SCC clarifies royalty requirements for on-demand downloading and streaming platforms

Ruling also significant for administrative law, says lawyer

SCC clarifies royalty requirements for on-demand downloading and streaming platforms
Lynne Watt, Barry Sookman

The Supreme Court of Canada has found that, while copyright owners are owed a royalty when their copyrighted works are uploaded onto the internet, they are not owed an additional royalty when those works are then downloaded or streamed.

In Society of Composers, Authors and Music Publishers of Canada v. Entertainment Software Association, the SCC dealt with the correct interpretation of s. 2.4(1.1) of the Copyright Act.

Canada signed the World Intellectual Property Organization (WIPO) Copyright Treaty in 1997. The agreement’s purpose was to align international copyright rules with new technologies emerging alongside the rise of the internet. Canada codified the treaty’s protections in 2012 with the Copyright Modernization Act, which added s. 2.4(1.1).

Under s. 3(1)(f), copyright owners have the sole right “to communicate the work to the public by telecommunication.” And s. 2.4(1.1) states: “For the purposes of this Act, communication of a work or other subject-matter to the public by telecommunication includes making it available to the public by telecommunication in a way that allows a member of the public to have access to it from a place and at a time individually chosen by that member of the public.”

The Copyright Board decided that s. 2.4(1.1) meant that “making works available” was a protected and compensable activity requiring a royalty payment. The result was that when a copyrighted work is distributed online, not only would a royalty be attached to the action of streaming or downloading, but a royalty would also be required when the work is made available for streaming or downloading.

The Federal Court of Appeal found that Parliament did not intend for two separate royalties and overturned the Board’s ruling. Today’s decision dismisses the appeal brought by SOCAN and Music Canada.

“This decision rationalizes and clarifies the approach to licensing content for online distribution,” says Jay Kerr-Wilson, counsel for the respondents, the Entertainment Software Association, Bell Canada, Quebecor, Rogers, and Shaw. “Streaming and downloading platforms now have certainty as to the rights that have to be cleared and the payments that have to be made.”

The ruling means that a catalogue of works is protected under the Copyright Act when posted or made available online, says Lynne Watt, a partner at Gowling WLG (Canada) LLP who acted for the Society of Composers, Authors and Music Publishers of Canada (SOCAN).

“That's the most important thing. The court has confirmed that that royalty is payable by, for example, an online music service upon the uploading of the work and making it accessible to the public, whether or not those works are actually ever streamed or downloaded.”

The “key issue” for copyright holders, says Barry Sookman, who represented Music Canada, an appellant, was that there be no gap in protection under the Copyright Act for works made available online. The SCC’s interpretation of s. 2.4(1.1) leaves no gap, which affirms what the WIPO Copyright Treaty requires, he says. Sookman is senior counsel at McCarthy Tétrault.

The SCC found that the Copyright Board’s interpretation of the provision violated the principle of technological neutrality, that similar activities be treated equally even when involving different technologies.

An intervenor, the Samuelson-Glushko Canadian Internet Policy and Public Interest Clinic (CIPPIC), argued that in crafting s. 2.4(1.1), Parliament had not indicated a departure from technological neutrality, says David Fewer, CIPPIC’s lawyer. Interpreting the provision in a way that created a new compensable right for online streaming would lay an additional layer of protection and fee on work delivered through on-demand internet services.

“To do so would impose a gratuitous cost for the use of a more efficient, internet-based technology,” says Fewer. “The court agreed, whole-heartedly.”

While the court was unanimous on the issues under appeal, Justice Andromache Karakatsanis and Justice Sheilah Martin differed with their colleagues on the standard of review.

According to the majority, when an administrative body shares concurrent first-instance jurisdiction with the courts – as is the case with the Copyright Board – questions of law are reviewed under the standard of correctness. Canada (Minister of Citizenship and Immigration) v. Vavilov had established a presumption of reasonableness only displaceable in five situations and concurrent jurisdiction was not among them. But “in rare and exceptional circumstances” the court can create new “correctness categories” when using reasonableness would undermine legislative intent or the rule of law, which the majority said applied to concurrent first-instance jurisdiction.

But according to Justices Karakatsanis and Martin, while Vavilov left open the possibility of recognizing additional categories, their establishment was reserved for “possible circumstances which could not be realistically foreseen.” And the court had foreseen the circumstance in Vavilov because it had cited Rogers Communications Inc. v. Society of Composers, Authors and Music Publishers of Canada, a 2012 SCC ruling which had considered the issue of concurrent first-instance jurisdiction.

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