SCC requires tech neutrality in copyright negotiations

Counsel on both sides of the dispute are declaring victory as the Supreme Court of Canada hands down a decision that protects new media from higher licensing costs, but also requires them to purchase licences for each of the “ephemeral” copies needed to piece together a polished program or publication.

The ruling, CBC v. SODRAC, is a finely constructed decision that performs a tricky balancing act between the rights of copyright holders and users, as well as between the literal law and technological reality.

Written by now-retired justice Marshall Rothstein on behalf of the majority, the judgment involves an appeal of a Copyright Board decision in favour of SODRAC, a collective management society that handles negotiations between media outlets and francophone copyright holders.

The CBC had argued that technology had made it necessary to create multiple copies — for example, multiples of an audio file that are combined to create a single news segment — and that it shouldn’t have to pay additional licensing fees for these incidental copies.

SODRAC, meanwhile, had argued that each copy of an artist’s work created value for the CBC, and so each copy warranted a separate royalty.

Ultimately, the Copyright Board sided with SODRAC, and then set a price for the licensing using its standard ratio system — a methodology that the CBC argued was inflating the cost of licensing.

The SCC today upheld the board’s reasoning with respect to the licensing of ephemeral copies, but struck down the methodology, ruling that the doctrine of “technological neutrality” protected new forms of media from any additional tariffs.

So, in a nutshell, copyright users would have to license the incidental copies they create, but the cost of that licensing will have to reflect whatever minimal value they extract from those copies. The decision, then, sets aside the board’s licensing decision “as it relates to the valuation of CBC’s television and Internet broadcast-incidental copies . . .

“The Board did not compare the value contributed by the copyright protected reproductions in the old and new technology. It also failed to take into account the relative contributions made by the use of copyright protected works and the risk and investment by the user in its new technology, as required by the balance principle.”

Lawyers on both sides are calling it a win.

Marek Nitoslawski, the lawyer at Fasken Martineau DuMoulin LLP who represented the CBC before the SCC, says the decision is a “substantial” victory that “disavows the Copyright Board’s approach . . . of applying the simple ratio to determine the reproduction rights. . . . It was a very facile approach.”

Instead, says Nitoslawski, the board will be forced to accept that “technological neutrality is the law,” and that any evaluation of a tariff structure should avoid additional costs for copies that ultimately create little to no value.

“It’s a huge decision,” he says, “allowing the appeal from a Copyright Board decision that . . . imposed unreasonable royalty fees for an activity that generates no value or very little value for broadcasters.”

Barry Sookman, the McCarthy Tétrault LLP tech lawyer who intervened on behalf of Canadian music associations, is also hailing the decision as a victory, although for opposite reasons.

The CBC’s appeal, he says, “was an attempt to effectively override the clear wording of the act by looking at whether something should be a copy as opposed to whether it really was a copy, which would have dramatically introduced uncertainty in the law.

“Justice Rothstein came out clearly and squarely expressing the view that, if a reproduction occurs, it’s a copy. And it doesn’t matter if it’s if it’s an ancillary copy, if it’s an ephemeral copy, it’s still covered by the act.”

Sookman says that, if the Supreme Court had supported the CBC’s appeal in its entirety — by using the principle of tech neutrality to delegitimize the rights of copyright holders — the court would have effectively rewritten legislation that had already been clearly worded.

Sookman acknowledges, however, that the decision is the first to apply the doctrine of technological neutrality to rate-setting, which could have broad implications for copyright law.

“It does require the board to now engage in an exercise that they typically have not before. So it will potentially change the kind of evidence that has to be adduced before the Copyright Board, and perhaps also in copyright infringement cases.

“The court is saying that the principle of technological neutrality has to apply in every case, so there is a possibility that the decision would be applied as well in a damages case to an infringer.”

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