtedly succeed in doing the same. The US will likely be next in line even though the CCIA will deploy its considerable lobbying heft to oppose action at home as it is doing in Canada.

Hugh Stephens is an Executive Fellow, The School of Public Policy; and Distinguished Fellow, Asia Pacific Foundation of Canada

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