supreme court of canada

In a previous post here, there was a brief preview of a pending Supreme Court of Canada decision in the case of Canadian Broadcasting Corp. v. SODRAC 2003 Inc., 2015 SCC 57. This blogger is pleased to report that the much-awaited decision was recently delivered and it principally addresses the principles of balancing user and right-holder interests and of technological neutrality in the context of copyright law.

From a Kenyan intellectual property (IP) perspective, this decision also offers useful insights on how users of copyright protected works may wish to engage with copyright administrators whether government regulators or the collective management organisations (CMOs) in the area of valuation of rights, tariff-setting and licensing arrangements.

As previously discussed, the central issue in this case is whether broadcasters must pay royalties on ephemeral or incidental copies of an audiovisual work created during the preparation of that work for broadcast. This case arose out of a decision by the Copyright Board that SODRAC can license and collect royalties from broadcasters for ephemeral copies made in the course of broadcasting. The Board’s rationale was that because they add value to the final broadcast, incidental acts of reproduction should attract royalties of their own in addition to those payable for the broadcast of the work. The Canadian Broadcasting Corporation (CBC) disagrees with both the Board and the Court of Appeal and relied on the technological neutrality principle stated in the earlier case of Entertainment Software Association v Society of Composers, Authors and Music Publishers of Canada, 2012 SCC 34, which CBC argues changed the law as it relates to incidental copies. According to CBC, the principle as articulated by the Court provides that the public should not be subject to additional taxes or tariffs for a copyrighted work depending merely on its method of delivery – more advanced technological methods of delivering a work to a customer should not attract additional levies.

In the Supreme Court, there were two key copyright issues set out for determination, namely:

(1)  Do broadcast-incidental copies engage the reproduction right, and if so, should a licence for such copies be implied in synchronization licences?

(2)  If a licence for broadcast-incidental copies was required, did the Board err in setting the value of that licence in view of the principles of technological neutrality and balance?

On the first issue, the majority of the court upheld the Copyright Board’s decision to characterize broadcast-incidental copies as “reproductions” for the purposes of the Copyright Act.  The majority found no reason to depart from long-standing case law on the character of ephemeral copies as reproductions for the purposes of the Act.

The court found that the separation of licences into synchronization and broadcast-incidental arrangements does not, on its own, impose a “gratuitous cost” based on formal technological distinctions, as was the concern in the ESA case.

In making this finding, the court proposes a curious reading of the particular version of technological neutrality espoused in the ESA case. According to the court:

“The difference between synchronization copies and broadcast-incidental copies is tied to the fundamentally distinct activities of production and broadcasting. They are different functions. This difference is not based on particular technological details; it would exist regardless of the technologies used either to produce or to broadcast. Thus, a decision recognizing production and broadcasting as distinct activities, and thus as the valid subject of disaggregated licences, does not offend the principle that “an additional layer of protections and fees” not be imposed based solely on technological change: ESA, at para. 9.”

Many users may find difficulty accepting the seemingly owner-centric approach to the principle of technological neutrality expressed above, which suggests that the tech neutrality principle is not offended when new layers of protection or fees are imposed based solely on technological change. In this regard, users in Kenya and elsewhere may be inclined to accept the dissenting view put forward by Justice Abella.

On the second issue, the majority concluded that the Board failed to consider the principles of technological neutrality and balance in valuing the broadcast-incidental copying licence. This is clearly a major boost for users’ rights.

On tech neutrality in valuation, the court found that different technologies using reproductions of copyright protected work that produce the same value to the users should be treated the same way. Conversely, different technologies using reproductions that produce different values should not be treated the same way. Therefore, if CBC derives greater value from the use of broadcast incidental copies in its digital technology than it did under its prior analog technology, this is a factor in favour of the copyright holder being entitled to greater royalties for use of its copyright protected work in CBC’s digital technology.  As a result, technological neutrality requires that the Board compare the value derived from the use of reproduction in the two technologies in its valuation analysis.

On balance in valuation, the court began by recognising that copyright law must maintain a balance between promoting the public interest in the encouragement and dissemination of works and obtaining a just reward for the creators of those works. In this regard, the court held that when it is tasked with fixing licence fees, the Board must have regard to factors it considers relevant in striking a balance between the rights of users and right-holders. Such “relevant factors” include, but are not limited to, “the risks taken by the user”, “the extent of the investment the user made in the new technology”, and “the nature of the copyright protected work’s use in the new technology”.  Therefore, according to the court, the Board must “assess the respective contributions of, on the one hand, the risks taken by the user and the investment made by the user, and on the other hand, the reproductions of the copyright protected works, to the value enjoyed by the user”.

In addition to the above findings, the court also addressed a number of key issues related to users’ rights such as the standard of judicial review of license fees set by administrative bodies, whether tariffs can be “mandatory” and whether a collective or the Board can “impose” a licence or royalty fees on an unwilling user. On the question of review, the court states that “the courts can be seized of the question of whether the Board acted properly in structuring a licence only once there is a Board-imposed licence to review. Accordingly, this issue attracts a standard of reasonableness.” On the question of tariffs and licensing the court states as follows at paragraph 108:

“SODRAC’s framing of the issue is not entirely wrong: the Board does have the power under s. 70.2 to “fix the royalties and their related terms and conditions”. That is, the Board may decide upon a fair royalty to be paid should the user decide to engage in the activity at issue under the terms of a licence. However, this power does not contain within it the power to force these terms on a user who, having reviewed the terms, decided that engaging in licensed copying is not the way to proceed. Of course, should the user then engage in unauthorized copying regardless, it will remain liable for infringement. But it will not be liable as a licensee unless it affirmatively assumes the benefits and burdens of the licence.”

This blogger reckons that users of copyright protected works in Kenya ought to rely on statements such as the one above when dealing with CMOs purporting to “impose or collect” royalties based on tariffs approved and gazetted by the Attorney General.