“Free-to-air” local television signals may no longer be free to cable and satellite subscribers, following a recent court decision affirming the scope of the powers of the Canadian Radio-television and Telecommunications Commission (CRTC) under the Broadcasting Act.

In an important ruling that addresses the intersection of broadcasting and copyright law and policy, a majority of the Federal Court of Appeal found, in the case of Reference re the Canadian Radio-television and Telecommunications Commission’s Broadcasting Regulatory Policy CRTC 2010-167 and Broadcasting Order CRTC 2010-168, 2011 FCA 64, that the Copyright Act permits the CRTC to limit the statutory retransmission rights of broadcasting distribution undertakings (BDUs), such as cable companies, by imposing any regulatory or licensing condition that is consistent with the Commission’s statutory authority under the Broadcasting Act. In fact, the majority went so far as to state that Parliament has ranked the objectives of Canada’s broadcasting policy ahead of the statutory retransmission rights granted to BDUs under the Copyright Act.

The case arose in the context of a CRTC decision finding it necessary, in light of financial challenges for local broadcasters in an increasingly fragmented market, to provide the licensees of private local television stations with the right to negotiate a fair value for the distribution of their programming services by BDUs. In the course of the proceeding that led to that decision, the Commission was presented with two conflicting legal opinions respecting the CRTC’s jurisdiction to create a “Value for Signal” (VFS) regime, both of which it found worthy of consideration. In light of the importance of the jurisdictional question to the ability of the Commission to fulfill its mandate under the Broadcasting Act, as well as the continuing need for regulatory certainty, the Commission itself referred the following question to the Federal Court of Appeal, pursuant to subsections 18.3(1) and 28(2) of the Federal Courts Act:

"Is the Commission empowered, pursuant to its mandate under the Broadcasting Act, to establish a regime to enable private local television stations to choose to negotiate with broadcasting distribution undertakings a fair value in exchange for the distribution of the programming services broadcast by those local television stations?

The resulting Federal Court of Appeal decision focuses on the interpretation of subsection 31(2) of the Copyright Act, which creates a statutory retransmission right for BDUs - as an exception to the rights granted, in subsection 21(2) of that legislation - to broadcasters with respect to their signals. The retransmission right is subject to 5 important conditions. These are that:

  1. the communication is a retransmission of a local or distant signal;
  2. the retransmission is lawful under the Broadcasting Act;
  3. the signal is retransmitted simultaneously and without alteration, except as otherwise required or permitted by or under the laws of Canada;
  4. in the case of the retransmission of a distant signal, the retransmitter has paid any royalties, and complied with any terms and conditions, fixed under this Act; and
  5. the retransmitter complies with the applicable conditions, if any, [imposed by the Governor in Council]

The majority interpreted the second sub-paragraph broadly, essentially finding that the phrase “lawful under the Broadcasting Act” means “in compliance with the Broadcasting Act, any regulations made under the Broadcasting Act, and any conditions that Commission has attached to the retransmitter’s broadcasting licence.” Accordingly, the majority found that the fact that the Copyright Act does not provide for the payment of a royalty for the retransmission of a local signal does not necessarily indicate “any intention on the part of Parliament to preclude the Commission from adopting the proposed value for signal regime in the interests of Canada’s broadcasting policy.”

However, in a strong and persuasive dissent, Justice Nadon found that the VFS regime was ultra vires the CRTC, because it conflicts with Parliament’s clear statement in the Copyright Act that royalties must be paid only for the retransmission of distant signals (those not normally receivable in a BDUs service area), not for local signals.

Nadon, J. differed from the majority with respect to the scope of the CRTC’s power to determine the applicability of the retransmission right in the Copyright Act through the imposition of regulations or conditions imposed under the Broadcasting Act. In contrast to the majority, Justice Nadon found that each of the 5 conditions found in s. 31(2) of the Copyright Act are co-equal; none can be found to rank ahead of the others. Accordingly, he rejected what he saw as the Majority’s effective determination that paragraph 31(2)(d) of the Copyright Act means that “royalties may only be charged for the retransmission of distant signals and may not be charged for the retransmission of local signals, unless the CRTC decides otherwise.”

Justice Nadon further noted that the VFS regime was “functionally equivalent” to the distant signal royalty payment regime in that in both cases, a royalty is paid, the payor and payee are the same, the obligation to pay attaches to the same activity and the protected property is the same. Accordingly, and contrary to the “exhaustiveness of statutory copyright law,” he found that the CRTC was attempting to “create a royalty that is essentially the same as the royalty Parliament has, in effect, forbidden” in the Copyright Act.

In light of the split decision, as well as the economic importance of the issue to both broadcasters and BDUs, it would appear highly likely that the decision will be appealed by one of the BDUs that participated in the reference to the Federal Court of Appeal. However, many have speculated that recent acquisitions, by BDUs, of some of the most vocal broadcaster proponents of the VFS regime may make the Court’s decision all but moot in that the broadcasters involved will no longer be inclined to negotiate VFS terms with distributors.