In its recent decision in Canadian Broadcasting Corp. v. SODRAC 2003 Inc., 2015 SCC 57(CBC v. SODRAC), the Supreme Court of Canada affirmed the importance of technological neutrality first espoused by the Supreme Court in its 2012 decision in Entertainment Software Association v Society of Composers, Authors and Music Publishers of Canada, 2012 SCC 34(“ESA”). In particular, the majority held that the Copyright Board of Canada (the “Board”) is obliged to follow the principle of technological neutrality in exercising its rate-setting function.

At its core, technological neutrality requires that the Copyright Act (the “Act”) apply equally between traditional and more technically advanced media forms. This concept is presented as an extension of  the established principle of balancing user and right-holder interests. As noted by the Supreme Court in CBC v. SODRAC:

[66] The principle of technological neutrality is recognition that, absent parliamentary intent to the contrary, the Copyright Act should not be interpreted or applied to favour or discriminate against any particular form of technology. It is derived from the balancing of user and right-holder interests discussed by this Court in [Théberge v. Galerie d’Art du Petit Champlain inc., 2002 SCC 34] — a “balance between promoting the public interest in the encouragement and dissemination of works of the arts and intellect and obtaining a just reward for the creator”: para. 30. Because this long-standing principle informs the Copyright Act as a whole, it must be maintained across all technological contexts: “The traditional balance between authors and users should be preserved in the digital environment”: ESA, at para. 8.

The dispute between the parties in CBC v. SODRAC considered whether the reproduction right was implicated when broadcasters make copies of programs featuring music for internal use (for example, broadcasters might create additional copies for various purposes such as screening, editing and storage, or to ensure file format compatibility). Where such copies are made to facilitate broadcasting, they are described as “broadcast-incidental copies”. If the reproduction right were engaged, then CBC would be liable to pay additional royalties for those broadcast-incidental copies in addition to the royalties paid by CBC to incorporate musical works into its television programs (synchronization), and subsequently, to broadcast those television programs featuring the musical works.

The majority held that the ordinary meaning of the text of the Act requires that broadcast-incidental copying activities do indeed engage the reproduction right and thus it was open to SODRAC to require a licence in respect of such activities. In so finding, Justice Rothstein emphasized that, although the principles of technological neutrality and the balancing of user and right-holder’s interests are central to Canadian copyright law, these principles cannot be used to supplant express terms of the Act. The majority also held that a licence to make those copies could not be implied from the synchronization licenses already issued by SODRAC.

In a strongly-worded dissenting decision, Justice Abella also heavily emphasized the importance of the principle of technological neutrality, but would have found that broadcast-incidental copies did not engage the reproduction right. According to Justice Abella, “attaching copyright liability to incidental copies created as a result of improvements in broadcasting technologies penalizes broadcasters and the public for utilizing new and improved technologies and artificially creates entitlements to compensation for creators that were never intended to be given under the [Act]”.

The majority having affirmed SODRAC’s ability to require a licence, the Court was also tasked with reviewing the Board’s valuation of the licence fee imposed. In its appeal, CBC asserted that the Board erred in failing to conduct its valuation analysis in accordance with the principle of technological neutrality, and the Court agreed, emphasizing that the principle of technological neutrality is required both in the interpretation of the Act as well as in its application. In reviewing the underlying decisions, the Court held that the licence fees fixed by the Board were inappropriate as the Board failed to consider the impact of technological neutrality.

In the Court’s view, where different technologies using reproductions of a work both produce the same value to the users, technological neutrality would dictate that each of these technologies should be treated the same way. By contrast, where the technologies produce a different value to the users, such technologies should not be treated the same. To apply these principles when fixing licence fees, the Court commented that the Board must have regard to factors it considers relevant in striking a balance between user and right-holders’ interests including:

  • the risks taken by the user;
  • the extent of the investment the user made in the new technology;
  • the nature of the copyright-protected work’s use in the new technology;
  • internal efficiencies gained by using a particular technology; and
  • the value derived by from the use of the copyright-holder’s rights.

Where the user derives greater value from the use of the copyright – as a result of increased efficiencies or a change in the nature of the copyright-protected work’s use, for example –  this is a factor in favour of the copyright-holder being entitled to greater royalties. Conversely, where the financial risks of investing in and implementing new technology were undertaken by the user and the use of copyright-protected works is incidental, the balance principle would be a factor in favour of lowering licence fees.

The Court suggested that in this case, in view of the application of these factors, the balance principle would imply relatively low licence fees to the copyright holder. However, the matter was remitted to the Board for reconsideration with respect to the licence fees imposed with instructions to conduct its analysis in accordance with the principles of technological neutrality and balance.