The Supreme Court of Canada announced today that it has granted leave to appeal to the Canadian Broadcasting Corporation et al. from the Federal Court of Appeal (FCA) in the copyright case Canadian Broadcasting Corporation v. SODRAC2014 FCA 84, in which the FCA upheld SODRAC’s royalty on ephemeral copies made during the course of production. The dispute centres on whether the CBC and other broadcasters must pay a royalty for ephemeral recordings made solely for the facilitating the broadcast of the performance or whether the concept of technological neutrality allows them to do so without triggering the royalty.

The Society for Reproduction Rights of Authors, Composers and Publishers in Canada (SODRAC) is a collective society responsible for the administration of reproduction rights in Canada. They applied to the Canadian Copyright Board to set the terms of reproduction licenses for 2008-2012 after negotiations with the two broadcasters disintegrated. The CBC and Astral had both wanted a through-to-the-viewer license which authorizes all necessary rights for downstream users, within the temporal or geographical limits of the license. SODRAC had applied for a different type of license, one where "each link in the distribution chain must acquire (and pay for) the rights to make the copies required for commercial purposes". The difference in strategies revolved around broadcasting technology which requires producers to make multiple copies of the work in order to broadcast or exhibit it. These copies are known as ephemeral or incidental copies and whether they attract the royalty is central to the dispute.

The Board had found that they could not impose liability if the Copyright Act did not or remove liability if the Copyright Act imposed it. Consequently, they could not remove the royalty for reproduction and they could not force SODRAC to change its royalty model, provided it was in accordance with the Act. The Board also found that the new technologies that required reproducing copies of the work also added value to each business and that some of the value "should be reflected in the remuneration paid for additional copies".

On appeal, the CBC argued that the principle of technological neutrality, as articulated by the Supreme Court in Entertainment Software Association v. Society of Composers, Authors and Music Publishers of Canada2012 SCC 34, (reported here) prevents SODRAC from claiming royalties on copies made purely to meet the requirements of the technological systems. In ESA, the Supreme Court had reversed decisions by the Copyright Board and the FCA, finding that the principle of technological neutrality prevented an additional tariff from being placed on downloads of musical works incorporated into a video game, as opposed to purchased through traditional means. 

The FCA rejected this argument and instead applied the ruling from Bishop v. Stevens[1990] 2 SCR 467, which upholds a distinction between the right to broadcast a performance and the right to make ephemeral recordings for the purpose of facilitating a broadcast. The Court found the facts in these cases to be directly analogous and therefore, the royalty imposed by SODRAC could stand. 

The CBC and Astral also raised three other issues. First, was whether the Board failed to carry out its duty as economic regulator by wrongly deciding the questions before it, namely whether ephemeral copies had economic value. The FCA found that on the standard of reasonableness, the Board had examined all of the evidence and come to a decision within the range of acceptable outcomes in finding that they did have economic value.

Second, was whether the Board exceeded its jurisdiction when it imposed a general licence notwithstanding the Broadcasters preference for a transaction-based license. The FCA rejected these arguments finding that S. 70.2 of the Act allowed the Board to resolve disputes that the parties could not resolve themselves. However, they did amend the discount formula for calculating royalties set by the Board, which allowed for a lesser rate for Broadcasters in instances where the producer of a program had obtained a through-to-the-viewer license from SODRAC. 

Lastly, was whether the Board failed to consider relevant factors when it refused to take into account the CBC’s ability to pay licensing fees substantially higher than they had paid historically. This argument was dismissed summarily as the Court found it was not the responsibility of the artists to make up for any shortfalls in the CBC’s budget.

The FCA also upheld the interim license which set matching royalty rates for 2012-2016 until a final decision has been rendered in this case.

The FCA, in considering the CBC’s argument, stated that ESA "provides no guidance as to how a court should apply that principle (of technological neutrality) when faced with a copyright problem in which technological change is a material fact". It will be interesting to see how the Supreme Court deals with this issue and whether they deliver a clear test for applying technological neutrality in future copyright cases.