On November 26, 2015, the Supreme Court of Canada released an important ruling on the role of technological neutrality in copyright law. In a 7-2 split decision in Canadian Broadcasting Corporation/Société Radio-Canada v. SODRAC 2003 Inc., et al. 2015 SCC 57, Justice Rothstein, writing for the majority, affirmed the principle of technological neutrality and held that royalties must still be paid for ephemeral copies of works made by broadcasters for the purpose of facilitating broadcasting. In a strong dissent, Justice Abella disagreed and found that such royalties violate the principle of technological neutrality. This decision leaves no doubt that technological neutrality is an important principle for copyright law, however, only time will tell how creators and users will use this principle to value (or devalue) copyright.
This case originated from a decision of the Copyright Board to settle the terms of a licence between Canadian Broadcasting Corporation (“CBC”), a broadcaster, and SODRAC 2003 Inc. and Society for Reproduction Rights of Authors, Composers and Publishers in Canada (SODRAC) Inc. (“SODRAC”), a collective society that administers reproduction rights, related to broadcasting.
Incorporating a musical work into a production copy of a program is called “synchronization”. When the synchronization process is complete, the final product is the “master” copy. To lawfully reproduce the musical work during the synchronization, the producer (in this case either CBC itself or a third party producer) must obtain a synchronization licence. CBC, as the broadcaster, uploads the master copy of the program into its digital management system. As CBC is preparing a program for broadcast it may create additional incidental copies of the program for various purposes, for example to edit the copy for timing, language or closed captioning purposes, among others. These copies are known as “broadcast-incidental” copies.
Copyright Board and Federal Court of Appeal
The key issue before the Copyright Board was whether CBC must pay additional royalties for the broadcast-incidental copies of programs. In other words, do these broadcast-incidental copies engage the reproduction right under section 3(1)(d) of the Copyright Act?
The Copyright Board answered in the affirmative and held that a license to reproduce the broadcast-incidental copies could not be implied from synchronization licences covering the production process. Thus, according to the Copyright Board, CBC must obtain a separate licence to reproduce the broadcast-incidental copies, and the value of this licence was more than nominal. This was affirmed by the Federal Court of Appeal.
Both the Copyright Board and the Federal Court of Appeal relied on Bishop v. Stevens,  2 S.C.R. 46 [Bishop]. In that case, the Supreme Court had held that each of the rights set out in subsection 3(1) of the Copyright Act was a separate right and that use by another attracted royalty payments. Thus royalties were payable for the making of temporary copies of musical works made between the time that a recording of a musical work was received by the broadcaster and the time when the work was broadcast as part of the broadcaster’s signal.
The Federal Court of Appeal found that Bishop was directly on point and thus determined the outcome of this case unless it was overturned or disavowed by the Supreme. The Court also noted that it was difficult to understand how to apply the principle of technological neutrality when faced with a copyright problem in which technological change is a material fact.
Majority – Broadcast Incidental Copies engage reproduction right
Justice Rothstein confirmed that Bishop is still good law and held that broadcast-incidental copies do in fact engage the right of reproduction. In doing so, Justice Rothstein rejected CBC’s argument that copyright law had evolved since Bishop and that, as a result, broadcast-incidental copies should not be considered reproductions. In particular, CBC, citing Théberge v. Galerie d’Art du Petit Champlain inc., 2002 SCC 34 [Théberge], argued that “a proper balancing of user and right-holder interests favours a finding that broadcast-incidental copies do not engage the reproduction right.” CBC further argued that the principle of technological neutrality, which was discussed in Entertainment Software Association v. Society of Composers, Authors and Music Publishers of Canada, 2012 SCC 34 [“ESA”], is a means of protecting this balance in a digital environment.
Justice Rothstein agreed that copyright law had evolved since Bishop, however, the principles in Théberge and ESA do not supplant the terms of the Copyright Act. Rather, the principles inform the interpretation and application of the Copyright Act. And when the Copyright Act is read in its ordinary meaning, broadcast-incidental copies engage the reproduction right because they fall within the making of a “sound recording, cinematograph film or other contrivance by means of which the work may be mechanically reproduced or performed” found in section 3(1)(d). This conclusion was supported by CBC’s acknowledgement that broadcast incidental copies did not fit within sections 30.8 and 30.9 of the Copyright Act, which establish specific circumstances in which it is not an infringement of copyright to make copies to facilitate broadcasting. If broadcast incidental copies were not reproductions under the Copyright Act, there would be no need for sections 30.8 and 30.9.
CBC’s argument that the synchronization license between it and SODRAC implied a licence to make broadcast incidental copies was also rejected by Justice Rothstein. According to the majority, the language of the actual agreements did not support this position, nor did CBC’s economic argument that a master copy made under a synchronization licence is useless without an implied licence to make broadcast-incidental copies. A synchronization licence is, for instance, not useless to a third party producer.
Despite relying upon a plain reading of the Copyright Act in finding that broadcast-incidental copies engage the right of reproduction, Justice Rothstein emphasized the relevance of technological neutrality to copyright law. According to him, “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.” The principle is derived from the balance in copyright law between users and rights holders, which is to be applied across all technological contexts.
In this case, technological neutrality was particularly relevant to the issue of valuation of the reproduction licence. Technological neutrality requires a consideration of the difference between the old and new forms of delivery of works, as well as a comparison of the value derived from the use of reproductions in the technologies in a valuation analysis. While the analysis suggests a low value where the incidental copy is a part of the technology, the majority also stated that it will not garner a zero value: “it will never be the case that, because a user makes a significant investment in technology or assumes substantial risk, royalties for the rights holder will amount to zero.” Justice Rothstein found that the Copyright Board did not apply a valuation method that was consistent with the principle of technological neutrality. There was no comparison between the value of the reproductions between CBC’s new digital technology and the previous technology.
The Copyright Board’s valuation also did not properly consider the balance between users and owners in copyright law. CBC had assumed financial risk by investing in and implementing new technology, and the reproductions at issue were incidental. The principle of balance implies a relatively low licence fee. The issue of valuation of the license for broadcast-incidental copies was thus remitted to the Copyright Board.
Interestingly, Justice Rothstein further noted that the statutory licensing scheme fixed by the Board pursuant to s.70.2 of the Copyright Act does not have a mandatory binding effect against users. Thus a user retains the ability to decide whether to become a licensee and operate pursuant to that licence, or to decline (and risk an infringement suit).
Dissent – Broadcast Incidental Copies an attempt to generate economic gains
Justice Abella, in a strongly-worded dissent, held that the imposition of royalty fees for broadcast-incidental copies violated the principle of technological neutrality and upset the balance between users and owners. She agreed with CBC that monetizing broadcast-incidental copies was an attempt to generate economic gains through a layered licensing scheme.
Justice Abella found that broadcast-incidental copies go to the core of broadcasting: a broadcast-incidental copy is not a separate reproduction as its sole purpose is to effect the broadcast. She further held that the majority employed too literal an interpretation of the Copyright Act, thus leaving no room for the principle of technological neutrality in the interpretation of the rights enumerated in s.3(1) of the Copyright Act. The correct approach, according to her, was to apply a robust vision of technological neutrality as a core principle of statutory interpretation under the Copyright Act. In determining whether copyright attaches to an activity one should focus on the nature of the activity or output and not on the process by which it occurs. In this case, each broadcast-incidental copy was not a separate reproduction simply because the broadcasting technology required multiple such copies to be made. Borrowing language from ESA, Justice Abella stated that the copies are “merely technological taxis required for the delivery of the digital broadcast process.” Accordingly, she would have allowed the appeal.
For now, both users and creators are claiming wins from the Supreme Court’s decision. For the creators, the court’s recognition of broadcast-incidental copies as separate reproductions requiring separate royalties is positive. On the other hand, the court’s guidance on the valuation of an applicable royalty was favourable to users. The only certainty is that technological neutrality has central importance in copyright law in Canada and has been strongly affirmed by our highest court. It will be interesting to see how technological neutrality and the balance between owners and users will be applied going forward in copyright valuations.