Valuation Analysis Must be Consistent With the Principles of Technological Neutrality and Balance
The Supreme Court issued its decision on November 26, 2015 in CBC v SODRAC 2003 Inc. The majority decision, written by Justice Rothstein, allowed the appeal and remitted the Statutory Licence Decision to the Copyright Board for reconsideration of the valuation of broadcast-incidental copies in accordance with the principles of technological neutrality.
The case is an appeal from the Copyright Board's decision to impose royalty payments on the CBC for broad-cast-incidental copies, which are required to be made in the process of turning a television program into a broadcast. In 2012, the Copyright Board held that: (1) CBC's broadcast-incidental copying activity engaged the reproduction right; (2) that a licence for such copies could not be implied from synchronization licences covering the production process; and (3) that CBC required a separate reproduction licence to legitimize its broadcast-incidental copying. The Board issued the 2008-2012 licence and later issued an interim licence. The Board's decision was appealed to the Federal Court of Appeal. On appeal to the FCA, the main issue concerned whether the Board's statutory Licence Decision was inconsistent with the principle of technological neutrality as discussed by the SCC in ESA v SOCAN. The Federal Court of Appeal affirmed both the 2008-2012 licence and the interim licence that followed, subject to minor amendments. Our summary of the decision of the Federal Court of Appeal can be found here.
The main issue on appeal concerned the relationship between broadcast-incidental copies and the reproduction right established by section 3(1)(d) of the Copyright Act. The Court found that the Board was correct in finding that broadcast-incidental copying engages the reproduction right, consistent with the SCC decision in Bishop v Stevens,  2 SCR 467, and the context of the statutory scheme set out in the Copyright Act. While the Court considered subsequent jurisprudence, including its decisions in Théberge and ESA, which refined our understanding of the purposes of copyright, the Court confirmed that the central holing in Bishop, that ephemeral copies engage the reproduction right, remains sound. There is nothing in the text of the Copyright Act or legislative history of ss. 3(1), 30.8 or 30.9 to support the view that broadcast-incidental copies are not reproductions. While the principles in Théberge and ESA can inform the interpretation and application of other terms of the Act, they cannot supplant them.
The Court also agreed with the Board and the FCA that a licence to make broadcast-incidental copies should not be implied from synchronization licences issued by SODRAC. However, the Board failed to consider the principles of technological neutrality and balance in setting the valuation of this licence. The Court remitted the matter to the Board for reconsideration of the valuation of the 2008-2012 licence for CBC's television and Internet broadcast-incidental copies applying the principles of technological neutrality and balance. In order to maintain a balance between user and copyright - holder interests, the Court determined that the Board should consider: (1) the risks taken and the extent of the investment made by the user in the new technology; and (2) the nature of the copyright protected work's use in the new technology.
Both Justice Abella and Justice Karakatsanis provided separate dissenting reasons. The dissenting opinion written by Abella J held that the imposition of royalty fees on broadcast-incidental copies is a violation of the principle of technological neutrality endorsed by the Supreme Court in ESA and of the accepted balance between the rights of copyright holders and the public. Central to the principle of technological neutrality is a more reasonable interpretation of the scope of the reproduction right in s.3(1)(d), which would ensure that copyright attaches to a particular activity based on the essential character of the activity or output, rather than to the process by which it occurs (i.e. functional equivalence). Where this Court had previously adopted a literal approach to s.3(1)(d), the legislative response in the form of sections 30.8 and 30.9 was not to displace the fundamental objective and principles of the Copyright Act. Rather, Abella J suggests that these responses were meant to provide greater certainty that some ephemeral recordings do not attract copyright liability, and to maintain technological neutrality.
Abella J also took issue with the majority's articulation and application of the principle of technological neutrality on the issue of valuation. Abella J cautioned that their approach was wholly inconsistent with the jurisprudence as it connected copyright — holder compensation to actions of the user, which is unrelated and irrelevant to the rights held in the protected works, and focuses the inquiry on the value that the technology is creating for the user.
The dissenting opinion by Karakatsanis agreed with Abella J's decision on the merits and in the result, but did not agree with her position on the appropriate standard of review, which was that the Board's decision that broadcast-incidental copies attract royalty fees is reviewable on a reasonableness standard.